The Assessee, had hired the services of a non-resident foreign entity, which mainly consisted of language translation. The services rendered involved copy editing, indexing and proof reading required only knowledge of the language and did not require necessary expertise in the subject matter of text.  Thus during the assessment year 2011-12, assesse made payments to the non-resident entity of Rs.2,95,31,708/-without deducting tax at source, on the ground that services rendered were not technical in nature and therefore no tax was liable to be deducted under section 195 of the Act. The AO   disallowed the payments on the ground that tax was required to be deducted  on payments made to non-residents for services rendered.

The CIT (A) found  that since the non-resident entity did not have any permanent establishment or a business connection within the meaning of S. 9(1)(i) in India. Therefore the held that since the present case was not hit with the provisions of S.  9(1)(i) the payments received by the non-resident entity was not to be assessed as business income in India. However, he found that the services rendered by non-resident entity was technical in nature.

On Appeal, the Tribunal held that, language translation was not a technical service. The copy editing, indexing and proof reading required only knowledge of the language and did not require necessary expertise in the subject matter of text. Thus, the services rendered by the non-residents were not technical services and the payment received by the non-residents from the assessee was not taxable in India. S. 195(6) requires the assesse to furnish information but did not require the assesse to deduct tax at time of payment. Hence, there was no question of disallowance under S. 40(a)(ia) for consideration in the appeal. (AY.2011-12)