TaxTMI 
TaxTMI 
2021 (4) TMI 446
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....far as the main issue of taxability or otherwise of certain amount received as royalty or/and FTS is concerned, relevant facts are, the assessee is a company incorporated in Singapore and is also a tax resident of that country. As stated by the assessing officer, during the year under consideration the assessee had provided certain services to its group concern in India, viz. Atos India Pvt. Ltd. (Atos India) and received payment. The details of services rendered and payment received are as under:- 1. Project related services pertaining to Nokia Siemens Project Rs. 1,41,70,645/- 2. Project related services pertaining to Standard Chartered Bank project Rs. 69,93,459/- 3. Services related to other projects Rs. 6,86,078/- 4. Cost recharge pertaining to salary of Thomas Boutard Rs. 10,67,392/- Total Rs. 2,29,17,574/- 4. It is also a fact on record, the aforesaid services are provided to Atos India in pursuance to agreements executed between them. In the return of income filed for the impugned assessment year, the assessee did not offer the payment noted above as income. In course of assessment proceedings, when the assessing officer called upon the asse....
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.... within the category of royalty/FTS with reference to the provisions of India-Singapore DTAA. Having so observed, the learned DRP went on to analyse and examine each of the services rendered by the assessee and observed that while rendering managed services, the assessee provides entire server hosting services and carries out support services of the server for enabling efficient and secured availability of server. They observed, the managed servers are leased out to the service recipient and is in control and possession of the lessee for all practical purposes. They observed, the provision of hosting service inherently involves use of assessee's hardware and software by the person who has rented the server. The access and control over the server are with the user and the assessee is merely required to ensure 24 hours availability of the server. While coming to such conclusion, learned DRP referred to certain information available in web. Thus, learned DRP concluded that the assessee provides equipment and associated software and services to manage the equipment, hence, such services clearly fall within the ambit of section 9(1)(vi) read with Explanation 4(a) as well as Article ....
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....ver hosting services and database management service. Thus, the learned Counsel submitted, the core activity of the assessee is to provide data centre/managed services to Atos India, which essentially are in the nature of Information Technology (IT) infrastructure management and mailbox hosting services to Atos India. He submitted, all these services are performed by assessee's employees in Singapore and from the data centers located in Singapore. To support his contention regarding the nature of services provided by the assessee, the learned Counsel drew our attention to certain documents placed in the paper book, stated to be the agreement executed for Nokia Siemens project and Standard Chartered Bank project. Referring to these documents, the learned Counsel submitted, the services rendered by the assessee cannot be termed as royalty. 9. Drawing our attention to Article 12(3) of the India Singapore DTAA, he submitted, while providing data centre/managed services, the assessee has not transferred any information concerning industrial, commercial or scientific experience. Further, he submitted, the assessee has also not allowed use or transferred any right to use of any cop....
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....India in consultation and finalization of accounts. While doing so, he has not made available any technical knowhow to Atos India's employees which can be used by Atos India independently. He submitted, this can be ascertained from the fact that in future years also, though, the assessee had received payment towards assistance provided to Atos India by Mr. Thomas Boutard, the assessing officer has not made any addition. Thus, he submitted, the amount received cannot be treated as FTS. For such proposition, assessee has relied upon the decision of Hon'ble jurisdictional High Court in case of Diamond Services International P. Ltd. vs. UOI (supra). 13. The learned Departmental Representative submitted, the payment received by the assessee for various services rendered is clearly in the nature of royalty and FTS. In this context, he specifically referred to various observations of learned DRP. Further, he submitted, the terms "royalty & FTS" have to be interpreted as per the laws of the contracting state wherein they arise. That being the case, he submitted, the provisions of section 9(1)(vi) and 9(1)(vii) would apply. Referring to the aforesaid provisions, the learned Depar....
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....services pertaining to Standard Chartered Bank project and services relating to other projects. Besides these, the assessee has also received payment towards cost recharge pertaining to salary of a person, viz. Mr. Thomas Boutard. There is no dispute between the parties that the assessee is a tax resident of Singapore; hence, is governed by the provisions of the India-Singapore DTAA. 18. Keeping the aforesaid factual position in perspective, we have to examine, whether each kind of payments received by the assessee qualifies either as royalty or FTS under the relevant provisions of India-Singapore DTAA. As far as the project related services rendered by the assessee, there is unanimity between the parties that they relate to data center and mailbox hosting services. What is meant by mailbox hosting services? It is a service where both incoming and outgoing emails are managed by a separate shared or dedicated server. All email messages and associated files of the client are stored on a server. Similarly, datacenter service encompasses all services and facility related components and activities that support the implementation, maintenance, operation and enhancement of a datacenter....
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.... (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise/from activities described in paragraph 4(A) or 4(f) of Article 8." 21. A reading of the Article 12(3) makes it clear that it provides for three basic situations to consider a payment to be in the nature of royalty. Firstly, the payment must be for the use or right to use concerning industrial, commercial or scientific experience. Secondly, it must be for use or right to use any copyright of a literary, artistic or scientific work including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process. Thirdly, it must be for use or right to use any industrial, commercial or scientific equipment. It has to be examined, whether any of the aforesaid conditions either on stand-alone basis or cumulatively apply to the payments received by the assessee while rendering services to Atos India. 22. As could be seen from the facts on record, while rendering such services, none of the employees of the assessee have visited India. Not only the servers and other hardware are located outside ....
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....on concerning industrial, commercial or scientific experience. In our considered opinion, the services rendered by the assessee are purely IT infrastructure management and mailbox hosting services and for rendering which the assessee has neither allowed use or right to use of any copyright of literary, artistic or scientific work, etc. or use of information concerning industrial, commercial or scientific experience or has allowed use or right to use any industrial, commercial or scientific equipment. 24. In case of DCIT vs. Suvvis Communication Corporation (supra), the co-ordinate bench has held, the true test for finding out whether the consideration is for rendition of services, though, involving the use of scientific equipment or the consideration is for use of equipment simpliciter. In the facts of the present case, there cannot be two opinions about the fact that, though, in course of rendition of services there may be involvement of or use of scientific equipments, but, the consideration received is not for use of equipment simpliciter, but for rendering services. 22. In case of Edenred Pte. Ltd. vs. DCIT (supra), the co-ordinate bench, while considering a somewhat simi....
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....n both sides. 6.1 We begin with the case laws relied on by the Ld. counsel. A plethora of precedents on the subject in which we are presently concerned compels us, in order to avoid prolixity, to refer only a few decisions below. In the case of Bharati Axa General Insurance Co. Ltd. (supra), the appellant, an Indian company carrying on business of general insurance entered into a service agreement with a Singapore company AXA ARC for receiving assistance such as business support, market information, technology support services and strategy support etc. from the latter. The AAR held that (i) though the services rendered by AXA ARC may well be brought within the scope of the definition of FTS under the IT Act as they answer the description of consultancy services or some of them may be categorized as technical services but the qualifying words "make available technical knowledge, experience, skill, know-how, which enables the recipient of services to apply the technology contained therein" in Article 12.4 of the DTAA make material difference, (ii) all technical or consultancy services cannot be brought within the scope of this definition unless they make av....
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....t cannot be said that the payment by the assessee to SPL is royalty within the meaning of Article 12 of the treaty. In Exxon Mobil Company India (P.) Ltd. (supra), the assessee had paid certain amount to 'EMCAP', Singapore towards global support fees. The AO opined that payment made by the assessee was in the nature of FTS as defined in Explanation 2 to section 9(1)(vii) of the Act. The Tribunal observed that as per terms of agreement, EMCAP had to provide management consulting, functional advice, administrative, technical, professional and other supporting services to the assessee; however, there was nothing in agreement to conclude that in course of such provision of service, EMCAP had made available any technical knowledge, experience, skill, knowhow or process which enabled assessee to apply technology contained therein on its own. Therefore, the Tribunal held that payment made by the assessee could not be considered as FTS as defined under Article 12(4)(b) of the India-Singapore DTAA. In M/s. Reliance Jio Infocomm Ltd. (supra) for AY 2016-17, the Tribunal observes that though the India-Singapore Tax Treaty is amended by Notification No. SO 935(E) date....
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.... subscribe, can login to its website to do a search on what is being spoken about various brands and so on. The AAR held that the amount received from offering the particular subscription based service is taxable in India as 'royalty' in terms of paragraph 2 of Article 12 of the DTAC between India & Singapore. However, we find that in the instant case, the appellant is only providing IDC service which includes administration and supervision of central infrastructure, mailbox hosting services and website hosting services and therefore, the ratio laid down in the above ruling is not applicable to the facts of the appellant's case. 6.3 From the enunciation of law in Bharati Axa General Insurance Co. Ltd; ExxonMobil Company India (P.) Ltd; Standard Chartered Bank v. DDIT; DCIT v. M/s. Reliance Jio Infocomm Ltd. narrated at para 6.1 hereinbefore, it is quite luculent that revenues under the IDC agreement ought not to be taxed in the hands of the appellant as royalty under the Act and/or India-Singapore DTAA. Therefore, we delete the addition of Rs. 95,62,479/- made by the AO towards IDC charges and allow the 2nd ground of appeal." 25. The observations of....
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...., whether the assessee has made available any technical knowledge, experience, skill, know-how or process in terms of section 12(4)(b). In our view, the material on record would not persuade one to conclude so. The true meaning of the aforesaid provision is, not only the payment is received for providing technical or managerial services, but, while doing so the service provider also makes available any technical knowledge, experience, skill, know-how or process, etc. to the recipient of services, which enables the person acquiring such services to apply the technology contained therein independent of the service provider. In other words, the service recipient must be in a position to apply the technical knowledge, experience, skill, know-how, etc. without requiring the permission or presence of the service provider. 28. In the facts of the present case, there is nothing on record to suggest that Atos India can use any technical knowledge, experience, skill, know-how or process, etc. independently on its own without requiring the involvement of the assessee. Therefore, in our considered opinion, the tests and conditions of Article 12(4)(b) are not satisfied. That being the case, ....
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....t similar payment made to the concerned person in subsequent assessment years has been allowed by the assessing officer. All these factors need to be properly verified by the assessing officer to come to a definite conclusion, whether the payment received by the assessee towards cost recharge of salary paid to Mr. Thomas Boutard shall qualify as FTS under Article 12(4)(b) of India-Singapore Tax Treaty. Accordingly, this issue is restored to the assessing officer for fresh adjudication, after due opportunity of being heard to the assessee. 31. To sum up, the addition made of the payment received towards various project related services by treating them as royalty and FTS is hereby deleted in view of our detailed finding hereinabove. Whereas, the issue relating to payment of cost recharge pertaining to salary of Mr. Thomas Boutard is restored back to the assessing officer. Grounds 1, 2 & 3 are disposed of accordingly. 32. In ground 4, the assessee has raised the issue of levy of surcharge and education cess on the tax liability computed. It is the case of the assessee that the total tax payable cannot exceed the tax rate as prescribed under Article 2 of India-Singapore Tax Trea....