2024 (12) TMI 1061 - AT - Income Tax

Non-resident providing cloud-based E-Invoice Portal services to Indian entities liable for tax under Section 5(2) and Section 9

ITAT Delhi held that a non-resident assessee providing cloud-based E-Invoice Portal licensing services to Indian entities is liable to tax in India. The ... Taxability of income in India - Business receipts taxable as fees for technical services under Income Tax Act, 1961 as well as India – UK Double Taxation Avoidance Agreement (‘DTAA’) - taxability of income in hands of the assessee for providing license for right to use of the cloud based platform i.e. the E-Invoice Portal - Assessee a non-resident having income in India is liable for tax if the source is in India. HELD THAT:- Section 5(2) read with section 9 of the Act deals with source rules for non-resident under the provisions of Income-tax Act. In the event and income i.e. sourced in India is not characterized under the heads provided in the DTAA, the income would be taxable under the residual clause provided taxing right is allocated to source country in this case to India under the relevant DTAA. The source Rule was further explained by the Apex Court in GVK Industries case [2011 (3) TMI 1 - SUPREME COURT] where in the Apex Court has held that the income of receipt to be charged or chargeable in the country where the source of payment is located, to clarify, where the payer is located. Under the primary source rule under section 5(2), the income received by the assessee company accrues or arises in India. As a result, further reference to deeming provisions under section 9 of the Act is undesirable for ascertaining of chargeability of income of the assessee under the provisions of Income-tax Act. Alternatively, only when the primary sourcing rule under section 5(2) of Act fails to establish the chargeability, a reference to deeming rules under section 9 of the Act is necessary. In view of above material facts i.e. the process of providing technical services by the assessee and receiving payments having source in India as per above principles deserves to be held liable to tax. Issues:Challenging separate Assessment order under section 147 read with section 144 of the Income Tax Act, 1961 for the Assessment Years 2016-17 & 2017-18.Detailed Analysis:1. Facts and Background:- The appeals were filed by the assessee challenging the Assessment order under section 147 read with section 144 of the Income Tax Act, 1961 for the Assessment Years 2016-17 & 2017-18.- The appeals involved similar facts and issues, hence were heard together and disposed of by a common order.2. Contentions of the Assessee:- The Assessee argued that the business receipts received should not be taxable as fees for technical services under the Income Tax Act and the India-UK Double Taxation Avoidance Agreement (DTAA).- It was contended that the Assessing Officer and Dispute Resolution Panel erred in holding the income as taxable, as the appellant had not carried out any business activity in India.3. Department's Argument:- The Department contended that the income received by the assessee was taxable as fees for technical services in India under Section 9(1)(vii) of the Act, as the services were utilized in India.4. Analysis of the Income Source:- The assessee, a UK company, provided e-invoicing software solutions to Genpact India, receiving payment for the services.- The Master Services Agreement allowed the assessee to provide services through affiliates, and the services provided were for a customer operating outside India.- The income in the hands of the assessee was considered as subscription fees for the services provided.5. Taxability under Income Tax Act and DTAA:- The assessment order held that the income received by the assessee from Genpact India was taxable as fees for technical services in India under both the Income Tax Act and the India-UK DTAA.- The objections raised by the Dispute Resolution Panel were rejected, leading to the passing of the assessment order.6. Legal Precedents and Interpretation:- The Supreme Court's observations in various cases were cited to support the taxability of income sourced in India for technical services.- The source rule and the definition of technical services were explained to justify the tax liability of the assessee.7. Decision and Dismissal of Appeal:- The Tribunal dismissed the appeal filed by the assessee for both Assessment Years 2016-17 and 2017-18, as the income was deemed taxable under the provisions of the Income Tax Act and the DTAA.- The judgment was pronounced on 18th December 2024 for both appeals.This detailed analysis covers the key arguments, facts, legal interpretations, and the ultimate decision of the Tribunal regarding the taxability of income received by the assessee for providing technical services in India.