Income Tax Appellate Tribunal - Mumbai
Alok Industries Ltd, Mumbai vs Dcit Itds) 1(1), Mumbai on 3 July, 2017
आयकर अपील य अ धकरण " " यायपीठ मुंबई म।
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JM AND SHRI RAJESH KUMAR, AM आयकर अपील सं./I.T.A. No. 1423/Mum/2015 ( नधारण वष / Assessment Year: 2007-08) Alok Industries Limited, Dy. CIT, (TDS) 1(1), Peninsula Business Park, 8th Floor, Room No. 803, बनाम/ Tower B, Second Floor, Smt. K. G. Mittal Ayurvedic G. K. Marg, Lower Parel, Vs. Hospital Building, Charni Road, Mumbai-400 013 Mumbai-400 002 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. (अपीलाथ /Appellant) : ( यथ / Respondent) अपीलाथ क ओर से / Appellant by : Shri M. P. Lohia & Shri Nikhil Tiwari यथ क ओर से/Respondent by : Shri Rajesh Kumar Yadav सनु वाई क तार ख / : 05.4.2017 Date of Hearing घोषणा क तार ख / : 03.7.2017 Date of Pronouncement आदे श / O R D E R Per Saktijit Dey, J. M.:
This is an appeal by the assessee against the order dated 18.7.2014 of Commissioner of Income Tax (Appeals)-14, Mumbai ('CIT(A)' for short) for the assessment year (A.Y.) 2007-08.
2. Altogether, the assessee has raised 11 grounds. Ground no. 1 being general in nature requires no adjudication. Ground nos. 2 and 4 are not pressed by the assessee, hence, dismissed. In ground no.3, the assessee has challenged the decision of ld. 2 ITA No. 1423/Mum/2015 (A.Y. 2007-08)
Alok Industries Limited vs. Dy. CIT (TDS) CIT(A) in confirming the demand raised u/s. 201(1) and 201(1A) for non deduction of tax at source u/s. 194J on payments made to M/s. Avery Dennisson Hong Kong BV.
3. Briefly the facts are during a survey conducted u/s. 133A of the Act on the assessee to verify TDS compliance it was found that the assessee has paid an amount of Rs.66,80,622/- to M/s. Sify Ltd. towards internet charges for broadband connection. It was also found that while making such payments, the assessee has deducted tax by applying the provisions of section 194C instead of section 194J. The Assessing Officer (A.O.) was of the view that the payment made by the assessee is towards technical services, hence, assessee was required to deduct the tax u/s. 194J. He, therefore, called upon the assessee to explain why it should not be treated as an assessee in default for non-deduction of tax at source at the appropriate rate. Though, the assessee objected to the proposed action of the A.O., however, rejecting the objections of the assessee, the A.O. held that the payment made by the assessee towards internet charges is towards technical services, hence, the assessee was liable to deduct tax u/s. 194J. Accordingly, he proceeded to treat the assessee as an assessee in default and raised a demand of Rs.6,44,627/- including interest charged u/s. 201(1A) amounting to Rs.2,69,844/-.
4. Being aggrieved of the demand raised by the A.O., the assessee preferred an appeal before the ld. CIT(A).
3ITA No. 1423/Mum/2015 (A.Y. 2007-08)
Alok Industries Limited vs. Dy. CIT (TDS)
5. During the first appellate proceeding, the ld. CIT(A) noticing that the A.O. had not provided the complete breakup of the payments made by the assessee to various parties called for necessary details, as per which the breakup of payment of Rs.66,80,622/- was found to be as under:
Party Amount Reasons for non-deduction of TDS provisions submitted by the appellant Avery Dennisson Hong Kong BV 32,69,015 Payments made for pourchase of barcodes from non-resident not liable to TDS under the Act.
(A) 32,69,015
Hathway Cable & Datacom Pvt. 5,897
Ltd.
Pelikan Xerox 6,674 Amounts within threshold limits as
prescribed under section 194C of the Act
Pentium Computers 898
Tracom Networks Ltd. 40,803
Videsh Sanchar Nigam Ltd. 4,800
You Telecom India Pvt. Ltd. 3,966
Petty Cash expenses 3,559
(B) 66,597
Sify Limited 33,45,011 TDS deducted u/s. 194C of the Act
(C) 33,45,011
Total A+B+C 66,80,623
6. From the details furnished, the ld. CIT(A) found that the payments made to M/s. Avery Dennisson Hong Kong BV and M/s. Sify Ltd. and Tracom Networks Ltd, attracted TDS provision. As far as payment amounting to Rs.32,69,015/- to M/s. Avery Dennisson Hong Kong BV is concerned, it was submitted by the assessee that such payments are for purchase of barcode stickers which is in the nature of stationery. Hence, the provisions of section 194J are not applicable. The ld. CIT(A) after considering the submissions of the assessee, however, held that the barcode is 4 ITA No. 1423/Mum/2015 (A.Y. 2007-08) Alok Industries Limited vs. Dy. CIT (TDS) not a commodity but an intangible property, therefore, payment made for purchase of such property is in the nature of royalty. Relying upon certain decisions, the ld. CIT(A) ultimately held that the payment made to M/s. Avery Dennisson Hong Kong BV for purchase of barcode being in the nature of royalty, the assessee was liable to deduct tax at source u/s. 194J. Accordingly, he upheld the decision of the A.O.
7. The ld. Authorized Representative (AR) submitted before us that the assessee had made payment of Rs.32,69,015/- to M/s. Avery Dennisson Hong Kong BV for purchase of bar code stickers, thermal transfer printers, software charges, on-site installation and operator training. He submitted, as far as thermal transfer printers are concerned they are capital goods, hence payment made for purchase of such goods cannot be treated as royalty, thereby attracting the provision of section 194J. He submitted, barcodes are in the nature of stationery, hence, cannot be equated to intangible property as held by the ld. CIT(A). He submitted, barcodes are nothing but stickers which are attached to the goods/commodities sold by the assessee. In this context, the ld. AR drew our attention to the literature/brochure of bar code and printer to emphasize that the payments made were nothing but for purchase of goods/commodities. Therefore, it cannot be treated as payment for technical services. He submitted, as far as the part payment made towards software is concerned, it is for assessee's own use. Therefore, it will not come within the purview of section 194J. He submitted, under no circumstances it can be treated as royalty. Further, the ld. AR submitted computer software was treated as royalty by virtue of amendment to section 5 ITA No. 1423/Mum/2015 (A.Y. 2007-08) Alok Industries Limited vs. Dy. CIT (TDS) 9(1)(vi) by insertion of Explanation 4 by Finance Act, 2012 w.r.e.f. 01.6.1976. The ld. AR submitted, as a result of such retrospective legislation which the assessee could not have foreseen when the payment was made, liability to deduct tax at source u/s. 194J would not arise. In support of such contention, the ld. AR relied upon the following decisions:
Capgemini Business Service India Ltd. vs. ACIT [2016] 158 ITD 1
8. The ld. Departmental Representative (DR) relied upon the observations of the ld. CIT(A).
9. We have considered the submissions of the parties and perused the materials on record. At the outset, we must observe, the ld. CIT(A) has decided the issue on the premise that the entire payment made by the assessee to M/s. Avery Dennisson Hong Kong BV, amounting to Rs.32,69,015/- is towards barcode. However, from the details submitted before the departmental authorities as well as before us, we find that the payments made by the assessee fall into following categories:
1. Purchase of thermal transfer printers
2. Purchase of barcodes
3. Software charges for onsite installation and operator training
10. Therefore, the departmental authorities have not properly appreciated the fact relating to the payments made by the assessee. After perusing the copies of the invoice raised by M/s. Avery Dennisson Hong Kong BV, we have found that the payments have been made towards purchase of thermal transfer printer which is 6 ITA No. 1423/Mum/2015 (A.Y. 2007-08) Alok Industries Limited vs. Dy. CIT (TDS) nothing but capital goods. Therefore, such payment cannot be treated as fees for technical service/royalty so as to bring them within the sweep of section 194J. Similarly, the barcode stickers are nothing but stationery items purchased by the assessee. Therefore, payment made for purchase of barcode cannot be treated as fees for technical services or royalty, so as to apply the provisions of section 194J. Therefore, we are left with the payments made towards software charges, onsite installation and operator training. As far as software charges are concerned, it is required to be seen whether the software supplied are in the nature of copy right or copy righted article. The afore-said factual aspect has not been examined by any departmental authorities. To put it in proper perspective, the departmental authorities have failed to properly examine the nature of payments. While A.O. has treated the entire payment as internet charges paid to M/s. Sify Ltd. The ld. CIT(A), though, has called for breakup of payment made, however, he has wrongly assumed that entire payment made to M/s. Avery Dennison was for barcode. In our view, without properly examining the facts, A.O. and CIT(A) have wrongly concluded that payment made is for technical services or software, hence, royalty. Therefore, there was no liability on the assessee to deduct tax u/s. 194J.
11. In ground nos. 5 to 7, the assessee has challenged the applicability of section 194J to the payments made to M/s. Sify Ltd. for internet broadband charges. As discussed earlier, the A.O. was of the view that the payment made by the assessee to 7 ITA No. 1423/Mum/2015 (A.Y. 2007-08) Alok Industries Limited vs. Dy. CIT (TDS) M/s. Sify Ltd. towards internet charges is in the nature of fees for technical services liable for deduction of tax at source under the provisions of section 914J.
12. The ld. CIT(A) upheld the view of the A.O. Further, ld. CIT(A) held that even if the payment made is not coming within section 194J, it will certainly come u/s. 194I, as it is rent paid for use of equipments and miscellany. Accordingly, he upheld the order of the A.O.
13. The ld. AR submitted, the assessee has made the payment towards internet/broadband connectivity and there is no technical service involved in respect of such payment. He submitted, the ld. CIT(A) has held that the internet connectivity is a process as provided in Explanation 6 to section 9(1)(vi). However, the said explanation was introduced to the statute by Finance Act, 2012 w.r.e.f. 01.6.1976. He submitted, by virtue of such retrospective amendment, the assessee cannot be fastened with liability to deduct tax u/s. 194J. He submitted, in various decisions, it has been held that the payment made towards internet/broadband/lease line charges are not in the nature of royalty, hence, there is no liability to deduct tax u/s. 194J. In this context, he relied upon the following decisions:
Lintas India Pvt. Ltd. vs. Dy. CIT (in ITA No. 3803/Mum/2015 dated 18.1.2017) My Guru Online Ltd. vs. CIT (in ITA No. 470/Vizag/2013) dated 15.4.2015
14. He submitted, even, the payment cannot be treated as rent u/s. 194I, as held by the ld. CIT(A). The ld. AR submitted, as per the provision of section 194I existing at 8 ITA No. 1423/Mum/2015 (A.Y. 2007-08) Alok Industries Limited vs. Dy. CIT (TDS) the relevant point of time, rent did not include machinery, plant or equipment. By virtue of an amendment made in The Taxation Laws (Amendment) Tax, 2006 w.e.f. 13.7.2006, plant, machinery and equipment were brought within the meaning of rent. He submitted, as a result of such amendment the assessee could not have deducted tax u/s. 194I of the Act. He submitted, in any case of the matter, payment made towards internet/lease line charges cannot be treated as rent u/s. 194I, as held in various decisions of the tribunal. For such preposition, he relied upon the following decisions:
Global India vs. ACIT [2014] 150 ITD 203 (Del) Hero Moto Corp. Ltd. vs. Addl. CIT [2013] 60 SOT 25 (Del)
15. The ld. DR relied upon the observations of the ld. CIT(A).
16. We have considered the submissions of the parties and perused the materials on record. Undisputedly, the assessee has paid the amount in question to Sify Ltd.
towards use of internet/lease license charges. As could be seen, in a number of judicial precedents, some of which have been cited before us, it has been held that payment made towards broadband/lease line charges is not in the nature of royalty so as to attract the provisions of section 194J. Since, the services rendered are not in the nature of technical service as envisaged u/s. 194J, the ld. CIT(A) has attempted to rope in the payment u/s. 194I by referring to the definition of 'process' as provided under Explanation (6) to section 9(1)(vi). However, the said amendment was made by Finance Act, 2012 w.r.e.f. 01.6.1976. Thus, as per existing provision, when the assessee made the payment there was no liability to deduct tax at source by treating it 9 ITA No. 1423/Mum/2015 (A.Y. 2007-08) Alok Industries Limited vs. Dy. CIT (TDS) as royalty. The amendment made with retrospective effect cannot fasten liability on the assessee. That being the case assessee cannot be treated as assessee in default. The decisions relied upon by the ld. AR support this view. As far as the observation of the ld. CIT(A) that the payment made otherwise is covered u/s. 194I, we must observe in case of Hero Moto Corp. Ltd. (supra)and Global India (supra), the tribunal has held that the broadband/lease line facilities provided by the service provider for transmission of data does not come in the category of payment made towards rent for equipment, plant and machinery. Therefore, respectfully following the decisions of the ITAT, we set aside the order of the ld. CIT(A) on this issue. Grounds raised are allowed.
17. In ground no. 8, the assessee has challenged the applicability of section 194-J to payment made to Tracom Network Ltd., is also towards broadband charges and not in the nature of royalty.
18. We have heard the rival contentions and perused the material on record. The department has not disputed that the payment made to Tracom Network Ltd is for internet/lease line charges. Therefore, in view of our decision in ground no. 5, there is no liability to deduct tax u/s. 194J. In any case of the matter, the assessee has contended before the first appellate authority that the payee has offered the amount received from the assessee as income which has been accepted by the ld. CIT(A) and the ld. CIT(A) has directed for levy of interest u/s. 201(1A). Be that as it may, in view 10 ITA No. 1423/Mum/2015 (A.Y. 2007-08) Alok Industries Limited vs. Dy. CIT (TDS) of our decision in Ground no. 5, we hold that payment made to Tracom Network Ltd. for internet/lease line charges do not attract provision of section 194J. This ground is allowed.
19. In ground no. 9, the assessee has challenged the applicability of TDS provision to service tax component in the payment made to M/s. Sify Ltd. The ld. AR submitted before us that the payment made to M/s. Sify Ltd. also includes service tax component amounting to Rs.5,14,296/-. He submitted, service tax cannot be subject to TDS provision. In this context, he referred to CBDT Circular no. 1/2014 dated 13.1.2014. Having perused the CBDT Circular referred to above, we find merit in the submissions of the assessee. In any case of the matter, while deciding ground nos. 5 to 7, we have held that the payment made to M/s. Sify Ltd. do not attract the provisions of section 194J. In that view of the matter, there is no liability on the assessee to deduct tax under the said provision. Therefore, the demand raised by the A.O. u/s. 201(1) and 201(1A) have to be deleted. In view of our above decision ground nos. 10 and 11 have become infructous.
20. In the result, assessee's appeal is allowed.
Order pronounced in the open court on 03.07.2017
Sd/- Sd/-
(Rajesh Kumar) (Saktijit Dey)
लेखा सद य / Accountant Member या यक सद य / Judicial Member
मंब
ु ई Mumbai; दनांक Dated : 03.07.2017
व. न.स./Roshani, Sr. PS
11
ITA No. 1423/Mum/2015 (A.Y. 2007-08)
Alok Industries Limited vs. Dy. CIT (TDS)
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु त(अपील) / The CIT(A)
4. आयकर आयु त / CIT - concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मंब
ु ई / DR, ITAT, Mumbai
6. गाड फाईल / Guard File
आदे शानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai