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Atos Information Technology HK Limited, C/o Atos India Pvt. Ltd. Versus Deputy Commissioner of Income Tax- (International Taxation) – 1 (1) (2) , Mumbai

2016 (3) TMI 1104 - ITAT MUMBAI

'Royalty' and 'Fees for Technical Services' under Section 9(1)(vi) and 9(1)(vii) - Contract for Provision of Computing Services entered into between the Appellant and Standard Chartered Bank, India (‘SCB India') for the services - Held that:- The assessee company submitted that if the said payment are held to be income taxable in India and benefit of Section 115A of the Act is denied to the assessee, then the expenses incurred by the assessee company should be allowed if it is held to be royalty .....

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merits in accordance with law and also keeping in view the direction given by the Tribunal hereinabove in the appeal for the assessment year 2009-10. Needless to say, the adequate and proper opportunity of hearing will be granted by the AO to the assessee company in accordance with the principles of natural justice in accordance with law .We order accordingly. - I .T.A. No. 1464/Mum/2015 - Dated:- 4-3-2016 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Ass .....

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of the Act passed by the Disputes Resolution Panel-IV, Mumbai (Hereinafter called the DRP ), for the assessment year 2011-12. 2. The ground raised by the assessee company in the memo of appeal filed with the Tribunal reads as under:- 1.1 On the facts and in the circumstances of the case and in law, the 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  .....

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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 .....

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ys 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 ₹ 4,33,02,870. The Appellant humbly prays that the Learned AO be directed to grant a credit for the aforesaid TDS as per the section 199 of the Act read with Rule 37BA of the Income-tax Rules, 1962. 3 On the facts and in the .....

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n Hong Kong providing service/facilities for the processing of data through computer software. The assessee company is a non-resident in India. It has declared nil income in the return of income filed with the Revenue and claimed refund amounting to ₹ 8,73,61,947/- being the entire amount of TDS. 4. It is submitted by the assessee company that the assessee company had entered into a contract for providing data processing support service to Standard Chartered Bank, India, who are in the bus .....

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ardware 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 .....

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the Reserve Bank of India vide its letter dated 5th October, 2004 granted approval for specific services to be rendered by the assessee company to SCB-India and storing data in India and SCB-India transmitted the data to Hong Kong. The assessee company submitted that the payment made by SCB-India to the assessee company for use of services provided by the assessee company cannot be termed as Royalty as provided u/s 9(1)(vi) of the Act nor the same can be called as fee for technical services as .....

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submitted that there is no double taxation avoidance agreement(DTAA) entered into by India with Hongkong and hence the determination of income being accrued in India and assessable in the hands of the assessee company has to be considered with respect to section 9(1)(vi) and 9(1)(vii) of the Act read with other provisions of the Act as applicable. It was submitted that the assessee company is using the information/infrastructure owned by it to provide facility/services to SCB-India and the same .....

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he Act. It was submitted that the processing of data is done in Hong Kong and not in India. Our attention was drawn to the invoices raised and the payment being made correspondingly towards the same. It was contended that no technical services were rendered whereas only processing of data was done and that too at Hongkong and no part of services are rendered in India. The A.O. has chosen the selective clauses of the contract and held that the payment received by the assessee company from SCB-Ind .....

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r 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 Limi .....

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Act. The matter being similar, this matter should also needs to be set aside in view of retrospective amendments in Section 9 of the Act, the A.O. will re-decide the issue after considering the retrospective amendments brought in section 9 of the Act. It was also submitted that the Mumbai-Tribunal for the assessment year 2005-06 and 2008-09 has also set aside and restored the matter to the file of the AO vide orders dated 07-03-2014 in ITA No. 6562/Mum/2009 , 6888/Mum/2011, 219/Mum/2010 and 6889 .....

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port service to Standard Chartered Bank in India. The staff and key personnel of the assessee company are compulsorily appointed with the consent/approval of the Standard Chartered bank and the assessee company has no authority to appoint key personnel without the approval of the SCB. The SCB has also access and control over the infrastructure and software of the assessee company . There is a direct control over the infrastructure and software of the assessee company by SCB The ld. D.R. relied u .....

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pective effect and hence the A.O. has rightly held that the income earned by the 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 .....

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. 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.) and submitted that there is a typographical error in the order of the A.O. and the rate as prescribed by section 115A of the Act is 10% and not 20%. With respect to the other grounds, the assessee company submitted tha .....

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. We have considered the rival contention and also perused the relevant material on record including the case laws cited by both the sides. We have observed that the Mumbai-Tribunal in the assessee company s own case for the assessment year 2009-10 in ITA No. 7321/Mum/2012, vide orders dated 19-11-2014 dealt with the similar matter and the Mumbai-Tribunal held as under:- Instant appeal is filed against the order of DRP under section 144C(5), dated 07.09.2012, wherein, the following grounds have .....

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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. I .....

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cumstances 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 i .....

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ted to delete or appropriately reduce the interest levied under section 234A of the Act. 4. On the facts and in the circumstances of the case and in law, the Learned AO erred in levying interest under section 234B of the Act amounting to ₹ 3,01,85,410/- without appreciating that the entire income of the Appellant is subject to deduction of tax at source and hence, the question of advance tax does not arise. The Appellant humbly prays that the Learned AO be directed to delete the interest l .....

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ing support service to Standard Chartered Bank, India, who are in the business of banking in India. The assessee entered into a contract/agreement dated 07.08.2005, whereby new data relating to branch transaction was fed by SCB from their workstation and transmitted to the assessee data base centre in Hongkong. The application software was neither designed nor acquired by the assessee. In fact, hardware, network and software used by SCB at their workstations were owned by SCB itself. The assesse .....

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ploit the data independently nor there was any user rights, procured by the assessee to access the data base for or in favour or behalf of SCB. Similar services were made available by the assessee to other clients as well. 4. In this factual scenario 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 .....

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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 companies, called the Supplier companies, have to provide certain te .....

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al skills and to leverage the capabilities and technology of the assessee group for rapid business growth. The extent of technical support is evident from the support and services provided for various critical functions like 24 hours ATMs, verification of clearing cheques, visa authorization etc. The Cocteau Contract also provided that Atos shall be required to do procurement and asset management for SCB and to provide a procedural manual for SCB personnel in order to ensure that all technologic .....

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hat operational and remote technical support shall be delivered via a combination of services from Atos Hongkong and other Atos entities. 3.3 In view of the above facts, the AO held that the assessee has provided SCB India with the use of its equipments and processes and has also rendered services in connection with the same. The procedure manual complied by Atos for the benefit of SCB India was held to be information for which the right to use had been provided to SCB. The AO held that in these .....

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ssified 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 bra .....

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stated in these letters that there has been regional consolidation of systems and data centres and cutover of India systems completed on 7.8.2005 to achieve centralization and efficiency of services . It is further stated in these letters that these services are being provided in accordance with the Cocteau contract dt. 12.2.2004 entered into between the assessee group and Standard Chartered entities. The AO has quoted extensively from the Cocteau contract in the assessment order and a perusal o .....

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ld print and copy any of the materials stored in the library. This documentation evidently related to critical processes that are involved in the efficient functioning of the bank. The documentation was also in the nature of information which is accessible and always available for use by the SCB India personnel. We have also noted that Explanation 5 inserted by the Finance Act, 2012 with retrospective effect from 1.4.1976 provides that royalty includes consideration in respect of any information .....

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ndergone a change with a Cocteau contract entered into in February, 2004. In the light of the above facts and the clarifications made by the Finance Act, 2012, we are of the view that the payments made by the Standard Chartered Bank to the assessee can be categorized as royalty. 4.2 We are also of the view that the nature of the services provided, as brought out by the AO, can certainly be categorized as managerial and technical services. It is clear from the terms of the Cocteau contract that t .....

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s. 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 o .....

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ax @ 20% and sustained the findings and decision of the AO to charge tax @ 40%. 8. In this circumstance, the assessee is in appeal before ITAT. 9. At the time of hearing, the AR submitted that the issue was raised and reached the ITAT in the case of the assessee in assessment years 2006-07 and 2008-09 in ITAs no. 6562/Mum/2009 and 6889/Mum/2011, wherein the coordinate Bench mentions, … that the liability or otherwise of the assessee regarding its receipts has to be re-adjudicated in the l .....

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dication of the issues raised in the present appeals. After giving opportunity the AO will readjudicate all the issues raised in the present appeals as per provisions of law. 7.1 Similar is the position in respect of Ground No. 1.3 & 1.4 and additional ground No. 1.5 in which the assessee has raised grievances regarding rates of tax to be applied on the above receipts. All these issues on merits are to be readjudicated as per law in ITA No. 6762/Mum/2009 & 219/Mum/2010 being cross appeal .....

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receding year(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 authori .....

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