2025 (7) TMI 1229 - AT - Income Tax

IDC charges and Management Service Fees not taxable as royalty under India-Singapore DTAA, additions deleted

Edenred Pte Ltd., C/o. Walker Chandiok & Co. LLP Versus Deputy Commissioner of Income Tax – International Taxation -2 (2) (1), Mumbai

Edenred Pte Ltd., C/o. Walker Chandiok & Co. LLP Versus Deputy Commissioner of Income Tax – International Taxation -2 (2) (1), Mumbai - TMI ISSUES: Whether Infrastructure Data Centre (IDC) charges received by a non-resident assessee are taxable as 'royalty' under the Income Tax Act, 1961 and the India-Singapore Double Taxation Avoidance Agreement (DTAA).Whether Management Service Fees received by the non-resident assessee constitute 'royalty' taxable under the Act and the India-Singapore DTAA. RULINGS / HOLDINGS: IDC charges received by the assessee do not constitute 'royalty' under the Income Tax Act or the India-Singapore DTAA; the addition made by the Assessing Officer (AO) on this account is deleted. The Tribunal held that the IDC services are standard IT infrastructure management and hosting services provided using the assessee's own hardware and personnel in Singapore, and do not involve transfer or use of any copyright, software, or technology enabling the recipient to apply technology.Management Service Fees received by the assessee are not taxable as 'royalty' under section 9(1)(vi) of the Act read with Article 12 of the India-Singapore DTAA. The Tribunal directed deletion of the addition, following consistent prior decisions in the assessee's own case and absence of any new material or change in facts or law. RATIONALE: The Tribunal applied the legal framework under section 9(1)(vi) of the Income Tax Act, 1961, and Article 12 of the India-Singapore DTAA, interpreting 'royalty' in light of judicial precedents. It emphasized that 'royalty' entails payments for the use or right to use copyright, patents, trademarks, or technology, including the making available of technical knowledge or know-how enabling the recipient to apply technology.The Tribunal relied extensively on coordinate bench decisions in the assessee's own case for preceding assessment years, which consistently held that IDC charges and Management Service Fees do not amount to royalty. These decisions were supported by detailed factual analysis showing that the services involved administration and supervision of infrastructure without transfer or licensing of technology or software usage rights.The Tribunal distinguished cases where payments were held to be royalty by noting the absence of transfer of any copyright, software license, or enabling technology in the present facts. It rejected reliance on decisions involving access to specialized software or licensed technology, which were not applicable here.No dissent or doctrinal shift was recorded; the Tribunal followed the principle of consistency and precedent, noting no change in facts or law to warrant deviation from earlier rulings.