Balasai Net Pvt. Ltd. Vs DCIT (ITAT Pune)
ITAT Pune remanded the matter as order of CIT(A) suffers from lack of verification of facts and applicability of legal provision in the subject matter.
Facts- AO observed that assessee has not deducted TDS against payment for hosting charges, email defence services, email server software.
Assessee submitted ledger of such expenses and stated that the payment has been made to foreign based company having no permanent establishment in India and therefore, the provisions of TDS is not applicable on such payment.
AO held that as per section 9 of the Income-tax Act, 1961 r.w.s. 40(a) of the Act, after the amendment by the Finance Act, 2012 with Explanation to sec. 9 gives a clear intention of the Legislature that for the purposes of section 9 which deals with income deemed to accrue or arise in India u/s 9(1)(v), (vi) and (vii) of the Act such income shall be included in the total income of the non-resident whether or not the non-resident has a residence or place of business or business connection in India and the non-resident has rendered services in India. Therefore, the object is to levy tax on the income of non-resident if it has accrued or arisen in India and one such income is the income from royalty and fee for technical services and therefore, the concept of whether it has got any permanent establishment in India has no role to play in deciding the applicability of TDS provision in respect of payment to such non-resident. A.O further held that the I.T. services rendered through server by the assessee is imbibed in the right to use which is inherent and therefore, it falls within the definition of fees for technical services both under the Act as well as tax treaty. It was also held by the ld. A.O that server charge is also a type of services where the right to use is inherent and thus fall in the definition of royalty. Therefore, consideration is taxable as royalty both under the Act as well as tax treaty. Therefore, charge paid for server usage is in the nature of fees for technical services as well as royalty and there is no requirement of P.E for the applicability of TDS and that the assessee has also received services in India. As the TDS was not deducted u/s 195 of the Act, therefore, such payment was inadmissible u/s 40(a) of the Act, the ld. A.O made a total disallowance of Rs. 30,90,448/- on all the above payments and added to the total income of the assessee.
Conclusion- Order of ld. CIT(A) suffers from lack of verification of facts and applicability of legal provisions in the subject matter of the case. Neither the ld. A.O nor the ld. CIT(A) has given a categorical finding regarding the nature of business of the assessee and what facts, verification are conducted in determining the transaction of the assessee, nothing has been brought on record.
The ld. A.O shall come out with a speaking order on all these aspects after due verification. In view thereof, we set aside the order of the ld. CIT(A) and remand the matter to the file of the ld. A.O for re-adjudication as per law after complying with principles of natural justice.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal preferred by the assessee emanates from order of the ld. CIT(A) -1, Pune, dated 14-10-2016 for A.Y. 2013-14 as per the following grounds of appeal.
“1) On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in confirming the order of the A. O. by dismissing the appeal of the assessee holding that after amendment of the provisions of S. 9(1)(v),(vi) and (vii) the applicability of the provisions of S. 195 and S. 40(a)(i) is not dependent upon whether Non-resident had a PE in India or not and the income of the Non-resident is taxable in India. The decision of the Ld. CIT(A) is contrary to the provisions of law in the matter. The order of the Ld. CIT(A) be set aside.
2) On the facts and circumstances of the case and in law the provisions of S. 9(1)(v), (vi), (vii) are not applicable to the facts of the case and any payment made to non-resident whose income is not taxable in India in view of particular DTTA with the said country outside India, the provisions: of S. 40(a)(i) become inapplicable. The Ld. CIT(A) was not justified in dismissing the appeal of the assessee on this issue: The order of the Ld. CIT(A) be set aside.
3) On the facts and circumstances of the case and in law and as held by Hon’ble Supreme Court in GE India Technology case (2010) 44 DTR 201(SC) the provisions of S. 195 which was interpreted to mean the words “chargeable under the provisions of the Act” and the payer is bound to deduct tax at source only if the sum paid is assessable to tax in India which is not possible if the payee has no P. E. in India. The payee has no PE in India and hence the income of the Non-resident is not taxable in India. The issue was not decided correctly by Ld. CIT(A). The appeal order be set aside.
2. The relevant facts in this case are that the assessee is a domestic company in which public is not substantially interested and the assessee is engaged in the business of providing web hosting, mailing solutions, server collection, providing virtual dedicated servers, cloud computing, server management and server security, etc. That, on verification of expenses, it was found by the ld. A.O that the assessee has incurred an amount of Rs. 30,90,448/- against payment for the following services received.
