TMI Blog2011 (6) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... e services rendered for uploading and display of the banner advertisement of the Department of Tourism of India on its portal was not in the nature of royalty but the same was in the nature of business profit and in the absence of any PE of Yahoo Holdings (Hong Kong) Ltd., in India, it was not chargeable to tax in India. Assessee thus was not liable to deduct tax at source from the payment made to Yahoo Holdings (Hong Kong) Ltd., for such services and in our opinion, the payment so made cannot be disallowed by invoking the provisions of section 40(a) for non-deduction of tax - Decided in favour of assessee. - IT APPEAL NO. 506 (MUM.) OF 2008 - - - Dated:- 24-6-2011 - P.M. JAGTAP, V. DURGA RAO, JJ. R. Muralidhar for the Appellant. R.S. Srivastava for the Respondent. ORDER P.M. Jagtap, Accountant Member. This appeal filed by the assessee is directed against the order of the learned CIT(A) XXX, Mumbai dated 19-10-2007 whereby he confirmed the disallowance of Rs. 34,86,947 made by the Assessing Officer under section 40(a) on account of payment made by assessee to Yahoo Holdings (Hong Kong) Ltd., without deducting tax at source. 2. Assessee company in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rations performed by Yahoo Holdings (Hong Kong) Ltd., were entirely outside India and since Yahoo Holdings (Hong Kong) Ltd., had no presence in India, the amount paid to them for the services rendered outside India was not taxable in India and no tax, therefore, was required to be deducted at source from the payment of the said amount. According to the Assessing Officer, the income attributable to the services claimed to be rendered outside India had accrued in India as per the provisions of section 9 and the same being taxable in India, the assessee was required to deduct tax at source before remitting the said amount to Yahoo Holdings (Hong Kong) Ltd. Since no such tax was deducted by assessee company from the payment remitted to Yahoo Holdings (Hong Kong) Ltd., the deduction claimed by assessee on account of the said payment was disallowed by the Assessing Officer by invoking the provisions of section 40(a). 3. The disallowance made by the Assessing Officer under section 40(a) inter alia was challenged by the assessee in appeal filed before the learned CIT(A) and elaborate submissions were made on its behalf before the learned CIT(A) in support of its case that the amount paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment thereof. 4. The learned CIT(A) did not find merit in the submissions made on behalf of the assessee. He held that irrespective of the definition of "business connection", once the source of income was established to be in India, the income was deemed to accrued or arose in India for the purpose of section 9 of the Income-tax Act, 1961. As regards the nature of the said income, the learned CIT(A) held that assessee company had booked the portal of Yahoo Holdings (Hong Kong) Ltd. for a specific period and therefore the payment as agreed to was made by the assessee company to Yahoo Holdings (Hong Kong) Ltd., obviously for use of commercial or scientific equipments. Relying on clause (iva) of Explanation 2 to section 9(1)(vi), he held that the payment made for the use or right to use any industrial, commercial or scientific equipment was in the nature of royalty and the same being taxable in India in the hands of Yahoo Holdings (Hong Kong) Ltd., assessee was under obligation to deduct tax at source from the said payment. Relying on the decision of Authority for Advance Rulings in the case of Cargo Community Network Pte Ltd., In re [2007] 289 ITR 355/159 Taxman 243 (New Delhi), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra). We have carefully gone through these decisions cited by the learned D.R. It is observed that in the case of Frontline Soft Ltd. (supra), a mere right to use an equipment was held by the Tribunal to fall within the ambit of clause (iva) of Explanation 2 to section 9(1)(vi) of the Act. The Tribunal, in coming to the said conclusion, followed the ruling of the ITAT Delhi bench in the case of Asia Satellite Telecommunications Co. Ltd. v. CIT [2003] 85 ITD 478, which has been subsequently overruled by the Hon'ble Delhi High Court vide its judgment in Asia Satellite Telecommunication Co. Ltd. v. Asstt. DIT [2010] 191 Taxman 177. The proposition laid down by the Tribunal in the case of Frontline Soft Ltd. (supra) thus is contrary to the decision of the Hon'ble Delhi High Court in the case of Asia Satellite Communications Co. Ltd. (supra). In the case of Cargo Community Network Pte. Ltd. (supra) cited by the learned D.R., the facts involved were different in as much as the system connect fees paid for providing access and use of portal hosted from Singapore was inclusive of training charges, monthly subscription fee, fee for additional access and help desk charges. Having regard to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Services (India) (P.) Ltd. (supra), it was held by the AAR in the similar context that the word "use" in relation to equipment occurring in clause (iva) of Explanation to section 9(1)(vi) is not to be understood in the broad sense of availing of the benefit of an equipment. The context and collocation of the two expressions "use" and "right to use" followed by the word "equipment" indicated that there must be some positive act of utilization, application or employment of equipment for the desired purpose. If an advantage was taken from sophisticated equipment installed and provided by another, it could not be said that the recipient/customer "used" the equipment as such. The customer merely made use of the facility, though he did not himself use the equipment. What was contemplated by the word "use" in clause (iva) of Explanation 2 to section 9(1)(vi) was that the customer came face to face with the equipment, operated it or controlled its functions in some manner. But if it did nothing to or with the equipment and did not exercise any possessory rights in relation thereto, it only made use of the facility created by the service provider who was the owner of the entire networ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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