TaxTMI 
TaxTMI 
2020 (8) TMI 120
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....of the assessee on this issue are adjudicated together as under:- 4. The fact in brief is that assessee has filed return of income on 18th Sep, 2013 declaring income of Rs. 9,94,745/-. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the Act on 5th Sep, 2014. During the course of assessment, the assessing officer noticed that assessee has made payment amounting to Rs. 13,09,739/- to ESM-SYSLLC, USA for obtaining the services of data promotion, social media management and general consulting. On query, the assessee explained that ESM-SYS-LLC was managing and overseeing the various on page and off page activities which drive traffic to a specific website. The assessing officer was of the view that the payments made by the assessee were in the nature of payment for technical or management services or execution of contract on which TDS was liable to be made u/s. 195 of the Act. The assessing officer has stated that sub-section 1 to section 195 makes it obligatory for every person in India to deduct tax at source @ specified in the relevant financial act. The Assessing Officer further stated that assessee had not complied with any of the provisions ....
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....re us, the ld. counsel has submitted paper book containing copies of document and submission made before the lower authorities. The ld. counsel has contended that the various provisions of Indo-USA double taxation (DTAA) was not considered by the lower authorities. He has further referred page no. 74 to 88 of the paper book comprising detail of written submission made before the ld. CIT(A) during the course of appellate proceedings in which it was submitted that the assessee was engaged in the business of web designing services, social media management etc. It was also submitted that ESMSYS- LLC has provided services which was in the nature of site promotion activities i.e. data storage, data security, bandwidth provision space monitoring etc. It is also submitted that equipment/servers used for providing such services were located outside India and these equipments were not owned by ESM-SYS-LLC. It is also submitted that such payment made was in the nature of business income and since there was no permanent establishment in India, therefore, tax was not required to be withheld. The ld. counsel has also contended that the services provided by the assessee not covered by the definit....
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.... services as technical knowledge or know-how are not made available. The lower authorities have rejected the submission of the assessee stating that payment made to payer was for rendering technical services which was sustained by the ld. CIT(A) holding that payment made was a fee for technical services and squarely covered under the explanation 2 to section 9(1)(vii) of the Act. It is discerned from the material on record that the assessee had obtained the services of web promotion, social media management from the ESMAY LLC, USA and they have used many techniques such as web content development, search engine optimization to increase the site traffic. The entire transaction has taken place on internet through virtual server. Servers were located worldwide outside not under the control of payer and it was used for hiring of space for domain hosting and display of advertisement on the server located worldwide. The assessee had made payment of Rs. 13,09,739/- to ESM SYS LLC, USA through normal banking channel for carrying out above referred nature of services. Section 195 of the Income Tax Act requires to deduct TDS on payment made to non- resident on the sum chargeable under the ....
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....on of services of technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design." [Emphasis Supplied]" To cover the services in the definition of "fee" for included services according to the above cited Article 12 of the DTAA, it is required to satisfy either of the following two conditions:- "i) Services are ancillary and subsidiary to the application of right for which royalty is paid; or ii) Services make available technical knowledge, experience, skill, know-how, or processes etc. or if it consists of development and transfer of any technical plan or technical design." In the light of the above facts and legal provisions, it is observed that ld. CIT(A) has dismissed the appeal of the assessee in a general manner holding that services provided is covered by definition of fee for technical services as per the provision of explanation 2 to section 9(1)(vii) o....