The Income Tax Appellate Tribunal (ITAT), Mumbai Bench noted that Celltick Mobile Media was not liable to deduct TDS as the payee is not taxable in India.
The assessee, Celltick Mobile Media India is incorporated in India under the Companies Act 1956 and is engaged in the business of distributing live screen/flash services on mobiles through telecom operators. The principal activity of the assessee is to provide mobile home screen marketing services to telecom operators and other services that enable an interactive communication channel with consumers on their mobile devices.
During this assessment year, assessee made payments to Celltick Israel towards license fees of Rs.16,31,65,734 pursuant to the distribution agreement entered between them. The assessee while making payment to Celltick Israel deducted withholding tax for the period April 2013 to August 2013.
The assessee made further payments without deducting TDS for the reason that the income of the payee is not taxable in India as the transaction of the payee comes under article 7 of the Indo Israel Treaty.
The assessee urged that the payee has declared the income and claimed the benefit under Indo Israel treaty, claimed the withholding tax as refund.
The assessing officer disallowed the payments invoking the provisions of section 195 and 40(a)(i) of the Act.
It is submitted that the 2nd proviso to section 40(a)(i) inserted with effect from 01.04.2020 as per which, where assessee fails to deduct the whole or any part of the tax in accordance with the provisions of chapter XVII-B on any such sum but is not deemed to be an assessee in default under the 1st proviso to section 201(1).
The coram headed by the President, Justice P. P. Bhatt held that the income of the payee is not taxable in India and the assessee has already filed the relevant information under section 201(1) of the Act which shows that the assessee cannot be regarded as ‘assessee in default.
Therefore, the ITAT set aside the order passed by the AO under section 143(3) of the Act.
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