TaxTMI 
TaxTMI 
TaxTMI 
2016 (4) TMI 1444
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.... 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 profit and loss account as expenditure towards web hosting services paid to its U.....
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....hi 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 sophisticated equipment, but that does not mean that technical services were rendered by Teleglobe to the assesses. It was....
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....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 embedded ' components. Responsibility for the operation, control and maintenance of the equipment rests entirely with BTA....
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....ous 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 utilization, application or employment of equipment for the desired purpose. The appellants cannot come face to face with the equipment, operate it or control it....
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.... 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 in this case : ".............the context and collocation of the two expressions "use" and "right to use" followed by the word "equipment" indicated that there must be some positive act o....
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....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 is not liable to tax in the absence of PE in India. There is no agreement to hire or lease out any equipment but only service level agreement and payments were made for standard facilities. Equipments/servers were under the control and....
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....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 the very elaborate order of the Assessing Officer containing a lengthy discourse on the services made available by the Stock Exchange would go to show that apart from facilities of a faceless screen based transaction, a constant upgradation of the services made available and surveillance of the essential parameters....
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.... 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 provided by the Stock Exchange on payment and does not amount to "technical services" provided by the Stock Exchange, not being services specifically sought for by the user or the consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the expression "technical services" as appearin....