Assessee to deduct TDS on Payment for use of overall ICT Infrastructure set up by Netherlands entity which falls under `Royalties’: ITAT [Read Order]

The Pune Bench of Income Tax Appellate Tribunal (ITAT) has ruled that the assessee must deduct TDS on payment for use of overall ICT Infrastructure set up by Netherlands entity which falls under `Royalties’.

The assessee, Vanderlande Industries Private Limited is an Indian based Private Limited Company, is wholly owned by Vanderlande Industries Holding, B.V. Netherlands. The assessee is engaged in the business of baggage handling at Airports, Distribution Centre, Express Parcel Sortation facilities and related services. During the year under consideration, the assessee paid a sum of Rs.53,53,204/- to VIBV, its Netherlands based holding company, which was claimed as reimbursement on account of IT Support Services. No deduction of tax at source was made. On being called upon to explain the reasons for non- withholding of tax, the assessee submitted that the amount paid to VIBV was in the nature of reimbursement of IT Support Services cost and hence did not require any tax deduction.

Article 12 of the Double Taxation Avoidance Agreement between India and Netherlands (DTAA), the assessee contended that no services were “made available” by VIBV to the assessee so as to bring the payment within the purview of `fees for technical services’. The AO rejected the characterization of payment as `fees for technical services’ by the assessee and held the same as `Royalty’ covered u/s.9(1)(vi) read with Article 12 of the DTAA. The CIT(A) echoed the assessment order on the point, against which the assessee has come up in appeal before the Tribunal.

The coram of Vice President, R.S.Syal and Judicial Member, Parth Sarthi Choudhary has noted that Article 12 of the DTAA specifically covers consideration for use of any industrial or commercial equipment, the payment made by the assessee for use of the overall ICT Infrastructure set up by its Netherlands entity would fall within the term `Royalties’ under the DTAA. As the case is admittedly covered u/s.9(1)(vi) of the Act and also found to be covered by Article 12 of the amended DTAA, the Tribunal held that the amount paid by the assessee is chargeable to tax in the hands of the Netherlands entity. Failure of the assessee to deduct tax at source from payment made to the Netherlands entity clearly magnetises section 40(a)(i) of the Act.

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