No tax to be deducted on License Fee paid to Foreign Entities

Celltick Mobile Media (India) Pvt. Ltd Vs DCIT (ITAT Mumbai)

Conclusion: Assessee was not liable to deduct TDS on license fees paid to Israel entity as it had already furnished certificate from a chartered accountant, return of income and computation of income under section 139 and income of assessee was not taxable in India and assessee had already filed the relevant information u/s 201(1) which showed that assessee could not be regarded as ‘assessee in default’.

Held: Assessee was engaged in the business of distributing live screen/flash services on mobile through telecom operators. The Celltick’s live screen platform enabled operators, marketers and advertisers to monetize their mobile users. During assessment proceedings, AO observed that assessee had paid an amount as license fees to Celltick Technologies Ltd Israel pursuant to the agreement entered into by them. He observed that assessee was a non-exclusive distributor of the licensed system in the Indian subcontinent territory and it was responsible for marketing and distributing the system and installing the system on client infrastructure. Assessee withheld tax at the rate of 10% on the amount of license fees paid from April 2013 to August 2013. For the remaining months assessee had not deducted tax at source which amounted to ₹ 6,98,38,225/– when assessee was asked to show cause why the amount on which tax was not deducted at source should not be disallowed under section 40(a)(i).  Assessee submitted that as per the provisions of section 195, assessee was responsible to deduct tax only on those income which was chargeable to tax in India and income of assessee was not chargeable to tax for the reason that assessee was a tax resident in Israel and was eligible to claim the benefit of Indo – Israel treaty and the article 7 of the treaty was applicable to the assessee. AO rejected the contention of assessee and invoked the provisions of section 40(a)(i)  and disallowed payment.  It was held that the payee had already furnished certificate from a chartered accountant, return of income and computation of income under section 139. Further, the income of payee was not chargeable to tax in India as per the decision of the coordinate bench. Thus, the income of payee was not taxable in India and assessee had already filed the relevant information u/s 201(1) which showed that assessee could not be regarded as ‘assessee in default’.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The present appeal has been filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals)-16, in short ‘Ld. CIT(A)’, Mumbai, dated 30.01.2020 for AY 2014-15.

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