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ITAT grants relief to Urban Ladder Home Décor Solutions for non deduction of TDS on payment to Non-resident

In a relief to Urban Ladder Home Décor Solutions, the Bangalore Bench of Income Tax Appellate Tribunal (ITAT) ruled that the assessee is not liable to deduct TDS on payments made to Non-Resident Companies.

Facts of the case:-

The assessee, Urban Ladder Home Décor Solutions Pvt. Ltd. is engaged in the business of dealing in home décor products. It sells its products mainly through online marketing. Hence, the assessee has placed its advertisement on the platform of Facebook, Ireland. It has also used a bulk mail facility offered by M/s Rocket Science Group, USA. The assessee has also used Amazon Web Services (AWS) offered by M/s Amazon Inc., USA, which is in the nature of providing information technology infrastructure on a rental basis. All three payees are non-residents.

Interpretation of law:-

The AO held that the payments made to all the three companies are in the nature of “Royalty” liable for deduction of tax at source u/s 195 of the Act. The CIT(A) has referred to various case laws, but mainly took the support of the decision rendered by Hon’ble Karnataka High Court in the case of CIT vs. Samsung Electronics Co Ltd (2011)(16 taxmann.com 141)(Kar), wherein it was held that the payment made by Indian residents to the non-resident supplier for software and access to the database is “Royalty”.

Conclusion:-

The coram of Judicial Member, George George K. and Accountant Member, B.R. Baskaran ruled that the payments made by the assessee to the three non-resident companies referred above cannot be considered as “royalty payments” and hence they do not give rise to any income chargeable in India under Indian Income-tax Act in all the three years under consideration. In that view of the matter, there is no requirement to deduct tax at source from those payments under section 195 of the Act. Hence the assessee herein cannot be considered as an assessee in default under section 201(1) of the Act. 

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