Pure Software Pvt. Ltd. Vs ITO (ITAT Delhi)
t is pertinent to note here that in case of the assessee company, two non-resident foreign companies, one by the name of J2S INC, USA and another by the name of NAVOS, Belgium were appointed to locate foreign buyers to whom the assessee company could sale its services. Thus, both the foreign companies rendered order procurement services outside India which is their business activity. Invoices received from the parties also show that services rendered by them were sales procurement services and not fees for technical services or royalties. The contention of the Ld. DR that the services provided is in the nature of advisory services based upon the skills of the non-resident, is contrary to the terms and conditions of the agreements. In the previous year relevant to the Assessment Year 2012-13 only the retainer fee as per the agreement was paid and no order procurement services in real terms were materialized by the said non-resident. Thus, the Explanation Clause of Section 9 (vii) of the Act will not be applicable on the ground that income was from the source outside India. Both the non-resident assessee derived their income as their business activity and their business profit is determined under Article 7 of DTAA between India and USA as well as from Article 7 of DTAA between India and Belgium and will then decide as to where business income will be taxable. Therefore, none of the provisions of the Section 9 of the Act will be applicable in the present case, business income cannot be treated as fees for technical services as held by the Assessing Officer. Therefore, the Assessing Officer as well as CIT(A) was not correct in treating the “order procurement services” rendered by the non-residents and commission/retainer fee as royalty and fees for technical services. The decisions of the Hon’ble Apex Court relied upon by the Ld. DR are factually different as the transactions was between India and Switzerland and not between two different non-resident as is in the present case. The order of the CIT(A) is set aside. Thus appeal of the assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal is filed by the assessee against the order dated 23/ i2/20i5 passed by CIT(A)-7 for Assessment Year 2012-13.
2. The grounds of appeal are as under:-
1. “That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs.20,02,770/- u/s 40(a)(i) of the Act on account of non deduction of TDS on payment made to two non-residents i.e. J2S Inc, USA and Navos B. V.B.A., Belgium and in invoking the provisions of section 195 of the Act.
2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making disallowance of Rs.20,02,770/- u/s 40(a)(i) for non deduction of tax on payment made to two non-residents i.e. J2S Inc, USA and Navos B. V.B.A., Belgium, is bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in treating the “order procurement services” rendered by the non residents and commission /retainer fee as royalty and fees for technical services and ignoring the fact that the order procurement services rendered outside India are not taxable in India.
3. The assessee company is engaged in the business of software development, testing and trainings. The assessee filed its Return of Income on 22.09.2012 for A.Y. 2012-13 declaring income of Rs. 14,63,886/- as deemed income U/s 1 15JB. The case was taken up by the Assessing Officer for scrutiny. During the course of scrutiny, the Assessing Officer asked for the details of Professional Expenses amounting to Rs. 73,99,546/-. This sum included two payments as follows:-
