The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) ruled that no income tax can be charged on payments made to non-resident companies for advertisement charges because they are not considered “royalty payments.” This is a huge win for Myntra Designs Pvt. Ltd.

M/s. Myntra Designs Pvt. Ltd., the assessee, has filed three appeals challenging the CIT(A) order, which covers the assessment years 2012-13 to 2015-16. In each of the three years, the CIT(A) has upheld the AO’s demand that the assessee is treated as an “assessee in default” for failing to deduct tax at source from payments made to M/s Facebook Ireland for advertisement fees under section 201(1) or 201(1A).

The assessee had made payments to M/s Face Ireland Ltd. for advertisement charges, according to the AO. The assessee had made the above-mentioned payments without deducting tax at source as required by section 195 of the Act, according to the AO. As a result, the AO filed a complaint under section 201(1) of the Act, declaring the assessee a “assessee in default.”

The Coram of Judicial Member George George K and Accountant Member B.R. Baskaran ruled that the payments made by the assessee, the non-resident company M/s Facebook, Ireland, cannot be considered “royalty payments” and thus do not give rise to any income chargeable in India under the Indian Income Tax Act for all three years in question. Under section 195 of the Act, there is no duty to deduct tax at source from the payments. As a result, the assessee cannot be considered an assessee in default under section 201(1) of the Act. As a result, we set aside the orders of the Ld CIT(A) for the years in question and direct the AO to remove the demand raised under section 201(1) of the Act, as well as the consequential interest imposed under section 201(1A) of the Act, for the three years in question,” the ITAT said. 

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