TMI Blog2012 (2) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... jay Pal Rao (Judicial Member) These appeals by the revenue are directed against the respective orders of the CIT(A) arising from the composite order passed u/s 201(1) and 201(1A) r.w.s 195 of the Act for the Assessment Year 2005-06 to 2008-09 respectively. 2. The revenue has raised common ground in all these appeals except the quantum of demand. Therefore, the ground raised for the Assessment Year 2005-06 are reproduced as under: 1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding that the payment of (US $ 31917.33) ₹ 64,85,888/- made by the assessee to M/s. Rackspare Inc., USA is not for the use of any equipment and it is for the services done by M/s. Rackspare Inc., USA and the services may be technical services but it cannot be termed as Fees for included Services as no technology is made available to the assessee. 2. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding that the income cannot be taxed as Business Income since M/s. Rackspare Inc., USA is not having a Permanent Establishment in India. 3. On the facts and in the circumstances of the case and in law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins his personal details. Thereafter, the customer can log on the website anytime from anywhere in the world under his unique login ID. The moment, customer logs on the website under his ID, the server retrieves the data and allows the access to the customer. The details received from customers are required to be stored in oracle or other data-based program by the website host. For this purpose, the host of website requires server space to store and retrieve the details of customers. 3.2 The Assessing Officer has noticed from the Chartered Accountant s certificate dated 6.2.2007 that M/s People Interactive (I) Pvt Ltd(the assessee) had paid USD 31917.33 under the head computer and IT services to M/s Rackspace Inc. USA on 7.2.2007. As per the CA s certificate, the assessee has undertaken that the valuation has been made as per section 195 of the I T Act. However, the tax has not been deducted at source by the assessee while making the payments to Rackspace which is a non-resident entity. The assessee claimed in the certificate that the sums paid /payable to Rackspace are business income in the hands of Rackspace which does not have a Permanent Establishment (PE) in India and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rulings in the case of ISRO Satellite Centre (ISAS) in 307 ITR 59, the CIT(A) held that the payment made by the assessee is not used for any equipment and is for services done by Rackspace. 5. Before us, the ld DR has submitted that the payment has been made by the assessee for use of sever or transfer of technology etc. When the Rackspace has dedicated sever to the assessee and also dedicated support service which means the assessee has right to use the whole or part of the sever and support system provided by Rackspace exclusively to the assessee. The payments made by the assessee to Rackspace are for the use of sever, which is industrial, commercial or scientific equipment and therefore, is in the nature of royalty payment as per clause (iv) of Explanation to 9(1)(vi). He has further submitted that the treaty between Indo USA is based on UN model and as per the treaty, the term royalty as used in Article-12 means the payment of any kind received as consideration for use or right to industrial, commercial or scientific equipment. The ld DR has submitted that when the payment was made for use of sever for which the assessee has exclusive right to use and nobody else other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has no control over the equipments as well as operating system. The website Shaadi.com is a matrimonial alliance. The equipments are not used by the assessee and the same are used by Rackspace to provide service to the assessee. There is no transfer of any technology process, skill or know-how or knowledge from the Rackspace to the assessee. Even there is no transfer or rendering of any service of technology, know-how etc. The services provided by Rackspace are in the nature of data storage, data security and bandwidth provision which are standard services provided to its 1400 customers across the global. The assessee is not the only one who is receiving service from Rackspace but there are 14000 customers of the Rackspace to whom the standard service is provided. The ld AR of the assessee thus, submitted that these payments are not for use or right to use the industrial, commercial or scientific equipment and does not fall in the meaning of royalty u/s 9(1) (vi) of the I T Act or as per Article 12 of Indo USA DTAA. The payment made by the assessee is business income in the hands of Rackspace. Therefore, the same are not liable to tax in the absence of PE in India of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon ble Delhi High Court in the case of Asia Satellite Telecommunications Co Ltd vs Director of Income Tax reported in 332 ITR 340 and submitted that the payments are made for the services received outside India and accordingly, not taxable in India as per provisions of sec.9 of IT Act. 5.6 He has also relied upon the order of the Tribunal in the case of Standard Chartered Bank vs Dy Director of Income Tax (International Taxation) reported in 45 SOT 494 and submitted that the Tribunal after considering the report of the Technical Advisory Committee of OECD on the point of the term royalty and used of equipment. In para 40 of the order of the Tribunal have brought out various test as enumerated by the Advisory Group of OECD. The ld AR has submitted that the case of the assessee does not fulfil any of the criteria of test brought out by the Technical Advisory group of OECD; accordingly, the payment does not fall within the meaning of royalty. He has supported the order of the CIT(A). 6. In rebuttal, the ld DR has submitted that the assessee is controlling the website which is supported by server. He has further submitted that the communication referred by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure including routers, switchers and cabling, but does not includes services or software running on your server. Network downtime exists when a particular customer is unable to transmit and receive data and is measured from (he time the trouble ticket is opened. Rackspace Guarantee: Upon experiencing downtime, Rackspace will credit the customer 5% of the monthly fee for each30 minutes of downtime (up to 100% of customer s monthly fee for the affected server). Infrastructure Rackspace guarantees that the critical infrastructure systems will be available 100% of the time in a given month, excluding scheduled, maintenance. Critical infrastructure includes functioning of all power and HVAC infrastructure including UPSs, PDUs and cabling, but does not include the power supplies on customers servers. Infrastructure downtime exists when a particular server is shutdown due to power or heat problems and is measured from the time the trouble ticket is opened to the time the problem is resolved and the server is powered back on. Rackspace Guarantee: Upon experiencing downtime, Rackspace will credit the customer 5% of the monthly fee for each 30 minutes of downtime (up to 100% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Responsible for health and Management of your system 24x7x365 Rapid Response to Monitoring Alerts Integrated Planning to Prevent downtime Expert Engineers available to Investigate and resolve your issues. Recurring consultation to manage and continuously optimise system performance Rackspace responsible for Network and hardware uptime. Deep knowledge of your unique environment Fast development of standard Configurations Rackspace responsible for hosting platform (network, hardware OS)uptime System management tools Assist in managing your Configuration and Interactions with Rackspace System implementation process designed to your business needs. Integrated process and system management Tools for managing complex environments. 7.1 Thus, it is manifest from the agreement that the payments have been made for providing web hosting services with all backup, security, maintenance and uninterrupted services. There is no dispute that all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elaying facilities, which are situated outside India. From this facility, the signals are beamed in space where they are received by a transponder located in the appellant satellite. The transponder receives the signal and on account of the distance these signals have to travel, they are required to be amplified. After amplification frequency of signals are downlinked to facilitate the transmission of signals. This is how the signals are received over various parts of the earth spanning numerous countries including India. (e) The outcome, thus, would entirely depend upon the question as to whether any process is used by the television channels and also whether a secret process is required to bring within the ambit of Explanation 2. Once we keep in mind the aforesaid important aspects, it is not difficult to find the answer to the question posed. In fact, we can say that it is so provided by the AAR in ISRO [2008] 307 ITR 59 (AAR). A close scrutiny of the said ruling of the AAR would clearly reveal that where the operator has entered into an agreement for lease of transponder capacity and has not given any control over parts of satellite/transponder, the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satellite user for rendering the services to the customer and further that it cannot be said that the transponder or process employed therein are used by the customer. 8.2 Thus, in view of the decision of the Hon ble Delhi High Court when the equipments were not operated, used or under the control of the assessee, then the payments made for availing the services of Rackspace cannot be said as royalty. When the payments are not in the nature of royalty as per Indo-USA DTAA as well as per Explanation 2 (via) of Sec. 9(1) of the I T Act, then recipient of the said payments being non-resident having no PE is not liable to tax in India. Therefore, the payments in the hands of Rackspace are not taxable in India and consequently, no tax required to be deducted u/s 195 on such payment/remittance by the assessee as held by the Hon ble Supreme Court in the case of GE India Technology Centre P. Ltd. v. Commissioner of Income-tax reported in 327 ITR 456. 8.3 We further note that for AY 2006-07, the Assessing Officer disallowed the payments made by the assessee to Rackspace for hosting charges u/s 40(a)(ia) for the reason of non deduction of tax at source while passing the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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