TDS on Internet

Payment for utilization of bandwidth charges was royalty and TDS was required to be deducted under section 195 and on failure to deduct TDS, the disallowance under section 40(a)(i) was rightly made.   Issue under consideration was whether Tribunal was justified in holding that payment made to M/s. AT & T and M/s. MCI to utilize its bandwidth did not attract deduction of TDS under section 195 and consequently no disallowance under section 40(a)(i) could be made. It is held that payment for utilization of bandwidth charges was royalty and TDS was required to be deducted under section 195 and on failure to deduct TDS, the disallowance under section 40(a)(i) was rightly made. However, as the assessee had preferred a Special Leave Petition against those orders, therefore, the AO should pass a consequential order taking note of the judgment of the Apex Court to be rendered. Decision: Against the assessee. Relied: CIT v. Infosys Technologies Ltd. [ITA No. 422 of 2008, dt. 2-6-2014]: 2015 TaxPub (DT) 0822 (Karn-HC). IN THE KARNATAKA HIGH COURT RAVI MALIMATH  & K. NATARAJAN, JJ. CIT v. Infosys Technologies Ltd. Income Tax Appeal No. 174 of 2011 19 November, 2018 Appellant by: K.V. Aravind, Advocate Respondent by: T. Suryanarayana, Advocate JUDGMENT Ravi Malimath, J. Heard. 2. The appeal was admitted for consideration of the following substantial questions of law :– “1. Whether the Tribunal was correct in holding that payment of Rs. 10,37,42,694 made to M/s. AT & T and M/s. MCI to utilize its bandwidth did not attract deduction of TDS under section 195 of the Act and consequently no disallowance under section 40(a)(i) of the Act can be made? 2. Whether the Tribunal was correct in holding that payment of subscription charges of Rs. 7,75,87,889 made of M/s. Gartner Group, Faster Research Inc., Mehta Group and Giga Group to confer a license to post enquiries to analysts around the globe via the Web, conference calls and face to face meetings, was not liable to TDS under section 195 of the Act and consequently the expenditure cannot be disallowed under section 40(a)(i) of the Act? 3. Whether the Tribunal was correct in holding that Rs. 29,87,75,000 post sale customer support is an allowable deduction, when the past history showed accumulated provisions which was carried forward and made in excess of requirement? 4. Whether the Tribunal was correct in holding that telecommunication charges of Rs. 10,37,42,694 was liable to be reduced from both export turnover as well as total turnover for the purpose of computation of deduction under section 10A of the Act, even though the definition in the said section did not contemplate such reduction in the total turnover? 5. Whether the Tribunal was correct in holding that for the purpose of computation of deduction under section 80HHE of the Act, the total turnover of the units eligible for deduction under section 80HHE of the Act, should be taken into account and not the entire turnover as per the P & L Account as held by the assessing officer?” 3. The first and second substantial questions of law are covered by the judgment of this Court in the case of Commissioner of Income Tax and another v. M/s. Infosys Technologies Ltd., in ITA No. 422 of 2008 and connected matters, disposed off on 2-6-2014 : 2015 TaxPub(DT) 0822 (Karn-HC), whereby the said substantial questions of law were answered in favour of the Revenue and against the assessee, subject to the result of the SLP filed by the assessee before the Hon’ble Supreme Court, as noted in the aforesaid judgment at page No. 12. 4. So far as the third substantial question of law is concerned, in terms of the aforesaid order of this Court, the same is remanded to the Tribunal for a fresh consideration in terms of the direction issued in the earlier case of the assessee itself. 5. The fourth substantial question of law is covered by the judgment of the Hon’ble Supreme Court in the case of Commissioner of Income Tax, Central-III v. HCL Technologies Ltd. (2018) 93 Taxmann.com 33 (SC) : 2018 TaxPub(DT) 2138 (SC). Following the said judgment, the fourth substantial question of law is answered in favour of the assessee and against the Revenue. 6. The fifth substantial question of law is covered by the judgment of this Court in the case of Commissioner of Income Tax and another v. M/s. Infosys Technologies Ltd. in ITA No. 422 of 2008 and connected matters, disposed off on 2-6-2014 : 2015 TaxPub(DT) 0822 (Karn-HC), Following the said judgment, the fifth substantial question of law is answered in favour of assessee and against the Revenue. 7. The substantial questions of law are accordingly answered. The appeal is disposed off.