No tax on FTS if service utilized for business carried abroad; upgradation of existing website is revenue expenditure

In the instant case, two moot questions were raised before the ITAT which were as under:

A. Liability of tax deduction on overseas commission

B. Whether website development charges were deductible as revenue expenditure ?

On first issue, it held in favour of assessee as under:

1) Commission paid to non-residents for services rendered outside India does not accrue or arise in India;

2) Hence, no TDS was deductible from such commission and such commission couldn’t be disallowed under section 40(a)(i);

3) Even if services rendered by the non-resident did fall within the definition of "fees for technical services, the commission paid would not be taxable in India as clause(b) of section 9(1)(vii) would save the assessee.

On second issue, it held in favour of assessee as under:

1) Expenses incurred for upgradation of an existing website ought to be distinguished from expenses for development of a new website;

2) The former was revenue expenditure and the latter was capital expenditure, resulting in creation of an intangible asset;

3) Expenditure on upgradation of existing website was equivalent to maintenance of an existing asset. Thus, it was revenue expenditure - MAHINDRA HOLIDAYS & RESORTS INDIA LTD. V. JCIT (LTU) (2013) 38 taxmann.com 207 (Chennai - Trib.)