TaxTMI 
TaxTMI 
2016 (5) TMI 635
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....09-10. Grievance of the appellant is that "on the facts and in the circumstances of this case and in law, the learned CIT(A) erred in holding that the payment received for providing web hosting services, with all back up, maintenance, security and uninterrupted services, is not taxable as 'royalty' under clause (iva) to Explanation 2 to Section 9 (1)(vi) of the Act" 2. The relevant material facts are like this. The assessee before us is a US based company, engaged in the business of providing information technology solutions, including, amongst other things, web hosting services. During the relevant financial period, the assessee earned income from provision of managed hosting services to Indian entities, namely Malayala Manoram....
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....the data centres maintained by the assessee, outside India, which are in the nature of specialized facilities consisting of, inter alia, server on which data and applications are hosted, network and hardware which facilitate the connectivity of the server with the outside world. It was also noted that the assessee's obligations include ensuring the foolproof security systems in these data centres and ensuring the equipment in these data centres runs smoothly. The Assessing Officer was of the view that in essence the receipt is for granting the right to use the scientific equipment which is taxable in India under item (va) of Explanation 2 to Section 9(1)(vi) as also Article 12(3) (b) of Indo US tax treaty. It was in this backdrop that the A....
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....ut limited grievance raised before us is with respect to the provisions of the Act. The issue so raised is purely academic in the sense that even if the grievance of the Assessing Officer is upheld, the findings on the treaty aspect will remain intact, and as the provisions of the Act come into play only when these provisions are more beneficial vis-à-vis the treaty provisions, the relief under the treaty provisions will continue to hold the field. The success of the Assessing Officer, even if he was actually entitled to the same on merits, would have been rather hollow. 8. That, however, is not the only reason why the appeal must fail. 9. We have noted that the very basis of the impugned addition is Assessing Officer's finding....
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....e use of specialized software on which data is processed or for the use of mainframe computer because the Indian company does not have any independent right to use the computer or even physical access to the mainframe computer, so as to use the mainframe computer or the specialized software." A payment cannot be said to be consideration for use of scientific equipment when person making the payment does not have an independent right to use such an equipment and physical access to it. In the present case also, what the assessee is providing is essentially web hosting service, though with the help of sophisticated scientific equipment, in the virtual world. The scientific equipment used by the assessee enable rendition of such a service, and ....