TaxTMI 
TaxTMI 
2021 (3) TMI 1121
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....tion as called for. 3. The assessee is engaged in the business of distributing live screen/flash services on mobile through telecom operators. The Celltick's live screen platform enables operators, marketers and advertisers to monetize their mobile users. The system intelligently targets the right services and products to be marketed to users based on their location, context and purchase history. In live screen, Celltick provides a managed Mass market solution that closes the loop between mobile marketing and mobile commerce with patent technology. 4. During assessment proceeding, assessing officer observed that assessee has paid an amount of Rs. 16, 31, 65, 734/- as license fees to Celltick Technologies Ltd Israel pursuant to the agreement entered into by them. He observed that assessee is a non-exclusive distributor of the licensed system in the Indian subcontinent territory and it is responsible for marketing and distributing the system and installing the system on client infrastructure. The assessee withheld tax at the rate of 10% on the amount of license fees paid from April 2013 to August 2013. For the remaining months assessee has not deducted tax at source which amoun....
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....ection 40(a)(i) of the Act without appreciating the fact that the income earned by Celltick Israel is not chargeable to tax in India on account of the remuneration to the PE being at arm's length and no further income being attributable to it, as held in the case of Celltick Israel by the Hon'ble Income Tax Appellate Tribunal, Mumbai ('Hon'ble Tribunal) for AYs 2012-13 to 2014-15 and by Hon'ble Dispute Resolution Panel for AY 2015-16; c. disallowing remittances made by the Appellant to Celltick Israel under Section 40(a)(i) of the Act without appreciating the fact that there was no requirement for the Appellant to deduct taxes on remittances to Celltick Israel as the Appellant had remitted sums collected by it from customers on behalf of Celltick Israel; 4, The learned CIT(A) has erred in upholding the disallowance under section 40(a)(i) of the Act without appreciating that the fact that there was no requirement for the Appellant to deduct taxes on the remittances as they were not chargeable to tax in India, as held by the assessing officer for the AY 2016-17 in case of Celltick Israel after going through the characterization of the remittances....
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....sessee in default under the first proviso to sub-section (1) of section 201, then, for the purposes of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso." 2. I invite your honours kind attention to first proviso to sub-section (1) of section 201 which reads as under. "Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee - (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed: 3. I enclose herewith following documents (i) Certifica....
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.... payment to non-resident. Consequent to this amendment, it is also proposed to amend the proviso to sub-section (1A) of section 201 to provide for levy of interest till the date of filing of return by the non-resident payee (as is the case at present with resident payee). These amendments will take effect from 1st September, 2019. [Clause 49] For the same reason, it is also proposed to amend clause (a) of section 40 to provide that where an assessee fails to deduct tax in accordance with the provisions of Chapter XVII-B on any sum paid to a non-resident, but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of the return of income by the payee referred to in that proviso. Thus, there will be no disallowance under section 40 in respect of such payments. This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years. [Clause 10]" 6. In view of above, I pray your honours to consider the submission and amendment made to Secti....
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....the provisions of section 195 and 40(a)(i) of the Act. 15. The assessee also filed a copy of the return of income filed by Celltick Israel, which clearly shows that the payee has declared the income and claimed the benefit under Indo Israel treaty, claimed the withholding tax as refund. It is also brought to our notice that in the case of payee that is Celltick Israel, the income earned by them were brought to tax in India treating the income received from the present assessee as income earned in India. In appeal, the coordinate bench has given the finding that the income earned by the payee as the income chargeable to tax outside India under the Article 7 of Indo Israel treaty. Therefore it is clear that whatever the income earned by the payee is not chargeable to tax in India. With that background, let us address the issue raised in additional grounds of appeal. 16. It is submitted that the 2nd proviso to section 40(a)(i) inserted with effect from 01.04.2020 as per which, where assessee fails to deduct the whole or any part of the tax in accordance with the provisions of chapter XVII - B on any such sum but is not deemed to be an assessee in default under the 1st proviso to....