PINSTORM TECHNOLOGIES P. LTD, MUMBAI V. ITO 9(2)(4), MUMBAI

ITA 6778/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9403 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 06-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 24-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Assessee Lawyers: MRS INDIRA ANAND
• Keywords: Business expenditure; Advance ruling; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 6778/MUM/2010 (ASSESSMENT YEAR: 2007-08) PINSTORM TECHNOLOGIES PVT. LTD., GROUND FLOOR, SWATI BUILDING, NORTH AVENUE, SANTARCUZ WEST, MUMBAI -400 054 PAN AADCP 4854 B VS. INCOME-TAX OFFICER 9(2)(4), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : MRS INDIRA ANAND RESPONDENT BY : SHRI GIRIJA DAYAL DATE OF HEARING: 06.11.2012 DATE OF PRONOUNCEMENT: 21.11.2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL ARISES FROM THE ORDER OF CIT(A) 20, MUMBAI, DATE D 22.07.2010, WHEREIN THE FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS OF THE CASE AND IN LAW, THE LEARNE D CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS 3,31,31, 304/- UNDER SECTION 40(A)(I) OF THE ACT WITH REGARD TO EXPENDITURE INCURRED ON PURCHASE OF AD-WORDS FROM N ON- RESIDENT ON THE ERRONEOUS GROUND THAT INCOME TAX IS NOT DEDUCTED AT SOURCE BEFORE MAKING THE PAYMENT. THE CIT(A) FAILED TO APPRECIATE THAT: A. SECTION 195 IS NOT APPLICABLE TO PAYMENT BY THE APPELLANT AS IT IS MADE FOR ACTIVITY CONDUCTED OUTS IDE INDIA THROUGH THE INTERNET AND NO PART OF THE ACTIV ITY IS RENDERED IN INDIA. B. THE INCOME EARNED BY THE NON-RESIDENT IS NOT TAX ABLE IN INDIA AS PER THE PROVISIONS OF INCOME-TAX ACT AN D THEREFORE THE QUESTION OF DEDUCTION OF INCOME TAX DOES NOT ARISE. 2. BY FOLLOWING THE ORDER OF CIT(A) FOR AY 200 6-07, THE LEARNED CIT(A) HAS ERRED IN TREATING THE BUSINESS EXPENDITURE AS ROYALTY U/S 9(1)(IV). PINSTORM TECHNOLOGIES PVT. LTD. ITA 6778/MUM/2010 2 2. AT THE TIME OF HEARING, THE AR SUBMITTED THAT THE ISS UE INVOLVE HEREIN IS SQUARELY COVERED BY THE ORDER OF THE COORDINA TE BENCH IN THE ASSESSEE OWN CASE IN ITA NO. 4332/MUM/2009 FOR ASSESSM ENT YEAR 2006-07, WHEREIN, THE FOLLOWING OBSERVATIONS WERE MADE: 6. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND A LSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBS ERVED THAT A SIMILAR ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE CASE OF YAHOO INDIA PVT. LTD. AND VIDE ITS O RDER DATED 24TH JUNE, 2011 PASSED IN ITA NO.506/MUM/2008, THE TRIBU NAL DECIDED THE SAME IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO.8 OF ITS ORDER: 8. AS ALREADY NOTED BY US, THE PAYMENT MADE BY ASSESSEE IN THE PRESENT CASE TO YAHOO HOLDINGS (HON G KONG) LTD. WAS FOR SERVICES RENDERED FOR UPLOADING AND DISPLAY OF THE BANNER ADVERTISEMENT OF THE DEPARTME NT OF TOURISM OF INDIA ON ITS PORTAL. THE BANNER ADVERTIS EMENT HOSTING SERVICES DID NOT INVOLVE USE OR RIGHT TO US E BY THE ASSESSEE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT AND NO SUCH USE WAS ACTUALLY GRANTED BY YAHOO HOLDINGS (HONG KONG) LTD. TO ASSESSEE COMPANY . UPLOADING AND DISPLAY OF BANNER ADVERTISEMENT ON IT S PORTAL WAS ENTIRELY THE RESPONSIBILITY OF YAHOO HOL DINGS (HONG KONG) LTD. AND ASSESSEE COMPANY WAS ONLY REQUIRED TO PROVIDE THE BANNER AD TO YAHOO HOLDINGS (HONG KONG) LTD. FOR UPLOADING THE SAME ON ITS PORT AL. ASSESSEE THUS HAD NO RIGHT TO ACCESS THE PORTAL OF YAHOO HOLDINGS (HONG KONG) LTD. AND THERE IS NOTHING TO S HOW ANY POSITIVE ACT OF UTILIZATION OR EMPLOYMENT OF TH E PORTAL OF YAHOO HOLDINGS (HONG KONG) LTD. BY THE ASSESSEE COMPANY. HAVING REGARD TO ALL THESE FACTS OF THE CA SE AND KEEPING IN VIEW THE DECISION OF THE AUTHORITY O F ADVANCE RULINGS IN THE CASE OF ISRO SATELLITE CENTR E 307 ITR 59 AND DELL INTERNATIONAL SERVICES (INDIA) P. L TD. 305 ITR 37, WE ARE OF THE VIEW THAT THE PAYMENT MADE BY ASSESSEE TO YAHOO HOLDINGS (HONG KONG) LTD. FOR THE SERVICES RENDERED FOR UPLOADING AND DISPLAY OF THE BANNER ADVERTISEMENT OF THE DEPARTMENT OF TOURISM O F INDIA ON ITS PORTAL WAS NOT IN THE NATURE OF ROYALT Y BUT THE SAME WAS IN THE NATURE OF BUSINESS PROFIT AND I N THE ABSENCE OF ANY PE OF YAHOO HOLDINGS (HONG KONG) LTD . IN INDIA, IT WAS NOT CHARGEABLE TO TAX IN INDIA. ASSE SSEE THUS WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM TH E PAYMENT MADE TO YAHOO HOLDINGS (HONG KONG) LTD. FOR SUCH SERVICES AND IN OUR OPINION, THE PAYMENT SO MA DE CANNOT BE DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40(A) FOR NON-DEDUCTION OF TAX. IN THAT VIE W OF THE MATTER WE DELETE THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LEARNED CIT (A) U/S 40(A) AND ALLO W THE APPEAL OF THE ASSESSEE. 7. AS THE ISSUE INVOLVED IN THE PRESENT CASE AS WEL L AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THE CASE OF YAHOO INDIA P. LTD. (SUPRA), WE RESPECTFULLY FOLLOW THE DECISION RENDERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE SAID CASE AND DELETE THE DISALLOWANCE MADE BY THE A.O. A ND CONFIRMED BY THE LD. CIT (A) BY INVOKING THE PROVIS IONS OF PINSTORM TECHNOLOGIES PVT. LTD. ITA 6778/MUM/2010 3 SEC.40(A)(I) HOLDING THAT THE AMOUNT PAID BY THE AS SESSEE TO M/S. GOOGLE IRELAND LTD. FOR THE SERVICES RENDERED FOR UPLOADING AND DISPLAY OF BANNER ADVERTISEMENT ON ITS PORTAL W AS IN THE NATURE OF BUSINESS PROFIT ON WHICH NO TAX WAS DEDUC TIBLE AT SOURCE SINCE THE SAME WAS NOT CHARGEABLE TO TAX IN INDIA IN THE ABSENCE OF ANY PE OF GOOGLE IRELAND LTD. IN INDIA. 3. THE DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 4. IT IS UNDISPUTED FACT THAT THE ASSESSEE PAID SUM OF RS. 3,31,31,304 WITHOUT DEDUCTING TAS. BUT IT IS A SETTLED POSITI ON THAT IN THE ABSENCE OF PE IN INDIA, THE AMOUNT IS NOT CHARGEABLE TO TAX ANF THEREFORE. IN VIEW OF THE PROVISIONS OF SECTION 40(A)(I) OF THE A CT ARE NOT TO BE INVOKED. THIS PROPOSITION HAS STRENGTH FROM THE ABO VE CITED/QUOTED DECISION OF THE TRIBUNAL IN THE ASSESSEES O WN CASE IN ITA NO. 4332/MUM/2009 (SUPRA) DATED 18.07.2012. THE SAID VIEW WAS TAKEN BY THE TRIBUNAL FOLLOWING THE DECISION OF THE ITAT IN YAHOO INDIA PVT. LTD. THUS, THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE, THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE ALLOW GROUNDS N O. 1,1A, 1B AND 2. 5. IN THE RESULT, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE AO IS DIRECTED TO DELETE THE ADDITION MADE AT RS 3,31,31,304. 6. APPEAL FILED BY THE ASSESSEE IS THUS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 21/11/2012. SD/- (D. KARUNAKARA RAO) ACCOUTANT MEMBER SD/- (VIVEK VARMA) JUDICIAL MEMBER MUMBAI, DATE: 21/11/2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)- 20 , MUMBAI. 4) THE CIT 9, MUMBAI, PINSTORM TECHNOLOGIES PVT. LTD. ITA 6778/MUM/2010 4 5) THE D.R. C BENCH, MUMBAI. 6) COPY TO GUARD FILE. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN