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2016 (1) TMI 34 - ITAT DELHI

2016 (1) TMI 34 - ITAT DELHI - TMI - Amount received is in the nature of royalty or not - taxability in India - Section 9(1)(xi) - activity of providing access to its internet by which it provides a gateway that will facilitate call centers to incoming and outgoing calls from India to the people of USA, referred as Cincom Gateway - whether the consideration paid for the use of such facility is in the nature of royalty as defined under the DTA between India and USA? - India USA DTAA - Held that:- .....

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ion, it would be clear that the payment is received as “consideration for the use of, or the right to use design or model, plan, secret formula or process”. The use by the Indian company of the CPU and the consolidated date network of the American company is not merely “use of or the right to use any industrial, commercial or scientific equipment” as envisaged in article 12(3)(b) of the DTA but more than that. It is the use of embedded secret software (an encryption product) developed by the Ame .....

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eaning article 12(3) of DTA between India and USA. - Decided against assessee. - ITA No. 952/Del/2006, ITA Nos. 1271 to 1274/Del/2009 - Dated:- 30-9-2015 - SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Assessee : S/sh Ved Jain & Ashish Chadha, CAs For The Department : Sh. Ravi Jain, CIT(DR) & Sh. Parwinder Kaur, Sr.DR ORDER PER INTURI RAMA RAO, A.M.: These appeals involving common issue are filed by both the assessee as well as by the Department. Ap .....

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07. Since common issue is involved in all these appeals, we proceed to dispose of the appeals by one consolidated order. The grounds of appeal raised in ITA No. ITA No. 952/Del/2006 i.e. the assessee s appeal, are as follows: i. On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad both in the eye of law and on facts. ii. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in holding that communication charges of & .....

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circumstances of the case, the learned CIT(A) has erred in relying upon the Ruling delivered by Authority for Advance Ruling in P. No. 30 of 1999, 238 ITR 296, as the same is clearly distinguishable from the case of the appellant on facts and ignoring the judgments cited by the appellant which are applicable to the facts of his case. vi. That the appellant craves leave to add, amend or alter any of the grounds of appeal. 2. The brief facts leading to the present appeals are as follows: 2.1 The a .....

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l provide access to Cincom Systems (India) Pvt. Ltd. to internet and other email and networking facilities along with other group concern. In consideration of providing these services, the assessee company was paid a sum of ₹ 36,03,940/- during the previous year, relevant to the assessment year 2002-03 and sum of ₹ 30,76,898/-; ₹ 40,68,720/-; ₹ 39,26,700/- and ₹ 39,84,030/-for the assessment years 2003-04, 2004-05, 2005-06 and 2006-07 respectively. For the assessmen .....

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ssessee company is before us in ITA No. 652/Del/2006 for AY 2002-03. For the assessment years 2003-04 to 2006-07, the Assessing Officer following the orders of CIT(A) for the assessment year 2003-04, held the payments were in the nature of royalty and brought the amount to tax. On appeal before the CIT(A), the CIT(A) vide consolidated order dated 11.12.2008 held that the payment is not in the nature of royalty and allowed the appeal. Being aggrieved by this order, the Revenue is before us in ITA .....

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tware Technology Parks of India Vs. ITO, (2005) 3 SOT 529 (Bang.) iii. Wipro Ltd. Vs. ITO, (2004) 1 SOT 758 (Bang. ) iv. B4U International Holdings Ltd. Vs. DCIT, ITA No. 880/Mum/2005, Dt. 28.05.2012 v. Siemens Aktiengesellschaft Vs. ITO, (1986) 22 ITR 87 vi. Addl. DIT Vs. TII Team Telecom International (P.) Ltd., (2011) 60 DTR 777 3. On the other hand, learned Sr. DR vehemently argued that the services in question fall within the definition of royalty as defined in Section 9(1)(xi) of the Incom .....

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on Co. Ltd. Vs. Director of Income Tax, 332 ITR 340 is no longer holds water. He further placed reliance on the following decisions: i. Reuters Transaction Services Ltd. Vs. DCIT (International Taxation), (2014) 47 taxmann.com 10 (Mum.) (Trib.) in Mumbai Bench L . ii. Viacom 18 Media Pvt. Ltd. Vs. ACIT (International Taxation)-2(2), Mumbai [2004] 44 taxmann.com 1 (Mum.)(Trib.) in ITAT, Mumbai Bench L iii. Cargo Community Network (P.) Ltd. , (2002) 159 taxmann.com 243 (AAR-New Delhi) iv. [1999] 2 .....

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the assessee company merely provided facility for a consideration. Then the question that comes up is whether the consideration paid for the use of such facility is in the nature of royalty as defined under the DTA between India and USA. Undisputedly, the impugned payment falls within the definition of royalty as defined under the provisions of 9(1)(vi) of the Act. However, since the assessee company is a resident of United States of America, it is entitled to be governed by the provisions of DT .....

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formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and (b) Payment of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport .....

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Ruling, reported at 238 ITR 296, In this case, company incorporated in the USA belonged to a group of companies engaged in worldwide credit card and travel business. It was engaged in providing international credit cards, traveller s cheques and other travel related services. These instruments are used, discounted and encashed all over the world by travelers on tour or business. To keep track of the expenses incurred on traveller s credit card or purchase and encashment of traveller s cheques, e .....

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Kong. The transactions done by a traveler in a particular country were reported to a centralized computer in that particular country. In India, the centralized computer was maintained by an Indian company located at Delhi. This company received information on compute through telephonic or microwave links about the use of credit cards and travellers cheques by travelers all over the country. It also serviced thirteen group companies in Asia and the Pacific in a similar manner. The information was .....

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der article 12(3)(a) or 12(3)(b) of the DTA between India and the USA. The AAR ruled that the definition of the expression royalty under section 9(1)(vi) of the Act read with clause (vi) of the explanation includes rendering of any services in connection with any activities for the use of any patent, invention, secret formula or process, etc. In the instant case, the concept of source against residence becomes more significant as the issue relates to cyberspace activities. The transmission of in .....

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he Indian company is able to cater to the needs of the group companies located in Japan and other places. The transaction would be related to a scientific work and would partake of the character of intellectual property. The payments received in such transactions are for the use of intellectual property and partake of the character of royalty. The software is customized and secret. From the facilities provided by the American company to the Indian company, which are of the nature of online, anal .....

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loped by the American company for the purpose of processing raw data transmitted by the Indian company, which would also clearly fall within the ambit of article 12(3)(a) of the DTA between India and the USA. Article 12(b) of the DTA between India and the USA provides that the main provision for taxation of royalties and fees for included (technical) services shall not apply if the beneficial owner of the royalties for fees for included services, being a resident of a contracting State carried o .....

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