Case Law Details
Case Name : DCIT Vs M/s Matrimony.Com Pvt. Ltd. (ITAT Chennai)
Appeal Number : ITA.No.2441/Mds/2014
Date of Judgement/Order : 20/11/2015
Related Assessment Year : 2008-09
Brief of the case:
- The ITAT Chennai in the case of M/s. Matrimony.Com Pvt. Ltd. held that payments made by the assessee in the nature of webhosting and marketing expenses to US based service provider could not be taxed as Fees for technology services because there were not transfer of technology involved in render of services such that the services could be continuously used by the Indian company without recourse to the service provider.
- Thus, these payments are not liable to TDS u/s 195.
Facts of the case:
- The assessee company is engaged into the business of matrimonial and other online services, filed its return on 30.09.2008 claiming loss of Rs. 31,31,22,190/-.Its return was ,subsequently, picked up for scrutiny. During the course of scrutiny assessment AO noted that assessee incurred webhosting and marketing expenses, aggregating to Rs. 6,15,45,661/- but did not deduct any tax at source on the same.
- AO applying the provisions of Sec 40(a)(ii) along with Sec 195 disallowed such expenses. On appeal to CIT(A) , the addition was deleted by him on the ground that the payments were made by the assessee its US based subsidiary as a reimbursement of expenses incurred by it on the behalf of assessee .Further, there was no transfer of technology involved in the services procured by the assessee therefore , the same cannot be taxed as Fee for technical services under the India-US DTAA.
- Against the order of CIT(A), the revenue is in appeal before the ITAT.
Contention of the Assessee:
- The learned counsel for the assessee contended that payments were made towards reimbursement of expenses to the assessee’s subsidiary company abroad for payment made by them on behalf of the assessee company for services and such services were rendered outside India. The rendition of such services outside India takes it out of the scope of the provisions of Sec 9(1)(vii)[as applicable for the case pertaining to AY 2008-09) providing for taxability of the fees for technical services.
Contention of the Revenue:
- Revenue supported the order of AO and contended that though the payments were made as reimbursement of expenses incurred by subsidiary companies but ultimately the same were payable by the Indian company, therefore, the TDS to be deducted on the same as the services were utilized in India and are taxable as incomes deemed to be accrue or arise in India u/s 9(1)(vii) of the Act.
Held by the ITAT Chennai:
- Assessee made payment to its US subsidiary as a reimbursement towards the webhosting charges and marketing expenses paid by it on the behalf of assessee. As per Article 12 of India-US Double Tax Avoidance Agreement (DTAA), unless there is a transfer of technology involved in as much as that the service receiver can use the services without recourse to the service provider, the payments cannot be taxed as Fees for technical services(FTS).The department could not prove the transfer of technology involved.Therefore, the payments could not be taxed as FTS.
- Further, the payments cannot be taxed as business profits because as per Article 7 of the treaty, payments can be taxed as business profits only when the payee has Permanent Establishment (PE) in India. As such the remittance cannot be chargeable to tax.
- The Hon’ble Supreme Court in the case of GE India Technology Centre Private Limited vs. CIT has held that in the case where remittance is not chargeable in India then there is no question of tax at source being deducted. Since the tax at source is not required to be deducted, Section 40(a)(i) will not be applicable
- In the light of above findings, the tribunal upheld the order of CIT(A) and dismissed the appeal filed by revenue.