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TMI Blog2016 (3) TMI 1104X X X X Extracts X X X X X X X X Extracts X X X X ..... he Learned Deputy Commissioner of Income-tax (International Taxation) 1 (1 )(2), Mumbai ('the Learned AO') and the Dispute Resolution Panel ('the DRP') erred in holding the sum of Rs. 40,46,45,646 as 'Royalty' and 'Fees for Technical Services' under Section 9(1)(vi) and 9(1)(vii) of the Income-tax Act, 1961 ('the Act'). In doing so, the Learned AO and the DRP disregarded the Contract for Provision of Computing Services entered into between the Appellant and Standard Chartered Bank, India ('SCB India') for the services rendered by the Appellant to SCB India. The Appellant humbly prays that the aforesaid receipts should not be taxed in India and the Learned AO be directed accordingly. 1.2 Without prejudice to above Ground No. 1.1, the Learned AO and the DRP erred in denying the benefit of the rate prescribed under section 115A of the Act. In doing so, the Learned AO and the DRP held that SCB India being a non resident company does not fall within the ambit of the term 'Indian concern' as per the provisions of section 115A of the Act and accordingly, the provisions of section 115A of the Act do not apply to the payments made by S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y that the application software of SCB was neither designed nor acquired by the assessee company. The hardware network and software used by the SCB at their workstations were owned by SCB itself. It is further submitted that the assessee company did not have any role in preparation and transmission of data from SCB workstations in India to the assessee company in Hong Kong. Once the data was received by the assessee company from SCB was looked into, output data was transmitted back to SCB using the same software, as used and provided by SCB, after retaining the back office data. It was submitted by the assessee company that it had no right to access the data of SCB India. It was submitted by the assessee company that similar services were made available by the assessee company to other clients as well. It was submitted by the assessee company that neither SCB had any right to exploit the data independently nor there was any user rights, procured by the assessee company to access the data base for or in favour or behalf of SCB. It was further submitted that in terms of Cocteau Agreement, the Reserve Bank of India vide its letter dated 5th October, 2004 granted approval for specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCB-India is payment for royalty and fee for technical services as defined u/s 9(1)(vi) and 9(1)(vii) of the Act respectively. It was further submitted that there is no business connection of the assessee company in India. The ld. Counsel for the assessee company also distinguished the decision of Hon'ble Bombay High Court in the case of (2011)340 ITR 333(Bom. HC) and submitted that in the said case BSE/NSE had in this case had given access to the user whereby the transactions /trading between the buyer and seller of the securities is concluded which is regulated, controlled and managed by the stock exchange till the transactions are finally settled while in the case of the assessee company the access to infrastructure/software owned by the assessee company is not given to the SCB. The ld. Counsel also relied on the following decisions:- 1. (2007) 106 TTJ 620(Del. Trib.) in the case of Sheraton International Inc. v. DDIT 2. (2001)170 CTR 238(Mad. HC) in the case of Skycell Communications Limited v. DCIT and contended that it is only processing of data of SCB-India as per the banking regulatory requirement and analysis reports which are generated as per the requirement of Stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company is royalty and technical services and is chargeable to tax in India u/s 9(1)(vi) and 91(1)(vii) of the Act. The ld. DR submitted that the decisions relied upon by the assessee company are not applicable to the present case as in those cases, there is DTAA with the respective countries and they are rendered prior to the retrospective amendment in Section 9 of the Act by Finance Act, 2012. The Ld. DR submitted that the assessee company is not merely processing the data of SCB-India whereas it is a case of payment of royalty and technical services. 6. The ld. Counsel for the assessee company, in the rejoinder, submitted that the case of Sheraton International Inc.(supra) is directly applicable to the present case and the pith and substance of the agreement is data processing and the same is a commercial arrangement entered into by the assessee company with SCB-India. With respect to ground No. 1.2, the ld. Counsel submitted that the SCB is an Indian concern as defined u/s 115A of the Act and in support, he relied upon the decision in the case of Joint Official Liquidator of Bank of Credit & Commerce (Overseas) Ltd. vs. JCIT, reported in (2006)6 SOT 391(Mum.-Trib.) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 115A of the Act and accordingly, the provisions of section 115A of the Act do not apply to the payments made by SCB India. The Appellant humbly prays that the Learned AO be directed to apply the rate as prescribed under section 115A of the Act. 1.3 Without prejudice to Ground Nos. 1.1 to 1.2, on the facts and in the circumstances of the case and in law, while calculating the tax liability of the Appellant, the Learned AO has erred in adopting chargeable income as gross receipts instead of net receipts received buy the Appellant (i.e. after deducting the expenses attributable to gross receipts). The Appellant humbly prays that the Learned AO be directed to compute the chargeable income of the Appellant by adopting net receipts instead of gross receipts. 2. On the facts and in the circumstances of the case and in law, the Learned AO erred in granting a short credit of TDS amounting to Rs. 9,54,980/-. The appellant humbly prays that the Learned AO be directed to grant a credit for the aforesaid TDS as per section 199 of the Act read with Rule 37BA of the Income-tax Rules, 1962. 3. On the facts and in the circumstances of the case and in law, the Learned AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rio the payment made by SCB India, for the use of services provided by the assessee could not be termed as 'Royalty'. 5. The assessee further urged that the services could not be characterized as FTS u/s 9(1)(viii) of the Income Tax Act, because, the to fall in such service characterization, the assessee should have expertise/special skill/knowledge to provide the service. In the present case, the assessee did not have any of the above qualifications but it was a company, which provided services to clients, who required back office rendition. 6. The revenue authorities after examining the work manual and modus applied by the assessee, concluded, "The AO, however, held that the contract submitted by the assessee in relation to these services was only in the nature of a confirmatory letter, and the services performed actually flowed form a Cocteau Contract dt. 12.2.2004, which is a comprehensive document of 1135 pages and is signed and entered into between Atos Origin, UK and Standard Chartered Bank, UK. This fact is clearly stated in the confirmatory letter furnished by the assessee. The AO examined the Cocteau Contract and found that under the contract, the Atos Group comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in order to detect bottlenecks and potential problems and to automatically recover from critical situations. He, therefore, held that the charges paid can also be classified as fees for technical services. The AO analysed some of the invoices raised by the assessee and held that the description of services in these invoices strengthened his conclusion that the charges were paid as royalties and fees for technical services. The AO further held that section 115A is not applicable in the present case since it applies to payments made by the government or an Indian concern, while in the present case, the Standard Chartered Bank is a foreign bank only running branches in India. He, therefore, held that the amount of US$ 42,34,536/- equivalent to Rs. 21.4 crores was chargeable to tax @ 40%". It was further held by the Panel that, "We have carefully considered the facts submitted by the assessee and the fact stated in the assessment order. It is noted that the agreements under which the services are stated to have been provided are essentially in the nature of confirmation letters addressed by the assessee to the Standard Chartered Bank. It is clearly stated in these letters that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical services. It is clear from the terms of the Cocteau contract that the services rendered are not merely back office or date pr4ocessing services but are services relating to critical areas of the functioning of the bank and the objective underlying the services is to improve the management and the operations of the bank. Evidently, there is a high degree of skill, both managerial as well as technical, involved in the rendering of these services. This Panel therefore holds that the payment made by the assessee can also be categorized as fees for technical services. 4.3 With regard to the rate of tax, we are in agreement with the AO that the beneficial rate of 20% provided u/s 155A applies only to payments made by Indian entities. The objective underlying the beneficial rate of tax is clearly to enable3 Indian businesses to acquire better technology form non-residents and foreign companies. In the present case, the payments are made by Standard Chartered Bank which is a foreign bank and not an Indian entity. The decision of the ITAT in the case of Bank of Credit and Commerce was rendered in the context of interest paid by a branch to the head office and it was held that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar(s), the AR submitted that for the sake of consistency, the issue, in the current years, deserved to be restored to the file of the AO. 11. The DR did not object to the submission of the aAR for restoration of the iisue to the file of the AO. 12. On hearing both the sides, we are of the view that since the preceding years were awaiting adjudication at the AO stage, it would be inappropriate for us, to come to any conclusion. We, therefore, set aside the orders of the revenue authorities and restore the issue to the file of the AO for a fresh adjudication, in line with the decision taken by he AO in the preceding years(s). Needless to mention, adequate and reasonable opportunity shall be given to the assessee, to present its case. 13. Grounds no. 1.2 & 1.3 pertain to rates of tax to be applied. These grounds being linked to ground no. 1, This issue is also set aside to the file of the AO, who shall compute the tax as per the amended provisions, after giving adequate opportunity to the assessee. 14. Ground no. 1.1 is therefore, allowed for statistical purposes. 15. Ground no. 2 pertains to not giving credit of TDS of Rs. 9,54,980/-. 16. The AO is legally bound to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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