Case Law Details
DCIT Vs Barclays Technology Centre India Pvt. Ltd. (ITAT Pune)
Conclusion: Liability to deduct tax at source on leased line charges could be fastened only under the law prevailing at the time of payment. If no liability existed at the time of payment, any subsequent retrospective amendment could not be enforced against the payer. Once there was no liability to deduct tax at source at the material time, the fortiori was that there could be no question of disallowance u/s 40(a)(ia).
Held: Assessee was an Indian Private limited company engaged in providing Software Solution services to Barclays group worldwide. It had one undertaking approved as a100% Export Oriented unit eligible for deduction u/s.10B; another unit within the area of Special Economic Zone (SEZ) entitled to deduction u/s.10AA ; and still another unit in Domestic Tariff Area (DTA) in Mumbai. During the course of assessment proceedings, AO observed that assessee paid a sum as leased line charges to various vendors in India, which were claimed as deduction. AO found that assessee was engaged in software development and production of software products. Internet with high bandwidth was required for such work. A dedicated lease line for internet service was taken from supplier. The payment was held by AO to be in the nature of fees for technical services requiring deduction of tax at source u/s 194J. Having not done so, AO invoked section 40(a)(ia). It was held that liability to deduct tax at source could be fastened only under the law prevailing at the time of payment. If no liability existed at the time of payment, any subsequent retrospective amendment could not be enforced against the payer. Once there was no liability to deduct tax at source at the material time, the fortiori was that there could be no question of disallowance u/s 40(a)(ia). Even though the amount became chargeable to tax as royalty in the hands of the recipient under the Act for the year under consideration – but the same did not fasten an obligation to deduct tax at source as the scope of “Royalty” came to be expanded after the close of the financial year when the assessee had already paid lease line charges.
FULL TEXT OF THE ORDER OF ITAT PUNE
These two cross appeals – one by the assessee and other by the Revenue – emanate from the order dated 29-12-2016 passed by the ld. CIT(A) in relation to the assessment year 2012-13.
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