TaxTMI 
TaxTMI 
2023 (8) TMI 445
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....e organisation. Edenred operates in 40 countries with around 6,000 employees, nearly 610,000 companies and public sector clients, 1.3 million affiliated merchants and 38 beneficiaries. The assessee is offering range of services from pure consulting to all aspects of communication development and implementation including sourcing of loyalty rewards. The assessee is also engaged in providing agreed services to its group companies, viz. Edenred (India) Private Limited, Royal Image Direct Marketing Private Limited and SurfGold.com (India) Private Ltd. The assessee filed the return of income for A.Y. 2019-20 on 29/11/2019 declaring total income of Rs. 1,67,80,082/-. The case was selected for scrutiny under CASS and the statutory notices are duly served on the assessee. During the year under consideration, the assessee has received a sum of Rs. 7,76,57,184/- towards the services rendered to the Indian companies and the break-up of the amount received is as below:- 1. Licence Fee Rs. 1,25,72,805/- 2. Guarantee Fees Rs. 42,07,277/- 3. Management service fees Rs. 5,54,53,990/- 4. Technology and strategic information System fees(TSIS fees) Rs. 54,13,100/- ....
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....lause and as per the India - USA DTAA, which provides that only services which makes available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design are taxable as FTS / fees for included services. 5. Guarantee Fees i. The AO has erred in not considering the claim made during the assessment proceedings that guarantee fees are not subject to tax in India. ii. The AO has erred in considering Guarantee Fees as taxable in India. The Guarantee Fees of INR 42,07,277/- are in the nature of "Business Income" and since the appellant does not have a Permanent Establishment in India, the same would not be taxable in India as per Article 7 of the India-France DTAA." TSIS Services taxed as Royalty - Ground No.2 4. The assessee provides TSIS services to its Indian group companies. These services include, I.T. Infrastructure management and mailbox and website posting services. During the year under consideration, the assessee has earned an income of Rs. 54,13,112/- as payment towards rendering of TSIS services from its 3 group companies viz. Edenred (India) Pvt Ltd, Royal Image ....
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....e has entered into an agreement in this regard with its Indian group companies. The Ld.AR further submitted that the DRP has relied on its own order for A.Y. 2015-16 while upholding the treatment of TSIS services as royalty and that the co-ordinate bench of the Tribunal has held the issue in favour of the assessee for the said assessment year vide order dated 23/12/2012. The Ld.AR brought to our attention that the issue is recurring in nature and the Tribunal in assessee's own case has been consistently holding that TSIS services are not to be treated as royalty and therefore should not be taxed in India. The Ld.AR submitted that the issue for the year under consideration is covered by the decision of the co-ordinate bench since there is no change to the facts pertaining to the issue. 7. The Ld.DR relied on the assessment order and the directions of the DRP. 8. We heard the parties and perused the material on record. We notice that the co-ordinate bench in assessee's own case has been consistently holding that the payment received by the assessee towards TSIS services is not taxable in India. The coordinate bench in the consolidated order passed for A.Y. 2012-13 to 2015-16 or....
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....for corporate houses. Further, the services offered by Indian group companies need a sophisticated computer program that can monitor, track and maintain such transactions and loyalty/rewards points. The AO further observed that for this purpose the assessee is required to maintain the customer's individual profile where the personal information, as well as their transaction track, can be kept in the assessee's information processing Centre in France. The assessee owns and maintains the said processing Centre which requires a huge high-tech computer complex having multiple mainframe computers and other related hardware and software facilities involving substantial investment and capable of very high volume storage and high processing of data. The AO also observed that the assessee allows Indian companies and their approved customers to have access to and use its Central Processing Unit ("CPU") in France against payment. Further, the assessee allows the use of its mainframe situated in France and also incidental electronic mail excess, consolidated data network expenses, and consolidated data network services to Indian group entities on a payment basis. The AO further held that t....
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.... provides IT infrastructure management and mail box/website hosting services to its India group companies; these IDC services are performed by the appellant's personnel in Singapore; the Indian group companies directly remit IDC service payments towards the appellant's bank account in Singapore, (ii) IDC is an ISO 27001 certified data centre owned by Edenred Pte. and located in Singapore; IDC services are provided using the IDC and IT/ security team in Singapore, (iii) the services under the IDC agreement comprise of administration and supervision of central infrastructure; mailbox hosting services and website hosting services, (iv) IDC services ensure 100% uptime for critical external facing applications 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 websites/applications/softwares hosted by Indian of 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 loyalt....
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.... therein, (iii) services provided by AXA ARC to the applicant do not fulfill the requirements of the definition of FTS in the DTAA, (iv) even assuming that they are technical or consultancy services, it cannot be said that the applicant receiving the services is enabled to apply the technology contained therein, (v) also there is nothing in the IT support services that answers the description of technical services as defined in the DTAA, (vi) therefore, the fees paid to AXA ARC by the applicant does not amount to fees for technical services within the meaning of the DTAA, (vii) as regards the payments made for providing access to software applications and to the server hardware system 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, (vii) 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 c....
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....se laws relied on by the Ld. DR. In the case of Cargo Community Network (P.) Ltd. (supra), the assessee, a non-resident company has its registered office at Singapore. It is engaged in the business of providing access to an internet based air cargo portal known as Ezycargo at Singapore. The applicant received payments from an Indian subscribers for providing password to access and use the portal hosted from Singapore. The AAR held that payments made for concurrent access to utilize the sophisticated services offered by the portal would be covered by the expression royalty. We find that subsequently, after considering the decision in Cargo Community Network (P.) 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 ....
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....nnot be treated as royalty either under the provisions of the Act or under India-Singapore DTAA, hence, cannot be taxed at the hands of the assesse. Accordingly, addition of Rs. 1,86,50,124/- deleted. This ground is allowed." 10. In the present case, from the nature of services provided by the assessee, it is evident that the services are performed by the assessee's own personnel in France and the payment on account of search services was directly remitted by the Indian group companies to the assessee. As part of the TSIS Service Agreement, the Indian group companies only receive standard services and no licences in any software/right to use any software etc. is provided. Further, there is no sharing of any confidential information by the assessee with the Indian group companies. The term "Royalty" is not as widely defined in India France DTAA as in the India Singapore DTAA, which was taken into consideration by the coordinate bench of the Tribunal in the case of sister concern. Since it has not been disputed that the facts of the present case are similar to the case of the assessee's group concern, wherein income arising from services of similar nature are held to be not ....
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....tax resident of France and accordingly eligible to on the provisions of the India-France DTAA if the same is more beneficial. The assessee further submitted that the nature of services rendered by the assessee does not involve "make available" of any technical knowledge to the Indian companies and that the said companies continue to avail the services from the assessee on regular basis. The assessee also submitted that since the make available clause is not satisfied in this case as elaborated in the memorandum to India US Treaty such services cannot be taken as FTS either as per India Finland Treaty or India US Treaty as per most favoured nation (MFN) clause. Thus the assessee submitted that the amount is not taxable in India. However the DRP upheld the addition made by relying on its own decision for A.Y. 2015-16. 11. The Ld.AR submitted that the issue is covered by the decision of the co-ordinate bench in assessee's own case for AYs 2017-18 and 2018-19 (ITA No.1049/Mum/2021 & ITA No.369/Mum/2022 dated 28.02.2023) in which the similar issue is held by the Tribunal in favour of the assessee. The Ld.AR submitted that this is a recurring issue and the Tribunal has been consistent....
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....said services. As per the assessee, the services are provided only to support the Indian group companies in carrying on business efficiently and running the business in line with the business model, policies, and best practices followed by the Edenred group. From the perusal of documents available on record, it is evident that the services are general management services rendered by the assessee to its Indian group companies on a recurring basis and there is no use or right to use any copyright, patent, trademark, design, etc. Further, there is no sharing of any confidential information by the assessee with the Indian group companies. Though the assessee is a resident of France and therefore, is entitled to provisions of the India France DTAA, however, even under the provisions of the Act the fees received by the assessee for rendering the aforesaid services do not constitute royalty. As the impugned ment services rendered by the assessee are to be examined only on the tone of royalty in the present appeal, therefore, we are of the considered that Management Service Fee received by the assessee is not in the nature of 'royalty and thus, the AO is directed to delete the addition....
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.... applicable to the present appeal. Therefore, in view of the aforesaid findings, we are of the considered opinion that the assessee is entitled to claim the benefit of the restricted definition under India USA DTAA in view of the Protocol to the India France DTAA. Since the assessee has been found not to have 'made available' any technical know/edge, experience, skill, or know-how, therefore, Management Service Fees received by the assessee cannot be taxed under the provisions of Article 13 of the India France DTAA read with para 7 of the Protocol to the India France DTAA and Article 12(4} of India USA DTAA. In view of the above, the alternative claim of the assessee under India Fin/and DTAA becomes academic. Further, once the taxability fails in terms of the treaty provisions, there is no occasion to refer to the provisions of the Act, as in terms of section 90(2). The taxability of impugned receipts, under section 9(l)(vii) of the Act, is thus wholly academic. Hence, the AO is directed to delete the addition on this account. Accordingly, ground No. 2 raised in assessee's appeal is allowed," 17. Therefore, following the decision of the co-ordinate benches as d....
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....t go into the merits of the issue but has rejected the claim on the ground that it is not made in the return of income. Accordingly, the Ld.AR prayed that the issue may be remitted back to the Assessing Officer for fresh examination. The Ld.DR did not raise any objection to the claim of the Ld. AR. 16. We heard the parties and perused the material on record. The assessee while filing the return of income has offered the income received by way of guarantee commission to tax. Before the DRP the assessee submitted that the same is not taxable under the provisions of the Act and accordingly submitted that the amount be held as not taxable. The DRP without going into the merits of the assessee's claim rejected the ground holding the assessee can make this fresh claim only through revised return of income and since the assessee has not filed the revised return but made the claim through a letter the same cannot be considered. The DRP has relied on the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra). In this regard it is relevant to note from the last paragraph of the said decision of Goetze (India) Ltd. (supra) where it has been categorically m....