TMI Blog2018 (8) TMI 1129X X X X Extracts X X X X X X X X Extracts X X X X ..... any evidence to prove that the finding of facts recorded by the ITAT for earlier year is incorrect. Therefore considering the facts and circumstances and also respectfully following the decision of the ITAT in assessee’s own case for earlier years, we are of the considered view that subscription charges received by the assessee from the customers in India is in the nature of royalty. Article 13(6) can be pressed into service only in the case when the existence of PE of non-resident is not in dispute. In this case the assessee has contended before the lower authorities that it does not have any PE in India and under these facts and circumstances the provisions of Article 13(6) cannot be invoked in the case when the receipt is found as royalty. Levy of interest u/s 234B - Held that:- when a duty is cast on the payer to deduct tax at source, on failure of the payer to do so, no interest can be imposed on the payee under Section 234B of the Act. The appeals filed by Revenue as well as the assessee are dismissed. - ITA No. 1393/Mum/2016, ITA No. 2219/Mum/2016 - - - Dated:- 3-8-2018 - Shri Mahavir Singh, Judicial Member And Shri G. Manjunatha, Accountant Member Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 144C(3) of the Act. 3. Through these grounds of appeal, the Revenue has challenged the order of the DRP deleting interest charged by the AO under Section 234B of the Act, on tax computed under Section 115A of the Act. The assessee, through these grounds, challenged the directions of the DRP confirming the action of the AO in charging subscription revenue received by the assessee in the nature of royalty or fees for technical services under the Income Tax Act and under the India-UK Tax Treaty. The assessee also challenged the action of the AO in not applying the provisions of Article 13(6) of the India-UK Treaty. 4. The brief facts of the case are that the assessee, Reuters Transaction Services Ltd., is a company incorporated under the laws of England and is a tax resident of United Kingdom. The assessee is in the business of providing Reuters Dealing 3000, which is an electronic deal matching system enabling authorised dealers in foreign exchange such as banks and other financial institutions, etc. to effect deals in spot foreign exchange with other foreign exchange dealers. The main server of the assessee is located in Geneva and the assessee has executed a Dealin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o levy of tax at 20% on gross revenue earned by the assessee. The assessee also challenged the findings of the AO in so far as the issue of subscription revenue earned by the assessee 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 the Income Tax Act and the tax treaty between India and UK. The assessee has filed detailed submissions before the DRP and contended that the AO was erred in treating the subscription charges received from customers in India are in the nature of royalty or fees for technical services which is taxable under the Income Tax Act and India-UK tax treaty. 7. The DRP, vide its order dated 14.12.2015 issued directions under Section 144C(5) of the Act. The DRP, by following the decision of ITAT Mumbai L Bench in assessee s own case for assessment years 2008-09 and 2009-10 vide order dated 18.07.2014, upheld the action of the AO in treating the revenue received by the assessee from its customers in India is towards use of equipments and process, which is in the nature of royalty both under the Income Tax Act and the Tax Treaty between India and UK. The DRP, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as applicability of Article 13(6) of DTAA between India and UK is contrary to its own finding that the assessee is having PE in India. Therefore the decision requires reconsideration and accordingly, vehemently argued on the issue of taxability income. The learned A.R. further submitted that once the AO held that there is a PE in India, then the income of the assessee from revenue generated in India should be taxed under Article 13(6) of the India-UK tax treaty, but the AO has taxed the income under the provisions of Section 115A of the Act. Therefore it was submitted that once there is no dispute about the existence of PE and also the fact that the assessee has not taken any ground challenging the findings of the AO on existence of PE, then the AO ought to have computed the income under Article 13(6), but the AO has determined the income in accordance with the provisions of Section 115A of the Act which is incorrect. The learned A.R., in response to a query from the Bench that is there any change in the facts during the current year when compared to the facts already considered by the Tribunal in the earlier years, fairly accepted that there is no change in the facts, but still re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the assessee from its customers in India is in the nature of royalty. The ITAT, further held that once the receipt in question has been decided as royalty in nature then there is no need to go into the question of assessee having PE in India and applying Article 13(6) of the India-UK Tax Treaty to determine the income attributable in India. The relevant portion of the order is extracted below: - 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 subscrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e non resident TV channels who are providing their channel services in India. The Hon ble High Court in the case of Asia Satellite Telecommunications Co. Ltd (supra), after considering the fact that the appellant is a foreign company incorporated in Hongkong and carried on business of providing private satellite communications and broadcasting facilities to the clients with whom 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said income to tax because as per the provisions of section 90 of the Income Tax Act, the beneficial provisions of DTAA will have the overriding effect to the provisions of Act. Thus the question arises whether the amount received by the assessee is Royalty or FTS income under the provisions of DTAA. The definition of royalty and fee for technical services has been provided 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse of software to install and use at the site as per clause 8.1 of the agreement as under:- 8.1 Reuters grants Subscriber a non-exclusive, non-transferable, terminable license for so long as Subscriber receives the service to which the software relates, to install and use the software at the site solely in the ordinary course of its own 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 princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract between the parties that it is subscriber who is using the information and system of the assessee for their commercial/business purposes. The information is made available by the assessee through its system and other equipments installed at the site of the subscriber to facilitae the connectivity with the assessee s system/reuter 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in the said computer system. Therefore, it is not a case of simplicitor payment for access to the portal by use of normal computer and internal facility but the access is given only by use of computer system and software system provided by the Assessee under license. Indian clients make use of the copyright software along with computer system 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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