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2021 (2) TMI 33 - ITAT MUMBAIIncome accrued in India - Income from cloud hosting services as royalty within the meaning of explanation 2 to section 9(1)(vi) - India-USA DTAA - retrospective amendment in the royalty definition - PE in India - HELD THAT:- As decided in own case [2020 (2) TMI 63 - ITAT MUMBAI] Services provided by Rackspace USA to that Indian customers are not covered by the definition of ‘royalties’ provided in the India USA Tax Treaty since Rackspace USA is providing hosting services to the Indian customers and does not give any equipment or control over the equipment. Equipments are not used by the customers and the same are used by Rackspace USA to provide service to the customers. The services provided by the Rackspace USA are in the nature of cloud hosting, data warehousing services etc. which are standard services provided to customers. There is no agreement to hire or lease out any equipment but only a service level agreement. We are of the view that the amendments in the domestic tax law cannot be read into the tax treaty as there is no change in the definition of ‘royalties’ under the India-USA Tax Treaty. Therefore, the retrospective amendment in the royalty definition under the Act does not impact the definition of ‘royalties’ in the India-USA Tax Treaty. The agreements entered into the service level agreements. The agreement is to provide hosting services simpliciter and is not for the purpose of giving the underlying equipment on higher or lease. The customer is not even aware of the specific location of the server in the Data Centre where the customer application, web mail, websites etc. In view of these facts, we are of the view that income from cloud hosting services has erroneously held as royalty within the meaning of explanation (2) to section 9(1)(vi) of the Act as well as Article 12(3)(b) of the Indo-USA DTAA by the AO and DRP. Even otherwise, there is no PE of the assessee in India and hence, no income can be taxed in India in term of Indo-US DTAA. - Decided in favour of assessee
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