TaxTMI 
TaxTMI 
2011 (5) TMI 237
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the link charges paid by the assessee are as follows: Date of payment Party name Description Amount TDS Date on which tax was paid 9-7-1998 Citibank, Singapore Citimail chgs (Jan. to Mar. 98) 1734991 305460 9-7-1998 6-8-1998 Citibank, Singapore Citimail chgs (Apr. to June 98) 1559759 277170 6-8-1998 30-12-1998 Citibank Singapore Link chgs. (July-Aug 98) Cost-Project Link 553700 30-12-1998 Citibank Singapore Singapore-Mumbai, Link chgs (July-Aug 98) 407417 30-12-1998 Citibank Singapore Citimail link chgs (July-Sept. 98) 3312660 500760 30-12-1998 31-3-1999 Accruals for March, 1999 HP Open Mail charges- Year end accrual**** 1000000 31-3-1999 Accruals for March, 1999 CC Mail charges 1946788 1,28,41,497 Communication charges (FCY) Hyderabad 30.06.98 Citibank Singapore Link charges (April to June 1998)***** 417956 31.12.98 Citibank Singapore Link charges (July to Dec. 1998)***** 850714 31.03.98 Accruals For March, 1998 Link charges 424258 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see pays charges by way of remitting foreign exchange which are received by CGTI outside India. According to the Assessee it is not connected with CGTI since it is operating as a separate business entity in SEEPZ Zone in India. 5. The Assessee contended that the term "Fees for technical services" (FTS)is required to be understood in the context in which it is used. It could only be mean to cover such things technical as are capable of being provided by way of service for a fee. The popular meaning associated with 'technical' is involving or concerning applied and industrial science. The Assessee submitted that any construction of the provisions of the Act must be in the background of the realities of day-to-day life in which the products of technology play an important role in making life smoother and more convenient. Section 194J as also Explanation 2 in section 9(1)(vii) were not intended to cover the charges paid by the average house-holder or consumer for utilizing the products of modern technology such as, use of the telephone, fixed or mobile, the cable TV, the internet, the automobile, the railway, the aeroplane, consumption of electrical energy, etc. Such facilities which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tant case is not borne out from the facts of the case. It is evident from the service agreement that the appellant company had entered into in terms of which service have been provided by the Citicorps Global Technology Infrastructure for which the payment has been made, the service enumerated in Exhibit A of the agreement clearly provides that the CMAP Helpline is to administer the additions and deletions of mail boxes and maintenance of global distribution lists. Messages are to be stored in the chrono files and are to be retained for 10 days. This stored messages are to be purged on a regular basis. 9. This Service enumerated in the Exhibit clearly show that it is not mere cellular service in the context of which the decision in the case of Skycell Communication Ltd. (supra) was pronounced. The appellant company in the instant case is making payment not only for the use of equipment but for the use of protected software which the US based company is allowing it to use for the purpose of business. Therefore, in the light of the decision of the Authority of Advance Ruling as discussed above, the sum paid to the foreign company is required to be held as royalty payable and taxable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quarterly at cost +10%. Fee Component Citimail CCMail Subscription per mail box US$ 400 per annum US$300 per annum Storage No charges for the first 500 message stored. US $0.50 per month per message for stored messages in excess of 500 US$ 60/MB over 8 MB Distribution List 01-50 members : US$100(one time creation fee) US$100 (annual maintenance fee) 51-300 members: US$200(one time creation fee) US$ 200 (annual maintenance fee) US$ 204/list Bulletin Board All points Bulletin US$300 per annum US$1000/Bulletin Installation (one time charge) LAN Mailbox US$150 Mobile Mailbox US$200" 10. It can be seen from the above that the nature of services to be provided and the manner in which it is to be provided cannot be easily ascertained. The reliance placed by the learned CIT(A) on the decision of the Hon'ble AAR in the case of Advance Ruling P.No.30 (supra) has to be examined in the light of the services and the manner in which those services are rendered by CGIT to the Assessee. Without such analysis it is not possible to conclude that the payment by the Assessee to CGIT is "Royalty". In this regard we als....
X X X X Extracts X X X X
X X X X Extracts X X X X
....trial, commercial or scientific equipment but not including the amounts referred to in section 44BB ; Explanation.-For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India ; Explanation.- For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,-(i) the non-resident has a residence or place of business or business connection in India ; or (ii) the non-resident has rendered services in India. 11. Under which clause of the definition of "Royalty" does not the payment by the Assessee fall has also not been spelt out. The facts of the case in the ruling in Advance Ruling P.No. 30 (supra) by the AAR was that the applicant before the AAR, Y, a company formed and incorporated in the U.S.A. and belonging to a group of companies which operate in the worldwide credit card and travel business. It was engaged in providing int....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is observed. It is for the downloading of the software that the royalty is paid. In this context, the source rule becomes relevant which requires that the royalty is sourced in the State of payer. The royalty is, therefore, taxable in India. (ii) That according to the agreement between the applicant and the Indian company, the facilities are to be accessed only by XT. The consideration payable is for the specific programme through which XT is able to cater to the needs of the group companies located in Japan, Asia Pacific, Australia and New Zealand. The transaction would relate to a "scientific work" and would partake of the character of intellectual property. The payments received in such transactions are for the use of intellectual property and partake of the character of royalty. The software is customised and secret. From the facilities provided by the applicant to the Indian company, which are in the nature of online, analytical data processing, it would be clear that the payment is received as "consideration for use of, or the right to use... design or model, plan, secret formula or process..." within the meaning of the term "royalties" in article 12(3)(a). The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... On further appeal by the Assessee, the Hon'ble Delhi High Court held that the meaning of the term 'process' being a series of actions or steps taken in order to achieve a particular end, in the present case it is evident that the particular end i.e. viewership was achieved only through a series of steps taken by receiving the uplinked signals, amplifying them and relaying them after changing the frequency in the footprint area including India. The applicability of the provisions of section 9(1)(vi) of the Act, would depend on nature of services provided by Asia Sat to its customers as per the agreement executed between them. The substance of the agreement between Asia Sat and its customers is the provision of broadband capacity available on the transponder by Asia Sat and not the right to use any process embedded therein. The data sent by the customers does not undergo any change for improvement through the media of the transponder. Thus the revenues earned by Asia Sat cannot be on account of providing its customers a right to use a process or equipment as the ultimate control on the process and equipment resides with Asia Sat. The High Court has categorically stated that in its v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....expenditure of Rs. 4,37,272 on the basis that the assessee had utilized the borrowed funds in making investments in shares, the dividend income from which is not chargeable to tax. The AO in doing so invoked the provisions of section 14A of the Act. The basis on which the AO arrived at the above figure is as follows : - A. Interest fee Funds Share capital 20,00,00,000 Reserves & Surplus 669,567,706 Total available funds 86,95,67,706 (1) B. Interest bearing funds Unsecured loans 1,17,24,184 Total interest bearing funds 1,17,24,184 (2) C. Investment, where income of investment Does not form part of the total taxable Income Quoted and unquoted equity sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... held as disallowable only in respect of investment made in equity shares of i-flex solutions Ltd. in the past and on account of the investment of Rs. 2,08,67,666 made between 1-1-1999 to 22-3-1999 in the shares of Citicorp services and Investment Ltd. No disallowance of interest can be made in regard to the investment of shares of Citicorp Brokerage India Ltd. if it is found that the investment was made in the period when there was no overdrawn account from the bank. Since this was a matter of verification the Assessing Officer was directed to look into it. 20. With regard to investment made during the accounting year in shares of Citicorp Securities & Invt. Ltd. and Citicorp Brokerage India Ltd., the CIT(A) held that if it is found that at the point of investment there was overdrawn account in the bank, disallowance of interest on the pro rata basis can be made only for the period when there was overdraft and not for the entire accounting year. 21. In respect of investment made in I-flex Solutions Ltd. in the past, the disallowance is to be worked out on pro rata basis for the whole accounting year. The claim of the assessee that no disallowance on this account be made consider....