9911796707
TMI Blog2007 (1) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... ication was rejected as 'withdrawn' on 18th January 2006.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 addition the portal performs other functions like furnishing the status of booking to the agent, creating database for various bookings by furnishing the status of the shipment etc. The portal transmits data from the agent to the airlines by transmitting from simple English language to Car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go 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 variety of functions on one single platform. Its Key Features are: Flight Schedule & Availability Proactive Shipment Monitoring Alerts Multi-shipment, Multi-Carrier Track and Trace Allotment Management & Allotment Booking Multi-carrier, Multi-Air Waybill eBooking Air Waybill Stock Manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration". 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 enterprise may be taxed in the other State but only so much of them as is directly or indirectly attributable to that permanent establishment". Accordingly the payments made by the subscriber/cargo agent for the use of portal are taxable as business income. Moreover the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 revenue earning activity within the territorial jurisdiction of India, which will be chargeable to tax under the Indian Tax Laws. The entire expenditure of the L.O. has been met out of remittances from Head Office only. The L.O. does not generate any revenue and that can be evidenced f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. It is also contended that even if it is presumed that article 12 applies in respect to the payments made by the cargo-booking agent as royalty or fees for technical services, clause 6 of article 12 should be applied. This clause provides the application of article 7 wherein claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 learned counsel, it is important to refer to para 7 of article 7 of the Double Taxation Avoidance Agreement with Singapore (hereinafter referred to as DTAA) notified vide Notification No.GSR 610(E) Dated 8.8.1994. Para 7 deals with items of income, which are dealt with separately in other art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apore 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 agent never uses the server of the applicant for processing or obtaining any data, and that the use of the equipment involves at least some degree of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support, in India is covered by the description 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a non-resident), are chargeable to tax in India, under article 12 of the DTAA as also under section 9 of the Act. In as much as we have concluded that the payments made by the subscribers to the applicant are in the nature of "Royalties and fees for technical services" and taxable under article 12 of the DTAA, the said payments cannot, therefore, be treated as business income. 7. The contention of Shri S.Ramesh that if article 12 is applicable then in view of para 6 thereof, the payments should be treated as business income to which article 7(1) applies, is misplaced since para 6 excludes provisions of paragraph 1 and 2 of article 12 which 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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