TMI Blog2014 (7) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sale is commercial equipment allowed to be used by clients/subscribers for commercial purposes - The payments made by Indian clients/subscribers to the Assessee for use and right to use of such equipment and information for processing their request of purchase and sale of foreign exchange constitute royalty. By allowing the use of software and computer system to have access to the portal of the Assessee for finding relevant information and matching their request for purchase and sale of foreign exchange amount to imparting of information concerning technical, industrial, commercial or scientific equipment work and payment made in this respect would constitute royalty - the income received by the assessee from the Indian Banks is in the nature of royalty - once the receipt has been decided as royalty in nature then there is no need to go into the question of assessee having PE in India - the provision of para 6 of Article -13 cannot be invoked in case when the receipt is found as royalty in terms of Article - 13(3) of the DTAA and assessee has not admitted any PE in India – Decided against Assessee. - ITA NO.6947/Mum/2012, ITA NO.7211/Mum/2012 - - - Dated:- 18-7-2014 - SHR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Article 13(3)(a) of the India-UK DT AA and under clause (ii) of Explanation 2 to Section 9( 1 )(vi) of the Act; 5. Erred in law and in facts in holding that provisions of dealing matching services entails provision of commercial information to the customers of the Appellant for commercial exploitation and in holding that the revenue received by the Appellant is for use of commercial information and is in the nature of royalty income under Article 13(3)(a) of the India-UK DTAA and under clause (iv) of Explanation to Section 9(1 )(vi) of the Act; 6. Erred in law and in facts in holding that the dealing matching services provided by the Appellant is ancillary and subsidiary to the alleged provision of equipments and commercial information to the customers by the Appellant and is in the nature of fees for technical services ('FTS') under Article 13(4)(a) and 13(4)(b) of India-UK DTAA; 7. Erred in law and in facts in disregarding the Appellant's contention that the dealing matching services provided by the Appellant do not make available any technical knowledge and holding that the Appellant has provided technical services to the custome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission's ('ASIC') market assessment report issued in 2005, on the activities of the Appellant in Australia to conclude that the Appellant controls the network through which services are provided to it subscribers in India; 6. That Section 44D read with Section 115A of the Act is applicable to the Appellant without appreciating the submissions made by the Appellant; 7. That interest under Section 234B of the Act may be levied on the Appellant, as there is no variation in the total income of the Appellant; C. Based on the facts and circumstances of the case, the Ld Assessing Officer has erred in facts and in law in: 1. Holding that the subscription revenue received by the Appellant from its subscribers in India are towards the use of equipments and process and hence in the nature of 'royalty' income chargeable to tax in India under Section 9(1 )(vi) of the Act and Article 13(3) of the DTAA; 2. Holding that the subscription revenue received by the Appellant from its subscribers in India are in the nature of FTS chargeable to tax in India under Section 9(1 )(vii) of the Act and Article 13(4)(c) of the DTAA; 3. Relying on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bscribers in India. During the Financial Year ended 31st March 2008, the assessee earned revenue of ₹ 5,42,34,380/- and for the F.Y. ended on 31st March 2009, the assessee earned revenue of ₹ 6,52,28,026/- from its customers in India. The assessee claimed that the revenue earned by the assessee from its subscribers in India are in the nature of business profit and as per Article -7 of the India-UK DTAA, business profits of the assessee are taxable in India only if it has a Permanent Establishment (PE) in India to the extent the profits are attributable to the PE in India. The assessee claimed that for the A.Ys under consideration, the assessee did not have PE in India as contemplated under Article-5 of the treaty. Thus the assessee claimed that its revenue from the Indian subscribers are not liable to tax in India in terms of provisions of DTAA. The assessee has also claimed that the revenue earned by the assessee are not in the nature of royalty or fee for technical services and accordingly not liable to tax under Article -13 of DTAA. 4. The Assessing Officer noted that in order to receive the services of the assessee, the subscribers in India have entered into two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Indian subscribers is not for use of any equipment in India. He has further submitted that RIPL is providing the equipment being computer hardware and installed the same at the location of the Indian subscribers together with the access/connectivity through leased connection lines from Indian service provider such as MTNL, BSNL etc. Beyond India the connectivity is provided by the assessee directly. The actual charges for the connectivity are paid by the customers separately to RIPL. RIPL is maintaining the connectivity through the license service provider and the customer has no role in maintaining and obtaining the connectivity. The customer who deals in foreign exchange places its bid through platform/interface and once the bid of the customer matches with the bid of the another customer, the deal is struck and it is binding on both the customers. This matching facility is provided through the server of the assessee in Geneva. The Ld. Counsel has submitted that the customers do not have any use or right to use any of the copy rights or software of the assessee which enables the subscribers to match the forex deals. Thus the subscribers are not exploiting the copyright subsisti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g upon the decision of Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd (supra), the Ld. Counsel has submitted that when the server remains in the control of the assessee and only services are provided to the customers then the payment against such services cannot be held as royalty. As regards providing the broad band facility for connectivity to dealing 2000-02, the Ld. Counsel has submitted that the Hon'ble High Court has considered the Ruling of AAR in case of ISRO and held that the appellant had merely given access to a broadband available in a transponder which could be utilized for the purpose of transmitting the signals of the customers and, therefore the data sent by the telecast operator does not undergo any change or improvement through the media of transponder. Ld. Counsel has submitted that the services provided by the assessee is only in the nature of data processing for facilitating the match of the orders placed by one client with the availability of the commodity from other side. Therefore, the payment made by the clients to the assessee is only for availing the service of data processing and not for use of any specialized s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he clients. He has referred the trading service order form and submitted that the equipments are supplied by the assessee through its Indian concern. The agreement entered into by the Reuters India Pvt. Ltd. (RIPL) also includes all terms and conditions contained in the Reuters Trading Service agreement. Supply of equipments is only subsequent to the assessee's trading service agreement and all other agreements are essence of the umbrella agreement and, therefore the services provided through a group entity are not an independent activity but part and parcel of the services provided by the assessee to its clients. He has referred the definition clause of the agreement and submitted that entire service is provided by RTSL though the equipments were arranged through its Indian group company. Reuter Trading Agreement is the master agreement and the services provided by the Indian subsidiary to the clients are subjected to the master agreement namely Reuter Trading Agreement. Thus the Reuters Service Agreement entered into between the RIPL and the Indian Banks is not an independent agreement but it is a part and parcel of the master agreement under which the principles are defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support service. He has relied upon the decision of Hon'ble High Court of Madras in the case of Verizon Communications Singapore Pte Ltd. (361 ITR 575) as well as in the case of Poompuhar Shipping Corporation Ltd. (360 ITR 257). The Ld. DR has also relied upon the decision of Hyderabad Bench of this Tribunal in the case of Frontline Soft Ltd v. DCIT (12 DTR (Hyd.) (Trib) 131) and submitted that the Hon'ble Madras High Court has considered the amendment in section 9(1)(vi) whereby Explanation 4 and 6 has been inserted and held that the expression 'use' or 'right to use' has to be understood in the light of the meaning of term 'royalty' provided in Explanation 5 and, therefore, when the services are rendered in India and consideration received from Indian clients the same attracts incidents of taxation in India as royalty. The possession, control of such right purported or information used directly by the payer and location of the right are not relevant in deciding the character of payment as royalty after insertion of Explanation 5 to section 9(1)(vi). The Ld. DR has also relied upon the Ruling of AAR in the case of Cargo Community Network (P.) Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the treaty. 11. We have considered the rival submissions as well as relevant material on record. The assessee has entered into a contract with Indian clients for providing its foreign exchange deal matching system services namely dealing 2000-02. The clients of the assessee are mainly Indian Banks. The services are provided against the monthly charges as per the agreement. In order to provide the service and access to the foreign exchange deal matching system, the assessee has also entered into agreements with its Indian Subsidiary namely Reuters India Pvt. Ltd in short (RIPL). The said agreements are called as promotion service agreement as well as advertising and marketing service agreement both dated 20.11.2006. The terms and conditions of the services provided to the Indian subscribers are stipulated in the Reuters Trading Service agreement (in short RTS agreement). The agreements are executed in accordance with the Reuters Business Principles reduced in writing being part and parcel of the RTS agreement. The RIPL in turn also entered into Reuters Service Contract with the Indian clients for providing the necessary equipments, connection facility, installation and supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the appellant had entered into agreement are not resident of India. The appellant had merely given access to a broadband available with the transponder which could be utilized for the purpose of transmission of signals to the customers. Thus it was found by the Hon'ble High Court that the data sent by the telecast operator does not undergo any change for improvement through the media of transponder. Since the transponder was in control and used by the appellant/transponder owner and it does not vest with the telecast operator/TV channels, therefore, the Hon'ble High Court has held that the process carried on in the transponder in receiving signals and retransmitting the same, is an inseparable part of the process of the satellite and that process is utilized only by the owner of the transponder who is in control thereof and, therefore, there was no use of process by the T.V. channels. Moreover, no such purported use has taken place in India as both the assessee and the broadcaster/T.V. channels are situated outside India. In the said case the payment by the broadcaster/T.V. Channels were paid for using the transponder capacity of satellite and not for using any informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided under Article -13(3) and (4) as under: 3 For the purpose of this Article, the term royalties means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape pr other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information 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 work, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 4. For the purpsoe of paragraphe 2 of this Article, and subject to paragraph 5, of this Article, the term fees for technical services means payment of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn business unless otherwise set forth in this Agreement. 15. Even the said license can be sub-licensed by the subscriber with the prior consent of the assessee as per clause 9.5 as under: 9.5 Upon Reuters' prior written consent, subscriber may sublicense its license to use Development Tools to a Developer for the sole purpose of carrying out the development work described in clause 9.2 for the subscriber and only if subscriber ensures that the developer (a) Is made aware of any complies with the provisions of the agreement. (b) Does not re-use in any way the development work carried out for subscriber; (c) becomes a mamber of Reuters Developer Partner Program (or any successor program) and signs the Retuers Trading Application Partner Agreement (or any successor agreement). 16. As per the Reuters license principles interactive features of the system includes messaging, chatroom, bulletin board or those that allow interactivity between the users. Hardware/software and related documentation supplied by the assessee's group concern also includes the assessee's Application Programming Interface (API). All the services are rendered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... located in Geneva. The portal design having the system of matching the request of the clients of the Assessee is hoisted on its server. The system which is a complex, commercial device /apparatus provides a gateway for processing request of the clients and makes available the matching counter request and thereby ensures the transactions of purchase and sale of foreign exchange between the two counter parts of the clients. Therefore, the portal having system of matching the request along with the computer and internal access to the clients constitute integrated commercial equipment which performs complex functions of processing the request, providing information and facilitates the transaction of purchase and sale of foreign exchange by matching the demand and supply. The platform of transacting the purchase and sale is commercial equipment allowed to be used by clients/subscribers for commercial purposes. The payments made by Indian clients/subscribers to the Assessee for use and right to use of such equipment and information for processing their request of purchase and sale of foreign exchange constitute royalty. 17.1 The nature of service rendered by the assessee includes the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em to have access to the requisite information and data on this portal hoisting on the server of the Assessee . Accordingly, by allowing the use of software and computer system to have access to the portal of the Assessee for finding relevant information and matching their request for purchase and sale of foreign exchange amount to imparting of information concerning technical, industrial, commercial or scientific equipment work and payment made in this respect would constitute royalty. 18. As we have given the finding that the income received by the assessee from the Indian Banks is in the nature of royalty, therefore, the other issues of fee for technical services becomes academic and we do not propose to decide the same. Further, though the assessee has not raised any specific ground on the issue of PE, however, the Ld. Counsel for the assessee has submitted that even if the Indian subsidiary of the assessee constitute PE or otherwise the assessee has PE in India in that case para 6 of Article 13 of DTAA will apply and the royalty or fee for technical services is assessed to tax in terms of provisions of Article -7 or Article -15 of DTAA. We do not agreewith the contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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