2020 (7) TMI 644 - AT - Income Tax

ITAT Ruling: IDC Charges, Management Fees, and Referral Fees Not Taxable Under India-Singapore DTAA; TDS Credit Granted.

Edenred Pte Ltd., C/o SRBC Associates & LLP Versus The Deputy Director of Income Tax (International Taxation) -3 (2), -Mumbai

Edenred Pte Ltd., C/o SRBC Associates & LLP Versus The Deputy Director of Income Tax (International Taxation) -3 (2), -Mumbai - TMI Issues Involved:1. Assessing total income at Rs. 2,09,18,639/- against NIL returned income.2. Taxability of infrastructure data centre charges as royalty under the Act and India-Singapore DTAA.3. Taxability of management services fees as FTS under India-Singapore DTAA.4. Taxability of referral fees as royalty under the Act and India-Singapore DTAA.5. Taxability of referral fees as FTS under India-Singapore DTAA.6. Granting credit for TDS of Rs. 17,42,513/-.7. Levying interest under section 234A of the Act amounting to Rs. 2,92,861/-.8. Levying interest under section 234B of the Act amounting to Rs. 9,62,258/-.9. Levying interest under section 234C of the Act amounting to Rs. 1,05,638/-.Issue-wise Detailed Analysis:1. Assessing Total Income:The AO assessed the total income at Rs. 2,09,18,639/- against NIL returned income, considering various components taxable under the Act and India-Singapore DTAA.2. Taxability of IDC Charges:The appellant argued that IDC charges are not taxable as royalty under the India-Singapore DTAA, providing IT infrastructure management and hosting services from Singapore. The AO and DRP considered IDC charges as royalty. The Tribunal referred to various case laws, including Bharati Axa General Insurance Co. Ltd. and Standard Chartered Bank, and concluded that IDC services do not qualify as royalty under the DTAA. Therefore, the addition of Rs. 95,62,479/- towards IDC charges was deleted.3. Taxability of Management Services Fees:The appellant received management fees from SurfGold and claimed it as non-taxable under the India-Singapore DTAA. The AO and DRP treated it as FTS. The Tribunal referred to Article 12(4) of the DTAA, which requires services to be 'made available' to be considered FTS. The Tribunal found that the management services provided did not make available any technical knowledge, skill, or processes to SurfGold. Therefore, the addition of Rs. 73,61,951/- towards management services fees was deleted.4. Taxability of Referral Fees as Royalty:The appellant received referral fees from SurfGold and claimed it as non-taxable under the DTAA. The AO and DRP considered it as royalty. The Tribunal referred to various case laws, including Cushman & Wakefield (S) Pte. Ltd. and Real Resourcing Ltd., and concluded that referral services do not qualify as royalty under the DTAA. Therefore, the addition of Rs. 39,94,209/- towards referral fees was deleted.5. Taxability of Referral Fees as FTS:The appellant argued that referral services are not FTS under the DTAA. The Tribunal found that referral services did not make available any technical knowledge, skill, or processes to SurfGold. Therefore, the addition of Rs. 39,94,209/- towards referral fees as FTS was deleted.6. Granting Credit for TDS:The appellant claimed credit for TDS of Rs. 17,42,513/-, which was not granted by the AO. The Tribunal directed the AO to grant credit for TDS after due verification.7. Levying Interest under Section 234A:The appellant argued that interest under section 234A would reduce after granting TDS credit. The Tribunal directed the AO to compute the interest under section 234A after granting TDS credit.8. Levying Interest under Section 234B:The Tribunal referred to the case of Boston Scientific International and concluded that the appellant is not liable to pay advance taxes as the revenues from IDC, management, and referral agreements are not taxable in India. Therefore, the levy of interest under section 234B amounting to Rs. 9,62,258/- was deleted.9. Levying Interest under Section 234C:The Tribunal concluded that the appellant is not liable to pay advance taxes as the revenues from IDC, management, and referral agreements are not taxable in India. Therefore, the levy of interest under section 234C amounting to Rs. 1,05,638/- was deleted.Procedural Issue:The delay in pronouncement of the order beyond 90 days was justified due to the unprecedented situation caused by the COVID-19 pandemic and the subsequent lockdowns, as per the orders of the Hon'ble Supreme Court and Bombay High Court.Conclusion:The appeals filed by the assessee were allowed, and the additions made by the AO were deleted. The AO was directed to grant TDS credit and compute interest under sections 234A, 234B, and 234C accordingly.