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2017 (2) TMI 633 - ITAT MUMBAI

2017 (2) TMI 633 - ITAT MUMBAI - TMI - Benefits of Sec. 115A - Payments made to Standard Chartered Bank (SCB) India - payments for “Royalty” or “Fees for Technical Services (FTS)- Held that:- Since the assessee-company is incorporated in Hong Kong and is providing services/facilities for processing data to SCB from Hong Kong, therefore, the payment made by SCB India to assessee has to be seen from the perspective of domestic law, i.e. Income-tax Act and not under any treaty. - There is neit .....

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nformation, knowhow or any of the terms used in Explanation 2 or any kind of providing of technology in the form of data centre, infrastructure, connectivity and application technology by the assessee to SCB for SCB’s banking operations. Thus, we are of the opinion that the payment made by SCB to assessee-company does not fall within the realm of “royalty” and hence cannot be taxed in India as royalty u/s 9(1)(vi) of the Act. - The payment made by SCB to assessee-company does not fall within .....

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we have already held that the amount of payment received by assessee from SCB is not taxable in India. - Credit of tax paid we direct the Assessing Officer to look into this issue and allow credit of tax paid as per the directions given by Tribunal in the stay petition. - Chargeability of interest u/s 234B - It is admitted that this issue is covered in favour of assessee in view of the decision in the case of NGC Network Asia LLC, (2009 (1) TMI 174 - BOMBAY HIGH COURT). Accordingly, res .....

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sment orders of even date 11.12.2015, passed by the Assessing Officer in pursuance of directions given by Dispute Resolution Panel (DRP) vide separate orders dated 30.11.2015 u/s 144C(5) of Income Tax Act, 1961 (in short the Act ) for quantum of assessment passed u/s 143(3) r.w.s. 144C(13) for Assessment Years 2006-07, 2007-08, 2008-09 and 2012-13. Since common issues are involved in all the appeals arising out of identical set of facts, therefore, same were heard together and are being disposed .....

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(b) Whether the benefits of Sec. 115A of the Act will be available to the assessee in case it is held that the payments from SCB, India are held to be taxable as Royalty or/and FTS? 3. In the grounds of appeal, assessee has raised the following grounds:- 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 ho .....

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ed 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 pa .....

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lant 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 not giving tax credit for the taxes paid amounting to ₹ 2,00,00,000 consisting of ₹ 1,00,00,000 each on 31 January 2012 and 19 April 2013 as per the stay directions provided by the Hon'ble Income-tax Appellate Tribunal. The Appellant humbly pr .....

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tion 234B of the Act. 4. On the facts and in the circumstances of the case and in law, the Learned AO erred in initiating penalty proceedings under section 271 (1)(c) of the Act. The Appellant humbly prays that the Learned AO be directed to not to initiate the penalty proceedings. 4. Before us, the ld. Counsel, Shri Kanchan Kaushal explaining the background and facts of the case submitted that assessee, Atos Information Technology HK Ltd. is a non-resident company, engaged in the business of pro .....

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g services was governed by a Cocteau agreement dated 12.2.2004 which the assessee had entered with SCB worldwide for the provision of data processing support to SCB in 68 countries during the years under consideration. Considering the involvement of 68 countries, the Cocteau agreement which is typical of any other outsourcing contract contained detailed framework for providing adequate safeguards to SCB and the requisite services to be performed by the assessee at certain standards so as to meet .....

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on form and category. In order to provide the data centre processing services with the desired quality / service level as required under the Cocteau Agreement , the assessee (Atos) has the following responsibilities (in respect of the facility / system, which is located in Hong Kong):- • ensure adequate facility, systems and software which are located in Hong Kong; • ensure all hardware which is housed in Hong Kong is maintained and housed in secured building space and infrastructure; .....

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Plan. (ii) The manner in which the processing activity is carried out by the assessee has been explained as under:- • the input data, i.e., the raw data relating to branch transactions is fed by the SCB India users via their workstations in India and transmitted to the assessee s data centre in Hong Kong that commenced to operate in Hong Kong since 7.8.2005. Such consolidation was driven by platforms and applications deemed most appropriate by the parties to upgrade and/ or refresh. The app .....

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staff of the assessee is required to be in India to provide the data processing services and no staff of the assessee provides data processing services to SCB India in India. However, the staff of the assessee are only required to oversee the data processing services to SCB India so as to ensure uninterrupted services. SCB India owns all the hardware, application software and network in its India branches. • After the raw data is transmitted into the hardware facility of the assessee in Ho .....

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e has no right to access and to use the processed data of SCB India. 5. The ld. Counsel further pointed out that prior to the Assessment Year 2006-07, similar activity was carried out by the assessee s sister concern based in Singapore, i.e. Atos Origin IT Services Singapore Pvt. Ltd . In the case of said Atos Singapore, the matter relating to Royalty and Fees for technical services (FTS) for rendering a similar nature of services was decided in favour of the assessee, though under Article 12(3) .....

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CIT (A) has confirmed the said findings. In the Assessment Year 2007-08 also, a similar view was taken which has been upheld by the DRP. In these years, the matter was carried in second appeal before the Tribunal, wherein the matter was restored back to the file of Assessing Officer to re-adjudicate the issues in accordance with law. In the set-aside proceedings, the Assessing Officer after extensively referring to the Cocteau agreement had made various observations regarding royalty as well as .....

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h modem technology support. The infrastructure facility in the form of data centre, storage area network, disaster recovery facility and dedicated network connectivity is translated into functional process by defined service flow for the various geographic locations, for various business application, which would constitute "process". The data computing services are performed on the above said platform utilising the above process. Thus, it could be seen that the assessee has made availa .....

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s and midrange services and are in the nature of payment for royalties as u/s. 9(1)(vi) of the Act. FTS: Further, the Assessing Officer after extensively relying on the Cocteau agreement also held that the assessee has provided technical, managerial and consultancy services to SCB and such services clearly fall within the purview of technical services defined Explanation 2 to Section 9(1)(vii) of the Act. In doing so, the Assessing Officer mainly relied on the Schedule 24 to the Cocteau agreemen .....

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ating system installation and maintenance; (k) Systems software and utility installation and maintenance (l) Software distribution; (m) Virus updates and management; (n) Operational acceptance testing; (o) Governance; (p) Service level report; (q) Change management; (r) Cocteau library; (s) Finance reports (MIPS utilization covering disc capacity used, MIPS utilization for each mainframe), Midrange usage (covering CPU usage for each midrange with cost of service by application, storage usage by .....

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3 to 17 of assessment order. However, the ld. Assessing Officer rejected the entire contention of assessee after detailed analysis and heavily relying upon the various provisions of Cocteau agreement and came to the conclusion that payment made by SCB to assessee is to be taxed in India, both as royalty as well as FTS . The analysis of ld. Assessing Officer and his reasoning have been dealt with in page 18 to 34 of the assessment order. 8. Before us, the ld. Counsel, Shri Kanchan Kaushal submit .....

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sessing Officer in characterising the impugned payment, both as royalty as well as FTS is not in accordance with the provisions of the Act and hence, on this ground alone the entire addition made by Assessing Officer cannot be upheld. 9. On merits, as regards the payment not being in the nature of royalty in terms of Sec. 9(1)(vi) of the Act, ld. Counsel submitted that the main objection of Assessing Officer is that assessee has not provided mere data processing services to SCB, but has also pro .....

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lly innovative approach to delivering data centre and related computing services; (b) To achieve substantially improving data centre services capability, operational risk and on an ongoing basis continuous service excellence and improvement consistently across the SCB Group; (c) To recalibrate and sustain an ongoing basis, SCB's data centre services cost with the outsourcing market by means of transparent cost management so as to demonstrate excellent value for money and cost effectiveness; .....

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e technology of the SCB Group up-to-date with best practices relating to the delivery of data centre services and related computing services. A perusal of the above would reveal that the objective of Cocteau agreement is to provide the SCB Group with a global reaching, flexible, scalable and technologically innovative approach to delivering data centre and related computing services and not any technology/ infrastructure/application technology per se to SCB. Thus, the Assessing Officer has misin .....

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the processing activities to the assessee. The said approval was given on certain conditions, relevant to the present case are reproduced below:- (i) .... (ii) All bank office functions, including treasury functions, are performed in India. Only processing of data can be done overseas. Processed output should be received in India on a day to day basis. (iii) The bank will remain responsible for maintaining the secrecy and confidentiality of the data processed / to be processed. Thus, the approv .....

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be transacted between SCB and the assessee, it is but natural for SCB to be sure about the capacity (i.e. the infrastructure, human resources, facilities, technology, internal processes etc.) of the assessee in handling the assignment.By way of an example, he submitted that if any MNE wants to get its data work done, then it may negotiate with audit firm and seek information like number of auditors working in the firm, about human resources, about level of understanding, the process that they m .....

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ired to be done, when, how, by whom, etc. at the assessee s end and same should be clear in writing for better understanding. He submitted that considering the involvement of 68 countries during the year under consideration and each country having 100 s of branches, it was necessary that the Cocteau agreement contained detailed framework providing adequate safeguards to SCB and the assessee. These safeguards are availability of adequate data centres, disaster recovery facility, storage facility, .....

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ate provisions as a part of the assessee s responsibility, were to: • ensure adequate facility, systems and software which are located in Hong Kong; • ensure all hardware which is housed in Hong Kong is maintained and housed in secured building space and infrastructure; • manage performance of the hardware, SAN and operating systems components; • perform routine computer operations according to the operation documentation; • ensure adequate technical support of operating .....

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tes provision of technologically innovative approach to render data centre and related computing services, improving data centre service capability, minimizing operational risks, justifying the provision of services against the cost incurred by SCB, employing best practices to render such services. 10. Further, all the infrastructural facilities and software, located in Hong Kong, have been used by the assessee, to provide data computing services to the SCB. The assessee is using its infrastruct .....

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ctivity and application technology, rather it has used such technology and infrastructure on its own, to render services to the SCB Group and the Assessing Officer/ DRP erred in considering that the assessee has made available to SCB the use of its equipment, model, design, invention and process. 12. Lastly, with regard to Assessing Officer s objection that fixed charges and variable charges made for provision of facilities, infrastructure, network, system, software and environment for main fram .....

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s; firstly, use of process, model, design, invention and; secondly, use of equipment, the ld. Counsel gave written submissions, which for the sake of ready reference is reproduced hereinbelow :- (i) Why there is no use of "process, model, design, invention"? a. Decision in the case of Atos Singapore: In the case of Atos Singapore for the Assessment Year 2004-05, the Assessing Officer ("the AO") and the Commissioner of Income Tax (Appeals) ["the CIT(A)"] had taken a .....

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dware facility of Atos Singapore. Atos Singapore merely receives the data so transmitted. Thus at this stage there is no use or right to use any process of the Atos Singapore by SCB. Second Stage: The raw data transmitted is processed by Atos Singapore's staff as per the requirements of SCB using the application software owned by SCB. At this stage SCB does not use or have any right to use any process. Consideration paid for carrying out processing is not a payment for use or right to use a .....

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process. Further, there cannot be any presumption of indirect use by SCB as the Process is ONLY used by Atos Singapore in earlier years and by the assessee during the year under consideration. Hence, in the absence of direct as well as indirect use by SCB, Explanation 5 will have no application. b. Non-applicability of Explanation 6: Explanation 6 is being retrospectively inserted, w.e.f 1st June, 1976 and same reads as under: "Explanation 6: For the removal of doubts, it is hereby clarifie .....

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te (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. This Explanation has been inserted specifically for the categories of "Satellite and Transponder facilities". Since, the assessee s case is not falling under such category, Explanation 6 is not applicable to it. (ii) Why there is no "use of equipment? a. Clause (iva) of Explanation 2 to Section 9(1)(vi) a .....

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t apply to assessee s case in the absence of any income from leasing. A reference in this connection can also be made to the provisions of S. 44BB of the Act, the reading of which gives completeness to the intent of the legislature in coining the provision. Such intension of leasing/hiring is also contained in the memorandum to the Finance Bill, 2001 enumerated in subsequent paragraph. This clause has been inserted by the Finance Bill, 2001 with effect from April 1, 2002. The Memorandum to Finan .....

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dia includes inter alia payments "for the use of, or the right to use, industrial, commercial or scientific equipment". Presently, these payments are not included in the definition of royalty in the aforesaid Explanation. The result is that income from the leasing of industrial, commercial or scientific equipment becomes taxable in the source country as business income only. Consequently, there is no withholding tax on such payments as the taxpayer takes shelter under the definition of .....

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industrial, commercial or scientific equipment under the scope of Royalty. Since, in this case there is no leasing of equipment, the question of invoking clause (iva) does not arise. The said view is also adopted by the decision of Yahoo India P, Ltd. Vs DCIT (140 TTJ 195)(Mum) which has observed as under: "5. .......... A perusal of the relevant portion of the Board circular shows that the legislative intention behind insertion of the said clause is to overcome the situation where no tax a .....

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" In the assessee s case there is no hiring of equipment by it. On the other hand the assessee itself utilises the equipment / environment to provide standard facility. In light of the above discussion, it is submitted that Clause (iva) will have no application on the assessee s case at any point of time as there is no lease of equipment. b. Non-applicability of Explanation 5 and Clause (iva) of Explanation 2 to Section 9(1)(vi): On close reading of Clause (iva) and Explanation 5 of Section .....

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Explanation 2 of Section 9. Therefore, one can reasonably interpret that the Explanation 5 was sought to be introduced to explain clauses (i) to (v) and not clause (iva). • Explanation 5 has been inserted with retrospective effect from June 1, 1976. In other words, Explanation 5 has been inserted retrospectively from the birth of Section 9(1)(vi) to clarify the intention behind the legislation. Hence, Explanation 5 is to be read with the Section 9(1)(vi) which was there on the statute as o .....

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t received by assessee from SCB India is not for any processing, model, invention, design or equipment, albeit it is payment for provision of data computing services and hence cannot be reckoned as royalty. 14. Regarding the impugned payment not being in the nature of FTS, he submitted that Assessing Officer has mainly emphasised on Schedule - 24 of the Cocteau agreement, wherein assessee is required to submit reports for various activities and services performed and, therefore, the services pro .....

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h any embedded software) providing a specific functionality, which is located within a Datacentre for the time being. Managed Infrastructure means, (i) the managed network; (ii) Managed components that provide interconnectivity between managed platforms (e.g. cable trays, patch panels and other passive LAN components); (iii) managed components that provide a suitable operating environment for the managed platforms (e.g. power, racking, air conditioning, fire protection devices and physical secur .....

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ed systems are to be operated from a remote location, secure and appropriate tools must be used to facilitate this process. Under this, the assessee is required to provide high quality computer operations for batch and online workloads. (c) Backup and Restore: The assessee shall perform regular scheduled System Backups and Application Backups for all Managed Systems. The required scope and frequency of Application Backups is defined in the relevant ASRM and / or SLA. System Backups and Applicati .....

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hardware and software and in respect of which, the assessee is required to keep backups at regular intervals. (d) Health Checks and Monitoring: "Health checks and monitoring relates to the responsibilities of the Supplier whereby the Supplier is required to perform 24X7X365 continuous operational health checks, monitoring and timely event and Problem reporting to guarantee the required levels of Availability of the Managed Systems. Where feasible, such health checks and monitoring should b .....

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vidual/clustered Managed Systems components, in order to detect bottlenecks and potential Problems, and to automatically (where possible) recover from critical situations and / or notify support personnel." Under this, the assessee is required to monitor all of its hardware and softwares and detect any bottlenecks and repair them automatically. (f) Database Administration: "This section describes the Services to be provided by the Supplier in relation to the management of tall database .....

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he assessee s staff is merely required to oversee the functioning of the database and take corrective measure in the event of any interruption. (g) Capacity Management: "The primary purpose of capacity management is to analyse current and historical performance information in relation to the Managed Systems, business events and configuration of the Managed Systems and prepare recommendations ensuring that adequate computing resources are available to handle the workload projected for produc .....

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ry Management: "Inventory Management includes identification and tracking of each Managed Platform and each item of Managed Infrastructure and their related financial attributes as they change during their life cycles from entry into a Data centre until eventual retirement". This section describes the assessee s responsibilities for maintaining an up to date inventory of each managed platform, each item of managed infrastructure and at the end of each month, an up to date copy of inven .....

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figure, manage and maintain storage facilities for managed systems. (j) Performance Management: "Performance management is the continuous process of evaluating each Managed System to determine whether it can deliver the level of performance required by SCB, and then tuning it until it does." This section describes the assessee s responsibilities to evaluate whether each managed system can deliver the level of performance required by SCB for handling data computing / processing services .....

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ftware. (l) Disaster Recovery Planning and Testing: This section describes the assessee s responsibilities for planning and testing in advance, the disaster recovery. (m) Problem Analysis and Resolution: This section describes the assessee s responsibilities in technically diagnosing the problem which is affecting the managed systems, identification of such problems and implantation of resolutions. (n) Change implementation: "Change implementation describes the implementation of Change into .....

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ult tolerant, reliable and resilient LAN environment (encompassing hubs and switches) to ensure un-interrupted Availabilities of the Managed Network for the smooth functioning of the Managed Systems. This section describes the assessee s responsibilities in managing an smooth and fault tolerant LAN environment for smooth functioning of the managed systems. (p) Risk Reporting: This section describes the assessee s responsibilities in reporting on various operational risks in the hardware and soft .....

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ing and providing a roadmap for all managed softwares. (s) Software distribution: This section describes the assessee s responsibilities in controlling, coordinating, installing and managing the software distribution process. (t) Virus updates and management: The assessee is required to comply with the antivirus standards and procedures provided by the SCB group, to ensure adequate protection for the managed systems. The assessee is also required to comply with antivirus updates and management p .....

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essing Officer has mainly cherry-picked some of the clauses from the agreement to conclude that provision of services constitutes managerial and technical services without actually understanding and examining the terms of such clauses in the light of entire agreement. He further submitted that the agreement has to be understood in its overall context and also to be understood in the light of objective of the parties entering into such an agreement. The main object of the Cocteau agreement was pr .....

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all books of accounts will be maintained in India. Hard copies of books of accounts and processed outputs must also be maintained in India. Indian office should have full and effective control over the critical process of debit / credit of the accounts; (ii) All bank office functions, including treasury functions, are performed in India. Only processing of data can be done overseas. Processed output should be received in India on a day to day basis; (iii) The bank will remain responsible for mai .....

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ensure that reasonable security precautions are taken in transmitting the data; (viii) Any change proposed in its system of data processing as applicable to Indian operations or any change / upgradation in the hardware / net-working technology or any material change in the legislative frame work in the country in which data processing is carried out which has an impact on banking secrecy or has the effect of extending the jurisdiction on Indian companies should be reported to us promptly with d .....

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rame computers owned by the assessee wherein such data are processed automatically and the final result is then retransmitted to the SCB India. Such transmission and processing of data is done automatically/mechanically by computers. In such processing there is no human intervention. The assessee s employee has no role to play in the data transmitted by SCB India for processing to the assessee, neither is there any application of mind on such data by such employed of the assessee. No verificatio .....

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which is the main objective of Cocteau agreement. This is done automatically. The Human intervention, as stated above, is required only for maintaining, repairing and monitoring the hardware and softwares which are processing the raw data of SCB. It was also pointed by drawing the Hon'ble Tribunal's attention to page no 66 para 2.3.1 of the Agreement that even the faults were to be corrected automatically. During the course of the hearing, the assessee had submitted the photographs of it .....

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tries in which SCB has presence 68 (Actual) Cities in which SCB has branches X 10 Total Cities 680 Branches in each City X 5 Total Branches 3,400 Clients X 1,000 Total 34,00,000 Daily transactions X 1,000 Number of daily transactions 3,40,00,00,000 or say, 340 Crore transactions Days in a month X 30 Number of transactions in month 1,02,00,00,00,000 or say, 10,200 Crore transactions Number of month in a year X 12 Number of transactions in a year 12,24,00,00,00,000 or say, 1,22,400 Crore transacti .....

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h with the help of computers. Further, attention is also invited to the Clause (a) of the "Outsourcing objectives" which reads as under: (a) to provide the SCB Group with a global reaching, flexible, scalable and technologically innovative approach to delivering data centre and related computing services; The above objective also shows that the outsourcing objective are to be achieved only through a "technologically innovative approach". Thus, the above facts clearly shows th .....

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nes, human involvement is definitely there, therefore, it cannot be held that there is no human intervention. In our opinion, this cannot be the criteria for understanding the term "technical services" as contemplated in Explanation 2 to section 9 (1)(vii). If any person delivers any technical skills or services or make available any such services through aid of any machine, equipment or any kind of technology, then such a rendering of services can be inferred as "technical servic .....

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t endeavour of the human in the process. Merely because certificates have been provided by the humans after a test is carried out in a Laboratory automatically by the machines, it cannot be held that services have been provided through the human skills. In view of the above, the assessee submits that the processing of data is done automatically without any human intervention and thus, the payments made by SCB India to the assessee cannot be regarded as "FTS". b. Standard facility: The .....

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le; v. China Construction Bank Asia ("CCBA"); vi. Bankard; vii. Taifook. The Hon'ble DR relied on the undernoted judgement to state that the assessee is providing specialized service to SCB. Recently, the Hon'ble Supreme Court in the case of M/s. Kotak Securities Ltd. (Civil Appeal No. 3141 of 2016) has held that: "8. ..... All such services, fully automated, are available to all members of the stock exchange in respect of every transaction that is entered into. There is n .....

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of the service, the latter, even if termed as a service, is available to all and would therefore stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialized, exclusive and individual requirement of the user of consumer who may approach the service provider for such assistance/service. It is only service of the above kind that according to us, should come within the ambit of the expre .....

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mitted that with the help of the same infrastructure the assessee also provides services to others. In this connection, the Hon'ble Tribunal's attention was drawn to the use of client services by the assessee and stated in Point 4.3.14. Further, the fact that the assessee is already engaged in rendering data processing services, is further substantiated by the "introductory paragraph" of Cocteau agreement wherein it has been stated that "the supplier companies have represe .....

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Noble, China Construction Bank Asia ("CCBA"), Bankard and Taifook. There is nothing special or exclusive about such services. Therefore, in view of the above submissions, the judgement of the Hon'ble Tribunal submitted above and the Apex Court judgement, payment by SCB India to the assessee for provision of data processing services, is not in the nature "fee for technical services" under Explanation 2 to Section 9(1)(vii) of the Act. 17. On the other hand, the ld. DR afte .....

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es, but also providing technology in the form of data centre, infrastructure, connectivity and application technology for its banking operations. This clearly means that assessee was providing some kind of technical services. Not only that, assessee has provided information consisting the working of, or use of the invention, model, design or process which would fall within the purview of royalty defined in Explanation - 2 to Sec. 9(1)(vi). In support, he again referred to the various clauses of .....

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nts made by Standard Chartered Bank India (SCB) to the assessee is in the nature of royalty u/s 9(1)(vi) or fees for technical services . Since the assessee-company is incorporated in Hong Kong and is providing services/facilities for processing data to SCB from Hong Kong, therefore, the payment made by SCB India to assessee has to be seen from the perspective of domestic law, i.e. Income-tax Act and not under any treaty. The assessee-company is mainly engaged in the business of providing servic .....

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entire processing activity is carried out. The Revenue s case is that first of all, it is in the nature of royalty and for coming to this conclusion, the main contention of Assessing Officer is that, firstly, the assessee is not merely providing data processing services, but also providing technology in the form of data centre, infrastructure, connectivity and application technology for its banking operations; and secondly, it has created and provided facility in the form of dedicated centres fo .....

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. After coming to the conclusion that the payment is in the nature of royalty within the scope of section 9(1)(vi), the revenue went further to hold that, since assessee has provided technical, managerial and consultancy services to SCB, therefore, it also falls in the nature of FTS and for coming to this conclusion, certain clauses in the Cocteau agreement has been referred to. 19. First of all, we will deal with the issue whether the said payment falls within the realm of royalty or not. From .....

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been given by SCB to Atos to process its data from various branches across the country. We agree with the contention of the ld. Counsel that the reference to the various details in the agreement is merely to ensure quality, standard and various safeguards which are to be adopted in the course of processing data especially looking the volume of data required to be processed from all around the Globe. The provisions mainly contains assessee s responsibility to ensure adequate facility, systems and .....

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assessee to conduct the processing of data through computers. There is no providing or giving any use or right to use of any process to SCB. The technology, infrastructure, data centre, connectivity, etc. is solely used by the assessee for its own purposes and not to make available any such thing to SCB as explained by the ld. Counsel. At the first stage, SCB transmits raw data through operating software owned by it to the hardware facility of assessee in Hong Kong. The assessee in Hong Kong ma .....

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to SCB in India and at this stage also there is no use or right to use of any process which is given or made available to SCB. Here, in this case there is absolutely no use of equipment also as alleged by the Department within the definition given in clause (iv a) of Explanation 2 to Sec. 9(1)(vi) of the Act. The said clause deals mainly with the use or right to use any industrial, commercial or scientific equipment and applies only to income from leasing of such industrial, commercial or scient .....

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industrial, commercial and scientific equipment in the definition of royalty and the said definition has been widened to that extent only. Thus, there is no concept of right to use of equipment here in this case. So far as applicability of Explanation 5 & 6 are concerned, we agree with the contentions of ld. Counsel, as reproduced above, that same would not be applicable at all in the case of assessee because, firstly, Explanation 6 enlarges the scope of process to include transmission by s .....

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h the Section 9(1)(vi) which was there on the statute as on April 1, 1976. Whereas clause (iva) to Explanation 2 was inserted from April 1, 2002. Thus, retrospective effect of clause (iva) cannot be deemed from 1.06.1976 and hence it cannot be held that Explanation 5 also applies to the said clause as this clause never existed as on April 1, 1976 and accordingly, the legislation cannot clarify the intention of the clause which never existed on the said date. Hence Explanation 5 & 6 would not .....

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ark or any similar property by the assessee to SCB, nor there is any imparting of any information or use of any of similar nature of things. Here, the entire equipment and technology which are used for processing the data is solely for performing the activity of assessee for itself while rendering data processing services to SCB. There is absolutely no transfer of any technology, information, knowhow or any of the terms used in Explanation 2 or any kind of providing of technology in the form of .....

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onstant human endeavour or human intervention which is required to provide the data servicing service. As stated earlier, raw data fed into by SCB India are transmitted to assessee and the data so transmitted stands captured by the mainframe computers owned by assessee wherein such data are processed automatically and the final result is then transmitted to SCB India. All these transmission and processing of data is done automatically by computers and there is not much human involvement or inter .....

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repairing and monitoring the hardware and software of the assessee which are processing the raw data of SCB and there is no human involvement or endeavour for rendering any kind of technical or consultancy services in data processing. It has been stated that before us that even the faults are corrected automatically. Further, looking to the number of volume of transactions transmitted by SCB to assessee, it would be impossible for any number of humans to apply their mind and generate reports. T .....

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intervention for rendering of technical services. The relevant observation in this regard reads as under:-In our opinion, this cannot be the criteria for understanding the term "technical services" as contemplated in Explanation 2 to section 9 (1)(vii). If any person delivers any technical skills or services or make available any such services through aid of any machine, equipment or any kind of technology, then such a rendering of services can be inferred as "technical services&q .....

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deavour of the human in the process. Merely because certificates have been provided by the humans after a test is carried out in a Laboratory automatically by the machines, it cannot be held that services have been provided through the human skills. Even in the latest decision of Hon'ble Supreme Court in the case of M/s. Kotak Securities Ltd. (supra), (the relevant portion of which has already been reproduced above), the Hon ble Court opined that, if services are provided through fully autom .....

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e" would denote seeking of services to cater to the special needs of the consumer/ user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish / identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would therefore stand out in distinction to the former. The service provided by t .....

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h rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act." Before us, the ld. Counsel has also pointed out that assessee is also providing similar services to other clients like Hong Kong Government and other big MNEs and there is nothing special or exclusive about the services which are being rendered to SCB. In view of the entire gamut of facts as discussed above, we are of the opinion that the payment made .....

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