TMI Blog2007 (1) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier the applicant had filed an application (AAR/664/2005) before the Authority on 30th May, 2005 but on the ground that the relevant facts had not been incorporated in the Annexure to the application, it was withdrawn with liberty to file a fresh application and accordingly that application was rejected as 'withdrawn' on 18th January 2006. The applicant is engaged in the business of providing access to an Internet based Air Cargo Portal known as Ezycargo at Singapore. An agent who books cargo through various airlines can subscribe for the portal - Ezycargo - which enables him to access the data bank of the airlines like flight schedules, availability of cargo space etc. The portal enables an agent to check the connect flight details to the desired place and enables him to arrive at the economics of transporting the cargo to the desired destination. The cargo space availability for booking cargo can be checked only for a specified aircraft of specified airlines. The agent can book the cargo by choosing a specified airline and submitting the details asked for in the booking sheet like airway bill number etc., as provided by the airlines, dimension and weight of the cargo. In add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deduction at Source." During the course of hearing of the application on 27.9.2006, Mr. S.Ramesh, learned counsel for the applicant, sought and was granted permission to amend the question. Following is the amended question:- "Whether the payment made by the Indian subscriber to the Cargo Community Network Private Limited at Singapore, for providing a password to access and use the portal hosted from Singapore, is taxable in India and is subject to deduction of tax at source?" 2. The Commissioner in his comments has stated that Ezycargo is a secure carrier-neutral service portal developed by Cargo Community Network Singapore (CCN). It is a sophisticated platform offering a complete range of services that enable the forwarders to manage their time-critical transactions with major carriers quickly, in a simplified and cost effective way. The result is a one-step, integrated communications solution catering to the needs of the airfreight community. It offers forwarders and carriers global online-access convenience to a comprehensive range of functions used for their day-to-day time-critical transactions. It also offers a range of complete management solutions to perform a vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, i.e. to act as communication channel between the head office and parties in India, subject to conditions laid down by the RBI. Clause (vii) of the conditions in the Annexure is as under: "The office in India will not render any consultancy or any other service directly/indirectly with or without consideration". The applicant violates this clause by providing training at Chennai on the usage of Ezycargo. Further the provision of on site Helpdesk support by the technical staff and training to the Agents indicate that Liaison office is carrying on the business of the Applicant either wholly or partly. The applicant, therefore, carries on the business through the P.E. in India and the payments of subscription fees, System connect fee and Help Desk charges are directly or indirectly attributable to the P.E. in India. The provisions of article 7(1) (Business Profits) of DTAA states as under: "The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is installed in the system of the subscribers. Only an exclusive password is given to the subscribers to enable them to access the website. This password is case sensitive and wrong usage would deny access to the portal by the subscriber. The company demonstrates the user of the portal to familiarize the portal so that they can use the portal in its entirety. The company termed this demonstration as imparting training to the subscribers. The training is only a demonstration of how to access the website properly and to demonstrate the importance of entering data correctly for proper access. That the Portal is wholly maintained by Head Office in Singapore and it has a helpdesk support through which the subscribers here clarify their doubts while using this Portal. That the function of the portal is to translate the data sent by the subscribers from simple English language to airlines system language and to transmit the data to the specific airline and also vice versa. The L.O. does not have access to any data of the subscribers nor their user I.D. and password. The L.O. acts as a mere communication link between the Head Office and subscribers. The L.O. is not carrying out any revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books cargo at any given point of time, he can approach only for a specific flight for a specific consignment of a particular dimension and make request for booking. The request is accepted or declined by the airline staff. As the portal or server of the applicant cannot automate the decisions, the payments made cannot be regarded as payments made for use of equipment. As per the Definition of Equipment from J.A. Parks Principles and practices of Valuation on page 483 as "Equipment are the ancillary assets that are used to assist productive function in an enterprise, viz, trailers, lorries, tractors, computer installation, photo copier, telephone system, fire engine and the like". Further it states that plant, machinery and equipments though often embodied (sic) (embedded) on the earth are regarded as fully replaceable assets. From the above, it is evident that the portal cannot be treated as equipment. In support of the above contentions reliance has been placed on the following cases: Madhya Pradesh High Court in 263 ITR 230 followed by the ITAT Bangalore Bench in Wipro Limited Vs. ITO 278 ITR at 57. 2. Madras High Court in Skycell Communications Ltd. Vs. DCIT 251 ITR 53. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder explanation 2(iva) of section 9(1)(vi) of the Act. That sub-clause (iva) was introduced w.e.f. 1.4.2002, therefore, old case law prior to that date would not be applicable. It was also stated by the learned counsel that case law relied on by the applicant was distinguishable on facts and in law. 6. We have carefully considered the written submissions of the applicant, and the Revenue as also the submissions of the learned counsel during the course of oral hearing. Admittedly the applicant is having income from subscriptions received from various cargo agents in India towards the use of portal for cargo booking and cargo tracking of various airlines. The subscription consists of one time receipt of Systems connect fee that includes training fee, monthly subscription fees and Help desk Charges as they arise (hereinafter collectively referred to as the payments). The counsel have agreed that the payments are in the nature of business income of the non-resident (CCN Pvt. Ltd.). Counsel for the Revenue has pleaded that L.O. has been converted into a permanent establishment, but this is strongly contested by the counsel for the applicant. Before we examine the plea of the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t solution for cargo booking and subsequent multi-carrier track and trace facility. The portal designed by the applicant is hosted on its server in Singapore with Internet accessibility on one side to cargo agents and on the other side to different airways. The portal which is a complex, commercial, Internet site provides a gateway for processing requests for cargo booking to different airlines, and obtaining their acceptance. The use of portal is not possible without the use of server that provides Internet access to the cargo agents/subscribers on the one hand and to different airlines on the other hand for to and fro communication. Therefore, the portal and the server together constitute integrated commercial-cum-scientific equipment and for obtaining Internet access to airlines the use of portal without server is unthinkable. Whereas the portal performs complex functions of providing access to different airlines and translation of messages from English to IMP language, the server provides connectivity and Internet access for processing requests for booking of cargo and subsequent multi-carrier trace and track facility etc. Therefore, the plea of Shri S.Ramesh that cargo booking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ription of 'Fees for technical services'. These are ancillary and subsidiary to the application and enjoyment of the use of, or the right to use, the scientific equipment for commercial purposes. Now, what remains to be seen is whether the payments being made to the C.C.N. Pvt. Ltd. fall within the meaning of 'Royalty' and 'Fees for Technical Services' as defined in section 9(1) of the Act: Income deemed to accrue or arise in India 9(1) The following incomes shall be deemed to accrue or arise in India:- (i) to (v) xx xx xx (vi) income by way of royalty payable by - (a) xx xx xx (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) xx xx xx Explanation 1 xx xx xx Explanation 2 - For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich deal with taxation of 'royalties and fees for technical services' in the other state/or in the contracting state, provided the beneficial owner of the royalties or FTS, being a resident of a contracting state, carries on business in the other contracting state in which the royalties or FTS arise through the permanent establishment situated therein or if the beneficial owner performs in that other state independent personal services from a fixed base situated therein and the right, property or contract in respect of which the royalties or FTS are paid is effectively connected with such permanent establishment or fixed base. It is nobody's case that the conditions to invoke para 6 are present in the instant case. The alternative contention of the learned counsel that if the payments are to be treated as business income, the same fall under the category of shipping and air transport, and therefore, taxable only in Singapore [para 4(d) of article 8 of the DTAA], is also not sustainable. Firstly, the business of the applicant is to provide services of Internet based portal, which does not fall within the category of shipping and air transport. Secondly, we have already concluded tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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