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2023 (8) TMI 30 - AT - Income TaxIncome deemed to accrue or arise in India - royalty income - taxability of receipts from provision of disaster recovery up-linking services, disaster recovery play-out services, down-linking and distribution services, space segment capacity services and digital satellite news gathering services - addition u/s 9(1)(vi) as well as under Article 12(3) of India- Singapore Double Taxation Avoidance Agreement (DTAA) - DRP have treated the disputed receipts as FTS - HELD THAT:- As relying on assessee’s appeal for assessment year 2017-18, we hold that the receipts in dispute are not in the nature of FTS, hence, not taxable in India. Accordingly, the Assessing Officer is directed to delete the addition. Grounds are allowed. Addition being business profits of the assessee attributable to the alleged permanent establishment (PE) in India - Assessee through sub-contractors had carried out installation and commissioning of such equipments - AO has referred to India-Italy, India-Australia and India- USA DTAAs, where, treaty provisions explicitly provide that for determination of existence of PE, all projects in one contracting State have to be construed as single project, and in absence of such express provision like India-Netherlands DTAA in India-Singapore DTAA, all project sites have to be treated as one - HELD THAT:- In our considered opinion, provisions contained in Article 5(3) and 5(4) of India- Singapore DTAA cannot at all be compared with similar provisions contained in India-Australia, India-Italy and India-USA DTAAs. Thus, strictly going by the language used in Article 5(3) and 5(4) of India- Singapore DTAA, each project site has to be construed as a separate project for constituting an installation or supervisory PE in terms of Article 5(3) and 5(4) of the treaty. Viewed in the aforesaid perspective, undisputedly, each project site did not exceed threshold limit of 183 days. In that view of the matter, the project sites of Accenture Solutions Pvt. Ltd. at Bangaluru and Gurugram cannot be considered to be either installation or supervisory PE of the assessee in India. That being the factual position emerging on record, in our view, the assessee in the year under consideration did not have any PE in India. Therefore, no profits out of sale of equipments as well as installation and commissioning services can be taxed in India. The addition made is, therefore, directed to be deleted. Taxability of receipts from internet bandwidth charges as royalty income - HELD THAT:- In absence of any such amendment widening the scope of expression ‘royalty’ under the treaty provisions, the amendment made to section 9(1)(vi) of the Act cannot be automatically brought or imported to Article 12(3) of India-Singapore DTAA, as the treaty provisions have to be construed strictly in accordance with the language used in the provision. While coming to such view, we have found support from the ratio laid down in the decisions cited by learned Sr. Counsel for the assessee. Thus, we hold that the receipts from internet bandwidth charges cannot be treated as royalty income under Article 12(3) of India-Singapore DTAA. Accordingly, we direct the Assessing Officer to delete the addition. Taxability of receipts from reimbursement of licence fee as royalty income - HELD THAT:- From the assessment order, it is discernible that the receipts are in the nature of cost to cost reimbursement of payments made to Singapore government. Hence, the receipts did not have any profit element embedded therein. In fact, the Assessing Officer has not disputed the aforesaid factual position. In case of DIT vs. A.P. Moller Maersk AS (2017 (2) TMI 993 - SUPREME COURT) Hon’ble Supreme Court has observed that once the character of the payment is found to be in the nature of reimbursement of expenses without having any profit element embedded therein, it cannot be held to be chargeable to tax.Thus we hold that reimbursement of expenses cannot be treated as royalty income. The Assessing Officer is directed to delete the addition.
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