TaxTMI 
TaxTMI 
2016 (4) TMI 1444
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....ppeal of the assessee without appreciating the facts of the case. 2. The Ld. CIT(A) has erred, in the facts and circumstances of the case and in law in holding that appellant was not liable for deduction of tax u/s 195 of the Act on payment of web hosting charges." 3. The Ld.CIT(A) has erred, in the facts and circumstances of the case and in law, in holding that the payment by the assessee of web Hosting charges does not fall in the definition of Royalty for the purpose of S. 9(l)(vi) and hence out of the purview of S.195 and S. 40(a)(ia); by ignoring the clause (vi) read with clause (iva) of explanation 2 to S. 9(l)(vi). 4. It is prayed that the order of the Ld. CIT(A) be set aside and that of the Assessing Officer may be restored. 4. The issue before ld. CIT(Appeals) was against treating the web hosting charges amounting to Rs 59,99,826/- paid to US company as royalty and against involving provisions of Section 195 of the Income Tax Act and making the addition under section 40(a)(ia) of the Income Tax Act though the amount which actually been paid. 5. Brief facts of the issue are that the assessee had debited an amount of Rs. 59,99,826/- to the pr....
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....Section 195 of the LT. Act on the payments made by the assessee company. He also referred the ITAT, Delhi Bench 'E' decision on M/s Millennium Infocom Technologies Limited Vs. ACIT, Circle 6(1), New Delhi, (2009) 117 ITD 114 (DELHI) to substantiate his decision. The learned assessing officer also wrongly contended that nowhere in the definition of royalty under clause (iva) of Explanation 2 to section 9(l)(vi) of the I.T. Act the word 'exclusive' use has been mentioned. In this respect we submitted that as per the provisions of Section 9(l)(vii) of the Income Tax Act, 1961 and as discussed in the ITAT, Mumbai Bench 'D' in the case of "Pacific Internet (India) Pvt. Ltd. Vs. ITO", the Technical Services contemplates rendering of a service to the payer of the fee. Mere collection of a fee for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been reached for technical services. Further, in the case of "Commissioner of Income Tax, Delhi Vs. M/s Estel Communications Pvt. Ltd.", the Income Tax Appellate Tribunal, Delhi Bench 'G' held that the use of internet facility may require sophi....
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....for providing a service to facilitate the transmission of voice and data across the globe. One of the many circuits forming part of the network is devoted and earmarked to Dell India. From that, it does not follows that all of the components and equipments constituting the network are rented out to Dell India or that the consideration in the form of monthly charges is intended for the use of equipment owned and installed by BTA. The AAR noted that, if an advantage is obtained from sophisticated equipment installed and. provided by another, it is difficult to say that the recipient/ customer uses the equipment as such. The customer merely makes use of the facility, ever though it does not use the equipment itself. Further, by availing itself of the facility BTA provided through the network/ circuits, there is no use of equipment by Dell India except in a very loose sense, such as, the AAR analogized, using a road bridge or a telephone connection. The use of equipment connoted that the grantee has possession and control over the equipment and the equipment is at his disposal. Dell India is not concerned with the infrastructure or the access line installed by BTA or its agent or the e....
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....herefore, section 9(1) (i) is not attracted, "(sic.) 7. The ld. CIT(Appeals), considering the facts and material on record in the light of various decisions, decided the issue in favour of the assessee and deleted the addition. The findings of ld. CIT(Appeals) in para 3.3 to 3.3.4 are reproduced as under : 3.3 I have considered the submission of the Ld. Counsel. The word "use' in clause (iva) of Explanation-2 below section 9(l)(vi) of the Act is regarding use of equipment in actual sense. The facts of the instant case are identical to the cases of M/s Standard Chartered Bank (ITA No. 3824/Mum/2006) and M/s Atos Origin IT Services Singapore (P) Ltd. (ITA No. 1457/Mum/2008), decided by Hon'ble ITAT, Mumbai vide order dated 11.05.2011 in which Hon'ble ITAT had held that the payment made could not be treated as 'royalty'. The Hon'ble ITAT, Mumbai had observed as under in these cases : "The appellants as already seen have no right to access the computer hardware except for transmitting raw data for further processing. The appellants have no control over the computer hardware or physical access to it. There is nothing to show positive act of u....
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....s referred to in Sec.44BB was to be treated as royalty. Since the case related to AY 01-02 the tribunal held that the payment was not royalty. According to the learned D.R. the case of the Assessee being one relating to period after 1-4-2002, the payments should be treated as covered by clause(iva) to Expln.2 to Sec.9(l)(iv) of the Act. In our view the decision rendered as above cannot be said to be strictly a precedent as the issue was neither discussed or argued by the parties. Besides the above, the said decision is contrary to decision of the Hon'ble Delhi High Court in the case of Asia Satellite (supra). The decisions relied upon by the learned "D.R. do not therefore support the case of the revenue." 3.3.3 In fact, Hon'ble ITAT Mumbai in the case of Yahoo (India) Pvt. Ltd. in ITA No. 506/Mum/2008 had, vide its order dated 24.06.2011, clearly held that unless there was material to establish that circuit/equipment could be acceded and put to use by the customers by means of positive acts, it did not fall within the category of 'royalty' as provided in clause (iva) of Explanation-2 below Section 9(1)(vi) of the Act. The Hon'ble ITAT had held as under ....
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....Vs Samsung Electronics Co. Ltd. (2011) 203 T axman 477/16 T axmann.com 141 (Kar.). 3. CIT Vs Wipro Ltd. (2011) 203 Tax man 621 / 16 taxmann.com 275 (Kar.). 4. CIT Vs Synopsis International Old Ltd. (2012) 28 taxmann.com 162 (2013) 212T axman 454 (Kar.). 9. On the other hand, ld. counsel for the assessee reiterated the submissions made before authorities below. He has submitted that assessee has no control over the equipment as well as operating system. Equipments are used by Non Resident Inc to provide service to the assessee. There is no transfer of any technology, skill or know-how or knowledge from the Non Resident Inc. Services provided were in the nature of data storage, data security etc. The tax payer is not only one who is receiving service from Non Resident Inc, but there are large number of customers of the Non Resident Inc to whom the standard service is provided. The payments are not for use or right to use industrial, commercial or scientific equipment and would not fall within the meaning of 'royalty' under section 9(1)(vi) of the Act or under the Tax Treaty, payment is 'business income' in the hands of Non Resident Inc and i....
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.... there is no transfer of any technology in the sense that the recipient of the service is enabled to apply the technology by itself." 4. Decision of Authority for Advance Rulings in the case of ISRO Satellite Centre INRE 307 ITR 59 in which it was held as under : Payment made by applicant to IGL, a UK company for use of IGL's navigation transponder capacity by taking on lease the space segment capacity navigation transponder of its satellite is neither in the nature of royalty nor fees for technical services either under the Act or under DTAA between India and UK, hence not taxable. 5 . Order of ITAT Mumbai Bench in the case of ITO Vs People Interactive (I) P. Ltd. 33 CCH 261 (Mum) in which it was held as under Payment made for website hosting services to non-residents is not royalty within the meaning of Section 9(1)(vi) or under the DTAA between India and USA when the equipment was not operated, used or under the control of the assessee. 6. Judgement of Supreme Court dated 23.03.2016 in Civil Appeal No. 3141/16 in the case of CIT Vs M/s Kotak Securities Ltd. in which in para 8,9 and 10 it is held as under : 8. A reading of....
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....Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provi....
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....II (via) of Section 9(1)(vi) of the Act, then recipient of the said payments, being non resident, having no PE in India, is not liable to tax in India. Therefore, payments in the hands of M/s Pugmarks Inc & Others are not taxable in India and consequently, no tax required to be deducted under section 195 on such payment/remittance by the assessee. Such payments, therefore, cannot be termed as 'royalty'. Further, it was found that services are rendered outside India by non-resident and paid outside India, then the provisions of Section 195 do not apply in case of such payments. As the company who had provided web hosting services, was located outside India and the server was also located outside India, income that had arisen is not taxable in India. 12. The decisions relied upon by ld. CIT(Appeals) squarely apply to the facts of the case. Decisions relied upon by ld. counsel for the assessee also squarely apply in favour of the assessee. 13. On consideration of the facts and material on record, we find that the issue is also covered in favour of the assessee by judgements in the case of People Interactive (I) Pvt.Ltd., Yahoo India Pvt. Ltd. and decision in the case of ....