M/s. Adadyn Technologies Private Limited, Bangalore V. Deputy Commissioner of Income Tax, (International Taxation), Circle- 1(2), Bangalore

ITA 993/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4510 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-10-2020
• Assessment Year: 2016-2017
• Appeal Filed On: 09-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Assessee Lawyers: SUDEEP DAS
• Keywords: Business income; Double taxation relief; Opportunity of being heard; TDS; Set aside
• Section: 139; 201(1); 195; 201; 48; 9(1); 9(1); 9(1)

Judgement Text

IT(IT)A NOS.991 TO 993/BNG/2019 M/S. ADADYN TECHNOLOGIES PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(IT)A NOS.991 TO 993/BANG/2019 ASSESSMENT YEARS: 2014-15 TO 2016-17 ADADYN TECHNOLOGIES PRIVATE LIMITED COMMUNE COWORKS, 139 1 ST CROSS ROAD, 5 TH BLOCK KORAMANGALA, BANGALORE-560 095. PAN NO : AAACO8283A VS. DEPUTY COMMISSIONER OF INCOME-TAX (INTERNATIONAL TAXATION) CIRCLE-1(2) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI SUDEEP DAS, A.R. RESPONDENT BY : SHRI PRIYADARSHI MISHRA, D.R. DATE OF HEARING : 21.10.2020 DATE OF PRONOUNCEMENT : 21.10.2020 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: ALL THE THREE APPEALS FILED BY THE ASSESSEE ARE DIR ECTED AGAINST THE COMMON ORDER DATED 15.03.2019 PASSED BY LD CIT( A)-12, BENGALURU AND THEY RELATE TO THE ASSESSMENT YEARS 2 014-15 TO 2016-17. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE DEMAND RAISED BY THE AO U/S 201(1) A ND 201(1A) OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT]. 2. THE ASSESSEE COMPANY IS EARLIER KNOWN AS OZO NE MEDIA SOLUTIONS PRIVATE LIMITED. IT IS ENGAGED IN THE BU SINESS RELATING TO IT(IT)A NOS.991 TO 993/BNG/2019 M/S. ADADYN TECHNOLOGIES PVT. LTD., BANGALORE PAGE 2 OF 8 ONLINE ADVERTISING LIKE INTERNET BASED CONTENT, COM MUNICATIONS, ONLINE AD SPACE, ONLINE AD NETWORK AND RENDERS ADVE RTISING TECHNOLOGY SOLUTIONS. THE DEPARTMENT NOTICED THAT THE ASSESSEE HAS BEEN MAKING PAYMENTS TO ITS US SUBSIDIARY NAMED M/S ADADYN INC, WHICH WERE IN THE NATURE OF SELLING AND MARKETING E XPENSES. THE AO TOOK THE VIEW THAT THE IMPUGNED PAYMENTS ARE IN THE NATURE OF FEE FOR TECHNICAL SERVICES AND HENCE THE ASSESSEE SHOU LD HAVE DEDUCTED TAX AT SOURCE FROM THE ABOVE SAID PAYMENTS U/S 195 OF THE ACT. SINCE THE ASSESSEE HAD NOT DEDUCTED TDS, THE AO TREATED T HE ASSESSEE AS AN ASSESSEE IN DEFAULT AND ACCORDINGLY INITIATED PR OCEEDINGS U/S 201 OF THE ACT. 3. THE ASSESSEE SUBMITTED THAT THE SERVICES CARR IED OUT BY ITS US SUBSIDIARY ARE IN THE NATURE OF TARGETING NEW CUSTO MERS, CARRYING OUT PROMOTIONAL ACTIVITIES AND PARTICIPATING IN TRADE S HOWS OUTSIDE INDIA ON BEHALF OF THE ASSESSEE. THESE SERVICES ARE REND ERED IN USA, CANADA AND OTHER COUNTRIES. THE PAYMENTS ARE MADE TO US SUBSIDIARY WITH REGARD TO THE ABOVE SAID SERVICES A ND THEY ARE IN THE NATURE OF SELLING AND MARKETING EXPENSES. IT WAS S UBMITTED THAT THE RECEIPTS CONSTITUTE BUSINESS INCOME IN THE HANDS OF M/S ADADYN, INC., USA. IT WAS SUBMITTED THAT THE IMPUGNED PAYM ENTS WILL NOT FALL UNDER THE CATEGORY OF FEE FOR TECHNICAL SERVICES IN TERMS OF ARTICLE 12 OF INDIA-USA DTAA, SINCE THESE SERVICES DO NOT M AKE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW HO W OR PROCESS, TO THE ASSESSEE. THE ASSESSEE PLACED ITS RELIANCE ON THE DECISIONS RENDERED IN THE FOLLOWING CASES:- (A) V.M SALGAONCAR & BRO P LTD (TS-892-ITAT-2014) (B) EON TECHNOLOGY (P) LTD VS. DCIT 4. HOWEVER, THE AO EXAMINED THE PROVISIONS OF SEC .9(1)(VII) OF THE ACT AND HELD THAT THE IMPUGNED PAYMENTS HAVE BEEN M ADE FOR RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES AS IT(IT)A NOS.991 TO 993/BNG/2019 M/S. ADADYN TECHNOLOGIES PVT. LTD., BANGALORE PAGE 3 OF 8 DEFINED UNDER THE ABOVE SAID SECTION. THE AO FURTH ER EXAMINED THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND M/S ADAD YN INC., USA. HE CONCLUDED THAT THE US ENTITY IS PROVIDING MARKET ING AND BUSINESS SUPPORT SERVICES TO THE ASSESSEE IN INDIA BY UTILIS ING ITS SKILL AND MARKETING CAPABILITY IN THE LOCAL OVERSEAS MARKET. SINCE THE ASSESSEE HAS UTILISED THE SERVICES FOR ITS BUSINESS CARRIED ON IN INDIA, HE HELD THAT THE IMPUGNED PAYMENTS ARE ATTRACTED BY THE PRO VISIONS OF SEC.9(1)(VII)OF THE ACT. HE ALSO HELD THAT THE ASS ESSEE IS LIABLE TO DEDUCT TDS BOTH UNDER THE ACT AND DTAA AS THE PAYME NTS ARE IN THE NATURE OF FEE FOR TECHNICAL SERVICES. THE AO NOTIC ED THAT THE ASSESSEE HAS NOT FURNISHED TAX RESIDENCY CERTIFICAT E AND HENCE HE HELD THAT THE PROVISIONS OF SEC.206AA SHALL APPLY. ACCORDINGLY HE ADOPTED HIGHER RATE OF 20% FOR DETERMINING TAX LIAB ILITY U/S 201(1) OF THE ACT. 5. ACCORDINGLY, THE AO RAISED DEMAND U/S 201(1) AND INTEREST U/S 201(1A) IN ALL THE THREE YEARS UNDER CONSIDERATION. 6. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) H AS INITIALLY CONCURRED WITH THE VIEW OF THE AO THAT THE IMPUGNED PAYMENTS WERE MADE FOR CONSULTANCY SERVICES RENDERED TO THE ASSESSEE AND H ENCE IT IS TAXABLE IN INDIA (PARA 12 OF CIT(A)S ORDER). IN PARAGRAP H 16 OF HIS ORDER, THE LD CIT(A) EXPRESSED THE VIEW THAT THE APPELLANTS C LAIM THAT THE SERVICES PROVIDED BY ADADYN INC DOES NOT QUALIFY AS FTS AS PER ACT IS NOT ACCEPTABLE. 7. IN PARAGRAPH 48 OF HIS ORDER, THE LD CIT(A) H AS EXPRESSED THE VIEW THAT THE PAYMENT IS COMPOSITE IN NATURE, I.E., SOME OF IT IS ROYALTY, SOME IS FTS AND OTHERS MAY BE OF SOME OTHE R NATURE ALSO. FINALLY, THE LD CIT(A) CONCLUDED AS UNDER:- IT(IT)A NOS.991 TO 993/BNG/2019 M/S. ADADYN TECHNOLOGIES PVT. LTD., BANGALORE PAGE 4 OF 8 61. I FIND THAT THE PAYMENT FOR MARKET ANALYSIS, MAINTENANCE OF ONLINE DATA, CUSTOMER DATABASE ETC., ARE IN THE NATURE OF ROYALT Y, WHERE AS THE PAYMENT THE ADVICE RECEIVED FOR EVALUATION OF THE CLIENTS NEEDS, THEIR CAPACITY TO PAY, THE MARKET CONDITIONS, LEAD GENERATION ETC., ARE IN THE NATURE OF CONSULTANCY SERVICES (THESE ARE ALSO MADE AVAILABLE). HON. SUP REME COURT IN THE CASE OF TRANSMISSION CORPORATION HAS HELD THAT THE INTENTIO N OF THE LEGISLATURE IS TO ENFORCE TAX DEDUCTION AT SOURCE EVEN IN RESPECT OF GROSS SUMS, THE WHOLE OF WHICH DO NOT REPRESENT INCOME CHARGEABLE UNDER THEA CT. 62. I HOLD THAT THE PAYMENTS RECEIVED BY THE ADA DYN INC (US ENTITY) ARE COMPOSITE IN NATURE (BEING ROYALTY AS WELL AS CONSU LTANCY SERVICES AND MAY BE OTHERS ALSO). SINCE IT IS TAXABLE UNDER THE IT ACT AS WELL AS DTAA THE TDS MUST HAVE BEEN DEDUCTED. 63. ON THE ISSUE OF RATE APPLICABLE I HOLD THAT THE RATE PRESCRIBED UNDER DTAA OR ACT WHICHEVER BENEFICIAL TO THE APPELLANT I S APPLICABLE. 8. AGGRIEVED BY THE ORDER PASSED BY LD CIT(A), THE ASSESSEE HAS FILED THESE APPEALS. 9. THE LD A.R SUBMITTED THAT THE ASSESSEE IS ENG AGED IN THE BUSINESS OF ONLINE ADVERTISEMENTS. SINCE ITS CUSTO MERS ARE LOCATED IN USA, CANADA AND OTHER COUNTRIES, IT HAS FLOATED A SUBSIDIARY IN USA BY NAME M/S ADADYN INC. THE ASSESSEE HAS UTILI SED THE ABOVE SAID COMPANY IN ORDER TO PROVIDE BUSINESS SUPPORT S ERVICES IN THE FORM OF IDENTIFYING TARGET CUSTOMERS. THE ROLE OF M/S ADADYN INC., IS LIMITED TO IDENTIFYING TARGET CUSTOMERS. IN THIS R EGARD, IT WILL CARRY OUT PROMOTIONAL ACTIVITIES, PARTICIPATE IN TRADE SH OWS ETC. ONCE A TARGET CUSTOMER IS IDENTIFIED, THE DETAILS WILL BE FORWARDED TO THE ASSESSEE AND THEN THE ASSESSEE WILL DEAL WITH THOSE CUSTOMERS. ACCORDINGLY HE SUBMITTED THAT THE SERVICES SO RENDE RED BY M/S ADADYN INC., USA ARE NOT IN THE NATURE OF MANAGERIA L, TECHNICAL OR CONSULTANCY SERVICES AS DEFINED IN THE EXPLANATION 2 TO SEC.9(1)(VII) IT(IT)A NOS.991 TO 993/BNG/2019 M/S. ADADYN TECHNOLOGIES PVT. LTD., BANGALORE PAGE 5 OF 8 OF THE INCOME TAX ACT. IT IS ALSO NOT IN THE NATUR E OF TECHNICAL SERVICES AS DEFINED IN ARTICLE 12 OF INDIA-USA DTAA. 10. THE LD A.R FURTHER SUBMITTED THAT THE LD CIT (A) HAS TAKEN THE VIEW THAT THE SERVICES RENDERED BY M/S ADADYN INC., ARE COMPOSITE IN NATURE, I.E., IN THE NATURE OF ROYALTY, TECHNICA L SERVICES AND OTHER SERVICE. HE SUBMITTED THAT THE LD CIT(A) HAS ENTER TAINED THE VIEW THAT M/S ADADYN INC., USA HAS GOT MARKET ANALYSIS R EPORT, ONLINE DATA, CUSTOMER DATABASE ETC., AND THE ASSESSEE IS M AKING PAYMENT FOR USING THEM. HE SUBMITTED THAT IT IS NOT KNOWN AS TO HOW THE LD CIT(A) HAS ENTERTAINED THE VIEW, SINCE IT IS NOBODY S CASE THAT THE US COMPANY IS POSSESSING SUCH KIND OF DATA BASES. HE FURTHER SUBMITTED THAT THE LD CIT(A) HAS ALSO HELD THAT A P ART OF PAYMENT CONSTITUTES FEE FOR TECHNICAL SERVICES BOTH UNDER T HE ACT AND DTAA. HE SUBMITTED THAT THE LD CIT(A) HAS NOT ANALYSED TH E PROVISIONS OF ARTICLE 12 OF INDIA USA DTAA. WITHOUT ANALYSING TH E SAME, THE LD CIT(A) HAS EXPRESSED THE VIEW THAT THE SERVICES ARE MADE AVAILABLE. HE SUBMITTED THAT THE TAX AUTHORITIES HAVE NOT DEMO NSTRATED AS TO HOW THE SERVICES RENDERED BY M/S ADADYN INC FALL IN THE CATEGORY OF TECHNICAL SERVICES AND HOW IT WAS MADE AVAILABLE TO THE ASSESSEE. THE LD CIT(A) HAS ALSO EXPRESSED THE VIEW THAT A PA RT OF PAYMENT HAS BEEN MADE FOR OTHER SERVICES ALSO. HE CONTENDED TH AT THE PAYMENTS MADE BY THE ASSESSEE DO NOT FALL UNDER THE CATEGORY OF ROYALTY OR FEE FOR TECHNICAL SERVICES EITHER UNDER SEC. 9(1) OF TH E ACT OR UNDER DTAA. ACCORDINGLY HE SUBMITTED THAT THE ORDER PASSED BY L D CIT(A) IS LIABLE TO QUASHED. 11. ON THE CONTRARY, THE LD D.R SUBMITTED THAT T HE LD CIT(A) HAS UPHELD THE VIEW OF THE AO THAT PART OF THE PAYMENTS CONSTITUTE FEE FOR TECHNICAL SERVICES. HOWEVER, THE LD CIT(A) HAS ALSO HELD THAT SOME PART OF PAYMENT CONSTITUTES ROYALTY. WITH REGARD T O THE CONTENTION OF IT(IT)A NOS.991 TO 993/BNG/2019 M/S. ADADYN TECHNOLOGIES PVT. LTD., BANGALORE PAGE 6 OF 8 LD A.R THAT THE LD CIT(A) HAS NOT GIVEN THE BASIS F OR HIS OBSERVATION THAT THE ASSESSEE IS USING THE DATA BASE BELONGING TO M/S ADADYN INC., USA AND OTHER CONTENTION THAT THE PROVISIONS OF ARTICLE 12 OF DTAA HAS NOT BEEN ANALYSED, THE LD D.R SUBMITTED TH AT THE MATTER MAY BE RESTORED TO THE FILE OF LD CIT(A). 12. WE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICE THAT THE AO HAS MAINLY PLACED RELIANCE ON THE PROVI SIONS OF SEC.9(1)(VII) OF THE ACT, THOUGH HE HAS MADE REFERE NCE TO DTAA AT SOME PLACE. WE NOTICE THAT THE AO HAS NOT PROPERLY ANALYSED THE NATURE OF SERVICES RENDERED BY M/S ADADYN INC., USA , IN THE CONTEXT OF SEC. 9(1)(VII) OR DTAA, EVEN THOUGH HE HAS EXTRA CTED THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND M/S ADADYN INC. T HE CONTENTION OF THE ASSESSEE IS THAT THE NATURE OF SERVICES PROV IDED BY THE ABOVE SAID COMPANY IS IN THE NATURE OF BUSINESS SUPPORT S ERVICES AND NOT IN THE NATURE OF CONSULTANCY SERVICES IN STRICT SEN SE. IT IS NOT SHOWN THAT THE ABOVE SAID CONTENTION OF THE ASSESSEE IS W RONG. 13. WE ALSO NOTICE THAT THE NATURE OF SERVICES PR OVIDED BY M/S ADADYN INC., USA HAS NOT BEEN ANALYSED BY LD CIT(A) ALSO. ON THE CONTRARY, IT IS THE CONTENTION OF THE ASSESSEE THAT THE FIRST APPELLATE AUTHORITY HAS ENTERTAINED ERRONEOUS BELIEF THAT THE ASSESSEE HAS BEEN USING MARKET ANALYSIS/ ONLINE DATA/DATA BASES ETC., BELONGING TO M/S ADADYN INC. THE ABOVE SAID OBSERVATION OF LD CIT(A ) WAS STRONGLY OBJECTED TO BY THE ASSESSEE. HENCE THE OBSERVATION OF THE LD CIT(A) THAT A PART OF PAYMENT CONSTITUTES ROYALTY IS STRON GLY DISPUTED. FURTHER, WE ALSO NOTICE THAT THE LD CIT(A) HAS ALSO NOT PROPERLY ANALYSED THE PROVISIONS OF ARTICLE 12 OF INDIA USA DTAA. WITHOUT ANALYSING THE NATURE OF SERVICES, THE LD CIT(A) HAS OBSERVED THAT THE SERVICES WERE MADE AVAILABLE. THUS, WE NOTICE THAT THE LD CIT(A) HAS RENDERED THE DECISION WITHOUT BRINGING ON RECORD SU PPORTING IT(IT)A NOS.991 TO 993/BNG/2019 M/S. ADADYN TECHNOLOGIES PVT. LTD., BANGALORE PAGE 7 OF 8 MATERIALS AND ALSO WITHOUT PROPERLY ANALYSING THE P ROVISIONS AND CONTENTIONS OF THE ASSESSEE. IN THE ABSENCE OF PRO PER ANALYSIS OF FACTS RELATING THE ISSUES CONTESTED BEFORE US, IT WOULD B E DIFFICULT FOR THE TRIBUNAL TO ADJUDICATE THEM. 14. ACCORDINGLY, WE ARE OF THE VIEW THAT ALL THE CONTENTIONS OF THE ASSESSEE REQUIRE FRESH EXAMINATION AT THE END OF LD CIT(A). ACCORDINGLY, WE SET ASIDE THE COMMON ORDER PASSED B Y THE LD CIT(A) FOR THE YEARS UNDER CONSIDERATION AND RESTORE ALL T HE ISSUES TO HIS FILE FOR ADJUDICATING THEM AFRESH BY PROPERLY ANALYSING NATURE OF SERVICES, BRINGING ON RECORD MATERIALS RELIED UPON, CONTENTIO NS OF THE ASSESSEE AND THE RELEVANT PROVISIONS OF THE ACT AND DTAA. A FTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD, THE LD CIT(A) MAY TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 15. IN THE RESULT, ALL THE THREE APPEALS ARE TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCT, 2020 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 21 ST OCT, 2020. VG/SPS IT(IT)A NOS.991 TO 993/BNG/2019 M/S. ADADYN TECHNOLOGIES PVT. LTD., BANGALORE PAGE 8 OF 8 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.