TaxTMI 
TaxTMI 
2022 (3) TMI 965
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.... advertisement expenditure amounting to Rs. 5,06,48,758/- under section 40(a)(i). On facts and in circumstances of the case and law applicable, disallowance under section 40(a)(i) is not applicable. 3. Without prejudice to the above, learned Commissioner of Income Tax (Appeals)-5, Bangalore has erred in concluding that online advertisement services are in the nature of royalty under section 9(1)(vi) of the Act on which TDS is applicable. 4. The learned Commissioner of Income Tax (Appeals)-5, Bangalore has erred in a. relying on judicial decisions that are not relevant to the issue on hand and without examining the factual details of the services obtained in the present case b. failing to correctly examine the applicability and taxability of the online expenditure under the respective tax treaty not appreciating that an application before the jurisdictional AO is not mandatory to examine the applicability of withholding taxes. 5. On facts and in circumstances of the case and law applicable, the appellant is not under an obligation to deduct tax at source under section 195 of the Income Tax Act, 1961 read with the applicable DTAA. ....
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....Appellant and issued a show cause notice dated 07.12.2018 as to why the impugned sum should not be disallowed under section 40(a)(ia)/40(a)(i). In the show cause notice, the AO relied on the case of Consim Info Pvt. Ltd. v. Google India Pvt. Ltd. and Google Inc v. Australian Competition and Consumer Commission [2013] HCA 1 to provide an overview of internet, search engine and online advertising. The AO did not appreciate that the fact that the case laws relied on by appellant were not applicable to the present case, both on facts and under law. 5. The AO observed that the Appellant has not advanced any argument to negate as to why the same should not be construed as royalty. The appellant had filed its submission vide letter dated 12.12.2018, detailing why the impugned sum is not liable to withholding taxes, both under the Act and under the treaty. It is submitted that the AO has not given his findings on the chargeability under the treaty. The learned AO also observes that the appellant could have filed an application before the AO under section 195 to obtain a certificate for non-deduction or lower deduction. 6. The AO concluded that the impugned online advertisement expend....
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....d before him regarding disallowance to be restricted to 30% of expenses, not subject to deduction of tax at source u/s. 40(a)(i). It is submitted that the appellant has filed an application for rectification of the same on 05.04.2019 and the rectified order in this regard u/s. 250 is still awaited as on the date of filing this appeal. The CIT(Appeals), however, allowed the ground No. 7 raised before him pertaining to setting off the brought forward losses while computing the total income under consideration and has directed the learned AO to rectify the order u/s. 143(3). Further, it was submitted that the CIT(Appeals) has dismissed all other grounds raised by the appellant. 10. The Ld. DR relied on the orders of lower authorities. 11. We have heard both the parties and perused the material on record. We are of the opinion that the similar issue came up for consideration before the Tribunal in the case of Moonfrog Labs Pvt. Ltd. v. ACIT in ITA No. 3066/Bang/2018, order dated 14.12.2021, wherein it was held as follows:- "5. We heard both sides in light of records placed before us. 5.1 We notice that the Ld. CIT(A) has followed the decision rendered by Hon'....
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..... The provisions contained in the Income-tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. 169. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income-tax Act were not liable to deduct any TDS under section 195 of the Income-tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment." 5.3 It is pertinent to mention that the Hon'ble Supreme Court has analysed the provisions of Copy right Act and their applicability to the payments made for use of software. We also notice that the decision rendered by Hon'ble Karnataka High ....