Velti India Private Limited (Formerly known as Air2Web India Private Limited), CHENNAI V. DCIT, CHENNAI

CO 146/CHNY/2013

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9359 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-02-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 13-08-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS FARHA SULTANA
• Assessee Lawyers: N MADHAVAN
• Keywords: Double taxation relief; Reasonable cause; Condonation of delay
• Section: 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! ' , # $ BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A.NO. 1030/MDS/2013 & C.O.NO.146/MDS/2013 (IN ITA NO.1030/MDS/2013) ( / ASSESSMENT YEAR : 2009-10) DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(1), CHENNAI-34. VS. M/S. VELTI INDIA PVT. LTD. [FORMERLY KNOWN AS M/S.AIR2WEB INDIA PVT.LTD ] 4-E, P.M.TOWERS, 37, GREAMS ROAD, CHENNAI-600 006. PAN:AACCA8496P ( /APPELLANT) (RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : MR. N.MADHAVAN, JCIT /RESPONDENT BY : MRS. FARHA SULTANA, C.A / DATE OF HEARING : 12 TH FEBRUARY, 2014 /DATE OF PRONOUNCEMENT : 27 TH FEBRUARY, 2014 % / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE FILED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS)-IX, CHENNAI DATED 28.01.2013 F OR THE ASSESSMENT YEAR 2009-10. ITA NO.1030/MDS/2013 & C.O.NO.146/MDS/2013 2 2. THE CROSS OBJECTION IS FILED BY THE ASSESSEE WIT H THE DELAY OF 43 DAYS. THE ASSESSEE FILED AN AFFIDAVIT F OR CONDONATION OF DELAY CITING REASONS FOR DELAY IN FI LING OF CROSS OBJECTION. WE HAVE PERUSED THE REASONS AND ARE SATI SFIED THAT THERE IS A REASONABLE CAUSE FOR THE DELAY IN FILI NG OF THE CROSS OBJECTION. IN THE INTEREST OF JUSTICE, WE CONDONE T HE DELAY OF 43 DAYS IN FILING OF THE CROSS OBJECTION AND THE SA ME IS ADMITTED. 3. FIRST WE TAKE UP APPEAL OF THE REVENUE. THE FIR ST GROUND OF APPEAL OF THE REVENUE IS THAT THE COMMISS IONER OF INCOME TAX (APPEALS) ERRED IN DELETING DISALLOWANCE MADE UNDER SECTION 40(A)(I) OF THE ACT IN RESPECT OF CAR RIER PAYMENTS MADE TO M/S. CLICKATEL, SOUTH AFRICA WITHOUT DE DUCTION OF TAX AT SOURCE. 4. THE ASSESSING OFFICER WHILE COMPLETING THE ASSES SMENT FOUND THAT ASSESSEE INCURRED CARRIER EXPENDITURE B Y MAKING PAYMENTS TO BSNL AND CLICKATEL, WHICH IS THE SERVI CE PROVIDER SIMILAR TO BSNL AND SITUATED IN SOUTH AFRI CA. SINCE ITA NO.1030/MDS/2013 & C.O.NO.146/MDS/2013 3 THE ASSESSEE DID NOT DEDUCT TDS ON THE PAYMENTS MA DE TO CLICKATEL, THE ASSESSING OFFICER INVOKING THE PROVI SIONS OF SECTION 40(A) (I) DISALLOWED THE SAME, IGNORING THE SUBMISSIONS OF THE ASSESSEE THAT NO TECHNICAL SERVI CES ARE INVOLVED IN UTILIZING THE SERVICES OF CLICKATEL, S OUTH AFRICA AND IT IS NOT PAYMENT FOR FEES FOR TECHNICAL SERVICES. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 5. THE DEPARTMENTAL REPRESENTATIVE SUPPORTING THE ORDER OF THE ASSESSING OFFICER SUBMITS THAT ASSESSEE MADE PAYMENT TO CLICKATEL, SOUTH AFRICA FOR THE SERVICE S UTILIZED BY THE ASSESSEE AND THUS SERVICES ARE TECHNICAL SERVIC ES AND THE ASSESSEE WAS REQUIRED TO DEDUCT TDS FOR FEES P AID FOR SUCH TECHNICAL SERVICES. 6. ON THE OTHER HAND, COUNSEL FOR THE ASSESSEE STRO NGLY SUPPORTS THE ORDER OF THE COMMISSIONER OF INCOME TA X (APPEALS) IN HOLDING THAT SERVICES RENDERED BY CLIC KATEL ARE ITA NO.1030/MDS/2013 & C.O.NO.146/MDS/2013 4 NOT TECHNICAL SERVICES AND THE FEES PAID TO THEM AR E NOT FEES FOR TECHNICAL SERVICES AND THEREFORE THERE IS NO NE ED TO DEDUCT TDS. THE COUNSEL FOR THE ASSESSEE PLACES RELIANCE O N THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE O F SKYCELL COMMUNICATIONS LTD. VS. DCIT (251 ITR 53 ) AND SUBM ITS THAT THE HONBLE HIGH COURT HELD THAT PROVISION FOR CELL ULAR MOBILE FACILITY TO SUBSCRIBERS IS NOT A TECHNICAL SERVICE. 7. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THE COMMISSIONER OF IN COME TAX (APPEALS) HAS ELABORATELY CONSIDERED THE FACTS, SU BMISSIONS OF THE ASSESSEE AND THE CONTENTIONS OF THE ASSESSIN G OFFICER AS TO WHETHER FEE PAID BY THE ASSESSEE TO CLICKATEL , SOUTH AFRICA IS FOR TECHNICAL SERVICES OR NOT AND WHETHER ANY TDS IS REQUIRED TO BE MADE ON SUCH PAYMENT OBSERVING AS UN DER:- 6.2 I HAVE PERUSED THE OBSERVATIONS OF THE AO . AN D THE WRITTEN SUBMISSIONS OF THE AR OF THE APPELLANT IN THIS REGARD . I T I S S EE N F R OM THE FACTS O F THE CASE THAT THE NATURE OF SERVICES RENDERED BY THE NON-R ESIDEN T I . E. M/S. CLICKATEL, AS A CARRIER, IS ONLY TO TRANSM I T T HE B U L K SM S . THE NATURE OF SERVICE REQUIRE NO TECHNICAL KNOWLEDGE AND W H A T IS R E ND ERED I S JUST TRANSMISSION OF DATA, WHICH REQUIRES NO TECHN I CA L SKILL . T HE C A RR IER IS ITA NO.1030/MDS/2013 & C.O.NO.146/MDS/2013 5 JUST A MEDIUM FOR SENDING THE BULK SMS AND AS SUCH CANNO T B E CONSIDERED T O BE R E NDERING ANY TECHN I CAL SERVICE . HOWEVER , TH E AO HAS CONS I D E R E D T H E PAYMENT MADE TO M/S . CLICKATEL, RESIDING IN SOUT H AF R I C A , AS T ECH N I C AL S E R VICE AND DISALLOWED A SUM OF ` 51,97,532 /- U /S 40 ( A )(I) F OR NO N- DEDUCT I ON OF TDS. WHEREAS THE APPE L LANT CON T E N D E D THA T T HE SE RVI CE RENDERED BY THE CARRIER IS NOT A TECHNICAL SERVICE AND H EN CE N O D I SA L L O W ANCE IS REQUIRED TO BE MADE. 6.3 IN ORDER TO DETERMINE WHETHER THE SERVICE S R E N D ERED BY T H E N O N- RESIDENT CARRIER COMES UNDER TECHNICAL SERVICES , T H E P RO V I S I O NS O F D OUB LE TAXAT I ON AVOIDANCE 'AGREEMENT ( DTAA) NEED TO BE L OO K E D IN TO . W H E N T H E APPELLANT ENTERS INTO A TRANSACTION WITH A NON-RESIDE NT , T H E P R OV I SIO NS OF THE INCOME TAX ACT OR THE DOUBLE TAXATION AVOIDANCE AGR EEM E NT ( DTAA) WHICHEVER IS FAVOURABLE SHALL APPLY. AS PER DTAA BETWEEN INDIA AND SOUTH AFRICA, THE FEE FOR TECHNICAL SERVICE HAS BEEN DEFINED AS , ' PA YM E N TS OF ANY KI ND RECEIVED AS A CONSIDERATION FOR SERVICES OF A M ANA GER I A L , T E C HN ICAL O R CONSULTANCY NATURE, INCLUDING THE PROV I SION OF SERVI CE S BY T EC H N I CA L O R OTHE R PERSONNEL, BUT DOES NOT INCLUDE PAYMENTS FOR SERV I C E S M E N T I O N E D I N A RTICLE 15 . ' IT IS SEEN FROM THE FACTS OF THE ' CASE THAT THE NAT U RE OF SERVICES R ENDERED BY THE NON-RESIDENT CARRIER WOULD NOT BE COVERE D B Y T H E ABOVE DEFINITION. THE DECISION RENDERED BY THE HON ' BLE S U PR E M E C O U RT IN T HE CASE OF BHARTI CELLULAR LTD, PROVIDES . THAT FOR A S ER VI C E T O B E LAB E L LED AS T E C HNICAL IN NATURE ' HUMAN INTERVENTION IS NECESSA RY . I N A S I MI L A R CASE , 319 ITR 139, THE HON'BLE DELHI HIGH COURT HAS HE L D TH AT AS T HESE S E RV I CE S D O NOT I NVOLVE HUMAN INTERVENTION, THESE CANNOT BE R E GA R DE D A S F EE FO R T ECHNICAL SERVICE AS CONTEMPLATED UNDER THE INCOME T AX LA W S . 6 . 4 FURTHER, IT IS ALSO NOTICED THAT, FEE FOR ITA NO.1030/MDS/2013 & C.O.NO.146/MDS/2013 6 TECHNICA L SE R VI CE A P A R T FROM OTHER CONDITIONS, SHALL FULFILL THE REQUIREMENT OF ' M A KE A VA I L A BL E ' . TH E SE R VICES ARE CONSIDERED TO BE 'MAKE AVAILABLE' W H E R E THE RECIPIENT O F SU CH S ERVICE IS AT T HE LIBERTY TO USE THE TECHNICAL KNOWLED G E , S KILL S A N D P R OC ESS I N HI S OWN R I GHT . THIS VIEW HAS BEEN UPHELD IN T HE CASE OF NQA Q UA LITY S Y STEMS REGISTRAR LTD. VS . DCIT (2004) 92 TTJ 946 . IN THE VI E W O F T H E D E C I S I O N S M EN T I ONE D SUP RA , I AM OF THE CONSIDERED OPINION THAT THE SER V ICES REN D E RE D B Y T H E N O N- R ES ID ENT CARRIER DO NOT FALL , UNDER THE CLAUSE ' FEE F O R T E CH N I CA L S E RVI C E ' ; 6.5 F UR TH E R, AFT ER H AVING GONE THROUGH THE FACTS OF THE CASE, I AM OF THE C ONS IDE R E D OPI N I O N THAT AO WAS ' NOT JUSTIF I ED IN INVOKING THE PROVISIONS U/S 40(A)(I ) , O N THE P AYMENT MADE TO M/S. CLICKATEL A . NON- RESIDENT CARRIER, F O R THE F OLL O W ING R EASO N S : . A ) T HE NO N-R ESIDENT CARRIER WOULD GET PAYMENT FOR TRANSMITTING THE BULK ' S MS DA T A . AS TH E SERVICES ARE RENDERED OUTSIDE . INDIA THE PROVIS I O N S OF SE C T I O N 5 CANN O T BE APP L IED TO THE PAYMENT MADE T O THE NON-RESIDENT CARRIER S O A S T O M AKE IT T A X ABLE IN I N DIA. IT IS ALSO SEEN THAT THE NO N-R ESIDENT CAR R IER D O E S N OT H AV E ANY P ERMANENT ESTABLISHMENT IN IND I A . FURTHER , IN O R DER T O A TTR ACT SECTI O N 19 5 , THE SERV I CES BY THE NON-RESIDENT CARRIER SHOULD HAVE BEEN R E ND E R ED I N I N DI A A N D ALSO SHOULD HAVE BEEN USED I N INDIA . ' IT IS TO BE NOTED TH A T SE C TION 1 95 O F TH E ACT HAS TO BE READ ALONG WITH THE CHARGING SECTIONS 4, 5 A N D 9 OF TH E AC T A N D T HE PROVISIONS OF THE TAX TREATIES AND THE COMBINED READING OF T HE AFO R ESA I D SECTIONS CLEARLY IND I CATE THAT UN L ESS THE INCOME I S CH ARGE A BL E TO TA X I N I ND I A, THERE I S NO OBLIGAT I ON TO W I THHOLD T HE TAX. B ) T H E AO H AS VI EWED THAT BOARD'S CIRCU L AR , 786 DATED 7 . 2.2000 HAS BEEN WITHDRA WN AND T H E R EFORE I T CANNOT BE RELIED ITA NO.1030/MDS/2013 & C.O.NO.146/MDS/2013 7 UPON FURTHER . S I NCE THE LAW R ELATED TO W I T HHOLDING OF T A X U/S 195 OF THE ACT HAS NOT BEEN CHANGED EVEN AFTER W IT H DRAWA L OF THE A BOVE C I RCULAR ISSUED BY THE . CBDT THE AO'S V I EW I S NOT A C CE P T AB L E . 6 . 6 IN V I E W O F THE ' D ISC U SS I ON MADE IN THE ABOVE PARAS, THE AO IS N OT JUS T I FIE D I N M AK I N G T HE D ISALLOWANCE U/S 40(A)(I) AS THE PAYMENT MADE TO M/ S . CLIC K A T E L, N O N- R ESIDENT CARRIER IS NOT CHARGEABLE TO TAX IN INDIA. T HERE F ORE T H E AO I S DIRECTED TO DELETE THE ABOVE DISALLOWANCE OF ` 51 , 9 7 , 532 . / - U /S 40(A)(I) OF THE ACT. THIS GROUND OF APPEA L IS ALLOWED. 8. ON GOING THROUGH THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS), WE FIND THAT THE NATURE OF SE RVICES RENDERED BY NON-RESIDENT I.E. M/S. CLICKATEL IS ON LY TO TRANSMIT BULK SMS. THE NATURE OF SERVICE PROVIDED BY CLICKAT EL REQUIRES NO TECHNICAL KNOWLEDGE AND WHAT WAS RENDER ED WAS JUST TRANSMISSION OF DATA WHICH REQUIRES NO TECHNI CAL SKILL. THE FINDING OF THE COMMISSIONER OF INCOME TAX (APPE ALS) THAT CARRIER WHICH IS A MEDIUM FOR SENDING BULK SM S AND AS SUCH CANNOT BE CONSIDERED TO BE RENDERING ANY TECHN ICAL SERVICES. THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT CLICKATEL WHICH IS A NON-RESIDENT CARRIER REN DERED SERVICES OUTSIDE INDIA AND NO PART OF THE PAYMENT M ADE TO CLICKATEL IS CHARGEABLE TO TAX IN INDIA. THE COMMIS SIONER OF ITA NO.1030/MDS/2013 & C.O.NO.146/MDS/2013 8 INCOME TAX (APPEALS) ALSO FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS.BHARTI CELLULA R LTD. (330 ITR 239 ) ON THE ISSUE. THE HONBLE DELHI HIGH COURT THE CASE OF CIT VS. BHARTI CELLULAR LTD. (319 ITR 139 ) HELD THAT THESE SERVICES DO NOT INVOLVE HUMAN INTERVENTION A ND THESE SERVICES CANNOT BE REGARDED AS FEE FOR TECHNICAL SE RVICES. THE HONBLE MADRAS HIGH COURT IN THE CASE OF VERIZON COMMUNICATIONS LTD. VS. ITO IN T.C.(APPEAL) NOS. 147 TO 149 OF 2011 AND 230 OF 2012 DATED 7.11.2013 HELD TH AT COLLECTION OF FEES FOR USAGE OF STANDARD FACILITY W OULD NOT AMOUNT TO PAYMENT MADE FOR PROVIDING TECHNICAL SERV ICES. IN THE CIRCUMSTANCES, WE DO NOT FIND ANY GOOD REASON T O INTERFERE WITH THE DECISION OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THAT PAYMENT MADE BY THE ASSES SEE TO CLICKATEL IS NOT FEES FOR TECHNICAL SERVICES AND NO TDS IS REQUIRED TO BE MADE. 9. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE R EVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ITA NO.1030/MDS/2013 & C.O.NO.146/MDS/2013 9 DELETING THE ADDITION OF ` 1.33 CRORES MADE BY THE ASSESSING OFFICER TOWARDS INCOME ACCRUED NOT OFFERED TO TAX. 10. THE ASSESSING OFFICER WHILE COMPLETING THE ASSE SSMENT MADE ADDITION OF ` 1.33 CRORES ON THE GROUND THAT ASSESSEE HAS RECEIVED THIS AMOUNT IN ADVANCE FROM THE CUSTOM ERS AND THIS IS LIABLE TO BE ASSESSED AS INCOME AS THERE IS NO LIABILITY ATTACHED TO THE ASSESSEE IN THE EVENT OF FAILURE TO RENDER CONTRACTED SERVICES. IT WAS ALSO THE OBSERVATION OF THE ASSESSING OFFICER THAT THERE IS NO SPECIFIC CLAUSE IN THE AGREEMENT THAT THE CLIENT GETS REFUND IN CASE THE ASSESSEE FAILS TO RENDER THE SERVICE. ON APPEAL, COMMISSIONE R OF INCOME TAX (APPEALS) DELETED THE ADDITION. 11. THE DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER IN MAK ING THE ADDITION. 12. THE COUNSEL FOR THE ASSESSEE SUPPORTS THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND RELIES ON THE ITA NO.1030/MDS/2013 & C.O.NO.146/MDS/2013 10 DECISION OF THE HONBLE HIGH COURT IN THE CASE OF CIT VS. CORAL ELECTRONICS PVT. LTD. (274 ITR 336) AND SUBM ITS THAT THE HONBLE HIGH COURT HELD THAT SERVICE CHARGES RECEIV ED IN ADVANCE FOR THE SERVICES TO BE RENDERED IN FUTURE Y EARS IS NOT LIABLE TO BE TAXED IN THE YEAR OF RECEIPT. 13. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND DECISIONS RELIED ON. ON READING OF THE ASSESSME NT ORDER AS WELL AS ORDER OF COMMISSIONER OF INCOME TAX (APP EALS), WE FIND THAT ASSESSEE RECEIVED ADVANCE INCOME FROM ITS CUSTOMERS AND WHENEVER SERVICES WERE PROVIDED BY TH E ASSESSEE, ASSESSEE ADJUSTS THE ADVANCES RECEIVED FR OM CUSTOMERS AND RECOGNIZES THE INCOME IN THE YEAR IN WHICH SERVICES WERE RENDERED. HOWEVER, THE ASSESSING OFFI CER TAXED THE ADVANCES RECEIVED BY THE ASSESSEE AND THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE SA ID ADDITION OBSERVING AS UNDER:- 7.2 I HAVE CONSIDERED THE AO'S OBSERVATIONS AND T HE AP P ELLANT S SUBM IS SIONS IN THIS REGARD . S I NCE THE APPELLANT M A I NT A INS B O O KS O N A CCRU AL ITA NO.1030/MDS/2013 & C.O.NO.146/MDS/2013 11 S YS T E M, INCOME SHA L L BE RE C OGNIZED ONLY WHE N IT ACCR U E S . IN T H E GIVE N C ASE , T HE INCOME ACCRUES ONLY WHEN THE APPELLANT S E NDS THE R E QUIRE D NO . O F SMS . THEREFORE, THE SERV I CE C HA R GES RECEIVED IN ADVANCE FO R T HE S ER VICE T O BE R ENDERED IN FUTURE YEARS ARE NOT LIABLE TO TAX IN T H E Y E A R O F RE C E I PT . ONL Y ON COMPLETION OF THE SERV I CE , THE APPELLANT HAS R I G HT OVER T HE A M O U NT THA T W AS RECEIVED IN ADVANCE. . IN V IEW OF THE ABOVE, TH E AC TI O N O F T H E A O IS NO T JUSTIFIED IN MAKING THE ABOVE DISALLOWANCE OF ` 1,3 3 , 0 1 , 684 /- AN D HENC E DIREC T ED TO BE DELETED . TH I S GROUND OF APPEAL IS ALLOWED . 14. ON READING OF THE ABOVE ORDER, WE DO NOT FIND A NY GOOD REASON TO INTERFERE WITH THE FINDINGS OF THE COMMIS SIONER OF INCOME TAX (APPEALS). THUS, THE GROUND OF APPEAL RA ISED BY THE REVENUE ON THIS ISSUE IS REJECTED. 15. THE CROSS OBJECTION FILED BY THE ASSESSEE IS ON LY IN SUPPORT OF THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND BECOMES INFRUCTUOUS. ITA NO.1030/MDS/2013 & C.O.NO.146/MDS/2013 12 16. IN THE RESULT, BOTH THE APPEAL OF THE REVENUE A ND CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, T HE 27 TH DAY OF FEBRUARY, 2014 AT CHENNAI. SD/- SD/- (A.MOHAN ALANKAMONY) (CHALLA NAGEN DRA PRASAD) ACCOUNTANT MEMBER JUDI CIAL MEMBER CHENNAI, DATED THE 27 TH FEBRUARY, 2014. SOMU COPY TO: (1) ASSESSEE (4) CIT(A) (2) ASSESSING OFFICER (5) D.R (3) CIT (6) G.F.