The Karnataka High Court has held that Urban Ladder Home Décor is not liable to TDS on remittances to Facebook, Amazon Web-Services for advertisements.
The bench of Justice V Kameswar Rao and Justice S Rachaiah has observed that the facilities provided by the non-resident Companies are only enabling facilities which help a person to place his advertisement contents on the platform of Facebook or to use MailChimp facility effectively. In the case of Amazon, the payment is in the nature of rent payments for use of infrastructure facilities. The payments made to above three non-resident Companies do not fall within the meaning of ‘royalty’ as defined in DTAA.
The assessee-respondent claims to be a Company involved in the business of dealing in home décor products. It has placed advertisements in several social medias such as Facebook, Amazon Web services and Rocket Science Group, LLC, US. Assessee has made payments to non-residents without deducting tax at source.
Hence, Assessing Officer treated assessee in default and passed orders under Section 201(1) and 201(1A) of the Income Tax Act, 1961 for the assessment years 2015-16, 2016-17 and 2017-18.
Assessee preferred appeals before the Commissioner of Income Tax (Appeals) against the orders. The Authority passed order confirming the orders passed by the AO. The assessee preferred appeal before the ITAT.
The ITAT allowed the appeals. The ITAT held that there was no obligation on the part of the assessee to deduct TDS on payments made to non-resident Companies without analyzing the facts and materials of the present case with provisions of respective Double Taxation Avoidance Agreements (DTAA).
The department contended that ITAT has clearly erred to hold that, the payments cannot be regarded as ‘Royalty’ ignoring that nature of usage of technology, model or process and equipments are covered by Explanation 2(iii) to 9(1)(vi) of the Income Tax Act and therefore, the assessee ought to have deducted TDS on such payments.
The court while dismissing the department’s appeal against the ITAT’s order has held that the payments made to above three non-resident Companies do not fall within the meaning of ‘royalty’ as defined in DTAA.
Case Details
Case Title: CIT Versus Urban Ladder Home Décor Solutions Pvt. Ltd
Case No.: ITA NO. 11 OF 2022
Date: 07/02/2025
Counsel For Appellant: Ravi Raj Y V
Counsel For Respondent: Sandeep Huilgol And Smt. Bhavana B
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