M/s. Rage Communications Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 1409/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64421 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-10-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 29-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RANGAR AJAN JR
• Assessee Lawyers: D ANAND
• Keywords: Business income; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT A ND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NOS.1409 & 1410 /MDS/2012 (ASSESSMENT YEARS: 2005-06 & 2008-09) M/S. RAGE COMMUNICATIONS (P) LTD. NEW NO.161, OLD NO.86B, SANTHOME HIGH ROAD, CHENNAI-600 028. PAN: AAACR3096Q VS. DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-V(3) CHENNAI-600 034. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. D.ANAND, ADVOCATE RESPONDENT BY : MR. KEB.RANGARAJAN, JR. STANDING COUNSEL DATE OF HEARING : 1 ST OCTOBER, 2012 DATE OF PRONOUNCEMENT : 17 TH OCTOBER, 2012 O R D E R PER VIKAS AWASTHY, JM: THE PRESENT SET OF APPEALS I.E. ITA NO.1409/MDS/201 2 RELEVANT TO THE ASSESSMENT YEAR 2005-06 AND ITA NO.1410/MDS/2012 RELEVANT TO THE ASSESSMENT YEAR 20 08-09 HAVE BEEN FILED BY THE ASSESSEE. SINCE COMMON ISSUE IS INVOLVED IN BOTH THE APPEALS, THEY ARE TAKEN UP TOG ETHER FOR ADJUDICATION. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS IN THE BUSINESS OF PROVIDING SOFTWARE SE RVICES TO ITA NO.1409 & 1410/MDS/2012 2 ITS CLIENTS. THE ASSESSEE DID NOT DEDUCT TAX AT SOU RCE ON THE HOSTING CHARGES. THE ASSESSING OFFICER DISALLOWED THE SAME UNDER THE PROVISIONS OF SECTION 40(A)(I) ON AC COUNT OF VIOLATION OF THE PROVISIONS OF SECTION 195 OF THE ACT. 3. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSE SSEE PREFERRED AN APPEAL BEFORE THE CIT(A) FOR THE RELEV ANT ASSESSMENT YEARS. BOTH THE APPEALS OF THE ASSESSEE RELEVANT TO THE ASSESSMENT YEAR 2005-06 & 2008-09 WERE DISMI SSED BY THE CIT(A) VIDE ORDER DATED 23.03.2012 AND 21.03 .2012 RESPECTIVELY. THE CIT(A) HELD THAT THE ASSESSEE HA S MADE PAYMENT FOR HIRING CHARGES IN CYBER SPACE AND TECHN ICAL SERVICES IN THE FORM OF ENCRYPTION, SOFTWARE SUPPOR T/EFFICIENCY AND SECRECY ETC. TO THE EXCLUSION OF OTHERS. THESE SERVICES ARE INSEPARABLE AND THE PAYMENT MADE BY THE ASSESS EE IS IN THE NATURE OF COMPOSITE FEE FOR HIRING OF SPACE AN D AFOREMENTIONED TECHNICAL SERVICES. THEREFORE THE A SSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS . THE CIT(A) UPHELD THE FINDINGS OF THE ASSESSING OFFICER . 4. SHRI D.ANAND, ADVOCATE APPEARING ON BEHALF OF TH E ASSESSEE SUBMITTED THAT HOSTING CHARGES PAID BY THE ITA NO.1409 & 1410/MDS/2012 3 ASSESSEE IS NOT IN THE NATURE OF FEE FOR TECHNICAL SERVICES OR ROYALTY. IT IS IN THE NATURE OF BUSINESS INCOME. THE PAYMENTS WERE MADE TO OVERSEAS ENTERPRISES WHICH DI D NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. AS SUCH THE PAYMENT MADE TO SUCH ENTERPRISES DO NOT ATTRACT THE PROVISIONS OF CHAPTER XVII-B. THE COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THA T THE ASSESSEE HAS ALREADY MADE THE ENTIRE PAYMENT OF THE SERVER HOSTING CHARGES AND NO AMOUNT IS DUE TO BE PAID. HE CONTENDED THAT THE PROVISIONS OF SECTION 40(A)(I) ARE IDENTICAL TO THE PROVISIONS OF SECTION 40(A)(IA). AS SUCH T HE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE ORDER OF THE SP ECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ACIT., REPORTED AS 16 ITR (TRIB) (1) (SB) WHEREIN DISTINCTION HAS BEEN MADE BETWEEN PAID AND PAYABLE WHILE INTERPRETING THE PROVISIONS OF SECTION 40(A)(IA) . 5. ON THE OTHER HAND, SHRI K.E.B.RANGARAJAN, APPEAR ING ON BEHALF OF THE REVENUE STRONGLY SUPPORTED THE OR DER OF THE CIT(A) AND SUBMITTED THAT THE CASE OF THE ASSESSEE IS NOT ITA NO.1409 & 1410/MDS/2012 4 COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN MERILYN SHIPPING & TRANSPORTS VS. ACIT.,(SUPRA). 6. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES. WE HAVE EXAMINED THE PROVISIONS OF SECTION 40(A)(I) AND 40( A)(IA). AS REGARDS THE ISSUE OF PAID OR PAYABLE, THE PROVI SIONS OF BOTH THE SUB-SECTIONS ARE PARI MATERIA. THE FACT THAT THE EN TIRE AMOUNT HAS BEEN PAID BY THE ASSESSEE AND NO AMOUNT IS OUTS TANDING OR PAYABLE, HAS NOT BEEN DISPUTED BY THE LEARNED D.R. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPI NG & TRANSPORTS VS. ACIT.,(SUPRA) CAN BE APPLIED. ACCORDINGLY, IMPUGNED ORDERS OF THE CIT(A) IN BOTH THE APPEALS ARE SET ASIDE AND THE APPEALS OF THE ASSESS EE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON WEDNESDAY, T HE 17 TH DAY OF OCTOBER, 2012 AT CHENNAI. SD/- SD/- (DR. O.K.NARAYANAN ) (V IKAS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 17 TH OCTOBER, 2012. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.