TaxTMI 
TaxTMI 
2023 (4) TMI 1163
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....of Income-tax Act, 1961 (the Act) and Article 12 of the Double Taxation Avoidance Agreement entered into between India and Singapore ('the DTAA'). The Appellant humbly prays that the Learned AO be directed to not treat the aforesaid receipts as 'Royalty' under Section 9(1)(vi) of the Act read with Article 12 of the DTAA. 2. On the facts and in the circumstances of the case and in law, the Learned Deputy Commissioner of Income-tax (International Taxation) 1(1)(2), Mumbai ('the Learned AO') and the Dispute Resolution Panel ('the DRP') erred in holding the sum of Rs. 10,76,69,690 as 'Fees for technical services' under Section 9(1)(vii) of the Act read with Article 12 of the DTAA. The Appellant humbly prays that the Learned AO be directed to not treat the aforesaid receipts as 'Fees for technical services' under Section 9(1)(vii) of the Act read with Article 12 of the DTAA. 3. On the facts and in the circumstances of the case and in law, the Learned AO erred in holding that the amounts received by the Appellant will also fall within the definition of Fees for technical services' as per Article 12(4)....
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....s Midrange support services, Database support services, Service delivery management, and support services in relation to the Standard Chartered Bank Project from Atos India. The assessee also received consideration to the tune of Rs. 4,42,73,329, for regional support services such as strategy operations, Sales / Markets / Support Service Lines services, Finance, Legal, HR, Marketing, and Communication services, which assisted Atos India in carrying out their day-to-day operations in pursuant to the Regional Service Agreement. For the year under consideration, the assessee filed its return of income on 30/11/2018, declaring a total income of Rs. 1,97,630. In the return of income, the above receipts from India were not offered to tax, even though TDS was deducted at source on the above payments. During the assessment proceedings, the assessee was asked to show cause as to why the aforesaid receipts should not be taxed in India. In response thereto, the assessee submitted that the payments made by Atos India to the assessee for the above services do not constitute either "Royalty" or "Fees for Technical Services". The assessee further submitted that the receipts are in the nature of "....
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....tandard Chartered Bank Project as Royalty and/or Fees for Technical Services was decided in favour of the assessee by the coordinate bench of the Tribunal in assessee's own case for assessment years 2014-15 and 2015-16. As regards the receipt from Atos India in respect of support services pursuant to the Regional Service Agreement, the learned AR by referring to various judicial pronouncements submitted that these receipts are also not taxable in the hands of the assessee. 7. On the other hand, the learned Departmental Representative ("learned DR") by vehemently relying upon the orders passed by the lower authorities submitted that the decision of the coordinate bench of the Tribunal in assessee's own case for the assessment years 2014-15 and 2015-16 was not found to be acceptable by the Department, however, no further appeal could be filed as the tax effect involved was below the prescribed limit. As regards the taxability of receipts from Atos India for the support services pursuant to the Regional Service Agreement is concerned, the learned DR filed detailed written submissions supporting the findings of the AO/learned DRP in concluding the same to be in the nature of Royalty....
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....tomers of Atos India. As far as services relating to other projects are concerned, the assessee is required to provide server hosting services and carry out support services of the said server. 20. The departmental authorities have held, while providing the services the assessee has allowed the use or right to use of any industrial, commercial or scientific experience as well as allowed use or right to use of industrial, commercial or scientific equipment. According to the departmental authorities, the assessee has rented out the servers to Atos India which amounts to allowing use or right to use of an industrial, commercial, scientific equipment. 18. Keeping in view the aforesaid factual position, we have to examine whether the payments received by the assessee come within the ambit of "royalty and FTS", as per Articles 12(3) and 12(4) of India-Singapore DTAA. The term "royalty" has been defined under Article 12(3) of the tax treaty and reads as under:- "3. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use : (a) any copyright of a literary, artistic or scientif....
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....formula or process. Further, though, the learned DRP has observed that the assessee has allowed use or right to use of any industrial, commercial or scientific equipment by renting out the server; however, that finding is not based on any cogent evidence brought on record. The agreement entered by the assessee for project related services does not show that the assessee is renting out either the servers or any other equipment to Atos India while providing services. In this regard, we may refer to the agreement entered with Atos India for the Standard Chartered Bank project. As per clause 5.1 of the said agreement, it has been made clear that the ownership of the intellectual property rights would all along remain with the assessee and no part of it would be transferred to Atos India. Rather, as per clause 5.2 of the agreement, the assessee, if necessary, can use Atos India's intellectual property including any software for providing services. There is nothing on record to suggest that the assessee has either rented out its servers or allowed access to the servers to Atos India or any other party independently and in exclusion of the assessee. 23. Further, while rendering t....
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....cations 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 of websites/applications/software's hosted by Indian 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 (v) 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 services and not use of any software, (vii) bandwidth and networking infrastru....
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....tem 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, (viii) 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 embedded in the computer hardware by which the computer ....
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.... 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 'Smarter child' 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 therefore the above case is distinguishable from th....
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.... DTAA, which reads as under:- "4. The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein ; or (c) consist of the 'development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person" 27. On a careful reading of Article 12(4) of the tax treaty, it becomes very much clear that Article 12(4)(a) and 12(4)(c) are not a....
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....rse, Article 12(2) provides for taxation of royalty and FTS in the source country. However, in our considered view, Article 12(2) has to be read in conjunction with Article 12(1), 12(3) and (4) of the tax treaty and not on standalone basis. In our view, Article 12(2) will get triggered only if the amount received qualifies as royalty and FTS under the treaty provisions. Since, in the facts of the present case we have held that the payment received towards various project related services does not qualify as royalty and FTS under the treaty provisions, the applicability of Article 12(2) of the tax treaty would not arise." 9. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee's own case and no change in facts and law was alleged in the relevant assessment year. The issue arising in the present appeal is recurring in nature and has been decided by the coordinate bench of the Tribunal in the preceding assessment years. Thus, respectfully following the order passed by the coordinate bench of the Tribunal in assessee's own case cited supra, we uphold the plea of the assessee and direct the AO to delete the impugned addition on accou....