Appeal details
Counselvise Citation
[2017] 128 COUNSELVISE.COM (IT) 8769 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 6 month(s) 26 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
18-01-2017
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
SMC
Assessment Year
2012-2013
Appeal Filed On
22-06-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI C.N . PRASAD , JM , AND SHRI N.K. PRADHAN, AM ./ I.T.A. NO. 3803 / MUM/ 2015 ( / ASSESSMENT YEAR: 2012 - 13 ) M/S. LINTAS INDIA PVT. LTD. PHOENIX HOUSE, B WING, 3 RD FLOOR, S.B. MARG, LOWER PAREL, MUMBAI PIN:400013 / VS. DCIT (TDS) 2(1) , MUMBAI ./ ./ PAN/GIR NO. AAACL 0124 F ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SMT. NEHA BARVE / RESPONDENT BY : SHRI. RAJESH OJHA / DATE OF HEARING : 20/10/2016 / DATE OF PRONOUNCEMENT : 18 /01/2017 / O R D E R PER C.N . PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSE E AGAINST THE ORDER OF THE CIT(A) - 59 MUMBAI, DATED 24.04.2015 FOR THE ASSESSMENT YEAR 2012 - 13 ARISING OUT OF THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 201(1)/201(1A). 2 ITA NO. 3803/MUM/2015 (A.Y: 2012 - 13 ) M/S. LINTAS INDIA PVT. LTD VS.DCIT(TDA) - 2(1) 2. THE FIRST ISSUE IN THE APPEAL O F THE ASSESSE E IS THAT THE CIT(A) ERR ED IN CONFIRMING ORDER PASSED BY THE ASSESSING OFFICER U/S 201(1) OF THE A CT FOR SHORT DEDUCTION OF TDS ON THE AMOUNT PAID TOWARDS CHARGES FOR INTERNET CONNECTIVITY . 3. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE INCURRED INTERN ET CHARGE S AMOUNT ING TO RS. 72,93,471 / - AND DEDUCTED TDS ON SUCH AMOUNT U/S 194C OF THE ACT. THE ASSESSE E STATED THAT THE INTERNET CHARGES PAID FOR THE USAGE O F INTERNET CONNECTION PROVIDED BY THE SERVICE PROVIDER ARE NOT FOR ANY TECHNICAL, MANAGERIAL OR C ONSULTANCY SERVICES SO AS TO DEDUCT TAX U/S 194J OF THE ACT. SINCE SUCH CHARGES PAID ARE FOR AVAILING STANDARD FACILITIES AVAILABLE TO ALL AND THEY ARE NOT PAID FOR ANY TECHNICAL, MANAGERIAL OR CONSULTANCY SERVICES REQUIRING TDS U/S 194J OF THE ACT, THE AS SESSING OFFICER REJECTED THE CONTENTION S OF THE ASSESSE E AND PASSED ORDER U/S 201(1) TREATING THE ASSESSEE AS DEFAULTER FOR NON - DEDUCTION OF TAX U/S 194J OF THE ACT. O N APPEAL BY THE ASSESSE E, LD. CIT(A) SUSTAINED THE ORDER OF THE ASSESSING OFFICER . THE C IT(A) FURTHER OBSERVED THAT THE INTERNET CHARGES ARE PROCESS COVERED IN THE DEFINITION OF ROYALTY , THEREFORE, THE ASSESSEE IS LIABLE TO DEDUCT TAX ON SUCH PAYMENT FOR INTERNET CHARGES U/S 194J OF THE ACT. 4. THE LD. COUNSEL FOR THE ASSESS EE AT THE VERY OUTSET SUBMITS THAT AN IDENTICAL ISSUE HAS COME UP BEFORE THE COORDINATE BENCH OF THE T RIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2010 - 11 IN ITA NO. 35 04/M/2014 DATED 2/08/2016 , HOLDING THAT THE PROVISION U/S 194J HAVE NO APPLICATI ON FOR THE PAYMEN T MADE TOWARDS INTERNET CHARGES. A COPY OF THE ORDER IS PLACED ON THE RECORD. 5. WE HAVE PERUSED ORDER OF THE COORDINATE BENCH OF THE T RIBUNAL IN ASSESS EES OWN CASE AND FIND THAT THE ISSUE UNDER CONSIDERATION HAS BEEN DECIDED IN FAVOR OF THE ASSESSE E BY OBSERVING AS UNDER : - 5. WE HAVE CONSIDERED RIVAL CONTENTIONS. THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY VARIOUS DECISIONS OF HIGH COURT AND TRIBUNAL. THE HONBLE DELHI HIGH HAD AN OCCASION TO EXAMINE A SIMILAR ISSUE IN THE CASE OF CIT VS. ESTEL COMMUNICATIONS (P) LTD. MANU/DE/0838/2008: 217 CTR 102(DEL) WHEREIN THE HONBLE DELHI HIGH COURT HELD THAT MERE PAYMENT BY ASSESSEE FOR AN INTERNET BANDWIDTH TO A US COMPANY DID NOT MEAN THAT TECHNICAL SERVICES WERE RENDERED BY THE US COMPANY TO THE ASSESSEE AND, THEREFORE, PROVISIONS OF SECTION 3 ITA NO. 3803/MUM/2015 (A.Y: 2012 - 13 ) M/S. LINTAS INDIA PVT. LTD VS.DCIT(TDA) - 2(1) 9(1)(VII) DID NOT APPLY SO AS TO WARRANT ANY DEDUCTION OF TAX FROM PAYMENT MADE BY THE ASSESSEE TO THE US COMPANY. THE HONBLE MADRAS HIGH COURT IN SKYCELL COMMUNICATIONS LTD. AND ANOTHER VS. D CIT AND OTHERS (2011) 251 ITR HAS CONSIDERED THE PROVISIONS OF SECTION 9(1)(VII). SIMILARLY, ITAT CHANDIGARH BENCH IN THE CASE OF HFCL INFOTEL LIMITED VS. ITO MANU/IG/5036/2005: (2006) 99 TTJ 440, REFERRED TO THE DECISION OF MADRAS HIGH COURT IN THE CASE O F SKYCELL COMMUNICATIONS LTD. FURTHER, ITAT MUMBAI BENCH IN PACIFIC INTERNET (INDIA) PVT. LTD. VS. ITO MANU/WB/0620/2008 : (2009) 318 ITR 179 (AT) HAS RELIED UPON THE OBSERVATIONS RENDERED IN ESTEL COMMUNICATIONS PVT. LTD. (SUPRA) AND SKYCELL COMMUNICATION S LTD(SUPRA) AND HELD THAT PAYMENT FOR USE OF INTERNET IS NOT COVERED BY THE PROVISION OF SECTION 194J. 6. IN THE CASE OF USHODAYA ENTERPRISES P. LTD. VS. ACIT(2012) 53 SOT 193, HYDERABAD BENCH HELD THE PAYMENT MADE TOWARDS INTERNET CHARGES ARE SIMILAR IN NATURE TO BANDWITH CHARGES AND ARE SIMILAR TO THE USE OF TELEPHONE LINES, PAYMENTS MADE FOR CIRCUIT CHARGES TO VSNL, BANDWITH CHARGES DO NOT COME UNDER TDS PROVISIONS AND THEREFORE NO DEDUCTION IS REQUIRED U/S.194J, AS THE PROVISION IS NOT APPLICABLE. 7 . IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THE ACTION OF LOWER AUTHORITIES FOR HOLDING THE ASSESSEE IN DEFAULT FOR NON - DEDUCTION OF TAX AT SOURCE IN RESPECT OF PAYMENT FOR INTERNET CHARGES. 6 . R ESPECTFULLY FOLLOWING THE ABOVE DECISION WE HOLD THAT THE PAYMENTS MADE BY THE ASSESSE E TOWARDS INTERNET CHARGES DOES NOT FALL WITHIN THE DEFINITION OF TECHNICAL SERVICES AS ENVISAGED IN THE PROVISION S OF SEC . 194J OF THE ACT. THEREFORE, WE DO NOT FIND MERIT IN THE ACTION OF THE ASSESSIN G OFFICER IN HOLDING THAT THE ASSESSE E IS IN DEFAULT FOR NON - DEDUCTION OF TDS U/S 194J IN RESPECT OF THE PAYMENT MADE FOR INTERNET CHARGES. 7 . THE NEXT ISSUE IN THE APPEAL OF THE ASSESS EE IS THAT THE CIT(A) ERR ED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN PASSING THE ORDER U/S 201(1) FOR NON - DEDUCTION OF TAX U/S 194J IN RESPECT OF THE AMOUNTS PAID TOWARD S PURCHASE OF COMPUTER SOFTWARE. T HE LD. COUNSEL FOR ASSESSE E AT THE OUTSET SUBMITS THAT THIS ISSUE IS ALSO DECIDED BY THE COORDINATE BENCH IN A SSESSE ES OWN CASE FOR THE ASSESSMENT YEAR 2010 - 11 IN PARA 9 TO 12 OF THE ORDER HOLDING THAT ON THE PAYMENTS MADE BY THE ASSESSE E FOR PURCHASE OF SOFTWARE, TAX IS NOT REQUIRED TO BE DEDUCTED AT 4 ITA NO. 3803/MUM/2015 (A.Y: 2012 - 13 ) M/S. LINTAS INDIA PVT. LTD VS.DCIT(TDA) - 2(1) SOURCE U/S 194J OF THE ACT A S THE PAYMENTS MADE WERE ONLY TO P URCHASE SOFTWARE REQUIRED FOR ASSESSE ES BUSINESS PURPOSE S AND THE SAME WAS CAPITALIZED , THE PAYMENTS WERE NOT MADE FOR ANY TECHNICAL SERVICES AND THE PAYMENTS WOULD NOT FALL UNDER FEES F OR TECHNICAL SERVICE. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT THIS SOFTWARE PURCHASED BY THE ASSESSE E IS A REGULAR SOFTWARE FOR ACCOUNTING PURPOSE S, NOT COPYWRITED SOFTWARE AND, THEREFORE, IT WILL NOT FALL WITHIN THE DEFINITION OF R OYALTY AS DEFINED IN SEC . 194J OF THE ACT. H E PLACED RELIANCE ON THE FOLLOWING DECISION S IN SUPPORT OF HIS CONTENTIONS : - 1. TATA CONSULTANCY SERVICES LTD.(271 ITR 401) 2. DIT VS. IRCSSON A.B (TS - 769 - HC - 2011) (DEL HC) 3. MOTOROLA INK VS. DCIT 96 J1 (DELHI ITAT) 4. SONATA INFORMATION TECH. LMT. VS. DCIT (TS 286 - ITAT 2012) (MUMBAI ITAT) 8 . THE LD. DR VEHEMENTLY SUPPORTS THE ORDER OF THE AUTHORITIES BELOW. 9. W E HAVE HEARD RIVAL SUBMI SSIONS, PERUSED THE ORDER OF THE AUTHORITIES BELOW AND THE DECISION OF THE COO RDINATE BENCH IN ASSESS EES OWN CASE. THE T RIBUNAL HA S CONSIDERED THIS ISSUE AS TO WHE THER THE PURCHASE OF SOFTWARE BY THE ASSESSE E WOULD FALL UNDER FEES FOR TECHNICAL SERVICES SO AS TO ATTRACT TH E PROVISION S OF SEC . 194J OR NOT. IT WAS HELD THAT THE PROVISION S OF SEC. 194J HAVE NO APPLICATION OBSERVING AS UNDER : - 11. WE HAVE CONSIDERED RIVAL CONTENTIONS. EXPLANATION 2 OF SECTION 9(VII) DEFINES THE WORDS 'FEES FOR TECHNICAL SERVICES' AS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION) FOR TH E RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. A PERUSAL OF THE AFORESAID DEFINITION CLARIFIES THAT THE TERM FTS WOULD INCLUDE SERVICE OF THE FOLLOWING THREE TYPES: MANAGERIAL, TECHNICAL AND CONSULTANCY. THEREFORE, IN ORDER TO DECIDE WHE THER THE SERVICE WILL FALL WITHIN FTS OR NOT, IT IS NECESSARY TO DETERMINE THE SCOPE OF THE AFORESAID THREE TERMS. RECENTLY MUMBAI TRIBUNAL IN THE CASE OF TUV BAYREN (INDIA) LTD. DATED 06.07.2012 IN ITA NO 4944/MUM/2002 HAS DEFINED THE SCOPE OF THE AFORES AID TERMS IN THE FOLLOWING MANNER : 5 ITA NO. 3803/MUM/2015 (A.Y: 2012 - 13 ) M/S. LINTAS INDIA PVT. LTD VS.DCIT(TDA) - 2(1) TECHNICAL SERVICES REQUIRE EXPERTISE IN TECHNOLOGY AND PROVIDING THE CLIENT SUCH TECHNICAL EXPERTISE. MANAGERIAL SERVICES IS USED IN THE CONTEXT OF RUNNING AND MANAGEMENT OF THE BUSINESS OF THE CLIENT. CONSULTANCY IS 0 BE UNDERSTOOD AS ADVISORY SERVICES WHEREIN NECESSARY ADVISE AND CONSULTATION IS GIVEN TO ITS CLIENTS FOR THE PURPOSE OF CLIENT'S BUSINESS. IN VIEW OF THE ABOVE, THE COMPUTER SOFTWARE PURCHASED WOULD NOT FALL IN THE DEFINITION OF FEES FOR TECHNICAL SERV ICES AND THEREFORE THE PROVISIONS OF SECTION 194J ARE NOT APPLICABLE. 12. AS PER OUR CONSIDERED VIEW UNDER SECTION 194J, TDS IS NOT REQUIRED TO BE DEDUCTED AT SOURCE IN RESPECT OF PAYMENT MADE FOR PURCHASE OF COMPUTER SOFTWARE DEVELOPMENT. IN THE INSTANT CASE, ASSESSEE HAS PURCHASED SOFTWARE AND NOT MADE ANY PAYMENT FOR TECHNICAL KNOWHOW, THEREFORE, THERE IS NO MERIT IN HOLDING THE ASSESSEE IN DEFAULT U/S.201(1)&201(1A). 10 . W E NOTICED FROM THE ORDER PASSED U/S 201(1) OF THE ACT THAT THE ASSESSING OFFICE R CONSIDER ED THE PAYMENTS MADE FOR PURCHASE OF COMPUTER SOFTWARE AS THE PAYMENTS MADE FOR TECHNICAL S ERVICES OFFERED TO THE ASSESSEE, THEREFORE , THE EXPENSES INCURRED FOR PURCHASE OF SOFTWARE IS IN THE NATURE OF TECHNICAL SERVICES PROVIDED BY VENDOR AND TH E SAME IS TO BE SUBJECTED TO TDS UNDER THE PROVISION S OF SEC . 194J FOR DEDUCTING TAX AT SOURCE . 11 . ON A CAREFUL CONSIDERATION OF THE ABOVE ORDER, WE FIND THAT THE ISSUE IN APPEAL HAS BEEN DECIDED IN ASSESSEE S OWN CASE BY THE COORDINATE BENCH HOLDING THAT PAYMENTS MADE FOR PURCHASE OF OFF THE SHELF SOFTWARE DOES NOT FALL UNDER THE DEFINITION OF FEES FOR TECHNICAL SERVICES SO AS TO INVOKE THE PROVISIONS OF SEC . 194J OF THE ACT . TH U S , RESPECTFULLY FOLLOWING THE SAID ORDE R WE HOLD THAT THERE IS NO MERIT IN HOLDING THAT THE ASSESSEE IS A DEFAULTE R U/S 201(1) FOR NON - DEDUCTION OF TDS U/S 194J OF THE ACT ON THE PAYMENTS MADE TO PURCHASE SOFTWARE . THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. THE NEXT ISSUE IN THE APPEAL O F THE ASSESSE E IS THAT THE CIT(A) FA ILED TO ADJUDICAT E THE GROUND S RAISE D IN CONNECTION WITH INTEREST U/S 201(1A) OF THE ACT. T HIS GROUND IS ONLY CONSEQUENTIAL TO THE ABOVE GROUNDS. SINCE WE HAVE HELD THAT THE ASSESSEE IS NOT REQUIRED TO DEDUCT TDS U/S 194 J OF THE 6 ITA NO. 3803/MUM/2015 (A.Y: 2012 - 13 ) M/S. LINTAS INDIA PVT. LTD VS.DCIT(TDA) - 2(1) ACT ON THE INTERNET USAGE CHARGES AND THE AMOUNTS PAID FOR PURCHASE OF COMPUTER SOFTWARE , THE CALCULATION OF INTEREST U/S 201(1A) WILL NOT ARISE AND BECOMES ACADEMIC . 12. IN THE RESULT , APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JANUARY 2017. SD/ - SD/ - (N.K. PRADHAN) (C.N . PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DT : 18 TH JANUARY, 2017 NISHANTVERMA SR. PS COPY : 1. THE APPELLANT 2. HE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, J BENCH BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES 7 ITA NO. 3803/MUM/2015 (A.Y: 2012 - 13 ) M/S. LINTAS INDIA PVT. LTD VS.DCIT(TDA) - 2(1) DATE INITIALS 1. DRAFT DICTATED ON 11. 01 . 2017 SPS 2. DRAFT PLACED BEFORE AUTHOR .01.2017 SPS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER A M 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM 5. APPROVED DRAFT COMES TO THE SR. PS SPS 6. KEPT FOR PRONOUNCEMENT ON SPS 7. FILE SENT TO THE BENCH CLERK SPS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO A.R. 10. DATE OF DISPATCH OF ORDER
