9911796707
TMI Blog2012 (2) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the Id. CIT(A) erred in holding that the assessee has no liability to deduct tax at source and therefore, the assessee cannot be treated as an assessee in default. 4. On the facts and in the circumstances of the case and in law, the Id. CIT (Appeals) erred in directing not to treat the assessee as an assessee in default and consequently, deleting the demand (Tax of Rs. 7,57,2721- & interest under section 201(1A) of Rs. 3,75,206/- = Rs. 1 1,32,478/-) raised by the Assessing Officer" 3. The assessee is a owner/host of website www.shaadhi.com where individuals can register and exchange the relevant information for matrimonial alliances on payment of appropriate subscription amount. The facility is available to the resident as well as non residents. Vide se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 hence as per the Article 7 of Indo USA DTAA, the payments are not taxable in India. The Assessing Officer thus, asked the assessee to give the details of payments made to non residents and also to give the reasons as to why the tax has not been deducted at source while making the payment. 3.3 The assessee submitted the details of payments made to Rackspace inc USA with respect to Assessment Year 2005-06 to 2008-09 which are reproduced by the Assessing Officer in the order passed u/s 201(1)( 201(1A) in para 2. The assessee mainly contended before the Assessing Officer that the assessee has no excess or control on the server support system provided by Rackspace. 3.4 After considering the details filed by the assessee as well as the reply to the show cause notice, the Assessing Officer held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 the assessee can use the sever then it falls under the definition of royalty as per sec 9(1) (iva) as well as royalty as used in Article 12 of In do USA DTAA. The ld DR has stressed the point that the space in server can be utilised from anywhere and no physical excess or control of the sever is required for using the space in the sever. When the payment is in the nature of royalty, then PE is not relevant for withholding of tax before remitting the same to the non residents. He has referred the assessment order passed u/s 201(1)( and 201A) of the Assessing Officer and submitted that the Assessing Officer has analysed all the relevant material, agreement between the assessee and Rackspace as well as the provisions of treaty of Indo USA and sec 9(1) read with explanation 2 and given a finding that paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 the Rackspace. The ld AR has further contended that there is no agreement to hire or leased out any equipment but only service level agreement were entered between the assessee and Rackspace and the payments are made as per service level agreement. He has referred the service level agreement and service order form dt 14.6.2004 and submitted that as per the service order form/agreement, Rackspace agreed to provide the services to the assessee through dedicated sever as described in the agreement. The equipments/servers were under the control and possession of the Rackspace and operated by Rackspace for providing the services. Therefore, keeping the dedicated server for providing the service to the assessee cannot be said as hiring out the equipments to the assessee but only to ensure the uninterrupted and rou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 is not coming out of agreement and even the CIT(A) has not confronted the letter placed at page 129 of the paper book for the Assessing Officer; but considered the same while deciding the appeal of the assessee. The website is used and controlled by the assessee in India therefore; the assessee is making the payment for use or right to use the equipments in the shape of website with backed by server. 7. We have considered the rival contention as well as the relevant material on record. We find that the payments in question were made by the assessee to Rackspace in pursuant to the contract/agreement between the parties. The CIT(A) has extracted the relevant contents/clauses of the serviced level agreement between the assessee and Rackspace in pars 10 & 10.1 of the impugned order as under; "10. I have gone through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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% of customer's monthly fee for the affected server). Hardware Rackspace guarantees the functioning of all hardware components and will replace any failed component at no cost to the customer. Hardware is defined as the Processor(s), RAM, hard disk(s), motherboard. NIC Card and other related hardware includes with the server. This guarantee excludes the time required to rebuild a RAID array and the reload of certain operating systems and applications. Hardware replacement will begin once Rackspace identifies the cause of the problem, hardware replacement is guaranteed to be complete within one hour of' problem identification. Rackspace Guarantee: In the event that it takes us more than one your to replace faulty hardware, packspace will credit the customer 5% of the monthly fee per additional hour of downtime (up to 100% of customer's monthly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he services provided to the assessee are under the control of Rackspace and situated outside India. When the assessee could not operate or even have no physical excess to the equipments system providing service, then the assessee would not be using the equipments but only availing the services provided by Rackspace. 8. The Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd. (supra) while deciding a similar issue on the point of royalty has held in paras 58 to 60 as under: "In the light of our discussion explaining Explanation 2 to section 9(1)(vi) of the Act, let us proceed to apply these principles on the facts of the case. The starting point has to be the nature of services provided by the appellant to its customers as per the agreement arrived at between them. Keeping in view the aforesaid operation of the satellites, we revert back to the agreement entered into between the appellant and its customers. It is clear from various clauses of the agreement (and noticed above), the appellant is the operator of the satellites. It also remains in the control of the satellite. It had not leased out the equipment to the customers. On this basis, it is arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant had merely given access to a broadband with available in a transponder which can be utilized for the purpose of transmitting the signals of the customer. In that case, after taking note in depth, the operation and the functioning of transponder, the AAR emphasized on the fact that data sent by the telecast operator does not undergo any change for improvement through the media of transponder." 8.1 Further, the Hon'ble Delhi High Court, after considering the decision of Advance Authority of Ruling in the case ISRO(supra) has observed in paras 62 to 64 as under: "It is also clear from the above that the aspect of amplification of data by the transponder is taken only as additional factor, but the judgment is not entirely rested on that. This ruling further categorically demonstrates that in a case like this, services are provided which is integral part of the satellite, remains under the control of the satellite/transponder owner (like the appellant in this case) and it does not vest with the telecast operator/ television channels. The position is substantially the same in the present case as well. The Tribunal has distinguished this judgment and has opined that it is not app ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
