Bangalore ITAT Removes Addition as Marketing Services by USA Entity in India Not Taxable

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) ruled that marketing services directed via the US entity in India do not levy tax in India a Fee for Technical Service (FTS). The addition made by the Assessing officer is been deleted by the bench.

The assessee AD2PRO Media Solutions Pvt. Ltd. provides marketing services to M/s. AMSI. A the time of assessment proceedings AO had made an addition of Rs.11,84,47,825/- and Rs.23,03,47,626/- for AY 2016-17 and 2017-18 respectively via initiating the provisions of section 40(a)(ia) of the Income Tax Act, 1961.

In the assessment order, the Assessing Officer (AO) ruled that the agreement between M/s. AMSPL and M/s. AMSI for marketing services has been in operation for years together and such payments are incurred via the taxpayer company viz., M/s. AMSPL for marketing services to M/s. AMSI is taxable in India as Fees for Technical Services (FTS).

The taxpayer dissatisfied, filed a petition to the CIT(A), who carried that the payments cannot be specified as FTS and led the AO to delete the additions. The disappointed revenue filed an additional petition to the tribunal. Praveen Karanth, the Department representative, supported the assessment order passed via the AO.

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As noted by the tribunal, Assessment Years 2011-12 to 2017-18, the Tribunal, its consolidated order had decided the issue in favour of the taxpayer. The Tribunal had studied in detail the agreement entered into via the taxpayer with its payee and the provided type of services etc. Subsequently, ITAT concluded that the payments cannot be attributed to FTS and taxpayers could not be obligated under Section 201 of the Income Tax Act.

The two-member bench Of Laxmi Prasad Sahu, (Accountant member) and George George K, (Vice President) after seeing the submissions of both parties authorized the order of tribunal in taxpayers’ case for the AYs 2011-12 to 2017-18.

The bench noted that the services that the taxpayer’s company obtained cannot be considered as ‘royalty’ or fees for included services and the taxpayer was not under obligation to deduct TDS on the same payment as a result, the demand raised via the AO under Section 201(1) & 201(1A) of the Income Tax Act could not endure and is deleted.