TaxTMI 
TaxTMI 
2023 (1) TMI 1207
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....details of which are tabulated below:- Appeal Number Impugned Order under challenge before the Tribunal ITA no.508/Mum./2016 Final assessment order dated 30/12/2015, passed by the AO under section 143(3) r/w section 144C(13) of the Act, pursuant to the directions dated 24/11/2015 issued by the learned DRP under section 144C(5) of the Act, for the assessment year 2012-13. ITA no.7247/Mum./2017 ITA no.7248/Mum./2017 Final assessment orders dated 31/10/2017, passed by the AO under section 143(3) r/w section 144C(13) of the Act, pursuant to the separate directions dated 22/09/2017 issued by the learned DRP under section 144C(5) of the Act, for the assessment years 2013-14 and 2014-15. ITA no.5193/Mum./2018 Final assessment order dated 13/07/2018, passed by the AO under section 143(3) r/w section 144C(13) of the Act, pursuant to the directions dated 18/05/2018 issued by the learned DRP under section 144C(5) of the Act, for the assessment year 2015-16. 2. Since all the aforesaid appeals pertain to the same assessee involving, inter-alia, similar issues in the assessment years under consideration, therefore, as a matter of convenience, these appeals were hear....
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....ed in computing gross tax as INR 1,07,89,868 as against INR 98,23,868. 5. Short grant of credit for Tax deducted at source (TDS) erred in granting TDS amounting to INR 1,03,26,605 as against INR 1,33,26,605 claimed in the return of income thereby leading to short grant of TDS of INR 30,00,000: 6. Interest under section 234A of the Act erred in levying interest under section 234A of the Act amounting to INR 32,431 which is not as per law. 7. Interest under section 2348 of the Act erred in levying interest under section 2348 of the Act amount to INR 2,08,486 disregarding the fact that the Appellant is a non-resident assessee and its entire revenues/ receipts are subject to tax withholding in India under section 195 of the Act and the Appellant is not liable to pay advance tax in respect of such revenues. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal." 4. The brief facts of the case are: The assessee is a company formed and incorporated in France and belongs to Edenred Group of compan....
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....rds the Management Service Fees received by the assessee, the learned AR submitted that the said receipt can also not be taxed as royalty. 7. On the contrary, the learned Departmental Representative ('learned DR') submitted that in the group company's case, the receipt was held to be not taxable as fees for technical services by the coordinate bench of the Tribunal, however, in the present case, the learned DRP held the fees to be royalty and therefore the said decision is not applicable to the present case. The learned DR further submitted that in the case of royalty there is no make available clause in the provisions of the India France DTAA. 8. We have heard the rival submissions and perused the material available on record. In the present case, vide draft assessment order, the AO held that TSIS Service Fee received by the assessee is taxable as royalty, while the Management Service Fee is taxable as fees for technical services. In further proceedings, the learned DRP came to the conclusion that services provided by the assessee are similar to the services provided by the group company of the assessee i.e. Edenred PTE Ltd. Accordingly, the learned DRP following its directi....
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....dware and software facilities involving substantial investment and capable of very high volume storage and high processing of data. The AO also observed that the assessee allows Indian companies and their approved customers to have access to and use its Central Processing Unit ('CPU') in France against payment. Further, the assessee allows the use of its mainframe situated in France and also incidental electronic mail excess, consolidated data network expenses, and consolidated data network services to Indian group entities on a payment basis. The AO further held that the Indian company's access to mainframe computers through electronic connectivity on the basis of a contract for use establishes a business connection of the assessee with the Indian company in India. Accordingly, the AO came to the conclusion that income is taxable under the head royalty under section 9(1)(vi) of the Act. The AO also held that the income is also taxable as royalty under the provisions of India France DTAA. Accordingly, the AO added the income to the total income of the assessee as royalty taxable at 10% under the beneficial rate as per the DTAA. 10. We find that the taxability of income arising f....
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....rvices, (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 websites/applications/softwares hosted by Indian of 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 (u) IDC is not capable of information analytics, data management, (vi) appellant only provides IDC service by using its hardware/security devices/personnel; all that the Indian group companies received are standard IDC s....
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....o 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, (vii) 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 assessee bank 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 can be said to be a payment for a facility which is available to any person willing to use the facility, (ii) system software which is emb....
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....dering 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 provides service by using its hardware/security devices/personnel and not use of any software and therefo....
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....d no licences in any software/right to use any software etc. is provided. Further, there is no sharing of any confidential information by the assessee with the Indian group companies. The term 'Royalty' is not as widely defined in India France DTAA as in the India Singapore DTAA, which was taken into consideration by the coordinate bench of the Tribunal in the case of sister concern. Since it has not been disputed that the facts of the present case are similar to the case of the assessee's group concern, wherein income arising from services of similar nature are held to be not taxable as royalty, therefore, we find merit in the plea of the assessee. Accordingly, respectfully following the aforesaid decision of the coordinate bench of the Tribunal, we direct the AO to delete the addition in respect of TSIS Service Fees received by the assessee. As a result, ground No. 2 raised in assessee's appeal is allowed. 12. During the year, the assessee earned Management Service Fees amounting to Rs. 7,19,02,857, from its aforesaid Indian group companies under the Management Service Agreement. Under the agreement, the services provided by the assessee broadly include management services in ....
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.... the touchstone of royalty in the present appeal, therefore, we are of the considered view that Management Service Fee received by the assessee is not in the nature of royalty and thus, the AO is directed to delete the addition on this account. As a result, ground No. 3 raised in assessee's appeal is allowed. 13. Ground No. 1 and 4, raised in assessee's appeal, are general in nature and therefore, in view of aforesaid findings need no separate adjudication. 14. Ground no.5, raised in assessee's appeal is pertaining to short grant of credit of TDS. This issue is restored to the file of the AO with the direction to grant TDS credit, in accordance with the law, after conducting the necessary verification. As a result, ground no.5 raised in assessee's appeal is allowed for statistical purposes. 15. The issue arising in ground No. 6 raised in assessee's appeal is pertaining to the charging of interest under section 234A of the Act. Accordingly, we deem it appropriate to remand this issue to the file of AO for de novo adjudication after the necessary examination of the fact whether the return of income was filed by the assessee within the prescribed time under the Act. As a resu....
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.... with Para 7 of the protocol of the India-France DTAA containing the Most Favoured Nation Clause and Article 12(5) of the India-Finland DTAA which provides taxing right to the state where such services are performed (France); d) Erred in not appreciating that impugned management service fee cannot be taxed at FTS under the provisions of the Act as well as Article 13 of the India-France DTAA read with Para 7 of the protocol of the India-France DTAA containing the Most Favoured Nation Clause and Article 12 of the India-USA DTAA which provides that only services which makes available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design are taxable as FTS/fees for included services, 4. Erred in computing gross tax Erred in computing gross tax as INR 85,88,382 as against INR 82,17,924; 5. Short grant of credit for Tax deducted at source (‗TDS') Erred in granting TDS credit amounting to INR 85,52,734 as against INR 91,65,609 claimed in the return of income thereby leading to short credit of TDS of INR 6,12,875; 6. Interest under section....
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..... 7, raised in assessee's appeal, is pertaining to the levy of interest under section 234B of the Act. In view of the decision of Hon'ble Supreme Court in DIT v. Mitsubishi Corporation, [2021] 438 ITR 174 (SC), ground No. 7, raised in assessee's appeal, is rendered consequential in nature and therefore is allowed for statistical purposes. 24. In the result, this appeal by the assessee is allowed for statistical purposes. ITA no.7248/Mum./2017 Assessee's Appeal - A.Y. 2014-15 25. In its appeal, the assessee has raised the following grounds:- "On being aggrieved by the order dated 31 October 2017 of the learned Deputy Commissioner of Income-tax (International Tax)-(2)(1)(2), Mumbai (AO) passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (the Act) as also directions usued by the DRP, Mumbai dated 22 September 2017, the present appeal is being preferred on the following grounds amongst others which, it is prayed, may be considered without prejudice to one another. On the facts and circumstances of the case and in law, the learned AO, as per the directions of DRP has: 1. General Grounds Erred in ....
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....ppellant is not liable to pay advance tax in respect of such revenues. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal." 26. The issue arising in grounds No. 2 and 3 raised in assessee's appeal is pertaining to the taxability of TSIS Service Fees and Management Services Fees received by the assessee as royalty. The learned DRP vide its directions, after noting that the facts for the year under consideration are similar to the preceding assessment year, held that both the receipts are taxable as royalty. Since a similar issue has been decided in assessee's appeal being ITA No. 508/Mum./2016, for the assessment year 2012-13, therefore, our findings / conclusion rendered in the said appeal shall apply mutatis mutandis. Accordingly, grounds No. 2 and 3 raised in assessee's appeal are allowed. 27. The issue arising in grounds No. 1 and 4 are general in nature and therefore need no separate adjudication, in view of our aforesaid findings. 28. The issue arising in ground No. 5, raised in assessee's appeal, is pertaining to the l....
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....ic Information Systems (TSIS") fees taxed as royalty Erred in considering TSIS charges of INR 52 98,797 to be taxable as royalty under the provisions of the Act and the India-France DTAA; 4. Erred in computing gross tax Erred in computing gross tax as INR 62.67,501 as against INR 60,05,098. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal." 31. The issue arising in ground No. 2, raised in assessee's appeal, is pertaining to the taxability of management service fees received by the assessee as fees for technical services. 32. The brief facts of the case pertaining to this issue are: During the year under consideration, the assessee earned management service fees amounting to Rs. 4,35,95,413 from its Indian group companies. The assessee claimed that the same is not liable to tax in India as per Article 13 read with the Protocol to the India France DTAA along with Article 12 of India Finland DTAA. Further, the assessee claimed that the said Management Service Fee is also not liable to be taxed in India....
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.... for technical services. In conformity, the AO passed the impugned final assessment order under section 143(3) r/w 144C(13) of the Act. Being aggrieved, the assessee is in appeal before us. 34. During the hearing, the learned AR submitted that the assessee is entitled to claim the benefit of India USA DTAA in view of para 7 of the Protocol to the India France DTAA. The learned AR further submitted that the assessee has not 'made available' any technical knowledge, experience, skill, know-how, or process, which has enabled its Indian group companies to apply the technology contained therein as per the restrictive definition of 'fees for included services' under Article 12(4) of the India USA DTAA. 35. On the contrary, the learned DR vehemently relied upon the orders passed by the lower authorities and submitted that the MFN clause as provided in the Protocol to the India France DTAA is not applicable to the present case in view of CBDT Circular No. 3/2022 dated 03/02/2022. Learned DR submitted that as per the said circular a separate notification has to be issued by India importing the benefits of the second treaty into the treaty with the First State, as required by the provi....
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....equipment 'to our lower rate' or 'restrict the scope' than the rate or scope as agreed between India and France, then such rate or scope shall apply under the India France DTAA. Thus, under the Protocol to the India France DTAA, the most-favoured-nation treatment extended by India under DTAA with other OECD member countries is also extended to India France DTAA. The para-7 of the Protocol to the India France DTAA came up for consideration before the Hon'ble Delhi High Court in Steria (India) Ltd. Vs CIT, [2016] 386 ITR 390 (Delhi), wherein the Hon'ble Delhi High Court observed as under: "15. The Court finds no warrant for the above restrictive interpretation placed on Clause 7 of the Protocol. The words "a rate lower or a scope more restricted" occurring therein envisages that there could be a benefit on either score i.e. a lower rate or more restricted scope. One does not exclude the other. The other expression used is "if under any Convention, Agreement or Protocol signed after 1-9-1989 between India and a third State which is a member of the OECD". This also indicates that the benefit could accrue in terms of lower rate or a more restrictive scope under more than one Co....
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....r by Hon'ble Supreme Court. In De Beers India (P.) Ltd. case (supra), their Lordships posed the question, as to "what is meaning of 'make available'", to themselves, and proceeded to deal with it as follows: '......The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techni....
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....assessee are managerial or consultancy services in nature, which do not involve or transmit the technology, the same cannot be brought to tax as fees for technical services." 40. Therefore, only when the recipient of the services, by virtue of the rendition of services by the assessee, is enabled to provide the same services without recourse to the service provider, the services can be said to have been 'made available' to the recipient of services. A mere incidental advantage to the recipient of service is not sufficient to fall under the category of 'make available'. Therefore, the technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. However, in the present case, apart from merely using the terminology 'made available', the Revenue has not brought any instance on record where the Indian group companies were shown to have used such information without depending upon the assessee. The....
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....y India, importing the benefits of the second treaty into the treaty with the first State, as required by the provisions of sub-section (1) of Section 90 of the Income Tax Act, 1961. If all the conditions enumerated in Paragraph 5(i) to (iv) are satisfied, then the lower rate or restricted scope in the treaty with the third State is imported into the treaty with an OECD State having MFN clause from the date as per the provisions of the MFN clause in the DTAA, after following the due procedure under the Indian tax law." 11. A look at the above para deciphers that the benefit of a lower rate of taxation or restricted scope of source taxation rights, as contained in the MFN clause with reference to ‗royalty' and ‗fees for technical services' etc. provided in the India's DTAAs with second State, can be availed under the DTAA with the first State only when the four conditions are fulfilled. There is no dispute that conditions enshrined under points (i) to (iii) are fulfilled in the instant case. The condition under point (iv) states that a separate notification should be issued by India importing the benefit of the second treaty into treaty with the first S....
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....the Circular transgressing the boundaries of section 90(1) of the Act, cannot bind the Tribunal. 13. Notwithstanding the above, it can be seen that the CBDT has panned out a fresh requirement of separate notification to be issued for India importing the benefits of the DTAA from second State to the DTAA with the first State by virtue of its Circular, relying on such requirement as supposedly contained in section 90(1) of the Act. In our considered opinion, the requirement contained in the CBDT circular No.03/2022 cannot primarily be applied to the period anterior to the date of its issuance as it is in the nature of an additional detrimental stipulation mandated for taking benefit conferred by the DTAA. It is a settled legal position that a piece of legislation which imposes a new obligation or attaches a new disability is considered prospective unless the legislative intent is clearly to give it a retrospective effect. We are confronted with a circular, much less an amendment to the enactment, which attaches a new disability of a separate notification for importing the benefits of an Agreement with the second State into the treaty with first State. Obviously, such a Circu....