Case: Pure Software Pvt Ltd vs ITO, Delhi ITAT

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Background:

  • 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.

Assessee Arguments:

  • 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.

Tribunal Holding:

  1. 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.
  2. 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.

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