Order of CIT(A) suffers from lack of verification of facts and hence matter remanded

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.

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