Indian Kanoon - Search engine for Indian Law

9. For that the Commissioner of Income Tax (Appeals) erred in upholding the (disallowance of the server maintenance charges Rs.7,32,960/- u/s.40(a)(i).

10. For that the Commissioner of Income Tax (Appeals) erred in upholding the disallowance of the testing and development charges of Rs.16,20,432/- u/s.40(a)(i).

11. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the payments made towards service maintenance charges and the testing and development charges are not technical fees payable outside India.

14. For that the Commissioner of Income Tax (Appeals) failed to appreciate that tax is not required to be deducted at source on the payment of service maintenance charges and the testing and development charges in lieu of the provisions of the Double Taxation Avoidance Agreement between India and Italy and India and Germany.

15. For that the appellant objects to the levy of interest under section 234B.

:- 3 -:

:- 10 -:

9.0 Ground No.9 is related to the disallowance of Rs.7,32,960/- u/s.40(a)(i) of the Act pertains to Server Maintenance Charges and Ground No.10 is related to the disallowance of Rs.16,20,432/- u/s.40(a)(i) the Act in respect of testing and development charges. Ground Nos.11 to 14 are supportive arguments to the server maintenance charges and testing and development charges raised in Ground Nos.9 & 10. 9.1 During the assessment proceedings, the Assessing Officer found that the assessee made the payment for server maintenance charges of Rs.7,32,960/- and testing and development charges of Rs.16,20,432/- and no tax was deducted at source as required u/s.195 of the Act, Hence, the AO made the addition of Rs.23,53,392/- u/s 40(a)(i) of I.T. Act. 10.0 The assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) confirmed the addition made by the AO.

Maintenance Charges are in the nature of reimbursement charges paid to the parent company for using software related issues and cannot be held as payment of fee for Technical Services and hence the TDS is not applicable. The Ld.AR relied on the decision of ITAT, Chennai, in the case of Cairn Energy Pvt. Ltd., reported in (2010) 2 ITR 38.

11.1 Similarly, in the case of Testing and Development Charges, the Ld.AR argued that the assessee is using the output of technology without human intervention. For holding the payment as Fee for Technical Services(FTS) the element of human intervention is necessary. whereas in the assesse's case both for server maintenance and testing and development charges there is no human involvement and thus the payment cannot be held as Fee for technical services.