TaxTMI 
TaxTMI 
2016 (4) TMI 520
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.... not taxable in India since the appellant does not have a permanent establishment (PE) in India. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the learned AO in alternatively treating the revenues of Rs. 6,15,32,756 received from the Indian customers during the year under consideration as 'fees for technical services' as per the provisions of Section 9 of the Act, and the DTAA, without appreciating that the revenue is in the nature of business income not taxable in India since the appellant does not have a permanent establishment (PE) in India. 3. The assessee before us is a UK tax resident company engaged in the business of providing international telecommunication network connectivity facility to various telecom operators around the world. The assessee filed a NIL income tax return in India, which was subjected to scrutiny assessment proceedings. During the course of these proceedings, the Assessing Officer noticed that the assessee has received a sum of Rs. 6,14,20,596 from Vodafone Essar South Limited, and a sum of Rs. 1,12,160 from Tata Telecommunications Ltd, towards the use of virtual voice network ....
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....fic securely and flexibly with other operators around the world. Based on the latest VoIP technology and operating over the densest international soft switching platform. Arena is a tree trading and interconnects service to operators across the globe. Being part of Arena means no more charges for trading customers traffic to unknown carriers at trading houses; with a no per minute transaction charge, the customer can trade for free with a large community of carriers around the Globe. Via Interoute's secure Web Portal, customers can join a public domain or create their own private ones, giving them the ability to openly and honestly select who and when they wish to trade traffic with. 10. Arena uses Call Admission Control at the border of customer's network which means they can prioritize traffic streams coming into their network and reject unprofitable calls before they reach their Switching platform. Enabling them to prioritize important customers traffic streams, ensuring they receive their high quality supplier capacity. Arena acts as a meeting point to operators around the world; meaning they can gain access to Arena partners wherever they may be located - so trading....
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.... the same cannot be termed as 'Royalty' or 'Fee' for technical services. But having taken note of the AO's order, I am completely in agreement with the AO's finding that the entire payment which has been made by the Indian Customers to the appellant is in the nature of 'Royalty' or 'Fee: for technical services' as the appellant is creating a product which allows its customers in India to link its networks to that of other networks in Europe/USA, it is not a simple case where a customer is using a standard facility provided by Interoute i.e. the appellant. The appellant is providing entire services to the Indian customers to make them effectively enable them to interconnect with the net work of Europe and USA. The entire services which has been provided by the appellant is highly technical and is in the nature of services which has been rendered by the appellant to the Indian customers and for that only such payments have been made. Having taken note of the Article of India-UK-DTAA on royalty and fee for technical services and also to Sec.9 of the income-tax Act, I am in complete agreement with the AO's finding that these payments are in t....
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....ceed : (a) in the case of royalties within paragraph 3 (a) of this Article, and fees for technical services within paragraph 4 (a) and (c) of this Article; (i) during the first five years for which this Convention has effect; (aa) 15 per cent of the gross amount of such royalties or fees for technical services when the payer of the royalties or fees for technical services is the Government of the first-mentioned Contracting State or a political sub-division of that State, and (bb) 20 per cent of the gross amount of such royalties or fees for technical services in all other cases; and (ii) during subsequent years, 15 per cent of the gross amount of such royalties or fees for technical services; and (b) in the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10 per cent of the gross amount of such royalties and fees for technical services. (3) For the purposes of this Article, the term "royalties" means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematograph fi....
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....g a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provision of Article 7 (Business profits) or Article 15 (Independent personal services) of this convention, as the case may be, shall apply. 7. Royalties and fees for technical services shall be deemed to arise in a Contracting State where the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to make payments was incurred and the payments are borne by that permanent establishment or fixed base then....
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....alty only when it is payment for scientific work, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. It is not for a payment for a scientific work nor there is any patent, trademark, design, plan or secret formula or process for which the payment is made. There can hardly be any dispute that the payment is made for a service, which is rendered with the help of certain scientific equipment and technology, rendered by the assessee. The service is connectivity to the telecom operators in the call end jurisdiction. The facility is a standard facility which is used by other telecom companies as well. As for the dedicated ports, these things only provide a certain level of capacity in access but the payment is for the service nevertheless. Merely because the payment involves a fixed as also a variable payment does not alter the character of service. Dealing with such a type of consideration, a coordinate bench of this Tribunal, in the case Kotak Mahindra Primus Ltd Vs DDIT [(2007) 11 SOT 578 (Bom)], had held that "This type of pricing of a service, by segregating the fixed and variable pr....