Cognizant Technology Solutions India Private Limited Vs ITO (TDS)/DCIT (Madras High Court)
The Madras High Court considered appeals arising from a common order of the Income Tax Appellate Tribunal dated 09.06.2014 relating to assessment years 2002-03 and 2003-04. The dispute concerned payments made by the assessee, engaged in software development and export, to Sprint Communications, USA, towards international telecom connectivity, business data exchange, video conferencing, and related telecommunication services. The issue was whether these payments for International Private Leased Circuit (IPLC) services constituted “royalty” under Section 9(1)(vi) of the Income Tax Act, thereby attracting Tax Deduction at Source (TDS) obligations under Section 195.
The assessee had remitted ₹5.42 crore for AY 2002-03 and ₹4.23 crore for AY 2003-04 without deducting TDS. The Income Tax Officer treated the payments as royalty for use of equipment, holding that the payments related to bandwidth and network equipment usage. Consequently, the assessee was treated as a defaulter under Sections 201 and 201(1A), and tax along with interest was demanded.
The Commissioner of Income Tax (Appeals) accepted the assessee’s contention that the payments were not royalty and that Sprint Communications had no Permanent Establishment (PE) in India. Accordingly, it was held that the income was not taxable in India and no TDS obligation arose under Section 195.
