The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) has struck down the additional tax demand, concluding that no Tax Deducted at Source ( TDS ) liability exists on payments to Manthan Systems Inc. ( MSI ) for sales commission under section 40(a)(i).
The brief facts leading to this case is this that the assessee is a software private limited company incorporated in the year 2003 under the provision of Companies Act, 1956. It is engaged in the business of providing software development service, sale of software products and rendering of IT enabled services.
Manthan Systems Inc. ( MSI ) is the company incorporated in the United States of America which is wholly owned subsidiary of Assessee Company; MSI provides sales and marketing services to the assessee for sale of assessee’s product / services in the territory of North American / South American and Caribbean markets. The assessee company therefore paid commission to MSI for its services.
Despite assessment under section 143(3) in all relevant years, no disallowance was made under section 40(a)(i) for non-deduction of TDS on commissions to MSI.
Mr. Narendra Kumar Jain, representing the assessee, cited the precedent set in M/s. Manthan System Inc. vs. DCIT for A.Y. 2012-13, dated 23.09.2022. In this case, the CIT(A) ruled that commissions paid to Manthan System Inc. do not constitute Fees for Technical Services ( FTS ) or fall under Article 12 of the Double Taxation Avoidance Agreement ( DTAA ). The contention that the payment qualifies as royalty was also dismissed, leading to a determination of no TDS liability.
The bench found force in the submission made by the Counsel that since it has already been decided by the Coordinate Bench that the services rendered to the assessee by the said Manthan Systems Inc. is not falling within the ambit of FTS or under Article 12 of the treaty, the assessee is not liable to deduct TDS on the payment made to the MSI.
The two member bench of the tribunal comprising Laxmi Prasad Sahu ( Accountant member) and Madhumitha Roy ( Judicial member ) found no ambiguity in the order passed by the CIT (A) in holding that there is no liability to deduct TDS and accordingly, deletion of addition made to the assessee’s income in respect of sales commission under section 40(a) (i) is found to be just and proper so as to warrant interference. The revenue’s appeal found to be devoid of any merit and therefore, dismissed.
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