Ceequence Technologies P Ltd., CHENNAI V. DCIT, CHENNAI

ITA 138/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5597 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 17-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.138/MDS/2017 ' (' / ASSESSMENT YEAR : 2012-13 M/S CEEQUENCES TECHNOLOGIES PVT. LTD., C/O SHRI S. SRIDHAR, SH. A.S. SRIRAMAN, ADVOCATES, NEW NO.14, OLD NO.82, FLAT NO.5, 1 ST AVENUE, INDIRA NAGAR, ADYAR, CHENNAI - 600 020. PAN : AABCC 7920 M V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2), CHENNAI. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE ,-*+ . / / RESPONDENT BY : SHRI AR.V. SREENIVASAN, JCIT 0 . 1$ / DATE OF HEARING : 20.12.2017 2!( . 1$ / DATE OF PRONOUNCEMENT : 28.12.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 1, CHENN AI, DATED 02.12.2016 AND PERTAINS TO ASSESSMENT YEAR 2012-13. 2 I.T.A. NO.138/MDS/17 2. SHRI S. SRIDHAR, THE LD.COUNSEL FOR THE ASSESSEE , SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED A SUM OF 46,99,302/- FOR NON- DEDUCTION OF TAX. ACCORDING TO THE LD. COUNSEL, TH E ASSESSEE HAS PAID CO-LOCATION CHARGES OF 23,02,515/-. THE LD.COUNSEL CLARIFIED THAT CO-LOCATION CHARGES IS NOTHING BUT CHARGES PAI D BY THE ASSESSEE OUTSIDE THE COUNTRY FOR STORAGE OF ELECTRO NIC DATA. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE TRANSFER RED THE ELECTRONIC DATA THROUGH CABLE NETWORK AND SUCH DATA COULD BE STORED OUTSIDE THE COUNTRY FOR THE USE OF CUSTOMERS OUTSIDE THE COUNTRY. FOR THE PURPOSE OF KEEPING THE ELECTRONIC DATA IN A MANNER WHICH CAN BE RETRIVED BY THE CUSTOMERS OUTSIDE THE COUNTRY, THE ASSESSEE HAS PAID STORAGE CHARGES WHICH IS KNOWN AS CO-LOCATION CHARGES. APART FROM THAT, ACCORDING TO THE LD. COU NSEL, THE ASSESSEE HAS ALSO PAID INTERNATIONAL CALL CHARGES O F 23,96,787/-. THE LD.COUNSEL FURTHER SUBMITTED THAT THE PROVISION S OF SECTION 195 OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') IS NOT APPLICABLE AT ALL. THE ASSESSING OFFICER AS WELL AS THE CIT(APPE ALS) MISCONSTRUED THE PROVISIONS OF SECTION 9(1)(VI) OF THE ACT AND DISALLOWED THE CLAIM OF THE ASSESSEE UNDER SECTION 40(A)(I) OF THE ACT. THE LD.COUNSEL FURTHER SUBMITTED THAT THE CIT (APPEALS) WRONGLY PLACED RELIANCE ON THE JUDGMENT OF MADRAS H IGH COURT IN 3 I.T.A. NO.138/MDS/17 VERIZON COMMUNICATIONS SINGAPORE PVT. LTD. V. ITO I N T.C.A. NOS.147 TO 149 OF 2011 AND 230 OF 2012. IN THE CAS E BEFORE THE MADRAS HIGH COURT, THE ISSUE AROSE FOR CONSIDERATIO N IS FOR PROVIDING BANDWIDTH / TELECOM SERVICES IN INDIA. IN THE PRES ENT CASE, ACCORDING TO THE LD. COUNSEL, THE RECIPIENT COMPANY HAS NOT RENDERED ANY SERVICE TO INDIAN CUSTOMERS. THE RECI PIENT IS KEEPING THE STORAGE EQUIPMENT OUTSIDE THE COUNTRY AND DATA WAS TRANSMITTED BY THE ASSESSEE TO THE STORAGE EQUIPMENT PROVIDED B Y THE NON- RESIDENT INDIAN. THE STORAGE EQUIPMENT OTHERWISE K NOWN AS SERVER IS MEANT FOR RETRIEVING DATA BY THE CUSTOMERS OUTSI DE THE COUNTRY. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE HAS PAID ONLY STORAGE CHARGES TO THE COMPANY WHO IS MAINTAINING THE SERVE R OUTSIDE THE COUNTRY, THEREFORE, IT CANNOT BE TREATED AS ROYALTY . HENCE, ACCORDING TO THE LD. COUNSEL, THE NON-RESIDENT COMPANY IS NOT LIABLE TO PAY TAX IN INDIA, THEREFORE, THERE CANNOT BE ANY DISALLOWAN CE UNDER SECTION 40(A)(IA) OF THE ACT. 3. ON THE CONTRARY, SHRI AR.V. SREENIVASAN, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASS ESSEE HAS DEBITED AN AMOUNT OF 62,88,522/- TOWARDS CONNECTIVITY CHARGES. THE ASSESSEE CLARIFIED BEFORE THE ASSESSING OFFICER THAT THE CO- 4 I.T.A. NO.138/MDS/17 LOCATION CHARGES WAS 23,02,515/- AND INTERNATIONAL CALL CHARGES WAS 23,93,863/-. THE LD. D.R. FURTHER SUBMITTED THAT T HE ENTIRE SERVICES AND OPERATIONS WERE MADE AVAILABLE BY CINE NET COMMUNICATIONS INC. THE LD. D.R. FURTHER SUBMITTED THAT NOVATEL LTD. PROVIDES INTERNATIONAL TELECOMMUNICATION SERVI CES TO THE ASSESSEE. REFERRING TO EXPLANATION (VI) TO SECTION 9(1) OF THE ACT, THE LD. D.R. SUBMITTED THAT THESE PAYMENTS WERE IN THE NATURE OF ROYALTY, THEREFORE, THE ASSESSING OFFICER HAS RIGHT LY FOUND THAT THE ASSESSEE IS LIABLE FOR DEDUCTION OF TAX AT SOURCE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE MATERIAL AVAILABLE ON RECORD IT APPEARS THAT CINENE T COMMUNICATIONS INC. USA IS IN THE BUSINESS OF PROVI DING DATA CENTRE RACKS. THE ASSESSEE HAS UTILISED RACKS SPAC E PROVIDED IN DATA CENTRE RACKS OWNED AND MAINTAINED BY CINENET COMMUNICATIONS INC USA. IN CASE OF TECHNICAL ISSUE , CINENET COMMUNICATIONS INC APPEARS TO HAVE PROVIDED BASIC S UPPORT FOR USE OF RACKS. MOREOVER, PAYMENT MADE TO NOVATEL LTD. A ND TATA COMMUNICATION (US) INC, THE ASSESSEE CLAIMS BEFORE THE CIT(APPEALS) THAT THE SERVICE WAS UTILISED OUTSIDE THE COUNTRY. 5 I.T.A. NO.138/MDS/17 THEREFORE, ADMITTEDLY, THE PAYMENT WAS MADE TO THE COMPANY IN USA. IN THE CASE OF VERIZON COMMUNICATIONS SINGAPO RE PVT. LTD. (SUPRA), THE PAYMENT WAS MADE TO SINGAPORE COMPANY. THEREFORE, HERE WE HAVE TO EXAMINE THE DOUBLE TAXATION AVOIDAN CE AGREEMENT BETWEEN INDIA AND USA. 5. BOTH THE AUTHORITIES HAD NO OCCASION TO EXAMINE THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA. MOREOVER, IT IS ALSO TO BE EXAMINED HOW THE ELECTRO NIC DATA WAS TRANSMITTED TO USA. WHETHER THE DATA STORED IN DA TA CENTRE RACKS OF CINENET COMMUNICATIONS INC WAS USED BY ANY OTHER INDIAN CUSTOMERS ALSO NEEDS TO BE EXAMINED. IN OTHER WORD S, WHETHER THE RECIPIENT COMPANY IN USA HAS ANY PERMANENT ESTABLIS HMENT IN INDIA OR WHETHER THEY HAVE ANY BUSINESS CONNECTION IN INDIA NEEDS TO BE EXAMINED IN THE LIGHT OF DOUBLE TAXATION AVOI DANCE AGREEMENT BETWEEN INDIA AND USA. SINCE SUCH AN EXE RCISE WAS NOT DONE BY BOTH THE AUTHORITIES BELOW, THIS TRIBUN AL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-E XAMINED. ACCORDINGLY, ORDERS OF BOTH THE AUTHORITIES BELOW A RE SET ASIDE AND THE ENTIRE ISSUE RAISED BY THE ASSESSEE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE 6 I.T.A. NO.138/MDS/17 MATTER IN THE LIGHT OF THE MATERIAL THAT MAY BE FIL ED BY THE ASSESSEE AND THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 28 TH DECEMBER, 2017 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 28 TH DECEMBER, 2017. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-1, CHENNAI-34 4. PRINCIPAL CIT-1, CHENNAI 5. 69 ,1 /DR 6. :' ; /GF.