The Division Bench of Delhi Income Tax Appellate Tribunal (ITAT) has held that Microsoft regional sales could not be taxed instead of Mol observing that, “such flip flops could not be legally supported”.
The assessee Microsoft Regional Sales Pte. Ltd has raised contention that the Dispute Resolution Panel (‘DRP’) and AO had erred in holding that the revenue earned by Appellant from cloud services were taxable as “Royalty” in India in the hands of Appellant without appreciating the same was not in the nature of “Royalty” under the Income Tax Act, 1961 and India – USA/Singapore Double Taxation Avoidance Agreement (‘DTAA’).”
For the A.Y. 2018-19 the addition had been made by the AO on a protective basis and substantially in the case of Mol Corporation. For the A.Y. 2019-20 the issue of taxation of revenue from Cloud Services was a subject matter of addition on protective and substantive basis in two different entities.
While in the A.Y. 2018-19, the protective addition had been made in the hands of the assessee and the substantive addition had been made in the Mol Corporation during the A.Y. 2019-20, the substantive addition had been made in the case of assessee as the case of Mol Corporation has not picked up for scrutiny under Section 143(3) by CASS.
This led to an oxymoronic situation for the department.
Nageshwar Rao, on behalf of the revenue contended that the revenue tried to triumph over such a situation by imperfectly making the addition in year in the case of the assessee instead of Mol Corporation.
Gangadhar Panda, on behalf of the revenue submitted that, services are provided by MOLC and routed through the assessee . Accordingly, the same receipt could not be added to the income of both the companies on substantive basis. In the earlier years their receipts were taxed on protective basis in the hands of assessee and substantive basis in the hands of MOLC
He further submitted that, this year AGO has taxed i t in the hand of the assessee on substantive basis as the MOL Corporation (MOLC) was not selected for scrutiny through CASS
The Delhi Bench of Saktijit Dey (Judicial Member) and B. R. R. Kumar (Accountant Member) deleted the addition and allowed the appeal observing that “we hereby hold that such flip flop cannot be legally supported and hence the addition made in the hands of the assessee is liable to be deleted.”
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