Case: Pure Software Pvt Ltd vs ITO, Delhi ITAT
- The assessee company was engaged in the business of software development, testing and training and the issue, in this case, was related to a payment made to non-resident entities.
- The assessee filed its Return of Income as deemed income u/s 115JB.
Assessing Officer’s observations:
- No tax was deducted at source on payment made to two non-resident parties under section 195 of the Income tax Act.
- The “order procurement services” rendered by the non-residents and the commission/retainer fee received by them would be royalty or fees for technical services.
- The assessee paid a retainership fee for procurement services outside India. These services are neither technical nor consultancy or royalty as defined in an Article of the DTAA.
- The AO ignored the fact that the order procurement services rendered outside India, in this case, would not be taxable u/s 195 of I.T. Act.
- Tax deduction at source u/s 195 is not applicable: The AO and the CIT(A) were not correct in treating the retainer fees paid for “order procurement services” as royalty and fees for technical services.
- The deduction of tax would as per Article 7 of DTAA: As the fees would amount to business income and not fees for technical services, Section 9 would not be applicable.