The Ahmedabad Bench of the Income Tax Appellate Tribunal(ITAT) comprising Annapurna Gupta and T R Senthil Kumar has held that payment of consideration in regard to bandwidth/telecom services by way of International Private Leased Circuit (IPLC) is taxable as “royalty”.
The appellant-assessee, aggrieved by the ruling of the Commissioner of Income Tax (Appeals) [CIT(A)], Ahmedabad, preferred this appeal to the Appellate Authority as the Assessing Officer held that, “the combined reading of the meaning of hoisting charges as claimed by the assessee and the nature of services rendered by the NEBU, A Netherlands-based Company makes it clear that the services which NEBU of Netherland renders to its clients are Royalty and Fees for Technical Services as defined under Section 9(1)(vii) of the Income Tax Act, 1961. Thus the assessee failed to withhold the tax before making payment to NEBU of Netherland”, which was upheld by the CIT(A).
The assessee submitted, to the CIT(A) that the NEBU is not having any Permanent Establishment in India and furnishing the copy of the agreement between the assessee and NEBU. The agreement says that the customer is given the right to use the software and related documentation.
The appellant was left unrepresented except one time during 11 hearings of the matter before the Tribunal.
On behalf of the revenue, it was submitted that, it is a settled principle of law by the various High Courts and the payments made by the assessee to NEBU of Netherland is in the nature of Royalty and therefore liable to deduct tax at source u/s. 195 of the Act. Failure on which attracted Section 201(1) and 201(1A) of the Act which were rightly done by the Assessing Officer, which has also been upheld by the Ld. CIT(A) thus does not require any interference and therefore the addition made by the A.O. is to be sustained and dismiss the present appeal filed by the assessee.
The bench comprising Annapurna Gupta, Accountant Member and T R Senthil Kumar observed that, “In fact the assessee’s reliance in its Grounds of Appeal of Jurisdictional High Court judgment in the case of Nova Technocast Pvt. Ltd. (304 CTR 670) is a judgment considering Explanation 2 of Section 9(1)(iv) and is not applicable to the facts of the present case.” and held that, the findings of the lower authorities do not require any interference.
Consequently, the appeal of the assessee was dismissed.
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