Eprss Prepaid Recharge Services India P.Ltd, Pune V. Income tax Officer,

ITA 87/PUN/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9373 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-03-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 12-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV GHEI
• Keywords: Double taxation relief
• Section: 143(3); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 8 7 /P U N/201 7 / ASSESSMENT YEAR : 20 1 3 - 1 4 EPRSS PREPAID RECHARGE SERVICES INDIA P. LTD., 207, KPCT COMMERCIAL COMPLEX, FATIMA NAGAR, WANOWRIE, PUNE 411013 . / APPELLANT PAN:AABCE5025H VS. THE INCOME TAX OFFICER, WARD 1( 3 ), PUNE . / RESPONDENT / APPELLANT BY : S HRI KISHORE PHADKE / RESPONDENT BY : S HRI SANJEEV GHEI / DATE OF HEARING : 28 .0 3 . 201 9 / DATE OF PRONOUNCEMENT: 04 . 04 .201 9 / ORDER PER SUSHMA CHOWLA, J M : T H E APPEAL FILED BY ASSESSEE IS AGAINST ORDER OF CIT (A) - 1 , PUNE , DATED 0 6 . 1 0.2016 RELATING TO ASSESSMENT YEAR 201 3 - 14 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED CIT(A) - I, PUNE ERRED IN LAW AND ON FACTS IN CONFIRMING THE LEARNED AO'S DECISION OF DISALLOWING PAYMENT TOWARDS WEB HOSTING CHARGES TO AMAZON WEB SERVI CES LLC (USA) AMOUNTING TO RS. 57 , 6 7 , 188 / - AND RS.2,53,655/ - RESPECTIVELY U/S 40(A)(I) OF ITA, 1961, ITA NO. 8 7 /P U N/20 1 7 EPRSS PREPAID RECHARGE SERVICES INDIA P. LTD. 2 ON THE ANALOGY THAT, THE PAYMENT IS IN THE NATURE OF ROYALTY AS PER NEWLY INSERTED EXPLANATION - 2 TO SECTION 9(1)(VI) OF ITA, 1961, HAVING RETROSPECTIVE EFFE CT. 2. THE LEARNED CIT(A) - 1, PUNE & THE LEARNED AO ERRED IN LAW AND ON FACTS IN HOLDING THAT PAYMENT TOWARDS WEB HOSTING CHARGES TO AMAZON WEB SERVICES LLC (USA) AND PEER - 1 AMOUNTING TO RS. 57 , 6 7 , 188 / - AND RS.2,53,655/ - RESPECTIVELY ACCRUES AS TAXABLE INCO ME OF THE SAID PARTY IN INDIA, WITHOUT DEALING WITH THE APPLICABILITY OF INDO - USA DTAA. THE LEARNED I - T AUTHORITIES OUGHT TO HAVE APPRECIATED THAT THE DTAA OVERRIDES THE PROVISIONS OF ITA, 1961 ANYWAY AND AS PER DTAA, NO ANY SUCH INCOME ACCRUES IN INDIA IN ABSENCE OF PE. 3 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL OF PAYMENT MADE TOWARDS WEB HOSTING CHARGES TO AMAZON WEB SERVICES LLC (USA) (IN SHORT AWS) AND PEER - 1 AMOUNT ING TO 57,67,188/ - AND 2,53,655/ - , RESPECTIVELY IS NOT IN THE NATURE OF ROYALTY AND THE ISSUE IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE STARTING FROM ASSESSMENT YEAR 2010 - 11. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PO INTED OUT THAT HENCE, NO DISALLOWANCE IS TO BE MADE UNDER SECTION 40(A)(I) OF THE ACT . 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE FAIRLY STATED THAT THE ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF RECHARGE PINS OF VARIOUS DTH PROVIDERS TO ITS DISTRIBUTORS VIA ONLINE NETWORK. THE ASSESSEE HAD CLAIMED WEB HOSTING CHARGES AS DEDUCTIBLE. THE ASSESSEE EXPLAINED THAT IT REQUIRED SERVERS TO RUN VARIOUS ONLINE RECHARGES AND THESE SERVERS WERE TAKEN ON HIRE FROM AMAZON WEB SERVICES LLC, IN ITS CLOUD UNITS. THE ASSESSEE HAD ENTERED INTO WEB AGREEMENT WITH THE SAID PARTY. THE C ASE OF REVENUE ON THE OTHER HAND, WAS THAT IN LINE WITH THE AGREEMENT, THE ITA NO. 8 7 /P U N/20 1 7 EPRSS PREPAID RECHARGE SERVICES INDIA P. LTD. 3 ASSESSEE WAS GRANTED LIMITED LICENSE AND SITE ACCESS TO AWS WEBSITE FOR CONDUCT OF ITS ACTIVITIES, FOR WHICH CHARGES WERE RAISED ON MONTHLY BASIS. THE CASE OF ASSESSEE WAS THAT THE RE WAS NO OBLIGATION TO DEDUCT WITHHOLD TAX ON PAYMENTS MADE AS THE SAID PAYMENT DID NOT FALL EITHER WITHIN THE CATEGORY OF TECHNICAL FEES OR ROYALTY. HOWEVER, THE CASE OF REVENUE WAS THAT DUE TO SUBSEQUENT AMENDMENT TO SECTION 9 OF THE ACT BY THE FIN ANCE ACT, 2012, THE PAYMENTS MADE BY THE ASSESSEE TOWARDS WEB HOSTING CHARGES WERE AMOUNTS TO ROYALTY, ESPECIALLY IN VIEW OF EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS PER DEFINITION OF WEB HOSTING CHARG ES , PAYMENT WAS FOR THE USE OF SPACE ON SERVER OF AWS . IT ALSO ENLARGED THE SCOPE AND HELD THAT PAYMENT MADE TO AWS WAS FOR THE USE OF EQUIPMENT OR SERVICES RENDERED IN CONNECTION TO THE SAME AND THE SAME WOULD NOT ALTER THE SITUATION AND THE PAYMENT SHA LL STILL BE REGARDED AS ROYALTY. THE ASSESSING OFFICER ALSO DISTINGUISHED THE CASE LAWS RELIED UPON BY THE ASSESSEE AND HELD THAT THE PAYMENT MADE BY ASSESSEE TOWARDS WEB HOSTING CHARGES FOR USE OF SCIENTIFIC EQUIPMENT TO AWS FALLS WITHIN DEFINITION OF ROYALTY AS DEFINED IN SECTION 9(1)(VI) OF THE ACT READ WITH EXPLANATIONS 2 AND 5 OF THE SAID SECTION. SINCE THE NATURE OF PAYMENT WAS ROYALTY, THEN THERE WAS REQUIREMENT TO DEDUCT TAX UNDER SECTION 195 OF THE ACT READ WITH DTAA AND SINCE THE ASSESSEE HAS FAILED TO DEDUCT THE SAID TAX, THEN THE EXPENDITURE WAS DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT OF 57,67,188/ - . IN RESPECT OF SECOND PAYMENT, THE ASSESSING OFFICER VIDE PARA 4.1 ALSO NOTED THAT THE ASSESSEE HAD MADE PAYMENT OF WEB HOSTING CHARGES TO PEER - 1 AMOUNTING TO 2,53,655/ - AND SINCE NO TAX WAS DEDUCTED AT SOURCE, THE SAME WAS ALSO TO BE DISA LLOWED IN THE HANDS OF ASSESSEE. THE CIT(A) HAS UPHELD THE ORDER OF ASSESSING OFFICER. ITA NO. 8 7 /P U N/20 1 7 EPRSS PREPAID RECHARGE SERVICES INDIA P. LTD. 4 6. WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE WITH LEAD ORDER IN ITA NO.1204/PUN/2016, RELATING TO ASSESSMENT YEAR 2010 - 11, ORDER DATED 24.10.2018 HAS DELIBERATE D UPON THE ISSUES VIDE PARA 11 ONWARDS AND DECIDED VARIOUS ASPECTS OF THE ISSUES RAISED. THE RELEVANT FINDINGS ARE IN PARAS 11 TO 21 OF THE SAID ORDER. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE PAYMENT MADE BY ASSESSEE FOR WEB HOSTING CHAR GES TO AWS IS NOT CASE OF PAYMENT OF ROYALTY UNDER ANY OF THE PROVISIONS OF SECTION 9(1)(VI) OF THE ACT AND HENCE, THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE OUT OF SUCH PAYMENTS. 7. THE TRIBUNAL HAS DECIDED THE ISSUE OF PAYMENT OF WEB HOSTING C HARGES TO AWS AND THE PERUSAL OF ORDER OF ASSESSING OFFICER FOR THE YEAR UNDER CONSIDERATION REFLECTS THAT THE ASSESSEE IN ADDITION, HAD PAID WEB HOSTING CHARGES TO PEER - 1 ALSO. THE ASSESSING OFFICER NOTED AS SUCH IN PARA 4.1 OF ASSESSMENT ORDER. ACCORDI NGLY, APPLYING THE SAME PARITY OF REASONING, WE HOLD THAT PAYMENT MADE BY ASSESSEE FOR WEB HOSTING CHARGES IS TO BE ALLOWED AS DEDUCTION IN THE HANDS OF ASSESSEE IN ENTIRETY. THE GROUNDS OF APPEAL RAISED BY ASSESSEE ARE THUS, ALLOWED. 8 . IN THE RESULT, T HE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 4 TH DAY OF APRIL , 201 9 . SD/ - SD/ - (ANIL CHATURVEDI ) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 4 TH APRIL, 2019. GCVSR ITA NO. 8 7 /P U N/20 1 7 EPRSS PREPAID RECHARGE SERVICES INDIA P. LTD. 5 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - 1 , PUNE ; 4. THE PR. CIT - 1 , PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE. / BY ORDER , // TRUE COPY // / S R. PRIVATE SECRETARY , / ITAT, PUNE