Case Law Details
DCIT Vs Algonomy Software Pvt. Ltd. (ITAT Bangalore)
No TDS deductible on payment made to wholly-owned subsidiary company in respect of sales commission u/s 40(a)(i)
Conclusion: TDS was not to be deducted on payments to Manthan Systems Inc. (MSI) for sales commission under section 40(a)(i) as services rendered to assessee by the said Manthan Systems Inc. was not falling within the ambit of FTS or under Article 12 of the treaty, assessee was not liable to deduct TDS on the payment made to the MSI.
Held: Assessee-company was engaged in the business of providing software development service, sale of software products and rendering of IT enabled services. Manthan Systems Inc. (MSI) was the company incorporated in the United States of America which was wholly owned subsidiary of Assessee Company; MSI provided sales and marketing services to assessee for sale of assessee’s product / services in the territory of North American / South American and Caribbean markets. Assessee company therefore paid commission to MSI for its services. Despite assessment under section 143(3) in all relevant years, no disallowance was made under section 40(a)(i) for non-deduction of TDS on commissions to MSI. It was held that CIT(A) ruled that commissions paid to Manthan System Inc. did not constitute Fees for Technical Services ( FTS ) or fall under Article 12 of the Double Taxation Avoidance Agreement ( DTAA).The bench found force in the submission made by assessee that since it had already been decided by the Coordinate Bench that the services rendered to assessee by the said Manthan Systems Inc. was not falling within the ambit of FTS or under Article 12 of the treaty, assessee was not liable to deduct TDS on the payment made to the MSI. There was no ambiguity in the order passed by CIT (A) in holding that there was no liability to deduct TDS and accordingly, deletion of addition made to assessee’s income in respect of sales commission under section 40(a) (i) was found to be just and proper so as to warrant interference. The revenue’s appeal found to be devoid of any merit and therefore, dismissed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
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