Since web hosting services are not royalty or FTS, TDS is not deductible for them
Fact and issue of the case
The appeal by the Revenue is directed against the order dated 09.2020 of the Ld. Commissioner of Income Tax Appeals-2, New Delhi (“CIT(A)”) pertaining to assessment year (“AY”) 2017-18.
The Revenue has taken the following grounds of appeal:-
On the facts and circumstances of the case, whether the Ld. CIT(A) has erred on facts and in law to delete the disallowances made u/s 40(i)(a) of the Act amounting to Rs. 2,40,27,500/- for payments made to Dubai Leading Technologies ignoring the fact that India-UAE DTAA has no clause on Fee for Technical Services.
On the facts and circumstances of the case, whether the Ld. CIT(A) has erred on facts and in law to delete the disallowances made u/s 40(i)(a) of the Act amounting to Rs. 4,29,06,250/- for payments made to Brain Point consultants UAE ignoring the fact that India UAE DTAA has no clause on Fee for Technical Services.
On the facts and circumstances of the case whether the Ld. CIT(A) has erred on facts and in law to delete the disallowances made u/s 40(i)(a) of the Act amounting to Rs. 2,65,03,316/- for payments made to OIT Managed Services Mauritius on grounds that in absence of any specific clause for FTS in the India Mauritius Treaty, the taxability will be determined as per the provisions of Income Tax Act, 1961 and payment made is of the nature of Royalty for transfer of copyright in the ‘Work Product’ and the associated services and are chargeable to tax as fee for technical ”
Briefly stated the facts of the case are that the assessee is engaged in the business of computer software. The assessee filed its return of income on 07.10.2017 declaring income of Rs. 6,99,57,250/-. The case of the assessee was selected for scrutiny through CASS. Statutory notices along with questionnaire under section 143(2) and 142(1) of the Income Tax Act, 1961 (the “Act”) were issued to the assessee on various dates online through ITBA asking the assessee to submit the required information which were duly submitted by the assessee online through ITBA which were placed on record.
Observation of the court
Based on the above facts and legal position set out abvoe, we are of the considered view that the web hosting services availed by the assessee do not constitute royalty or FTS and hence payments made by the assessee to OIT Managed Services Mauritius in consideration of such services are not chargeable to tax in India consequent to which the assessee is not required to withhold any tax on the impugned payments. Having said so, we also hold that the impugned payments are not taxable in India in the absence of any specific clause on FTS in India-Mauritius DTAA for the year under consideration for the reasons recorded in para 8, 8.1, 8.2 and 10 above. Accordingly, ground No. 3 of the Revenue is dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 20th October, 2023.
Read the full order from hereDCIT-Vs-Campus-Eai-India-Pvt.-Ltd.-ITAT-Delhi2