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Dy. Director of Income Tax (Int’l Taxation) , Circle 2 (1) , Mumbai Versus Savvis Communication Corporation

2016 (5) TMI 635 - ITAT MUMBAI

Taxability of royalty - payment received for providing web hosting services, with all back up, maintenance, security and uninterrupted services - Indo US tax treaty - Held that:- When a scientific equipment is used by the assessee for rendering a service, the receipt will be construed as a receipt for use of scientific equipment. Undoubtedly, when the assessee receives an income on account of allowing a customer to use a scientific equipment, it does become taxable for the reason of its being ch .....

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ration is not taxable, in the case of the latter, the consideration is taxable.

A payment cannot be said to be consideration for use of scientific equipment when person making the payment does not have an independent right to use such an equipment and physical access to it. In the present case also, what the assessee is providing is essentially web hosting service, though with the help of sophisticated scientific equipment, in the virtual world. The scientific equipment used by the as .....

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Decided against revenue - I.T.A. No. 7340/Mum/2012 - Dated:- 31-3-2016 - Pramod Kumar AM and Pawan Singh JM For The Appellant : Harsshad Vengurlekar For The Respondent : Kanchan Kaushal and Dhanesh Bafna ORDER Per Pramod Kumar, AM: 1. By way of this appeal, the Assessing Officer appellant has challenged correctness of the order dated 13th September 2012 passed by the learned CIT(A) in the matter of assessment under section of 143(3) of the Income Tax Act, 1961 for the assessment year 2009-10. Gr .....

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hnology solutions, including, amongst other things, web hosting services. During the relevant financial period, the assessee earned income from provision of managed hosting services to Indian entities, namely Malayala Manorama Co. Ltd. (Rs.1,71,69,021) and Cybermedia India Online Limited (Rs.22,59,194). In the income tax return filed by the assessee, the income so earned was disclosed but claimed to be not taxable in India in view of the provisions of articles 12 and 7 of the India USA Double Ta .....

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did not accept this claim. He was of the view that the web hosting companies provide space, on a server they own or lease, for use by the clients as well as providing internet connectivity typically in a data centre. It was noted that the user is disallowed full control so that the provider can guarantee quality of service by not allowing the user to modify the server or potentially create configuration problems, and that the user typically does not own the server. The server is leased to the cl .....

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It was also noted that the assessee s obligations include ensuring the foolproof security systems in these data centres and ensuring the equipment in these data centres runs smoothly. The Assessing Officer was of the view that in essence the receipt is for granting the right to use the scientific equipment which is taxable in India under item (va) of Explanation 2 to Section 9(1)(vi) as also Article 12(3) (b) of Indo US tax treaty. It was in this backdrop that the Assessing Officer held the rece .....

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exercise ay control over the customers content nor is responsible for the same , and that use of servers, rack space, wires and cables, internet facility, software etc are incidental to providing managed web hosting services . It was then concluded, following decisions of coordinate benches of this Tribunal, that providing web hosting services, with all back up, maintenance, security and uninterrupted services does not amount to royalty under the provisions of the Act or the tax treaty. The addi .....

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h respect to the provisions of the Act. The issue so raised is purely academic in the sense that even if the grievance of the Assessing Officer is upheld, the findings on the treaty aspect will remain intact, and as the provisions of the Act come into play only when these provisions are more beneficial vis-à-vis the treaty provisions, the relief under the treaty provisions will continue to hold the field. The success of the Assessing Officer, even if he was actually entitled to the same o .....

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is used by the assessee for rendering a service, the receipt will be construed as a receipt for use of scientific equipment. Undoubtedly, when the assessee receives an income on account of allowing a customer to use a scientific equipment, it does become taxable for the reason of its being characterized as such, but the use of a scientific equipment by the assessee, in the course of giving a service to the customer, is something very distinct from allowing the customer to use a scientific equipm .....

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