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2016 (5) TMI 635 - AT - Income TaxTaxability of royalty - payment received for providing web hosting services, with all back up, maintenance, security and uninterrupted services - Indo US tax treaty - Held that:- When a scientific equipment is used by the assessee for rendering a service, the receipt will be construed as a receipt for use of scientific equipment. Undoubtedly, when the assessee receives an income on account of allowing a customer to use a scientific equipment, it does become taxable for the reason of its being characterized as such, but the use of a scientific equipment by the assessee, in the course of giving a service to the customer, is something very distinct from allowing the customer to use a scientific equipment. The true test is in finding out the answer to the fundamental question- is it the consideration for rendition of services, even though involving the use of scientific equipment, or is it the consideration for use of equipment simplictor by the assessee? In the case of former, the consideration is not taxable, in the case of the latter, the consideration is taxable. A payment cannot be said to be consideration for use of scientific equipment when person making the payment does not have an independent right to use such an equipment and physical access to it. In the present case also, what the assessee is providing is essentially web hosting service, though with the help of sophisticated scientific equipment, in the virtual world. The scientific equipment used by the assessee enable rendition of such a service, and such a use, which is not even by the Indian entity, is not an end in itself. In this view of the matter, even though the services rendered by the assessee to the Indian entities may involve use of certain scientific equipment, the receipts by the assessee cannot be treated as “consideration for the use of, or right to use of, scientific equipment” which is a sine qua non for taxability under section 9(1)(vi) read with Explanation 2 (iva) thereto. - Decided against revenue
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