Revenue's appeal dismissed as payments to VBSNI don't constitute royalty under DTAA requiring TDS deduction under section 195

ITAT Delhi dismissed revenue's appeal regarding TDS disallowance under section 40(a)(i). The AO had disallowed payments made by assessee to VBSNI, treating them as royalty under section 9(1)(vi) requiring TDS deduction under section 195. ITAT followed its earlier decision for assessment years 2010-11 to 2015-16, confirmed by Delhi HC, holding such payments do not constitute royalty under DTAA provisions and no TDS deduction is required. The tribunal directed deletion of the disallowance and allowed assessee's grounds of appeal.

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Issues:
1. Whether the payments made by the assessee to associated enterprises are in the nature of royalty and subject to TDS under section 195 of the Income Tax Act.
2. Whether the payments made for business support services to a fellow subsidiary qualify as royalty and are liable for TDS under section 195 of the Act.

Analysis:
1. The appeal by the Revenue challenged the order of the Commissioner of Income Tax (Appeals) regarding payments made by the assessee to its associated enterprises located outside India. The Assessing Officer (AO) held that the payments were in the nature of royalty and required TDS deduction under section 195 of the Act. The assessee contended that the payments did not qualify as royalty and cited judicial precedents to support its case. The CIT(A) agreed with the assessee, noting that the issue had been previously decided in favor of the assessee by the ITAT Delhi Bench. The CIT(A) directed the deletion of the disallowance made by the AO under section 40(a)(i) of the Act. The Delhi High Court confirmed the Tribunal's decision, dismissing the Revenue's appeal. The Tribunal upheld the CIT(A)'s decision, stating that the issues were settled in favor of the assessee, and dismissed the Revenue's appeal.

2. Regarding the payments made for business support services to a fellow subsidiary, the AO disallowed the amount under section 40(a)(i) of the Act for not withholding taxes, equating them to royalty payments. The assessee argued that the services provided were different from telecom services and did not qualify as royalty. The CIT(A) agreed with the assessee, referencing the ITAT Delhi Bench's decision in the assessee's own case for previous assessment years. The CIT(A) directed the deletion of the disallowance made by the AO, and the Delhi High Court upheld the Tribunal's order. The Tribunal affirmed the CIT(A)'s decision, stating that the issues were settled in favor of the assessee, and dismissed the Revenue's appeal.

In conclusion, the Tribunal upheld the decisions of the CIT(A) in both issues, confirming that the payments made by the assessee to its associated enterprises and the fellow subsidiary were not in the nature of royalty and were not liable for TDS under section 195 of the Income Tax Act. The Tribunal dismissed the Revenue's appeal, as the substantive grounds raised had no merit in light of the settled decisions in favor of the assessee.

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