2023 (3) TMI 358

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....e. 2) On the facts and circumstances of the case and in law the provisions of S. 9(1)(v), (vi), (vii) are not applicable to the facts of the case and any payment made to non-resident whose income is not taxable in India in view of particular DTTA with the said country outside India, the provisions: of S. 40(a)(i) become inapplicable. The Ld. CIT(A) was not justified in dismissing the appeal of the assessee on this issue: The order of the Ld. CIT(A) be set aside. 3) On the facts and circumstances of the case and in law and as held by Hon'ble Supreme Court in GE India Technology case (2010) 44 DTR 201(SC) the provisions of S. 195 which was interpreted to mean the words "chargeable under the provisions of the Act" and the payer is bound to deduct tax at source only if the sum paid is assessable to tax in India which is not possible if the payee has no P. E. in India. The payee has no PE in India and hence the income of the Non-resident is not taxable in India. The issue was not decided correctly by Ld. CIT(A). The appeal order be set aside. 2. The relevant facts in this case are that the assessee is a domestic company in which public is not substantially inter....

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.... tax treaty. It was also held by the ld. A.O that server charge is also a type of services where the right to use is inherent and thus fall in the definition of royalty. Therefore, consideration is taxable as royalty both under the Act as well as tax treaty. Therefore, charge paid for server usage is in the nature of fees for technical services as well as royalty and there is no requirement of P.E for the applicability of TDS and that the assessee has also received services in India. As the TDS was not deducted u/s 195 of the Act, therefore, such payment was inadmissible u/s 40(a) of the Act, the ld. A.O made a total disallowance of Rs. 30,90,448/- on all the above payments and added to the total income of the assessee. 4. The ld. CIT(A) on this issue held as follows: "I have considered the facts of the case as well as reply of the appellant. After amendment/substitution of Explanation to section 9 of the I.T. Act, 1961 vide Finance Act 2012, the provisions of sec. 9 have been very clear that for the purpose of section 9(1)(v)(vi) & (vii) of the Act, such income is required to be included in the total income of the non-resident, whether or not the non-resident has a ref....

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....(c) the location of such right, property or information is in India." 6. Reading section 9 clause (vi) along with Explanation 5 it is clear if it is a payment of royalty, then Explanation 5 clause (c) states that whether or not the location of such right, property or information is in India that won't' affect the applicability of such royalty to be taxed in India. Now, according to the ld. A.R. as per article 12 of the DTAA between India and Netherland where definition of royalty is given, the assessee does not fall in such definition and therefore, there is no obligation on the part of the assessee for deduction of TDS. For the sake of completeness Article 12 of the DTAA is extracted as follows: "[1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other contracting State may be taxed in that other State.] [2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties, or fees for technical services, the tax so charged shall not exceed 10 percent ....

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....the ld. D.R brought to our notice an agreement with Softlayer Technology Inc., which is annexed in the paper book from pages 292 onwards and at page 313, the trademark terms are laid out. The ld. .D.R vehemently submitted that as per section 3 and sec. 4 of the said agreement as per Exhibit „A, the trademark terms, the owner of trademark is Softlayer. The assessee herein on entering an agreement with Softlayer gets the right only to use the trademark, but the exclusive ownership of such trademark is with Softlayer. If this fact is read into the definition of royalty as per Article 12 of DTAA between India and Netherland which defines royalty means the payment of any kind received as consideration for the use of right to use, any copy right, patent, trademark, etc., therefore, as per the agreement with Softlayer when the assessee is using the trademark which is owned by Softlayer then that right to use the trademark will fall in the definition of royalty and accordingly the decision of the ld. A.O is therefore correct and the addition should be sustained. 9. We have heard the rival contentions, analyzed the facts and circumstances and have perused the relevant materials on ....