Payment made to foreign company for service rendered in the nature of business not chargeable to tax in India in the absence of permanent establishment

Last updated: 10 August 2012

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
We have carefully considered the submissions of the rival parties and perused the material available on record. The undisputed facts of the case in brief are that the assessee company is a fully owned subsidiary of Yahoo. Inc. USA which is engaged in the business of providing consumer services such as search engine, content and information on wide spectrum of topics, e-mail, chat etc. During the course of assessment proceedings, it was noticed by the A.O. that the assessee has made a payment of Rs. 34,86,947/- to Yahoo Holdings (Hong Kong) Ltd. being cost of services/research material/advertisement media. Since the assessee company did not deduct tax at source from the payment remitted to Yahoo Holdings (Hong Kong) Ltd., the deduction claimed by the assessee on account of the said payment was disallowed by the A.O. by invoking the provisions of section 40(a) of the Act which was upheld by the ld. CIT(A). However, on second appeal before the Tribunal vide order dtd. 24-6-2011 (supra) , the Tribunal held that the payment made by assessee to a foreign company for the services rendered by it for uploading and display of the banner advertisement on its portal was in the nature of business profit and not royalty and such payment was not chargeable to tax in India as the recipient has no PE in India and, therefore, assessee was not liable to deduct tax at source from the payment for such services and the same cannot be disallowed by invoking the provisions of section 40(a)(i) for non-deduction of tax.

Citation :
Yahoo India Private Limited (Formerly known as Yahoo Web Services India Private Limited). Unit No. 1261, 6th floor, Building 12, Solitaire Corporate Park, Guru Hargovindji Marg, Andheri (E), Mumbai 400 093. PAN: AAACY 1252B (Appellant) Vs. Deputy Commissioner of Income Tax 7(3), Mumbai. (Respondent)