TDS not deductible on web hosting services as such services are not royalty or FTS

Facts-

The assessee is engaged in the business of computer software. The case of the assessee was selected for scrutiny through CASS. Statutory notices along with questionnaires u/s. 143(2) and 142(1) of the Income Tax Act, 1961, were issued to the assessee on various dates online through ITBA, asking the assessee to submit the required information which were duly submitted by the assessee online through ITBA.

AO observed that the assessee has made various foreign remittances to multiple entities and no TDS was deducted on such payments. AO proceeded to pass the assessment order on 29.12.20 19 u/s. 143(3) of the Act making an addition of Rs. 9,34,37,066/- to the total income of Rs. 6,99,57,066/- returned by the assessee on account of disallowances u/s. 40(a)(i) of the Act due to non-deduction of TDS on payments made by the assessee

CIT(A) deleted the same. Being aggrieved, revenue has preferred the present appeal.

Conclusion-

Held that the remittance cannot be brought within the ambit of FTS in view of the absence of a specific clause relating to FTS in the DTAA and the settled position of law that in the absence of a clause in DTAA not dealing with a particular item of income, the payment should not be regarded as residuary income but as business income which is not chargeable to tax in India in the absence of a PE of the non-resident in India.