Inception Business Services, CHENNAI V. ITO, CHENNAI

ITA 2674/CHNY/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4321 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-07-2017
• Assessment Year: 2015-2016
• Appeal Filed On: 15-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S. SRINIRANJANI
• Keywords: Business income; Double taxation relief; Permanent establishment; TDS; Set aside
• Section: 195

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI , . , % BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S.JAYARAMAN, ACCOUNTANT MEMBER / I.T.A. NO.2674/CHNY/2016 /ASSESSMENT YEAR : 2015-16 M/S. INCEPTION BUSINESS SERVICES FLAT NO,4, SWARNAMUKHI APARTMENTS 185, ST. MARYS ROAD, VIDHYA THEERTHA NAGAR, ALWARPET CHENNAI-600 004. VS THE INCOME TAX OFFICER, INTERNATIONAL TAXATION-1(2) CHENNAI. PAN: AADFI3402K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MS.S.SRINIRANJANI, ADVOCATE /RESPONDENT BY : MR.SRIDHAR DORA, JCIT /DATE OF HEARING : 18.02.2019 /DATE OF PRONOUNCEMENT : 18.02.2019 / O R D E R PER S.JAYARAMAN, AM: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-16, CHENNAI, IN ITA NO. 54/ CIT(A)-16/2015-16 DATED 12.08.2016 FOR ASSESSMENT YEAR 2015-16. 2. M/S. INCEPTION BUSINESS SERVICES, THE ASSESSEE, IS IN THE BUSINESS OF BRAND MANAGEMENT, ENGAGED IN POSTING ADVERTISE MENTS IN THE SOCIAL PORTAL ON BEHALF OF THEIR CLIENTS. IT APPLIED FOR A NOC FOR WITHHOLDING CERTIFICATE U/S.195(2) IN RESPECT OF THE SERVICES T O BE AVAILED FROM M/S. 2 ITANO.2674/CHNY/2016 FACE BOOK IRELAND LTD., A NON-RESIDENT, FOR MAKING ADVERTISEMENT IN THEIR SOCIAL PORTAL FOR THE ASSESSEES CLIENT M/S. CHOLAMANDALAM GENERAL INSURANCE COMPANY LTD. THE AO HELD THAT FACE BOOK I S SOCIAL NETWORKING SITE, PLACING ADVERTISEMENTS IN THE SOCI AL NETWORKING SITES ARE PATENTED AND PROVIDE VALUABLE SERVICES, WHICH ARE E SSENTIALLY TECHNICAL IN NATURE, RECEIVING SUCH KIND OF EXPERTISE AND KNO WLEDGE FROM FACE BOOK, IRELAND IS NOTHING BUT TECHNICAL SERVICES REN DERED BY FACE BOOK WHICH CLEARLY ATTRACTS THE PROVISIONS OF SECTION 19 5 AND HENCE TAX IS DEDUCTIBLE @ 10% ON THE PAYMENTS TO BE MADE AT 3,60,813/-. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE C IT(A). THE LD. CIT(A) DISMISSED THE APPEAL. AGGRIEVED AGAINST THAT ORDER , THE ASSESSEE FILED THIS APPEAL WITH THE FOLLOWING GROUNDS:- 1. THE ORDER OF COMMISSIONER OF INCOME TAX(APPEALS ) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN HOLDING THAT THE PAYMENT MADE FOR POSTING ADVERTISEMENT IN FACE BOOK REQUIRES TECHNICAL EXPERTISE AND AMOUNTS TO RENDERING TECHNI CAL SERVICE U/S. 195 R.W.S. 9(I)(VII) OF THE ACT. 2.1. THE COMMISSIONER OF INCOME TAX(APPEALS) OUGHT TO HAVE APPRECIATED THAT THERE IS NO HUMAN INTERVENTION IN ADVERTISEMENT AND THEREFORE, IS A NON-TECHNICAL FEES A PER SEC.9(I)(V II) BASED ON THE SETTLED PRINCIPLE OF LAW [ITO VS. RIGHT FLORIST -IT AT KOLKATTA] 2.2 THE COMMISSIONER OF INCOME TAX(APPEALS) OUGHT T O HAVE APPRECIATED THE PAYMENT IS FOR HOSTING IN THE WEB S ITE WHICH IS KEPT OUTSIDE INDIA IE., IRELAND AND THE NON RESIDENT HAV ING NO P.E. , SUCH PAYMENTS ARE ASSESSABLE AS BUSINESS INCOME ONLY AT IRELAND AS PER ARTICLE 7 OF DTAA BETWEEN INDIA AND IRELAND. 3 ITANO.2674/CHNY/2016 3. AFTER INTRODUCTION OF EQUALIZATION LEVY BY THE FINANCE ACT 2016 WHICH MAKES IT CLEAR THAT THERE IS NO TAXABILITY OF THIS PAYMENT UNDER THE THEN EXISTING LAW, PRIOR TO 2016. FOR THE ABOVE GROUNDS AND FOR SUCH OTHER GROUNDS TH AT MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE CO MMISSIONER OF INCOME TAX (APPEALS) MAY BE SET ASIDE AND THE APPEA L BE ALLOWED. 3. THE LD.AR PRESENTED THE CASE ON THE ABOVE LINES. SHE INVITED OUR ATTENTION TO THE DECISION OF GOOGLE INDIA (P)LTD. VS. JOINT DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) RANGE-1,BENGALU RU, REPORTED IN (2018) 93 TAXMANN.COM 193 (BANGALORE TRIB.) / (201 8) 194 TTJ 385 (BANGALORETRIB) DATED 11.05.2018, WHEREIN AFTER R EFERRING THE TRIBUNAL DECISIONS IN THE CASES OF RIGHT FLORIST P.LTD., DA TED 12.04.2013 (2013) 32 TAXMANN.COM 99(KOLATTA-TRIB) (2013) 25 ITR(T) 63 9 (KOLLATTA-TRIB) (2013) 143 ITD 445(KOLKATTA-TRIB) AND PINSTORM TE CHNOLOGIES P.LTD, YAHOO INDIA (P) LTD., ETC, IT IS HELD IN PARA 116 T HAT IN ALL THESE CASES, THE ASSESSEE WAS EITHER AN ADVERTISER OR ACT ON BEH ALF OF SOME OTHER ADVERTISER AND HAS PURCHASED SPACE FROM THE OWNER O F SEARCH ENGINE TO DISPLAY ITS ADVERTISEMENTS ONLINE. THEREFORE, THE P AYMENT MADE BY THE ASSESSEE TO THE OWNER OF THE SEARCH ENGINE WAS CONS IDERED TO BE BUSINESS RECEIPT/BUSINESS PROFIT IN THE HANDS OF TH E OWNER OF SEARCH ENGINE, WHO IS NON-RESIDENT AND IN THE ABSENCE OF PERMANENT ESTABLISHMENT (PE) IN INDIA, THE BUSINESS PROFITS/B USINESS RECEIPTS RECEIVED BY THEM WERE NOT CHARGEABLE TO TAX IN INDI A. THE LD.AR 4 ITANO.2674/CHNY/2016 SUBMITTED THAT THIS RATIO APPLIES TO THE ASSESSEES CASE, AS IT ACTED ON BEHALF OF ITS CLIENT, HAS PURCHASED SPACE FROM THE OWNER OF SEARCH ENGINE, WHO IS A NON-RESIDENT AND IT IS NOT HAVING A PERMANENT ESTABLISHMENT IN INDIA ALSO. THEREFORE, THE BUSINES S PROFITS/RECEIPTS, RECEIVED BY THEM WERE NOT CHARGEABLE TO TAX IN INDI A AND HENCE THERE IS NO CASE FOR THE DEDUCTION OF TDS. FURTHER, SHE RELI ED ON THE DECISION OF ITAT., CHENNAI IN THE CASE OF ACIT, CORPORATE CIRC LE-1(2), CHENNAI VS.CARAT LANETRADING P.LTD., REPORTED IN (2018) 89 TAXMANN.COM 434(CHENNAI TRIB), THE HEAD NOTE OF WHICH IS EXTRAC TED AS UNDER:- SECTION 9, READ WITH SECTIONS 40(A)(I) AND 195 OF THE INCOME TAX ACT, 1961 AND ARTICLE 12 OF THE OCED MODEL CONVENT ION DEEDED TO ACCRUE OR ARISE IN (INDIA) (ROYALTIES AND FEE FOR TECHNICAL SERVICES) ASSESSMENT YEAR 2012-13 ASSESSEE WAS EN GAGED IN TRADING OF JEWELLERY, PRECIOUS AND SEMI-PRECIOUS S TONES AND OTHER ORNAMENTAL ITEMS MADE OF PRECIOUS METALS DURING TH E RELEVANT YEAR, ASSESSEE MADE PAYMENTS TO VARIOUS FOREIGN PA RTIES FOR RENDERING SERVICES SUCH AS ONLINE ADVERTISEMENT, W EB PAGE SECURITY CERTIFICATIONS, MAINTENANCE OF DATABASE OF CUSTOMERS ETC. ASSESSEE DID NOT DEDUCT TAX AT SOURCE WHILE MAKING PAYMENTS TO FOREIGN PARTIES AO THUS DISALLOWED SAID PAYMENTS . IT WAS NOTED THAT FOREIGN ENTITIES DID NOT HAVE PE IN INDIA. FUR THER REVENUE FAILED TO PROVE THAT ASSESSEE HAD RECEIVED ANY TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 9(1)(VI) OR SECTION 9(1)(VI I) . WHETHER ON FACTS, PAYMENTS WERE NOT CHARGEABLE TO TAX IN INDIA U/S.9(1)(VII) R.W.S. 195 AND THUS IMPUGNED DISALLOWANCE WAS TO BE DELETED. HELD, YES (PARA 5) (IN FAVOUR OF THE ASSESSEE). PER CONTRA, THE LD. DR RELIED ON THE DECISIONS OF T HE LOWER AUTHORITIES. 4. WE HEARD THE RIVAL SUBMISSIONS, GONE THROUGH THE RELEVANT MATERIAL AND FIND MERIT IN THE SUBMISSIONS MADE BY THE LD.A R., SUPRA. THE 5 ITANO.2674/CHNY/2016 ASSESSEE IS ENGAGED IN THE BUSINESS OF POSTING AD VERTISEMENT IN THE SOCIAL PORTAL ON BEHALF OF THEIR CLIENTS. THE PAYME NTS (TO BE) MADE FOR MAKING ADVERTISEMENT IN THE SOCIAL PORTAL OF M/S. FACE BOOK IRELAND LTD., A NON-RESIDENT, WHO IS NOT HAVING A PE IN IN DIA, ON BEHALF OF THE ASSESSEES CLIENT M/S. CHOLAMANDALAM GENERAL INSUR ANCE COMPANY LTD. WAS NOT CHARGEABLE TO TAX IN INDIA, AS HELD BY THE TRIBUNAL DECISIONS, SUPRA, AND HENCE, THERE IS NO NEED TO DEDUCT TAX ON SUCH PAYMENTS. THE ASSESSEES APPEAL IS ALLOWED. 5. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18TH FEBRUARY , 2019 AT CHENNAI SD/- SD/- ( ) ( . ) (GEORGE MATHAN) (S.JAYARAMAN) ( ! / JUDICIAL MEMBER) ( ! / ACCOUNTANT MEMBER) /CHENNAI, $ /DATED 18 TH FEBRUARY, 2019 SOMU () *) /COPY TO: 1. APPELLANT 2. RESPONDENT 3. + () /CIT(A) 4. + /CIT 5. ) / /DR 6. 2 /GF