In a major relief to Hitachi Metglas, the Delhi Bench of Income Tax Appellate Tribunal (ITAT) ruled that the IT support services cannot be termed as technical services so TDS is not deductible.
The assessee company, M/s Hitachi Metglas (India) Pvt. Ltd. is engaged in the business of designing and manufacturing of cores and other amorphous metal or nanocrystalline soft magnetic metal used in transmission and distribution equipment and in electronic and computer products and other related products.
The Assessing officer held that the assessee was liable to deduct TDS on Admin and Network Support service charges of Rs.35,60,212/- paid by Hitachi Metglass India Pvt. Ltd. to Metglass INC USA, Hitachi Asia Ltd. Singapore and Hitachi Ltd. Japan. Since the assessee did not deduct TDS as per provisions of the section 195 of the Act; therefore total deduction of expenditure of Rs.53,76,510/- on Admin and Network Support service charges as claimed by the assessee was disallowed and added back to the total income the assessee.
The coram of Judicial Member, Kul Bharat and Accountant Member, Dr. B. R. R. Kumar observed that the foreign AE (service provider) has neither employed any technical or skilled person to provide managerial or technical service nor there was direct interaction between the assessee and the foreign AE. Thus, where the entire process resulting in provisioning of service is a fully automated process with no human intervention, charges paid for provision of such services cannot be classified as FTS for the purpose of the Income Tax Act.
The ITAT held that the IT support services availed by the Assessee from Hitachi Ltd., Japan, and Hitachi Asia Ltd., Singapore are standard connectivity and networking services cannot be termed as technical services within the meaning of Section 9(1)(vii) of the Act. Hence, we hold that the assessee was not liable to deduct TDS on such expenditures. Accordingly, the disallowance made by the AO and confirmed by the Ld. CIT (A) in the present case is liable to be deleted.
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