The Income Tax Appellate Tribunal (ITAT), Bangalore Bench while remitting the matter back to the CIT(A) ruled that the CIT(A) ought to analyse nature of service undertaken by assessee and taxation of fees for technical services under Section 9(1)(vii) of the Income Tax Act, 1961.

The assessee company, Adadyn Technologies Private Limited is earlier known as ‘Ozone media solutions Private Limited’. It is engaged in the business relating to online advertising like internet based content, communications, online ad space, online ad network and renders advertising technology solutions.

The department noticed that the assessee has been making payments to its US subsidiary named M/s Adadyn Inc, which were in the nature of selling and marketing expenses. The AO took the view that the impugned payments are in the nature of “Fee for technical services” and hence the assessee should have deducted tax at source from the above said payments under section 195 of the Act. Since the assessee had not deducted TDS, the AO treated the assessee as an assessee in default and accordingly initiated proceedings under section 201 of the Act.

The assessee submitted that the services carried out by its US subsidiary are in the nature of targeting new customers, carrying out promotional activities and participating in trade shows outside India on behalf of the assessee. These services are rendered in the USA, Canada and other countries. The payments are made to US subsidiaries with regard to the above said services and they are in the nature of selling and marketing expenses.

It was submitted that the receipts constitute business income in the hands of M/s Adadyn, Inc., USA. It was submitted that the impugned payments will not fall under the category of “Fee for technical services” in terms of Article 12 of India-USA DTAA, since these services do not make available any technical knowledge, experience, skill, know-how or process, to the assessee.

However, the AO examined the provisions of sec.9(1)(vii) of the Act and held that the impugned payments have been made for rendering of any managerial, technical or consultancy services as defined under the above said section.

The AO noticed that the assessee has not furnished a Tax residency certificate and hence he held that the provisions of sec.206AA shall apply. Accordingly he adopted a higher rate of 20% for determining tax liability under section 201(1) of the Act.

The CIT(A) has initially concurred with the view of the AO that the impugned payments were made for consultancy services rendered to the assessee and hence it is taxable in India.

The two member bench of Judicial member, Beena Pillai and accountant member, B.R. Baskaran set aside the common order passed by the Ld CIT(A) for the years under consideration and restore all the issues to his file for adjudicating them afresh by properly analysing nature of services, bringing on record materials relied upon, contentions of the assessee and the relevant provisions of the Act and DTAA.

“We notice that the Ld CIT(A) has rendered the decision without bringing on record supporting materials and also without properly analysing the provisions and contentions of the assessee. In the absence of proper analysis of facts relating the issues contested before us, it would be difficult for theTribunal to adjudicate them,” the ITAT said.