No liability to deduct TDS on payments made to facebook Ireland for advertising
Facts and Issue of the case
The Assessee has preferred the instant appeal against the order dated 30.05.2017impugned herein passed by the ld. Commissioner of Income tax (Appeals)-13, New Delhi (in short “Ld. Commissioner”) u/s 250 of the Income Tax Act, 1961 (in short “the Act”), whereby the Ld. Commissioner deleted the additions of Rs. 1,64,02,845/- and 67,68,768/- made by the AO.
The Assesseehad e-filed its return of income on dated 28.09.2012 by declaring loss of Rs. (-) 4,18,78,678/-, which came into scrutiny and resulted into assessing the income of the Assessee to the tune of Rs.(-) 1,87,07,069/- by passing the Assessment Order U/s 143(3) of the Act and making of additions of Rs. 1,64,02,845/- on account of trade creditors outstanding for payment as on 31.03.2012 and of Rs. 67,68,768/- on account of non-deduction of TDS qua payment of marketing expenses.
Against the said additions/Assessment Order, theAssessee preferred an appeal before the Ld. Commissioner who vide impugned order confirmed the same.
Being aggrieved by the Impugned Order, has the Revenue Department preferred the instant appeal.
We have heard the parties and perused the material available on record. The Revenue Department has raised the following grounds of appeal:
- That the Ld. CIT(A) has erred in law and on facts by not appreciating the action of the AO regarding addition made under section 68 of the I.T.Act amounting to Rs. 1,64,02,845/- towards trade creditor outstanding for payment as on 31.03.2012 as per balance sheet of the assessee’s company.
- That the Ld.CIT(A) has erred in law and on facts by not appreciating the action of the AO regarding addition of Rs. 67,68,768/- on account of non deduction of TDS on payment of marketing expenses.
- That the order of the Ld.CIT(A) is erroneous and is not tenable on facts and in law.
- That the grounds of appeal are without prejudice to each other.
- That the appellant craves leave to add, alter, amend or forego any ground(s) of the appeal raised above at the time of hearing.
Observation of the court
Court is deciding this appeal by ground wise.
Ground no. 1: By way of ground no. 1 the Revenue Department claimed that the CIT(Appeals) has erred in law and on facts by not appreciating the action of the AO regarding addition made u/s 68 of the Act amounting to Rs. 1,64,02,845/- towards trade creditor outstanding for payment as on 31.03.2012 as per balance sheet of the Assessee company and, therefore, the order under challenge is perverse, improper and against the facts and circumstances of the case and liable to be set aside on this ground alone.
Court observes from the orders passed by the authorities that total amount of Rs. 1,64,02,845/- on the basis of which addition was made u/s 68 of the Act by the AO includes the only amount of Rs.98,16,753/- qua trade creditors and remaining amount consisted of provision for ascertained liabilities, expenses payable and reimbursement to be made to the employees. The Assessee in support of its contention also filed confirmation of the balances obtained from the creditors on 20.03.2015. However, it is a fact that AO had completed the assessment on 19.03.2015 itself. It was also claimed by the Assessee that the Assessee had furnished the purchase registers, ledger accounts, names and addresses of all the creditors as on 31.01.2015 but the AO had made no effort to verify these parties by exercising his powers u/s 131 or 133(6) of the Act. Even otherwise no queries with regard to the genuineness of the purchases, to which the trade balances pertained, have been raised. The Assessee also filed complete bank statements qua purchases and copy of the DVAT returns of the four quarters of the year in question. From the same it is clear that payments were made through banking channels only. It was also claimed by the Assessee that as the AO has accepted the trading results and, therefore, no addition is warranted qua disallowance of corresponding purchases. By taking into consideration the aforesaid facts, the Ld. Commissioner deleted the addition in hand.
Court has given our thoughtful consideration to the above factual position and determination made by the Ld. Commissioner. Before us the aforesaid facts remained un-controverted and even otherwise we do not find any material and/or any plausible reason to take a contrary view against the conclusion drawn by the ld. Commissioner. Consequently, ground no. 1 stands dismissed.
Coming to the 2nd Ground, which relates to the making of addition of Rs. 67,68,768/- on account of non-deduction of TDS qua payments of marketing expenses, which was deleted by the Ld. Commissioner. It was claimed by the Assessee that as the Assessee had made the payment to Facebook Ireland Inc. (In short “FII”), which admittedly did not have any permanent establishment („PE‟) in India and, therefore, the payments made to it for advertisement services were not chargeable to tax in India in view of the Article 7 of DTAA between India and Ireland. In support of its contention the Assessee also relied upon various judgments including in the case of Yahoo India Pvt. Ltd. Vs. DCIT (2011) 11 Taxmann.com 431, as relied upon by the Ld. AR before us as well, wherein it is clearly held that in the absence of any permanent establishment (‘PE’) of the deductor, the deductee is not liable to deduct the tax at source from the payments made for online advertisement services. It was also claimed by the Assessee that equalization levy was introduced to tax the income accruing to foreign e-commerce companies from India, requiring that a person making payment exceeding Rs. 1,00,000/- in a year to a non-resident, having no permanent establishment in India to withhold the tax at 6% of the gross amount, infact came into effect from 1.6.2016 only and prior to that the online advertisement were not subjected to deduction of tax at source.
Court has given thoughtfull consideration to the facts and circumstances of the case and observe that ld. Commissioner while considering the aforesaid claim of the Assessee and analyzing the provisions of section 9 & 195 of the Act, held that the DTAA between India and Ireland provides that the profits of the foreign enterprise shall be taxable only if it had carried on business in India through a permanent establishment („PE‟) situated therein. The Ld.Commissioner also observed that FII has certified that it has no permanent establishment („PE‟) in India and is a resident of Ireland for taxation purposes. The Ld. Commissioner finally concluded that there was no liability of tax on payments made for advertising services to FII.
Before the court the aforesaid facts remained uncontroverted and even otherwise we do not find any material and/or any reason to take a contrary view against the conclusion drawn by the ld. Commissioner. Consequently, ground no. 2 also stands dismissed.
Ground nos. 3 to 5 are formal in nature, hence do not require any independent adjudication.
The court dismissed the appeal filed by the Revenue Department.ACIT-Vs-Lenskart-Solution-P-L-ITAT-Delhi