TaxTMI 
TaxTMI 
2021 (2) TMI 33
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....ion of hardware, software and networking elements that constitutes industrial / commercial / scientific equipment and the income of INR 6,23,14,703 earned by the Appellant from cloud hosting services is for use of or right to use industrial / commercial / scientific equipment which would constitute royalty under section 9(1)(vi) of the Act. 1.2. On the facts and circumstances of the case and in law, the learned AO, pursuant to the directions of the Hon'ble DRP, erred in holding that the income earned by the Appellant is for use of or right to use industrial / commercial / scientific equipment and constitutes royalty under Article 12(3)(b) of the India - US tax treaty. 1.3. On the facts and circumstances of the case and in law, the learned AO, pursuant to the direction of the Hon'ble DRP, erred in holding that the definition of royalty under the Act (as retrospectively amended by Finance Act, 2012) can be applied even for the purposes of determination of royalty income under Article 12 of the India - US tax treaty in the absence of any corresponding amendment in the India - US tax treaty. 1.4. On the facts and circumstances of the case and in law, ....
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.... cloud hosting and other supporting and ancillary services provided to Indian Customers. The assessee filed the return of income and the notes stating therein that the cloud hosting services was not taxable as 'royalties' under Article 12 of the India-US tax treaty as the customers do not operate the equipment or have physical access to or control over the equipment used by the assessee to provide cloud support services and do not make available technical knowledge, experience, skill, know-how etc., to its Indian Customers and the cloud support services are not in the nature of managerial, technical or consultancy services and consequently same do not constitute fees for included services within the meaning of Article 12 of the India-USA Double Tax Avoidance Agreement (DTAA). The assessee claimed that revenues earned on account of cloud hosting services constitute business profits and since it did not have Permanent Establishment (PE) in India under Article 5 of the DTAA, the same would not be subject to tax in India under the provisions of Article 7(1) of the DTAA. There was a mismatch of receipts as per 26AS and as per party-wise receipts furnished by assessee, therefore, the not....
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.... of any right, property or information, whether or not- (a) the possession or control of such right, property or information is with the payer; (b) such right, property or information is used directly by the payer; (c) the location of such right, property or information is in India." 11. The above amendment clarified that any payments made for the 'use of equipment would be classified as 'royalties' irrespective of the possession or control of the equipment with the payer or use by the payer or the location of the equipment being in India. But, under the provisions of section 90(2) of the Act, an assesse can opt be governed by the provisions of the tax treaty to the extent they are more beneficial than the provisions of the Act. We noted the fact that Rackspacc USA is tax resident of USA and therefore, is entitled to claim the beneficial provisions of India-USA tax Treaty with respect to the taxability of its income earned from Indian payers. The Tax Residency Certificate along with Form 10F has been submitted by the assessee vide letter dated 29.01.2015 and 13.02.2015 for the years 2011 and 2012. 12. We have gone through the provisions of Article 12(3....
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..... There is no agreement to hire or lease out any equipment but only a service level agreement. 15. In the light of the above, we are of the view that the amendments in the domestic tax law cannot be read into the tax treaty as there is no change in the definition of 'royalties' under the India-USA Tax Treaty. Therefore, the retrospective amendment in the royalty definition under the Act does not impact the definition of 'royalties' in the India-USA Tax Treaty. Further, the identical issue has been decided by the co-ordinate Bench of this Tribunal in the case of Americal Chemical Society vs. DCIT in ITA No. 6811/Mum/2017 for the AY 2014-15 vide order dated 30.04.2019, wherein identical issue was decided by Para 17 to 19 as under: - "17. We have heard the rival submissions and perused the relevant material on record including the order of the lower authorities on the issue in dispute. We find that issue with respect to the PUBS division coincides with the issues on the CAS fee. The journal provided by the PUBS division do not provide any information arising from assessee's previous experience. The assessee's experience lies in the creation of / maintaining s....
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....royalties. 19. Thus, the principles noted by us in the earlier part of this order in the context of the income earned by way of CAS fee are squarely applicable to the subscription revenue received from customers of PUBS division for sale of journal also, and accordingly PUBS fee also does not qualify as 'Royalty' in terms of section 9(1)(vi) of the Act as well as Article 12(3) of the India-USA DTAA." 16. From the above facts and circumstances, we are of the view that the agreement between the assessee and its customer is for providing hosting and other ancillary services to the customer and not for the use of / leasing of any equipment. The Data Centre and the Infrastructure therein is used to provide these services belong to the assessee. The customers do not have physical control or possession over the servers and right to operate and manage this infrastructure / servers vest solely with the assessee. The agreements entered into the service level agreements. The agreement is to provide hosting services simpliciter and is not for the purpose of giving the underlying equipment on higher or lease. The customer is not even aware of the specific location of the server in the ....
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....634/M/2016, ITA. No.1075/M/2017 for the A.Y.2013-14 & ITA. No.3507/M/2017 for the A.Y.2014-15 dated 29.05.2019, therefore, in the said circumstances, the issue is liable to be decided in favour of the assessee in accordance with law. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. Before going further, we deem it necessary to advert the finding of the Hon'ble ITAT in the assessee's own case(supra) on record:- "17. The second common issue in these appeals of assessee is as regards to the order of DRP and AO holding the income from cloud hosting services as fee for technical services within the meaning of section 9(1)(vii) of the Act as well as fee for included services under Article 12(4)(a) of the Indo-US DTAA. For this assessee has raised the following ground No. 2: - "Ground No. 2: Income from cloud hosting services is also erroneously held as fees for technical services within the meaning of section 9(1)(vii) of the Act as well as fees for included services under Article 12(4)(a) of the India-US tax treaty 2.1 On the facts and circumstances of the case, the learned AO further cmxl in holding that the income ....
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.... "5. Under the provisions of the present Act, the issue had come for consideration in the case of CIT v. Sedco Forex International Drilling Co. Ltd. [2004] 186 CTR (Uttaranchal) 144 : [2003] 264 ITR 320 (Uttaranchal). One of the questions was, as to whether interest could be levied on the assessee under s. 234B of the Act in respect of tax which was not liable to be deducted at source. A learned Bench of the Uttaranchal High Court, after considering the provisions, held as under: "Secondly, although s. 191 of the Act is not overridden by ss. 192, 208 and 209(1)(a)/(d ) of the Act, the scheme of ss. 208 and 209 of the Act indicates that in order to compute advance tax the assessee has to, inter alia, estimate his current income and calculate the tax on such income by applying the rates in force. That under s. 209(1)(d) the incometax calculated is to be reduced by the amount of tax which would be deductible at source or collectible at source, which in this case has not been done by the employer company according to the law prevailing for which the assessee cannot be faulted." 6. Relying on the judgment in Sedco Forex International Drilling Co. Ltd. (supra), a learned Benc....