Demand for short/non deduction of tax cannot be enforced, if due taxes were paid by recipient

1. Challenging the orders dated 14/03/2014 and 14/07/2014 of the CIT(A)-14, Mumbai the assessee has filed the present appeals for the above mentioned Assessment Years (AY.s). Assessee is a foreign bank and is providing banking services.

Brief Facts:

2. Effective ground of appeal is about treating the payment made to vendors as professional / technical fees u/s. 194 of the Act. A survey action u/s. 133A of the Act was carried out at the business premises of the assessee on 01. 02. 2011, and statement of Sr. Manager (Taxation) were recorded on oath. The assessee was asked to explain TDS compliance in respect of certain expenses. Vide its letter , dated 21/02/2011, the assessee filed details as required by the AO. After considering the same the AO observed that the assessee had made payments to M/s. Bloomberg Data Services Pvt. Ltd. (Rs. 4.02 crores), M/s. Reuter India Pvt. Ltd. (Rs. 13.50 crores), and M/s. CRISIL Ltd. (Rs. 1.26 crores) during the year under consideration, that the assessee had deducted tax at source as per the provisions of section 194C of the Act. The AO was of the opinion that services rendered by the above referred three entities were of managerial and technical in nature and that the assessee should have deducted tax u/s. 119J of the Act. He issued a notice u/s. 201(1) to the assessee to explain as to why it should not be treated as assessee in default for non deduction of tax as per the provisions of section 194J. The assessee filed its reply on 16/03/2011 stating that payment made by it was not royalty/fee for technical services. However, the AO was not convinced with the explanation filed and held that Reuter India Pvt. Ltd. and Bloomberg Data Services Pvt. Ltd. were providing online information and database, management services, intellectual property services, business auxilliary services, that CRISIL Ltd. was India’s leading rating, research, risk and policy advisory company, that they would provide high end research, that services provided by them are copyright protected, that they had provided services solely for the assessee’s internal business , that the data /information provided would be similar to that of providing technical or consultancy services as per provisions of section 194J of the Act. He also referred to the Explanation-2 of section -9(1)(vi) of the Act and stated that payment made by the assessee to the above mentioned three companies would attract provisions of section 194J of the Act, that Reuter India Ltd. had treated the receipt from the assessee as receipt chargeable u/s. 194J of the Act. Finally, he held that the assessee was in default u/s. 201(1) of the Act for non deduction of tax u/s. 194J to the tune of Rs. 1. 52 crores. The assessee has also informed the AO that Bloomberg, Reuter and CRISIL had filed their respective returns of income for the year under appeal, that the returns included the income earned from the assessee, that as per the judgment of Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverages Pvt. (293ITR226) demand for short/non deduction of tax could not be enforced , that due taxes were paid by recipient. The AO, referring to CBDT Circular No. 275/201/95-IT(B), dated 29/01/1997 held that demand raised by him u/s. 201(1) could not be enforced.

3. Aggrieved by the order of AO the assessee preferred an appeal before the First Appellate Authority(FAA)and made detailed submissions. It also relied upon certain case laws. After considering the order of the AO, dated 30/03/2011 passed u/s. 201 of the Act and submission of the assessee, the FAA held that the assessee had paid subscription charges to three parties for license to use their data base, that the payment for subscription charges were in the nature of royalty. He referred to order of the Tribunal in case of Gartner Ireland Ltd. (ITA/7101/ Mum/2010) and held that the AO was justified in holding assessee in default for not deducting tax u/s. 194J of the Act.

4. None appeared before us, as stated earlier. The Departmental Representative (DR) supported the order of the FAA.

5. We have the perused the material on record. We find that assessee had made payment to three parties under the head subscription charges, that it had deducted tax at source as per the provisions of section 194C of the Act, that the AO and the FAA had held that tax should have been deducted as per provisions of section 194J, that Bloomberg, Reuter and CRISIL had shown the income received from the assessee, in their returns of income filed for the year under appeal. We find that basically it is a case of short deduction of tax and not a matter of non deduction of tax at source. Secondly, the AO has also taken a notice of filing of returns by the recipients of the amounts in question. Respectfully, following the judgment of Hindustan Coca Cola Beverages Pvt. (supra)of the Hon’ble Supreme Court, we hold that there was no justification to hold the assessee an assessee-in -default. So, reversing the order of the FAA, we decide the effective ground of appeal in favour of the assessee.