2023 (3) TMI 358 - AT - Income Tax

TDS u/s 195 - Royalty payment - applicability of DTAA between India and Netherland defining term “royalty” as per Article 12 of such DTAA - HELD THAT:- CIT(A) simply upheld the findings of the ld. A.O on the basis of the provisions of the Act but whether the assessee’s transaction is covered under the definition of royalty or fees for technical services as per Article 12 of the relevant DTAA, CIT(A) has not given any finding in this regard. The order of ld. CIT(A) suffers from lack of verification of facts and applicability of legal provisions in the subject matter of the case.

Neither the ld. A.O nor the ld. CIT(A) has given a categorical finding regarding the nature of business of the assessee and what facts, verification are conducted in determining the transaction of the assessee, nothing has been brought on record.

A.O has stated in his order that there is inherent use of the server and therefore, the service charge paid will amount to royalty but what is this inherent use and how the business of the assessee is working so far as the use of server is concerned. these detailed examination and results has not been brought out in the order. Most important whether the provision of the relevant DTAA regarding royalty and fees for technical services are applicable in the case of the assessee or not has to be re-examined. Even the ld. .D.R has submitted specifying the agreement of Softlayer Technologies Inc. and therein it has been clearly spelt out regarding use of trademark that such trademark ownership is exclusively with Softlayer Technologies Inc. and that the assessee has right only to use such trademark. If it is the right to use trademark, then that is covered within the definition of royalty as per Article 12 of the relevant DTAA. Therefore, this agreement (supra) also has to be looked into along with the provisions of DTAA.

A.O shall come out with a speaking order on all these aspects after due verification. In view thereof, we set aside the order of the ld. CIT(A) and remand the matter to the file of the ld. A.O for re-adjudication as per law after complying with principles of natural justice. The grounds are allowed for statistical purposes.