TaxTMI 
TaxTMI 
2023 (2) TMI 161
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....ee is as regards to the order of CIT(A) confirming the disallowance of connectivity charges paid by the assessee to TATA Communications UK Ltd. (TATA UK) and TATA US treating the same as Royalty and FTS for non deduction of TDS and disallowed by invoking section 40(a)(i) of the Act. For this, the assessee has raised the identical grounds in all the four years and the facts and circumstances are exactly identical in all the four years as admitted by both the sides. Hence, we will take the facts for A.Y 2013-14 in ITA No.1986/Chny/2019 and will decide the issue. The assessee raised the following effective grounds for the above issue. "2. The Commissioner of Income tax (Appeals) erred in confirming the disallowance of connectivity charges amounting to Rs.71,18,249/- paid to TATA Communications UK Ltd (TATA UK)., as Royalty and FTS for non-deduction TDS u/s40(a)(i). 2.1 The Commissioner of Income tax (Appeals) ought to have appreciated that the payment made was not towards any rights to use nor the appellant made available any technical knowledge. The payment should not be treated as Royalty and FTS. Hence deduction of TDS u/s 40(a)(i) not called for." 3. The brief....
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....ed services to be rendered by the supplier to the customer pertaining to plant maintenance on customer's equipment. It was stated in para 3.3 of the Service Schedule to the said agreement that, if requested by... the customer, the supplier may at its option install certain customer-specified communications equipment and render miscellaneous services to the customer. The underlined principle laid down by the Jurisdictional High Court in the case of Verizon Communications Singapore Pvt. Ltd vs. ITO in Tax Case (Appeal) Nos.147 to 149 of 2011 and 23O of 2012 was that the IPLC services involves use of equipment and triggers equipment royalty taxation. Taking into account the nature of the service, the location of the equipment and the judicial pronouncements in this case, it is affirmed that the payments made to Tata Communications attract the provisions of section 195. The payments amounting to Rs.71,18,249/- paid to TATA Communications had been disallowed by the A.O. This disallowance is upheld. This ground of appeal is dismissed. Aggrieved, the assessee came in appeal before Tribunal against the confirmation of disallowance of connectivity charges paid to TATA Communications ....
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....n suitable for the placement of communications and Internet access equipment. At the Customer's request. Supplier may perform certain limited "remote hands" maintenance services on Customer's equipment within the Colocatiove Space or "escort services", which shall be performed in accordance with Customer's directions. Customer may be provided with "remote hands" maintenance services by purchasing this option for an additional fee as set forth in the Order Form. The "remote hands" service may include but is not limited to the following: (a) hard reboot of a server; (b) pushing a button or switching a toggle; (c) power cycling (e.g. turning off and on Customer Equipment); (d) observing or describing Customer Equipment indicator lights (physical observation of the server such as server LED status, power LED & occurrence of noises etc.): (e) basic observation and reporting of physical attributes on Customer's hosted Infrastructure; (f) changing pre-labeled Customer-provided tapes on an incidental basis; (g) securing or verifying cabling to connections; (h) cable organization, ties or labels usingCustomer-provided specifications (except cables of other services providers....
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.... intended purpose." 7. The Ld. counsel relied on the decision of Co-ordinate Bench of Mumbai Tribunal in the case of Rackspace, US Inc. Vs. Dy. CIT in ITA Nos. 1634/Mum/2016 & others vide order dated 29.05.2019, wherein the Tribunal has considered the definition of 'royalties' as provided in the India USA Tax Treaty. Since Rackspace USA is providing hosting services to the Indian customers, it does not give any equipment or control over the equipment. The term 'use' or 'right to use' for the purpose of the tax treaty entails that the payer has a possession/control over the property and/or the said property is at all its disposal. There is no privilege or right granted to the Indian customers over the servers and other equipments used to provide cloud hosting services. Further, it is held by the Bench that the equipments are not used by the customers and the same are used by Reckspace USA to provide service to the customers and hence, is held that the services provided by the Reckspace USA are in the nature of cloud hosting, data warehousing services etc., which are standard services provided to customers. Hence, the payments received on account of this cannot be called as a 'roy....
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....fied communication equipment and render miscellaneous services to the customer. According to Ld. counsel, connectivity charges are in the nature of Colocation services provided by the TATA Communications, UK and TATA Communications, USA for the purpose of connecting the assessee with the various customers in UK towards making the voice and data connectivity. We noted that similar argument was placed before Hon'ble Madras High Court in the case of Verizon Communications Singapore Pte Ltd. Vs. ITO, supra, wherein Hon'ble Madras High Court has finally discussed this issue and finally held that in Para 101 and 102 as under: " 101. Although the assessee has submitted a voluminous paper book on case law, except for those that are discussed above, others were not touched by the assessee and hence we have not considered it necessary to discuss these decisions. We may also note that except for making the submission on the question that the transaction is only a service and hence the consideration is not royalty, no arguments are made on permanent establishment or on the effect of the amendments. The assessee had submitted a detailed written submission on the clauses in the agreemen....