TMI Blog2016 (4) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... Harshad Vengurlekar ORDER Per Pramod Kumar, AM: 1. By way of this appeal, the assessee appellant has called into question correctness of the order dated 31st October 2013 passed by the CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2009-10. 2. Grievances raised by the assessee appellant are as follows: 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the AO of treating the revenue of ₹ 6,15,32,756 received from the Indian customers during the year under consideration as royalty as per the provisions of Section 9 of the Income Tax Act, 1961 and the treaty between India and United Kingdom, without appreciating that the revenue is in the nature of business income not taxable in India since the appellant does not have a permanent establishment (PE) in India. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the learned AO in alternatively treating the revenues of ₹ 6,15,32,756 received from the Indian customers during the year under consideration as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Interoute is using next-generation voice technology to offer customers an outsourced VoIP service, which it calls it VVN( Virtual Voice Network). 8. Interoute is not merely providing a standard facility. In other words it is not passively providing a hardware interlace to its customers but it is actively providing the usage of its typical hardware and software proprietary product to facilitate and leverage the core business of its customers. It includes infrastructure/facilities which enforces call admission control, provides an integrated firewall for real-time services and protects customer's traffic. Whether voice calls are incoming or outgoing, it ensures only authorized calls have access to the network. 9. Interoute has created the World's first commission free voice exchange; giving its customers the ability to exchange traffic securely and flexibly with other operators around the world. Based on the latest VoIP technology and operating over the densest international soft switching platform. Arena is a tree trading and interconnects service to operators across the globe. Being part of Arena means no more charges for trading customers traffic to unknown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e. (Vodafone India), who can substantially reduce their operating cost by availing the facility/services provided by the assessee. In view of the above, it is therefore held that the payments received by the assessee is in the nature of Royalty or alternatively as FTS and is to be taxed accordingly. 4. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) confirmed the stand of the Assessing Officer, and observed as follows: 7. I have considered the AO's order as well as the appellant's AR submission. Having considered both, I find that the appellant is trying to mislead the incidence of chargeability of tax on receipt arisen from the Indian Customer to the appellant on merely stating that the appellant is a non-resident and all the infrastructure is also situated outside India. Hence the same cannot be termed as 'Royalty' or 'Fee' for technical services. But having taken note of the AO's order, I am completely in agreement with the AO's finding that the entire payment which has been made by the Indian Customers to the appellant is in the nature of 'Royalty' or 'Fee : f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The taxability, if at all in the present fact situation, can only be under article 13, and it is under this article that the assessee s income from India is held, by the authorities below, to be taxable in India. It is in this light that we begin by taking a look at the relevant treaty provision, i.e. Article 13. This is as follows: ARTICLE 13 Royalties and fees for technical services 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed : (a) in the case of royalties within paragraph 3 (a) of this Article, and fees for technical services within paragraph 4 (a) and (c) of this Article; (i) during the first five years for which this Convention has effect; (aa) 15 per cent of the gross amount of such royalties or fees for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle shall not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property, other than property described in paragraph 3(a) of this Article; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic; (c) for teaching in or by educational institutions; (d) for services for the private use of the individual or individuals making the payment; or (e) to an employee of the person making the payments or to any individual or partnership for professional services as defined in Article 15 (Independent personal services) of this Convention. 6. The provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience ; and (b) when it is a consideration for the use of, or the right to use, any industrial, commercial or scientific equipment . However, in order to understand whether the income in question will fit into any of the above descriptions, it is necessary to understand the nature of service provided by the assessee. By way of a diagram, this service can be described as follows: 9. Essentially, the role played by the interroute facility is connecting the call to the end operator, and, in that sense, it works like a clearing house. Similarly, in the case of incoming calls, calls originating from Europe and USA, which are to end in India, are routed to the respective operators. In the present fact situation, the payment made by the Indian entities can be held to be royalty only when it is payment for scientific work, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. It is not for a payment for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re made available to the person purchasing the service. As to what are the connotations of 'making the technology available to the recipient of technical services , as is appropriately summed up in protocol to Indo-US DTAA, generally speaking, technology will be considered 'made available when the person acquiring the service is enabled to apply the technology . In the case before us, no services are made available in the sense that the recipient of service is enabled to apply the technology, and do the same work without recourse to the service provider. There is no transfer of technology here, and in that sense technical services are not made available. Undoubtedly, the services rendered by the assessee requires technical inputs, but that alone, as we have seen above, does not bring it in the ambit of fees for technical services taxable under article 13 of India UK tax treaty. 10. In view of the above discussions, as also bearing in mind entirety of the case, we are of the considered view that the authorities below were in error in holding that the receipts of ₹ 6,15,32,756, from Indian entities on account of connectivity charges, are taxable in India. We direc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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