TaxTMI 
TaxTMI 
2022 (5) TMI 1603
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....it was noticed that the Company has paid amounts to J and P coats Limited, an associate enterprise, towards Bandwidth charges. 2.2 From the records, the Ld.AO observed that assessee remitted following amounts to J&P Coats Ltd. towards bandwidth charges. F.Y Amount Paid 2015-16 Rs. 6,05,47,045.78 2016-17 Rs. 4,60,99,541.75 2.3 The Ld.AO noticed that assessee had not deducted TDS as per the provisions of section 195 of the Act and therefore proceedings u/s. 201(1) was initiated by issuing notice dated 31.01.2018 calling upon assessee to show cause as to why it should not be treated as an assessee in default in respect of tax not deducted at source in respect of the payments in question. In support, the representative of assessee furnished explanation vide letter dated 09.02.2018 wherein various agreements were filed. 2.4 An agreement dated 01/01/2008, was entered into between the assessee and J&P Coats, titled "Applications Support and Wide Area Network Support Services Agreement. Under this agreement, the J&P Coats Ltd.,( hereinafter referred to as J&P Coats), agreed to provide to the assessee, following services: (i) Application support services,....
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....k' Support Services: * Details of services rendered and * Documents explaining the basis of charge and supporting the cos calculations, 2.7 The assessee submitted that, in order to render Wide Area Network Support Service to the assessee and other group entities across the globe, an agreement was enetered by J&P Coats, with British Telecom Plc., UK (hereinafter referred to as BT) dated 11.04.2006, called the Master Global Framework Agreement (hereinafter referred to as MGFA) whereby, BT agreed to provide services to the J&P Coats. It further submitted that, Schedule 18 to the MGFA gives list of sites, at which BT was to provide its services. The list includes India and includes sites used by the assessee in India. 2.8 The MGFA defines "services" and "sites" as follows: "Services" means the services to be provided by BT to Coats at any given time during the Term and as described under Schedule 1 (Services) and any other services agreed by the Parties to be provided by BT to Coats Group under this Agreement; "Sites" means the Sites which are used by Coats Group and to which BT has agreed to provide the Services as such Sites are listed in Schedule....
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....vity BT will provide network connectivity to the Sites based on a BT MPLS (Multi-protocol Label Switching) Class of Service 6 (CoS) model. With the exception of the data centres all site connectivity will be via a single access link and a router with ISDN capability (ISDN to be supplied by Coats) for the purpose of resilient backup. The data centres at Ipiranga (Brazil), Guangzhou (China), Charlotte (USA) and Vienna (Austria) are to be provided with dual access links, in all cases routed diversely (subject to Coats Site infrastructure providing for such diverse routing) and dual MPLS Ports each supporting Class of Service 2. A number of Sites will be connected via a private WAN connection to an existing Coats Site for onward connectivity to the BT MPLS network. These are detailed as follows: Site Connected to MPLS network via: Mauritius Long line to Stockley Park site, UK Madagascar Lonq line to Hammarsdale site, South Africa Zimbabwe Long line to Hammarsdale site, SA Bangladesh (Dhaka) Long line to Bangalore HQ site, India Bangladesh (Chittagong) Local connection to Dhaka site, India, then via long line to Bangalore (as above) ....
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....) Decision of Hon'ble AAR in case of Decta v. CIT - 103 Taxman 525; d) Decision of Hon'ble Delhi High Court in case of DIT v Krupp UDHE GMBH ITA No. 2626 of 2009 e) Decision of Hon'ble Kolkotta High Court in case of CIT v. Dunlop Rubber Co. Ltd. (Now Dunlop Holdings Ltd) reported in 142 ITR 493 f) Decision of Hon'ble Supreme Court in case of CIT v. Tejaji Farasram Kharawalla Ltd. Reported in 67 ITR 95 g) Decision of Hon'ble Delhi High Court in case of CIT v. Industrial Engineering Projects (P) Ltd reported in 202 ITR 1014 g) Owen v. Pook (Inspector of Taxes) 74 ITR 147 (HL) h) Decision of Hon'ble Delhi High Court in case of ACIT vs Modicon Network (P) Ltd reported in 14 SOT 204 2.15 The Ld.AO examined the nature of payment in the light of the definition of "Royalty" under the Act and as per the India UK DTAA. 2.16 The Ld.AO referred to clause (via) of Explanation-2 to Sec.9(1)(vi) of the Act, which provides that, consideration for "the use or right to use any industrial, commercial or scientific equipment" is regarded as Royalty. He also referred to the definition of 'Royalty' as given in Article 13(3)(b) of the India UK D....
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.....22 The Ld.CIT(A) also held that, in case the claim of assessee is considered that it is providing service, the same will become taxable under the head 'Fees for technical serviced'. 2.23 The Ld.CIT(A) relied on the decision of Hon'ble Madras High Court in case of Verizon Communications Singapore Pte. Ltd. vs. ITO reported in (2014) 361 ITR 575. He thus held that, the assessee should have deducted TDS under section 195 of the Act. 2.24 Aggrieved by the order Ld.CIT(A), the assessee is in appeal before the this Tribunal. 3. It is submitted by both sides that the grounds raised on the above facts are identical for both the years under consideration. For the sake of convenience, we reproduce herewith the grounds for A.Y. 2016-17 in IT(IT)A No. 1344/Bang/2019 as under: "The grounds stated hereunder are independent of and without prejudice to one another. The Appellant submits as under: General 1. The order passed by the learned Commissioner of Income Tax (Appeals) ['Ld. CIT (A)'] is bad under the law and on facts. 2. The Ld. CIT(A) has erred in upholding the action of the Learned Deputy Commissioner of income Tax (International Taxat....
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....s which are ancillary and subsidiary to the application or enjoyment of right. property or information in connection with and for processes and software, and thereby taxable under Article 13(4)(a) and Article 13(4)(b) of the India-UK DTAA. 10. The Ld. CIT(A) has erred in holding that JPCL makes available technical knowledge. experience, skill, know-how or processes to the Appellant, therefore. the payment is in the nature of FTS under Article 13(4)(c) of the India-UK DTAA. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal." 4. The Ld.AR submitted that the question whether a payment to a non-resident is in the nature of royalty or not has to be tested in the light of the relevant provisions of DTAA between India and the country of which the non-resident payee is a tax resident. The Ld.AR submitted that, J&P coats is a tax resident UK, and therefore, income of a non-resident in India on the income that is received or is deemed to be received in India; or accrues or arises, or is deemed to accrue or arise to it in India, is taxable....
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....concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic." 7. It is submitted by the Ld.AR that, payment made by assessee to J&P Coats towards reimbursement of connectivity charges do not fall within the definition of "royalties" under the Act and Indo-UK DTAA. In support, he relied on the decision of coordinate bench of this Tribunal in assessee's case of ITO v M/s. Madura Coats (P) Ltd.(supra), wherein, very same payment in the context of tax deduction obligation was held the telecom bandwidth facility would not be characterised as 'royalty', under the Act and the DTAA. 8. Ld.AR submitted that, the Authority for Advance Rulings (AAR) in the following decisions, held that, connectivity charges paid for use of telecom bandwidth would not be characterized as 'royalty' under the Act and the DTAA- * Decision of AAR in case of Dell International Services India-305 ITR 37 *....
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.... • Decision of Hon'ble Delhi Tribunal in case of Convergys Customer Management Group Inc v ADIT reported in (2013) 58 SOT 69; • Decision of Hon'ble Mumbai Tribunal in case of WNS North America Inc. v. ADIT reported in (2012) 152 TTJ 145; • Decision of Hon'ble Mumbai Tribunal in case of Wipro Ltd. v ITO reported in 133 Taxman 149; 11. The Ld.AR then submitted that, the payment in question also cannot be taxed as Fees for Technical Services (FTS). He placed reliance on Explanation 2 to clause (vii), to submit that under the Act, FTS is been defined in to mean any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". 12. It was submitted that data connectivity is primarily provided by BT & J&P Coats merely recoups portion of the costs from assessee, based on usage by assessee. The Ld.AR thus submi....
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....d in the DTAA. 15. The Ld.AR placed reliance on Indo-US DTAA, which has similar definition for the term "fees for technical services". The Indo-US DTAA also contains a Memorandum of Understanding (MOU) explaining the meaning of the term 'fees for included services' as appearing in Article 12 of the Indo-US DTAA. The MOU describes the category of services which is defined in Para 4 of Article 12 of the Indo-US DTAA. The MOU also provides example of services intended to be covered within the definition of included services, and those intended to be excluded. The Ld.AR submitted that, Indian courts have held that where the DTAA with one country is not clear about the definition of any particular term, the explanatory clauses in another DTAA with similar wordings can be used. In this regard, reliance was placed on the following judicial precedents: • Decision of the AAR in case of lntertek Testing Services India (P) Ltd reported in 175 Taxman 375 The AAR relied upon the Memorandum of Understanding, examples and explanatory appended to the DTAA between India and United States of America in order to arrive at a better understanding of the treaty law between India ....
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....sing its own technology and agents. It was submitted that, there is no transfer of technology at any point of time when connectivity is provided by BT to J&P Coats or by J&P Coats to the assessee. Further, the provision of connectivity is not possible without having recourse to BT and hence the definition of 'fees for technical services' is not attracted. The Ld.AR thus submitted that, even if it is presumed that services have been rendered, the amounts received by JPCL would not fall within the definition of 'fees for technical services' under the Indo-UK DTAA. Therefore, the Payment made to J&P Coats would not be subject to tax in India. 18. The Ld.AR submitted that, business profits of a non-resident are taxable in India only if the non-resident has: • Business Connection in India under the Act or • Permanent Establishment ("PE") in India under the relevant DTAA (in the present case, under the Indo-UK DTAA). 19. It was submitted that J&P COats does not have a Business Connection in India under the Act or a Permanent Establishment ("PE") in India as per the provisions of Indo-UK DTAA. In the absence of a PE or a business connection ....
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....that, the revenue proceeded on the premise that, the Explanation 2 would automatically apply to the DTAA as well. It is submitted that, the DTAA between India and UK has not been amended. 23. He thus submitted that in the present facts, the provisions of the DTAA are clearly more favourable to the assessee for following reasons: * Firstly, the definition of 'royalty' under the DTAA covers within its ambit consideration paid for "use" of a process alone, while the amended definition of IT Act includes within the meaning of royalty, any consideration paid by a payer "whether or not there is use of any process, by the payer; * Secondly, under the DTAA, to be 'royalty', the 'process' has to be a 'secret process'. Whereas, under the domestic law, consideration for payment of 'any process', whether secret or not, would be regarded as 'royalty'; and * Thirdly, the definition of 'royalty' under the DTAA does not cover consideration for use of Industrial, Commercial or Scientific ('ICS') Equipment, while the definition under the IT Act cover such consideration for use of ICS equipment. 24. He placed reliance on the principles laid down by the Hon'ble Supreme....
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....ade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property;' 28. The term "process" used under Explanation 2 to section 9(1)(vi) in the definition of 'royalty' does not imply any 'process' which is publicly available. The term "process" occurring under clauses (i), (ii) and (iii) of Explanation 2 to section 9(1)(vi) means a "process" which is an item of intellectual property. Clause (iii) of the said Explanation reads as follows: "(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property" Clauses (i) & (ii) of the said explanation also use identical terms. The words which surround the word 'process' in clauses (i) to (iii) of Explanation 2 to section 9(1 )(vi), refer to various species of intellectual properties such as patent, invention, model, design, formula, trade mark etc. The expression 'similar....
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....ncerning the design of machine which is tailor-made to meet the requirement of a buyer does not by itself amount to transfer of any right of exclusive user, so as to render the payment made therefor being regarded as royalty". 33. In the present facts of the case the agreement between assessee and J&P Coats is clear of the fact that there is no transfer of any intellectual property, or any exclusive right has been granted to the assessee for using such intellectual property. Rather, the payment is made by the assessee to J&P Coats, based on the agreement between BT to J&P Coats. The assessee has made the payment based on coast allocation towards the band width services provided by J&P Coats as per agreement between BT to J&P Coats. Therefore in our opinion, the payment made by assessee to J&P Coats cannot fall within the ambit of 'Royalty' under section 9(1)(vi) by virtue of Explanation 2. 34. Now, by Finance Act, 2012, Explanation 5 & 6 were added with retrospective effect from 1.6.1976 which reads as under:- "Explanation 5: For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, p....
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....s neither leased nor has given on hire any network to the assessee. Instead the assessee reimbursed the cost incurred by J&P Coats towards the bandwidth charges provided by BT to all the Coats group companies world wide. 37. Therefore it cannot be said that the assessee has 'used' the network belonging to J&P coats. Therefore, reliance of the revenue on the said case law is of no assistance. 38. On perusal of the agreement, between assessee and J&P Coats we note that, the assessee do not have any ownership or rights in respect of such 'process', and hence in our view the payment in question cannot be considered as 'royalty'. J&P Coats is rendering telecommunications services to all its Group concerns, with the aid of BT. 39. The meaning attached to phrase 'use or right to use' has been explained in following decisions: * Decision of Authority For Advance Ruling(hereinafter referred to as AAR), in case of Cable & Wireless Networks India(P.)Ltd., In re, reported in (2009) 182 Taxman 76 * Decision of AAR in case of ISRO Satellite Centre reported in 2008) 307 ITR 59 * Decision of AAR in case of Dell International Services (India) P. L....
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....sion of Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. v. CTO [1990] 77 STC 182 which was affirmed by the Supreme Court, that mere custody or possession of equipment without effective control can only result in use of the equipment whereas a right to use the equipment implies control over the equipment. We do not think that such distinction has any legal basis. In the case of Rashtriya Ispat Nigam Ltd. (supra), what fell for consideration was the expression "transfer of right to use any goods" occurring in a sales-tax enactment. Obviously, where there is a transfer, all the possessory rights including control over the goods delivered will pass on to the transferee. It was in that context, emphasis was laid on 'control'. The Supreme Court affirmed the conclusion of the High Court that the effective control of machinery even while the machinery was in use of the contractor remained with RIN Ltd. which lent the machinery. The distinction between physical use of machinery (which was with the contractor) and control of the machinery was highlighted. The ratio of that decision cannot be pressed into service to conclude that the right of usage of equipment doe....
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....un, is the act of employing a thing; putting into action or service, employing for or applying to a given purpose". In the New Shorter Oxford Dictionary, more or less the same meaning is given. The very first meaning noted there is: "the action of using something; the fact or state of being used; application or conversion to some purpose". Another meaning given is "Make use of (a thing), especially for a particular end or purpose; utilize, turn to account... cause (an implement, instrument etc.) to work especially for a particular purpose; manipulate, operate". The various shades of meanings given in the decided cases in America are referred to in Words and Phrases, Permanent Edition Vol. 43A. Some of them are quoted below : "The word 'use' means to make use of; convert to one's service; to avail oneself of; to employ". (Miller v. Franklin County) "The word 'use' means the purpose served, a purpose, object or end for useful or advantageous nature". (Brown v. Kennedy) " 'Use' means to employ for any purpose, to employ for attainment of some purpose or end, to convert to one's service or to put to one's use or benefit. (B....
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.... the use of equipment owned and installed by BTA. The questions to be asked and answered are: Does the availment of service involve user of equipment belonging to BT or its agent by the applicant ? Is the applicant required to do some positive act in relation to the equipment such as operation and control of the same in order to utilize the service or facility ? Does the applicant deal with any BT equipment for adapting it to its use ? Unless the answer is 'yes', the payment made by the applicant to BTA cannot be brought within the royalty clause (iva). In our view, the answer cannot be in the affirmative. Assuming that circuit is equipment, it cannot be said that the applicant uses that equipment in any real sense. By availing of the facility provided by BTA through its network/circuits, there is no usage of equipment by the applicant except in a very loose sense such as using a road bridge or a telephone connection. The user of BT's equipment as such would not have figured in the minds of parties. As stated earlier, the expression 'use' occurring in the relevant provision does not simply mean taking advantage of something or utilizing a facility provided by an....
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....purpose of establishing connectivity or otherwise. But, it cannot be inferred from this fact alone that the bulk of consideration paid is for the use of that item of equipment. 13.3 In cases where the customers make use of standard facility like telephone connection offered by the service provider, it does not admit of any doubt that the customer does not use the network or equipment of the service provider. But, where the service provider, for the purpose of affording the facility, has provided special infrastructure/network such as a dedicated circuit (as in the instant case), controversies may arise as to the nature of payment received by the service provider because it may not stand on the same footing as standard facility. However, even where an earmarked circuit is provided for offering the facility, unless there is material to establish that the circuit/equipment could be accessed and put to use by the customer by means of positive acts, it does not fall under the category of 'royalty' in clause (iva) of Explanation 2. 42. We also refer to the commentary relied by the Ld.Counsel form Prof. Klaus Vogel's Commentary on Double Taxation Convention, wherei....
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.... by it is the same as in the case of Asia Satellite Telecommunication Co. Ltd. (supra). If that is so, we have to hold, respectfully following the order of the co-ordinate Bench, that there is a "process" involved in the activity carried on by the assessee before us. In Asia Satellite Telecommunication Co. Ltd.'s case (supra) it was further held that the word "secret" appearing in clause (iii) above qualifies only the word "formula" but not the word "process" and therefore even if the process involved in the operation of the transponder is in the public domain and no longer a secret known only to a few, the payment for the process would still be taxable as royalty. The reason or logic given in paragraph 6.18 of the order by the Tribunal to hold that the word "secret" does not qualify the word "process" is that "there is no comma after the use of the word 'secret' till the end of clause (iii) and if the intention has been to apply the word 'secret' before the word 'process' also, then a comma would have been used after the word 'formula'" and further that the word "secret" cannot also be applied to the word "trademark" because once registered there is nothing secret about the tradem....
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....cret". The requirement thus under the treaty is that both the formula and the process, for which the payment is made, should be a secret formula or a secret process in order that the consideration may be characterised as royalty. We do agree with the argument of the Special Counsel for the Department, on the strength of the several authorities cited by him, that normally punctuation by itself cannot control the interpretation of a statutory provision and in fact the learned counsel for the assessee did not seriously dispute the proposition. However, the punctuation the use of the comma coupled with the setting and words surrounding the words under consideration, do persuade us to hold that under the treaty even the process should be a secret process so that the payment therefore, if any, may be assessed in India as royalty. The Tribunal in Asia Satellite Telecommunication Co. Ltd.'s case (supra) have recognized that all the items referred to in clause (iii) of Explanation 2 such as patent, invention, model, formula and process etc. are intellectual properties. Similarly, the words which surround the words "secret formula or process," in article 12.3(a) of the treaty refer to variou....
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....ed rendered could be treated as Royalty under Article 13(2) of the DTAA between India and UK? As regards to whether the payments by the assessee to J&P coats fall within the ambit of Royalty as defined under India UK DTAA, we note that coordinate bench of this Tribunal in case of J&P Coats for assessment years 2008-09, 2010-11 to 2015-16 by a consolidated order dated 29/11/2021 observed and held as under: "18. The AO thereafter examined the nature of payment in the light of the definition of "Royalty" under the Act and as per the DTAA. He referred to clause (via) of explanation-2 to Sec.9(1)(vi) of the Act which provides that consideration for "the use or right to use any industrial, commercial or scientific equipment" is regarded as Royalty. He also referred to the definition of Royalty as given in Article 13(3)clause (b) of DTAA which also has a similar clause "payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment". According to the AO, the consideration received by the Assessee from MCPL was a consideration received for "use" or "right to use" two way dedicated bandwidth and the equipmen....
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....and installed by BTA. The questions to be asked and answered are : Does the availment of service involve user of equipment belonging to BT or its agent by the applicant ? Is the applicant required to do some positive act in relation to the equipment such as operation and control of the same in order to utilize the service or facility ? Does the applicant deal with any BT equipment for adapting it to its use? Unless the answer is 'yes', the payment made by the applicant to BTA cannot be brought within the royalty cl. (iva). In our view, the answer cannot be in the affirmative. Assuming that circuit is equipment, it cannot be said that the applicant uses that equipment in any real sense. By availing of the facility provided by BTA through its network/circuits, there is no usage of equipment by the applicant except in a very loose sense such as using a road bridge or a telephone connection. The user of BT's equipment as such would not have figured in the minds of parties. As stated earlier, the expression 'use' occurring in the relevant provision does not simply mean taking advantage of something or utilizing a facility provided by another through its own network. What is contemplated....
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....provides that initial trouble shooting will be done by the Assessee wherever any problem occurs in use of Wide Area Network connectivity. According to the AO it is only if the Assessee is aware of the equipment installed in its premises can it trouble shoot. The Assessee does constant checking of the equipment installed in the premises of MCPL and therefore there was a right to use the equipment. 22. The AO thereafter made reference to the decision of the Hon'ble Madras High Court in the case of Verizon Communications Singapore Pte. Ltd v. ITO (International Taxation) [2013] 39 taxmann.com 70 wherein it was held that the consideration received by the non-resident taxpayer from the Indian customers for provision of bandwidth/telecommunications services outside India was for the 'use of, or the right to use equipment' and, therefore, royalty under section 9(1)(vi) of the Act. It was also held that alternatively, the payments can also be considered for the use of process provided by the taxpayer and therefore, royalty under the Act. The Hon'ble Court also held that even if the payment is not treated as one for the use of the equipment,, the use of the process was ....
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....nsideration paid by telecasting companies to satellite companies is for the purpose of providing "use of the process" and consequently assessable as "royalty" under the Act and the DTAA. This decision has been reversed by the Hon'ble Delhi High Court in the decision of New Skies Satellites N.V. 68 taxmann.com 8. The AO also took recourse to the provisions of Expln. 5 & 6 to Sec.9(1)(vi) of the Act in support of his conclusions as above, though these provisions are not found in the definition of Royalty under the DTAA. 23. For all the above reasons the AO brought to tax, the BT charges received by the Assessee from MCPL in his draft assessment order. The Assessee filed objections before the Dispute Resolution Panel (DRP) against the conclusions of the AO in the draft assessment order. The DRP upheld the order of the AO. The AO passed the final order of assessment in which he brought to tax BT charges as royalty. Aggrieved by the aforesaid addition, the Assessee is in appeal before the Tribunal. 24. The arguments advanced by the parties are almost identical to the arguments advanced before the AO. The Ld.AR for the Assessee brought our notice the terms of the Applic....
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....cess and the payment was for providing standard services from BT. It was submitted that mere fact that some equipments are installed and maintained by the service provider at the sites will not amount to lease of equipment. The service provider BT utilizes its own network and provides a facility that enables Coats group to transmit voice and data through the media of telecom bandwidth and accordingly there is no use or right to use equipment. The use of the router is for the limited purpose of obtaining the services from BT. It was submitted that use of router is akin to a set top box kept at homes of the subscribers of television channels or direct to home (DTH) operators. The equipment (i.e., set top box) at the house of the subscriber belongs to the service provider. It cannot be said that the subscriber is paying for "use of equipment". The subscriber is paying for services and the equipment is required for such a purpose. Reference was made to decision of Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt.Ltd. Vs. CIT Civil Appeal Nos. 8733-8734 of 2018 wherein it was held that the enlarged definition of Royalty as per the Act as amended by the ....
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....red in USA under which BTA provided the applicant with two-way transmission of voice and data through telecom bandwidth. The purpose of entering into such arrangement was to enable Dell entities in the respective countries to utilize the services of BTA. While BTA would provide the international half-circuit from the US/Ireland, the Indian half circuit is provided by Indian telecom company, namely, VSNL with whom BTA has a tie-up. The bandwidth so provided by BTA would give full country coverage in both the countries of delivery, i.e. USA and India. Under the agreement, a fixed monthly recurring charge for the circuit between America and Ireland and for the circuit between Ireland and India is payable to BTA. Installation charges as specified in the order form are also payable initially. The payment to BTA is net of any Indian taxes, including withholding taxes, as may be applicable. There was no equipment of BTA at the Dell India's premises and Dell India has no rights over any equipment held by BTA for providing the bandwidth. Dell India sought ruling that the payments made to BTA are not liable to be taxed in India either under the treaty provisions or s. 9(1) of the IT Act, 196....
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....a used in transmitting the traffic within India belonged to VSNL and is used by VSNL for providing Indian end services pursuant to its contract with the customer. On the above facts, the question before the Hon'ble Court was as to Whether the Tribunal was right on facts and in law in holding that the payments received by Verizon Communications Singapore Pvt.Ltd., the appellant from the Indian customers for provision of Bandwidth/Telecom Services outside India is royalty for the 'use of, the right to use equipment' u/s 9(1)(vi) of the Act? And Whether these payments received constitute royalty for the 'use of, or the right to use equipment' u/s 12(3)(b) of the Tax Treaty(DTAA between India and Singapore)? The Hon'ble Madras High Court held that the payments made to the non-resident company were for the 'use of equipment'. In addition, the Court also held that such payments may also be held to be in relation to the 'use of process' since the provision of assured bandwidth and guaranteeing the transmission of data and voice would qualify for the same, irrespective of the fact that the bandwidth is shared with others. After the insertion of Explanation 5, possession, control of such ri....
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....oyalty under the India-UK DTAA. The Hon'ble Supreme Court in the case of "Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT" [2021] 125 taxmann.com 42, has in the context of taxability or otherwise of consideration paid for use of computer software as royalty, by holding that the payments made by resident Indian end-users/distributors to nonresident computer software manufacturers/suppliers, as consideration for the resale of the computer software through End User License Agreements (EULAs)/distribution agreements, can't be considered as payment of royalty for the use of copyright in the computer software as per provisions of Article 12(3) of the applicable DTAAs and further that the provisions contained in section 9(1)(vi) of the Income Tax Act along with explanations 2 and 4 thereof, not being more beneficial to the Assessees, will not have any application. We find that the Hon'ble Delhi High Court in New Skies Satellite (supra) has also taken the same view and has observed in the said decision that Hon'ble High Court of Madras in Verizon Communications Singapore Pte. Ltd. (supra) declined to conclusively determine or record a finding as to whether amendment to s....
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....its of such equipments or standard facility does not tantamount to granting the use or the right to use that equipment or process so as to be considered as royalty within the above definition of 'royalty' contained in clause 3(b) of Article 13 of the India-UK DTAA. At no point of time, the customer gain any possession or physical custody, control or management over any equipment. Payment of bandwidth charges can't be considered as 'Royalty'. Also, the process involved to provide the bandwidth service is not "secret", but a standard commercial process followed by the industry players. Therefore, the said process can't be classified as a "secret process", as is required by the above- mentioned clause 3(b) of Article 13 of the DTAA. 31. The law is well settled, that in so far as provisions which impose a tax liability on the subject, if the words used are ambiguous and reasonable open to two interpretations benefit of interpretation is given to the subject. In State of West Bengal vs. Kesoram Industries Limited, (2004)10 SCC 201 has summed up the following principles applicable to the interpretation of a taxing statute: "(i) In interpreting a ....
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....services to be FTS, whereas, the Ld.CIT(A) in para 48 observed and held as under: "48. Without prejudice to the decision above [It is already held that the amount paid by the appellant is taxable as Royalty] I proceed to examine the claim that the AO wrongly held it as FTS also. I find that the AO has discussed these issues in the order on the page nos. 51 to 53. The AO has examined the claim of the appellant that the amount paid by the appellant is not taxable as Royalty but as FTS (also not made available). The AO has held that notwithstanding the decision that it is Royalty; it is also FTS." 48. The Ld.CIT(A) proceeds on following observation: "50. In the present case, the J & P Coats is receiving consideration for providing services which are ancillary and subsidiary to the application or enjoyment of the right, property or information in connection with and for processes and software. So, in case the claim of the MCPL is considered that it is receiving service, the same will become taxable under the head 'fees for technical services' under Indo-UK DTAA article 13(4)(a) and 13(4) (b). For this there is no requirement of make available. Similar issue....
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....JCB India continue to render services to JCBI India during the year under consideration in the same way as they were doing in the past. Our view is fortified by clause (d) of the new agreement and clause 4.2 of this agreement clarifies that the delivery of technical documentation and making available of technical personnel as set out in earlier clauses (iii) & (iv) of the technology agreement shall remain unaffected by this agreement and shall continue as rights and obligations between JCBE and JCB India under technology agreement. .................... 13. As mentioned elsewhere in the earlier years, this issue arose when JCB India [Service PE] used to make payment directly to assessee and the Tribunal vide its order in JC Bamford Excavators Ltd. case (supra) has held as under: "Insofar as the question of royalty representing consideration for the transfer of IP Rights simplicitor is concerned, it is clear that the service PE representing eight deputationists had absolutely no role to play either in creating or making it available to JCB India. It is not even the case of the A.O that these eight deputationists had anything to do in the grant of IP Rights ....
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.... under the License (and from any other permitted sub-licensee of JCB Investments where relevant), less 0.5% (half of one per cent)."' 26. As mentioned elsewhere and as it can be seen from above, the entire royalty amount is passed on to JCBE [the appellant] through JCB Investment less 0.05%. It is has already been mentioned conclusively elsewhere that the delivery of technical documentation and making available of technical personnel as set out in clause (iii) and (iv) of the TTA dated 05.03.2004 will remain unaffected by this tripartite agreement and rights and obligations between JCB UK and JCB India will continue. 27. The disputed receipts are in relation to the payment received by the assessee as royalty from JCB Investments which has received it from JCB India. As it has been conclusively mentioned elsewhere that in earlier years there was a bilateral agreement and during the year under consideration, there is tripartite agreement, the contents are mutatis mutandis same. In our opinion, substance shall get precedence over the form. In our considered view, the impugned receipts are ancillary and subsidiary to the application or enjoyment of the right, prop....