ACIT v. HCL Comnet Ltd.

INCOME TAX ACT, 1961

--Income deemed to accrue or arise in India--Under section 9(1)(vii)Normal maintenance/repairs/replacement etc., performed outside India----No technical services were provided to assessee and the services were in the nature of normal maintenance/repairs/replacement etc., performed outside India. Therefore, such payments did not fall within the purview of Explanation 2 to section 9(1)(vii) of the Act. Therefore, the amount paid by the assessee to non-resident was not chargeable to tax in terms of the provisions of the Act or DTAA.--AO made disallowance on account of non-deduction of TDS on AMC contract. CIT(A) held that the same was not taxable in the hands of non-resident assessee, because that was business income of the non-residents and since they had no PE in India, therefore, in terms of the provisions of relevant DTAA, the same was not taxable in the hands of non-resident assessee. He further held that the AMC payment could not be held to be in the nature of fee for technical services and, therefore, not taxable under section 9(1)(vii). He, accordingly, held that the provisions of section 195 were not attracted in respect of AMC payments and consequently, there was no question of disallowance under section 40(a)(i). Held: The extended maintenance agreement has been entered into with G Ltd., an Israel company, with the assessee for warranty granted to assessee for the equipment supplied by G Ltd.. No technical services were provided to assessee and the services were in the nature of normal maintenance/repairs/replacement, etc., performed outside India. Therefore, such payments did not fall within the purview of Explanation 2 to section 9(1)(vii) of the Act. Therefore, the amount paid by the assessee to non-resident was not chargeable to tax in terms of the provisions of the Act or DTAA.