TaxTMI 
TaxTMI 
2021 (1) TMI 76
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....14, ITA No. 254/Mum/2015 and ITA No. 507/Mum/2016. Keeping in view the aforesaid submissions of the parties, we proceed to dispose of the grounds raised in the appeal. 3. Ground No. 1 being a general ground does not require specific adjudication. 4. In ground No. 2, the assessee has challenged the taxability of Rs. 1,86,50,124/- received towards Infrastructure and Hosting Data Centre (IDC) charges by treating it as royalty. 5. Briefly the facts are, the assessee is a company incorporated in Singapore and is also a tax resident of that country. Basically, the assessee is engaged in provision of services relating to developing, marketing and implementing incentive based strategies and technologies to build loyalty and to reward long-term relationships through the utilization of the internet, wireless technology and offline solutions to its clients. During the previous year relevant to the assessment year under dispute, the assessee provided three different categories of services to its three Indian group companies on payment basis, the services provided by the assessee to its Indian group companies are as under:- (i) Infrastructure and Hosting Data Centre (IDC) serv....
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....ech computer complex being multiple mainframe computers and other related hardware and software facilities involving substantial investment and capable of very high volume storage and high processing of data. He observed, on receiving payment, assessee allows its Indian group companies and their approved customers to have access and to use its Central Processing Unit (CPU) at Singapore. The Assessing Officer observed, the use of CPU by the Indian group companies establishes strong business connection between the assessee and the group companies. He observed, not only the assessee allows use of its mainframe computers at Singapore but also allows incidental electronic mail access, consolidated data network access and consolidated data network services to the Indian group entities on payment basis. Thus, he concluded that the payment received by the assessee from IDC services is for use of or right to use design or model, plan, secret formula or process or for information concerning industrial commercial or scientific experience within the meaning of the term royalty as per Article 12(3)(a) of the India Singapore (DTAA). Alternatively, he held, the payment received by the assessee ca....
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....ement comprise of administration and supervision of central infrastructure ; mailbox hosting services and website hosting services, (iv) IDC services ensure 100% uptime for critical external facing applications which need highly secured web environment and dedicated team of security experts to ensure 100% uptime of security systems (firewall, antivirus, access controls) which are also hosted on server in Singapore. We further observe that examples of websites/applications/softwares hosted by Indian group companies on the data centre in Singapore are web ordering application, corporate website, websites created for customers of Edenred India entities while making a loyalty program for them. A perusal of the documents filed before the AO and DRP clearly indicate that (i) appellant has an infrastructure data centre, not information centre at Singapore, (ii) the Indian group companies neither access nor use CPU of the appellant, (iii) no CDN system is provided under the IDC agreement, no such use/access is allowed, (iv) the appellant does not maintain any such central data (v) IDC is not capable of information analytics, data management, (vi) appellant only provides I....
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.... does not amount to fees for technical services within the meaning of the DTAA, (vii) as regards the payments made for providing access to software applications and to the server hardware system hosted in Singapore for internal purposes and for availing of related support services under the terms of the service agreement, same cannot be brought within the scope of the definition of 'royalty' in Article 12.3, (viii) there is no transfer of any copyright in the computer software provided by AXA ARC and it cannot be said that the applicant has been conferred any right of usages of the equipment located abroad, more so, when the server is not dedicated to the applicant. Similarly, in the case of Standard Chartered Bank (supra), the assesseebank entered into an agreement with a Singapore company SPL, for the provision of data processing support for its business in India and that data processing is down outside India. Application software by which data is transmitted to hardware at Singapore and processed by SPL at Singapore is owned by the assessee. Thus what is used by the appellant is the computer hardware owned by SPL. The Tribunal held that (i) payment in question ....
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....d services offered by the portal would be covered by the expression royalty. We find that subsequently, after considering the decision in Cargo Community Network (P.) Ltd. (supra), Mumbai ITAT in the case of Standard Chartered Bank 11 ITR 721 and Yahoo India Pvt. 140 TTJ 195 held that no part of the payment could be said to be for use of specialized software on which data is processed as no right or privilege was granted to the company to independently use the computer. In the case IMT Labs (India) (P.) Ltd. (supra), the assessee, an Indian company, entered into an agreement with a non-resident American company for securing license of a particular software, which the applicant is entitled to use. The applicant has to pay license fee for usage of software to the American company. The AAR held that 'Smarterchild' application software on the American company's server platform is scientific equipment licensed to be used for commercial purposes and therefore, payments made for producing and hosting 'Interactive Agent' applications would be covered by the expression 'royalties' as used in Article 12. However, we find that in the instant case, appellant only pro....
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....1,83,758/- from one of its Indian Group Company i.e. M/s SurfGold.Com (India) Pvt. Ltd. for providing management and consultancy services. As noted by the Assessing Officer, these services broadly include consultancy services in connection with the management of the Indian group Company's business and operation. During the assessment proceedings, the assessee submitted that for providing such services the assessee has entered into specific agreement with the Indian group company. By filing elaborate written submissions the assessee submitted that since the services provided under agreement are not of the nature as provided u/s 9(1)(vii) of the Act as well as Article 12 of India- Singapore DTAA, they cannot be treated as FTS. Further, it was submitted, I course of providing such services the assessee has not made available any technical knowhow, knowledge, skill etc. Therefore, it cannot be treated as FTS under treaty provisions. The Assessing Officer, however, did not accept the submissions of the assessee. He held that as per the terms of the agreement the assessee is required to equip the employees at managerial level with core management skills relevant to managing the Indian....
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....& Ors (ITA No. 473/2012) wherein it is held that provisions of DTAA shall prevail over the provisions of the Act, if they more beneficial. At this moment, we refer to Article 12(4) of the India-Singapore DTAA which explains the expression 'make available' as under : "Article 12(4): The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: a. are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or b. make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or c. consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein." Thus as per the India-Singapore DTAA,....
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....the AAR has ruled as under : "9. The definition of FTS as contained in clause (b) of Article 12.4 is explicitly designed to restrict the scope and ambit of the technical and consultancy services. Even if we proceed on the basis that some of the services have the flavour of imparting technical knowledge and experience to the recipient of service, the further question is whether such provision of services enables the person acquiring the services to apply the technology contained therein. This test specifically laid down in clause (b), in our view, is not satisfied and the legal position clarified by this Authority while interpreting more or less similar Treaty provisions applies with greater force to the present case in view of the narrow language employed in the India-Singapore DTAA. Providing comments and suggestions after reviewing the strategies and plans developed by the Applicant, giving suggestions to the Applicant to improve the product developed by it so as to bring it in line with the common practices followed by other AXA entities across the globe, providing HR support assistance, assisting the Applicant in choosing cost effective re-insurance partners, ....
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....d 31.01.2017 held that from none of legal advisory services it can be said that technical knowledge, skill, experience, knowhow or process remained with the clients to whom services were rendered by the assessee, even after the rendition of services was completed and agreement came to an end. These services were of purely legal advisory nature; it cannot be said that recipient of the services was in a position to duplicate similar skill or technology or techniques in future without the aid or assistance of the assessee for carrying out similar assignments. In the case of Perfetti Van Melle Holdings BV (supra), the applicant is a company based in Netherlands and it is in the business of manufacture and sale of sugar confectionary and gun. It also provides operational and other support services for the benefit of companies of Perfetti group situated in various countries. It has entered into a service agreement with the group company (Perfetti India). The AAR held that when the expertise in running the industry run by the group is provided to the Indian entity in the group to be applied in running the business, the employees of the Indian entity get equipped to carry on that ....
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....the assessee is towards transfer of rights in respect of or the imparting of any information concerning or process or similar property. Thus, it has to be treated as royalty. Accordingly, he brought it to tax while framing the draft assessment order. While considering assessee's objections on the issue, learned DRP relying upon its decision in assessee's own case in assessment year 2012-13 held that the amount received by the assessee is in the nature of royalty and FTS. 15. Having considered the submissions of the parties and perused the material on record, we find that identical issue came up for consideration before the Tribunal in assessee's own case in assessment years 2010-11 to 2012-13. While deciding the issue the Tribunal, in the order referred to earlier, the Tribunal has recorded a categorical finding that the referral fee is neither in the nature of royalty nor FTS. The relevant observations of the Tribunal in this regard are reproduced here under:- "12. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In the instant case, the appellant has received fees for referral ser....
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....ield Ruling (supra) held that referral fee received by a UK company (applicant) from India based recruitment agency for referring potential Indian clients and candidates was not royalty or FTS. The relevant observations of the AAR in the context of Article 13 dealing with royalty/FTS is as under : "10. Collecting data and analyzing it and making a database for providing information on suitable candidates for recruitment, even if they are in the nature of consultancy services, cannot be considered to be ancillary and subsidiary to the enjoyment/application of the right or information referred to in para 3(a). Moreover, by access to the database, it cannot be said that the information concerning industrial, commercial or scientific experience will be transmitted by the applicant to the recruiting agencies. If the contention of Revenue is accepted, it would amount to unwarranted expansion of the terms FTS and royalties. Consideration for providing information concerning industrial, commercial or scientific experience basically involves the sharing of technical know-how and experience which is not the case here........ We do not think that the criterion envisaged by a....