AMC charges not fee for technical services – No ITAT deletes disallowance u/s 40(a)(ia)

AMC charges not fee for technical services – No ITAT deletes disallowance u/s 40(a)(ia)

In a recent judgment, ITAT has deleted disallowance u/s 40(a)(ia) holding that payment of AMC charges to a foreign company is not a fee for technical services and no tax at source is deductible thereon.

ABCAUS Case Law Citation:
ABCAUS 3926 (2024) (03) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the action of the Assessing Officer (AO) in making disallowance u/s 40(a)(ia) for payment of AMC charges to a foreign company. 

The appellant assessee was a limited company engaged in hotel business. The assessee filed its return of income declaring Nil income. The case was selected for scrutiny and valid notice u/s 143(2) and 142(1) of the Act were served upon the assessee.

The assessment was completed by the AO making inter alia disallowance u/s 40(a)(ia) of the Act towards expenditure incurred by the assessee for payment allegedly made towards technical fee.

The Tribunal observed that the assessee had incurred expenditure towards annual maintenance charges (AMC) for online reputation and customer satisfaction software management.

The Tribunal further noted that payment for the AMC was made to a foreign company. The Assessing Officer treated this as a technical fees payment and made disallowance u/s 40(a)(ia) of the Act for non-deduction of tax at source.

The Tribunal observed that the alleged sum had been paid towards AMC services for utilizing the software for online reputation and customer satisfaction management and was basically a guest feedback system which the assessee had used in its hotel business. It was not the case of any fees for technical services.

The Tribunal opined that the alleged sum being a normal AMC charges, paid to a foreign company having no permanent establishment in India, no tax at source is deductible from the said sum as services were provided from outside India and no technical knowhow was made available to the assessee company.

The Tribunal held that the Assessing Officer erred in invoking section 40(a)(ia) of the Act. Accordingly, it set aside the finding of the CIT(A) in this regard and the disallowance was deleted.

Download Full Judgment Click Here >>

• GST Form SRM-I enabled for manufacturers of Pan Masala and Tobacco
• Prosecution for late deposit of TDS stayed in view of Supreme Court judgment
• If no physical discrepancy found, mere increase in stock not undisclosed stock u/s 69B
• CIT(A) is required to communicate the notice to email id mentioned in Appeal Form 35
• Opportunity of personal hearing u/s 144B(6)(viii) must even if assessee had not requested