Section 195 – As services of copyediting, indexing and proofreading do not qualify as FTS, tax could not be withheld u/s 195 of the Act

10. TS-640-ITAT-2019 (Chny.) DCIT vs. M/s Integra Software Services Pvt.
Ltd. ITA No.: 2189/Chny/2017 A.Y.: 2011-12 Date of order: 11^th October, 2019

Section 195 – As services of copyediting,
indexing and proofreading do not qualify as FTS, tax could not be withheld u/s
195 of the Act

FACTS

The assessee was
engaged in the business of undertaking editorial services, multilingual
typesetting and data conversion. The assessee outsourced language translation
to various vendors in the USA, the UK, Germany and Spain and made certain
payments to them without withholding tax, on the ground that such services were
not in nature of FTS.

However, the AO
concluded that such payments were subject to withholding and, consequently,
disallowed payments made u/s 40(a)(i) of the Act.

On appeal, the CIT(A) concluded that payments made to tax residents of
the USA and the UK did not make available technology to the assessee and hence
they were not FIS under the India-USA DTAA and the India-UK DTAA. Thus, tax was
not required to be withheld from such payments. He, however, held that payments
made to the tax residents of Germany and Spain were in the nature of FTS and in
the absence of ‘make available’ condition in the relevant DTAAs, it was subject
to withholding of tax.

Aggrieved, the
assessee filed an appeal before the Tribunal.

HELD

Copyediting, indexing and proofreading services only require knowledge
of language and not expertise in the subject matter of the text. Hence such
services could not be considered as technical services. Reliance in this regard
was placed on the decision of the Chennai Tribunal in Cosmic Global Ltd.
vs. ACIT (2014) 34 ITR (Trib.) 114.

Since the services
rendered were not technical services, payments made to NRs were not taxable in
India and were also not subject to withholding of tax under the Act.