TaxTMI 
TaxTMI 
2023 (3) TMI 1641
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....4/Mum/2019 for AY 2015-16 as the lead case, the result of which shall mutatis mutandis apply to the appeals in ITA Nos. 1610 & 1611/Mum/2022 for AYs 2018-19 & 2019-20, respectively, as well. The grounds raised in the appeal for AY 2015-16 are as under: - "1. 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. 65,19,98,196/- as 'Royalty' under Section 9(1)(vi) of the Income-tax Act, 1961 ('the Act'). - 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. 2. On the facts and in the circumstances of the case and in law, the Learned AO and the DRP erred in holding the sum of Rs. 65,19,98,196/- as 'Fees for Technical Services' under Section 9(1)(vii) of the Act. 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. 3. Without prejudice to the above Ground, the Learn....
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....agree with the stand taken by the assessee. Following the line of reasoning given by his predecessors in earlier AYs, the AO held that the sum of Rs. 65,19,98,196/- received by the assessee for rendering services to SCB India was in the nature of 'Royalty' or 'Fees for Technical Service' u/s 9(1)(vi)/ u/s 9(1)(vii) of the Act. He accordingly taxed the impugned sum at the rates prescribed in Section 115A of the Act. The Ld. AR particularly invited our attention to Para 5.3 of the draft assessment order, wherein the AO had taken note of the fact that, the agreement/payment in question was the same as earlier years. The AO also took cognizance of the fact that this Tribunal had upheld the claim of the assessee in the earlier years that the impugned payments were not in the nature of 'royalty'/'FTS'. The AO, however, chose not to follow the decision rendered by this Tribunal in the assessee's own case for earlier years, the Revenue had preferred appeal against the same before the Hon'ble Bombay High Court. The AO further observed that the assessee had oversimplified the facts before this Tribunal in the earlier year/s, and attempted to distinguish the views expressed by this Tribunal i....
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....." (emphasis supplied) 6. On the issue of taxability of the receipts as business income under section 9(1)(i) of the Act, the Ld. DRP categorically observed that the assessee had a 'business connection' in India, which exists between the activities in India and the revenue activities of the assessee. The Ld. DRP however did not ultimately adjudicate on the issue of attribution of income, citing absence of relevant information and in view of their finding that these receipts were in the nature of Royalty/FTS. 7. Following the directions issued by the Ld. DRP, the AO passed the impugned order dated 27-08-2019 wherein he assessed the impugned payment of Rs. 65,19,98,196/- by way of royalty/FTS u/s 9(1)(vi)/ 9(1)(vii) of the Act. Further, as directed by Ld. DRP, the AO noted that, alternatively, in case it is not held to be taxable as 'royalty'/'FTS', the receipts were taxable by way of 'business income' u/s 9(1)(i) of the Act. The Ld. AO, however, noted that as the DRP had refrained from commenting on income attribution, no exercise was conducted to ascertain the sum taxable u/s 9(1)(i) of the Act. 8. Aggrieved by the final assessment order, the assessee is in appeal....
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....s Tribunal for the earlier years but it is noted that, all these aspects were already considered and dealt with by the Hon'ble Tribunal while adjudicating the appeals for those respective earlier years. The Ld. DR was unable to show us that; the Hon'ble High Court has since reversed the decision so rendered by this Tribunal in the assessee's earlier year cases. We are therefore bound by judicial discipline, and follow the ratio decidendi laid down in the lead order of the Hon'ble Tribunal dated 09.02.2017 for the AYs 2006-07, 2007-08, 2008-09 & 2012-13, wherein, after detailed analysis of the facts, this Tribunal held as under: "18. We have carefully considered the entire gamut of facts as discussed above, relevant findings given in the impugned order as well as the rival submissions made before us. The main issue involved, which has been raised vide ground no. 1.1 is, whether the payments made by Standard Chartered Bank India (SCB) to the assessee is in the nature of 'royalty' u/s 9(1)(vi) or 'fees for technical services'. Since the assessee-company is incorporated in Hong Kong and is providing services/facilities for processing data to SCB from Hong Kong,....
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....earing and discussed herein above, we find that the main objective of the 'Cocteau agreement' is to provide SCB group all across the world, processing of data through a network of computer systems in Hong Kong. In the entire agreement there is no whisper of any technology transfer or application of technology per se to SCB. This is a kind of outsourcing activity which has been given by SCB to Atos to process its data from various branches across the country. We agree with the contention of the ld. Counsel that the reference to the various details in the agreement is merely to ensure quality, standard and various safeguards which are to be adopted in the course of processing data especially looking the volume of data required to be processed from all around the Globe. The provisions mainly contains assessee's responsibility to ensure adequate facility, systems and software which are located in Hong Kong and to ensure that all the hardware which is used in Hong Kong is maintained and housed in secured building space and infrastructure, manage proper performance of the hardware and operating systems, ensure adequate technical support of operating systems, to ensure system ....
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....nt here in this case. So far as applicability of Explanation 5 & 6 are concerned, we agree with the contentions of ld. Counsel, as reproduced above, that same would not be applicable at all in the case of assessee because, firstly, Explanation 6 enlarges the scope of process to include transmission by satellite cable, fibre optic, etc.; and secondly, Explanation 5 is applicable where consideration is of any right, property or information as defined in clauses (i) to (v) of Explanation 2 only and not in clause (iva) for the reason that Explanation 5 has been inserted with retrospective effect from June 1, 1976. In other words, Explanation 5 has been inserted retrospectively from the birth of section 9(1)(vi) to clarify the intention behind the legislation. Hence, Explanation 5 is to be read with the section 9(1)(vi) which was there on the statute as on April 1, 1976. Whereas clause (iva) to Explanation 2 was inserted from April 1, 2002. Thus, retrospective effect of clause (iva) cannot be deemed from 1-6-1976 and hence it cannot be held that Explanation 5 also applies to the said clause as this clause never existed as on April 1, 1976 and accordingly, the legislation cannot clarify ....
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....y required to oversee as to whether the computer systems are functioning properly and performing well and if there is any breakdown or fault, then same needs to be taken care of. The human intervention if at all is mainly for repairing and monitoring the hardware and software of the assessee which are processing the raw data of SCB and there is no human involvement or endeavour for rendering any kind of technical or consultancy services in data processing. It has been stated that before us that even the faults are corrected automatically. Further, looking to the number of volume of transactions transmitted by SCB to assessee, it would be impossible for any number of humans to apply their mind and generate reports. This has been demonstrated by the ld. Counsel before us by way of an example which has been already incorporated above. Thus, the magnitude of transactions undertaken by assessee itself goes to show that the computer systems installed by the assessee in Hong Kong is standard facility through which data is processed. In this regard, strong reliance was placed on the decision of ITAT, Mumbai Bench in the case of Siemens Limited (supra), wherein the Tribunal has emphasised u....
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....a service, is available to all and would therefore stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialized, exclusive and individual requirement of the user of consumer who may approach the service provider for such assistance/service. It is only service of the above kind that according to us, should come within the ambit of the expression "technical services" appearing in Explanation 2 of section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act." Before us, the ld. Counsel has also pointed out that assessee is also providing similar services to other clients like Hong Kong Government and other big MNEs and there is nothing special or exclusive about the services which are being rendered to SCB. In view of the entire gamut of facts as discussed above, we are of the opinion that the payment made by SCB to assessee- company does not fall within the realm of 'fees for technical ser....
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....since the matter was remanded for specific purpose the Assessing Officer cannot be allowed to venture into a new area. He submitted that noting by learned DRP and Assessing Officer that the ITAT has remanded the matter for denovo adjudication is absolutely incorrect. He further submitted that even on merit the said issue is in favour of the assessee. 9. Per contra learned Departmental Representative relied upon the orders of the authorities below. She also relied upon the written submission of the learned Departmental Representative dated 17-9-2021 submitted earlier. In the said submission on the issue of taxability of payment as royalty/FTS, learned Departmental Representative had tried to distinguish the ITAT's order in assessee's own case by submitting that the ITAT erred in allowing assessee's appeal by accepting assessee's contention. Thereafter learned DR also supported without prejudice new issue raised by the assessee on the ground that learned DRP has noted that the ITAT has set aside the issue for denovo consideration. Learned CIT-DR conspicuously did not mention to ITAT order itself pointing out as to where it is mentioned to be for denovo consid....
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....bovementioned AY 2011-12. The Ld. DR explained that in the above decision; while setting aside the issue back to the AO in the first round of AY 2011-12, this Tribunal had required the AO to only examine the taxability under 'Royalty'/ 'FTS'. Noting that the AO had expanded the scope of remand/set-aside proceedings beyond the limited directions issued by this Tribunal in their first order dated 04.03.2016 in ITA No. 1464/Mum/2016, it was held that the findings given in the context of 'business income' was without jurisdiction. 16. He pointed out that, in the present case, both the AO as well as the Ld. DRP had noted in their original/final draft assessment order and the directions respectively, that if the impugned payment is held to be not in the nature of 'royalty'/ 'FTS', then as a corollary it was in the nature of 'business income'. He showed us that, India does not have a Double Taxation Avoidance Agreement ('DTAA') with Hong Kong in this AY and that therefore, the argument that, in absence of any permanent establishment in India, no income is taxable in India, did not hold good in the present case. Taking us through the findings of the AO & Ld. DRP and the written submissi....
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....vations are ultimately found to be tenable or not, it cannot be said that the lower authorities did not have the jurisdiction to have had held so. 18. The broad issue impugned before us is, whether the receipts of the assessee is taxable in India or not. Hence, this Tribunal being the last fact-finding authority is required to ascertain the correct facts, analyze the documents/material, arrive at the correct sum, if any, and decide under which head is the same liable to tax in India. To put it simply, if the payment in question is not in the nature of 'Royalty'/'FTS', then the correct nature of the income has to be ascertained. It cannot be a case that, it is a head-less item of income. Undisputedly, the assessee is in the business of rendering services for processing of data and the contention of the assessee is that it is not 'Royalty'/'FTS' but 'Business Income' not liable to tax in India. Having held that the payment in question is not in the nature of 'Royalty'/'FTS', then natural corollary is that, it constitutes regular business receipt of the recipient. In such a scenario, it is relevant to ascertain whether any portion of such 'business income' is taxable in the Source ....