Income Tax Appellate Tribunal - Chennai
Air2Web India Pvt Ltd., Chennai vs Department Of Income Tax on 28 January, 2013
आयकर अपील य अ धकरण, 'सी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL , 'C' BENCH, CHENNAI
ी ए. मोहन अलंकामणी, लेखा सद य एवं ी च ला नागे साद, या यक सद य के सम
BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER
AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
I.T.A.No.1030/M ds/2013 & C.O.No.146/M ds/2013
(I n ITA No.1030/Mds/2013)
( नधारण वष / Assessm ent Year : 20 09-10)
Deput y Com missioner of M/s. Velti India Pvt. Ltd.
Incom e tax, V s. [ Fo r m e r ly k n o w n as
Com pany Circl e-I(1), M/s.Air2w eb India Pvt. Ltd]
Chennai-34. 4-E, P.M.Towers,
37, Gream s Road,
Chennai -600 006.
PAN: AACCA8496P
(अपीलाथ /Appellant) (Respondent/Cross Objector)
अपीलाथ क ओर से / Appellant by : Mr. N.Madhavan, JCIT
यथ क ओर से/Respondent by : Mrs. Farha Sultana, C.A
सन
ु वाई क तार ख/ Da t e of he ar i ng : 12th February, 2014
घोषणा क तार ख /Da t e o f P r on o u nc e me n t : 27th February, 2014
आदे श / O R D E R
Per Challa Nagendra Prasad, JM:
This appeal by the Revenue and cross objection by the assessee are filed against the order of the Commissioner of Income Tax (Appeals)-IX, Chennai dated 28.01.2013 for the assessment year 2009-10.
2 ITA No.1030/Mds/2013 &C.O.No.146/Mds/2013
2. The cross objection is filed by the assessee with the delay of 43 days. The assessee filed an affidavit for condonation of delay citing reasons for delay in filing of cross objection. We have perused the reasons and are satisfied that there is a reasonable cause for the delay in filing of the cross objection. In the interest of justice, we condone the delay of 43 days in filing of the cross objection and the same is admitted.
3. First we take up appeal of the Revenue. The first ground of appeal of the Revenue is that the Commissioner of Income Tax (Appeals) erred in deleting disallowance made under section 40(a)(i) of the Act in respect of carrier payments made to M/s. Clickatel, South Africa without deduction of tax at source.
4. The Assessing Officer while completing the assessment found that assessee incurred carrier expenditure by making payments to BSNL and Clickatel, which is the service provider similar to BSNL and situated in South Africa. Since 3 ITA No.1030/Mds/2013 & C.O.No.146/Mds/2013 the assessee did not deduct TDS on the payments made to Clickatel, the Assessing Officer invoking the provisions of section 40(a) (i) disallowed the same, ignoring the submissions of the assessee that no technical services are involved in utilizing the services of Clickatel, South Africa and it is not payment for fees for technical services. On appeal, Commissioner of Income Tax (Appeals) deleted the disallowance made by the Assessing Officer against which the Revenue is in appeal before us.
5. The Departmental Representative supporting the order of the Assessing Officer submits that assessee made payment to Clickatel, South Africa for the services utilized by the assessee and thus services are technical services and the assessee was required to deduct TDS for fees paid for such technical services.
6. On the other hand, counsel for the assessee strongly supports the order of the Commissioner of Income Tax (Appeals) in holding that services rendered by Clickatel are 4 ITA No.1030/Mds/2013 & C.O.No.146/Mds/2013 not technical services and the fees paid to them are not fees for technical services and therefore there is no need to deduct TDS. The counsel for the assessee places reliance on the decision of jurisdictional High Court in the case of Skycell Communications Ltd. Vs. DCIT (251 ITR 53 ) and submits that the Hon'ble High Court held that provision for cellular mobile facility to subscribers is not a technical service.
7. Heard both sides. Perused orders of lower authorities and the decisions relied on. The Commissioner of Income Tax (Appeals) has elaborately considered the facts, submissions of the assessee and the contentions of the Assessing Officer as to whether fee paid by the assessee to Clickatel, South Africa is for technical services or not and whether any TDS is required to be made on such payment observing as under:-
"6.2 I have perused the observations of the AO. and the written submissions of the AR of the appellant in this regard. It is seen from the facts of the case that the nature of services rendered by the non-resident i.e. M/s. Clickatel, as a carrier, is only to transmit the bulk SMS. The nature of service require no technical knowledge and what is rendered is just transmission of data, which requires no technical skill. The carrier is 5 ITA No.1030/Mds/2013 & C.O.No.146/Mds/2013 just a medium for sending the bulk SMS and as such cannot be considered to be rendering any technical service. However, the AO has considered the payment made to M/s. Clickatel, residing in South Africa, as technical service and disallowed a sum of ` 51,97,532/- u/s 40(a)(i) for non-deduction of TDS. Whereas the appellant contended that the service rendered by the Carrier is not a technical service and hence no disallowance is required to be made.
6.3 In order to determine whether the services rendered by the non-resident carrier comes under technical services, the provisions of Double Taxation Avoidance 'Agreement ( DTAA) need to be looked into. When the appellant enters into a transaction with a non-resident, the provisions of the Income Tax Act or the Double Taxation Avoidance Agreement (DTAA) whichever is favourable shall apply. As per DTAA between India and South Africa, the fee for technical service has been defined as, "payments of any kind received as a consideration for services of a managerial, technical or consultancy nature, including the provision of services by technical or other personnel, but does not include payments for services mentioned In Article 15."
It is seen from the facts of the' case that the nature of services rendered by the non-resident carrier would not be covered by the above definition. The decision rendered by the Hon'ble Supreme Court in the case of Bharti Cellular Ltd, provides .that for a service to be labelled as technical in nature 'human intervention is necessary. In a similar case, 319 ITR 139, the Hon'ble Delhi High court has held that as these services do not involve Human intervention, these cannot be regarded as Fee for technical service as contemplated under the income tax laws.
6.4 Further, it is also noticed that, fee for 6 ITA No.1030/Mds/2013 & C.O.No.146/Mds/2013 technical service apart from other conditions, shall fulfill the requirement of "make available". The services are considered to be "make available" where the recipient of such service is at the liberty to use the technical knowledge, skills and process in his own right. This view has been upheld in the case of NQA Quality systems Registrar Ltd. vs. DCIT (2004) 92 TTJ 946. In the view of the decisions mentioned supra, I am of the considered opinion that the services rendered by the non- resident carrier do not fall, under the clause "fee for technical service";
6.5 Further, after having gone through the facts of the case, I am of the considered opinion that AO was' not justified in invoking the provisions u/s 40(a)(i), on the payment made to M/s. Clickatel a .non- resident Carrier, for the following reasons: .
a) The non-resident Carrier would get payment for transmitting the bulk 'SMS data.
As the services are rendered outside. India the provisions of section 5 cannot be applied to the payment made to the non-resident Carrier so as to make it taxable in India. It is also seen that the non-resident Carrier does not have any permanent establishment in India. Further, in order to attract section 195, the services by the non-resident Carrier should have been rendered in India and also should have been used in India.' It is to be noted that Section 195 of the Act has to be read along with the charging sections 4, 5 and 9 of the Act and the provisions of the Tax Treaties and the combined reading of the aforesaid sections clearly indicate that unless the income is chargeable to tax in India, there is no obligation to withhold the tax.
b) The AO has viewed that Board's Circular,786 dated 7.2.2000 has been withdrawn and therefore it cannot be relied 7 ITA No.1030/Mds/2013 & C.O.No.146/Mds/2013 upon further. Since the law related to withholding of tax u/s 195 of the Act has not been changed even after withdrawal of the above circular issued by the. CBDT the AO's view is not acceptable.
6.6 In view of the' discussion made in the above paras, the AO is not justified In making the disallowance u/s 40(a)(i) as the payment made to M/s. Clickatel, non-resident carrier is not chargeable to tax in India. Therefore the AO is directed to delete the above disallowance of ` 51,97,532./- u/s 40(a)(i) of the Act. This ground of appeal is allowed."
8. On going through the order of the Commissioner of Income Tax (Appeals), we find that the nature of services rendered by non-resident i.e. M/s. Clickatel is only to transmit bulk SMS. The nature of service provided by Clickatel requires no technical knowledge and what was rendered was just transmission of data which requires no technical skill. The finding of the Commissioner of Income Tax (Appeals) that carrier which is a medium for sending bulk SMS and as such cannot be considered to be rendering any technical services. The Commissioner of Income Tax (Appeals) held that Clickatel which is a non-resident carrier rendered services outside India and no part of the payment made to Clickatel is chargeable to tax in India. The Commissioner of 8 ITA No.1030/Mds/2013 & C.O.No.146/Mds/2013 Income Tax (Appeals) also followed the decision of Hon'ble Supreme Court in the case of CIT Vs.Bharti Cellular Ltd. (330 ITR 239 ) on the issue. The Hon'ble Delhi High Court the case of CIT Vs. Bharti Cellular Ltd. (319 ITR 139) held that these services do not involve human intervention and these services cannot be regarded as fee for technical services. The Hon'ble Madras High Court in the case of Verizon Communications Ltd. Vs. ITO in T.C.(Appeal) Nos. 147 to 149 of 2011 and 230 of 2012 dated 7.11.2013 held that collection of fees for usage of standard facility would not amount to payment made for providing technical services. In the circumstances, we do not find any good reason to interfere with the decision of the Commissioner of Income Tax (Appeals) in holding that payment made by the assessee to Clickatel is not fees for technical services and no TDS is required to be made.
9. The next issue in the grounds of appeal of the Revenue is that Commissioner of Income Tax (Appeals) erred in 9 ITA No.1030/Mds/2013 & C.O.No.146/Mds/2013 deleting the addition of ` 1.33 crores made by the Assessing Officer towards income accrued not offered to tax.
10. The Assessing Officer while completing the assessment made addition of ` 1.33 crores on the ground that assessee has received this amount in advance from the customers and this is liable to be assessed as income as there is no liability attached to the assessee in the event of failure to render contracted services. It was also the observation of the Assessing Officer that there is no specific clause in the agreement that the client gets refund in case the assessee fails to render the service. On appeal, Commissioner of Income Tax (Appeals) deleted the addition.
11. The Departmental Representative vehemently supported the order of the Assessing Officer in making the addition.
12. The counsel for the assessee supports the order of the Commissioner of Income Tax (Appeals) and relies on the 10 ITA No.1030/Mds/2013 & C.O.No.146/Mds/2013 decision of the Hon'ble High Court in the case of CIT Vs. Coral Electronics Pvt. Ltd. (274 ITR 336) and submits that the Hon'ble High Court held that service charges received in advance for the services to be rendered in future years is not liable to be taxed in the year of receipt.
13. Heard both sides. Perused orders of lower authorities and decisions relied on. On reading of the assessment order as well as order of Commissioner of Income Tax (Appeals), we find that assessee received advance income from its customers and whenever services were provided by the assessee, assessee adjusts the advances received from customers and recognizes the income in the year in which services were rendered. However, the Assessing Officer taxed the advances received by the assessee and the Commissioner of Income Tax (Appeals) deleted the said addition observing as under:-
"7.2 I have considered the AO's observations and the appellants submissions in this regard. Since the appellant maintains books on accrual 11 ITA No.1030/Mds/2013 & C.O.No.146/Mds/2013 system, income shall be recognized only when it accrues. In the given case, the income accrues only when the appellant sends the required no. of SMS. Therefore, the service charges received in advance for the service to be rendered in future years are not liable to tax in the year of receipt. Only on completion of the service, the appellant has right over the amount that was received in advance. .In view of the above, the action of the AO is not justified in making the above disallowance of `1,33,01,684/- and hence directed to be deleted. This ground of appeal is allowed."
14. On reading of the above order, we do not find any good reason to interfere with the findings of the Commissioner of Income Tax (Appeals). Thus, the ground of appeal raised by the Revenue on this issue is rejected.
15. The cross objection filed by the assessee is only in support of the order of Commissioner of Income Tax (Appeals) and becomes infructuous.
12 ITA No.1030/Mds/2013 &C.O.No.146/Mds/2013
16. In the result, both the appeal of the Revenue and cross objection of the assessee are dismissed. Order pronounced in the open court on Thursday, the 27th day of February, 2014 at Chennai.
Sd/- Sd/-
(A.Mohan Alankamony) (Challa Nagendra Prasad)
Accountant Member Judicial Member
Chennai,
Dated the 27th February, 2014.
somu
Copy to: (1) Assessee (4) CIT(A)
(2) Assessing Officer (5) D.R
(3) CIT (6) G.F.