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2011 (5) TMI 580 - AT - Income TaxIndia Singapore DTAA - data processing charges to Singapore company SPL treated as Royalty - liability to pay tax in India and subject to withholding tax at 15% under Article 12(3)(a) of DTAA - assessee contested on no "Permanent Establishment" of SPL in India - Held that:- The appellant transmits raw data through operating software owned by it to the hardware facility of SPL in Singapore. SPL receives the data so transmitted, process it according to appellant's requirements and transmits the output data electronically to the appellant in India using the software provided by the appellant, which is not designed by SPL. The consideration received by SPL from the appellant is therefore for using the computer hardware which does not involve use or right to use a process. The data is received by application software which is owned by the appellant. The consideration paid by the appellant to SPL is for processing its data. This part of the consideration cannot be said to be a consideration paid for use or right to use process as the processing of the data is done by SPL using the system software owned by the appellant. Therefore it cannot be said that the payment by the appellant to SPL is Royalty within the meaning of Article 12(3)(a) of the treaty. As appellants have no right to access the computer hardware except for transmitting raw data for further processing. The appellants took advantage of a facility of use of sophisticated equipment installed and provided by another, it could not be said that the recipient/customer "used" the equipment as such. The appellant merely made use of the facility, though they did not them-self use the equipment. Therefore it cannot be said that the payment is royalty within the meaning of Article 12(3)(b) of the treaty - thus the receipts by the Assessee is in the nature of business income and assessee does not have PE in India, the same is not taxable in India in accordance with Article 7 of the DTAA - Decided in favor of assessee
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