TMI Blog2020 (10) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... from Indian customers for the provision of bandwidth services outside India. There is no merit in the orders passed by the authorities below and the same are reversed. The assessee company is a tax resident of Singapore, which is providing band width services to the various Indian Telecom Operators like Bharti Airtel in India and the services are being provided outside India and the consideration received by the assessee company is not taxable as Royalty in view of the beneficial provisions of DTAA between India and Singapore under which the definition of Royalty has not been amended. Thus, Ground of appeal Nos. 1 2 raised by the assessee are allowed. - ITA Nos.1548/Del/2015 & 286/Del/2016, ITA No. 6733/Del/2015, ITA No.3020/Del/2017 - - - Dated:- 30-9-2020 - Ms. Sushma Chowla, VP And Shri N.K. Billaiya, AM For the Appellant : Sh. S.K.Aggarwal, CA And Sh. Sabhya Gupta, CA For the Respondent : Sh. Satpal Gulati, CIT DR ORDER PER SUSHMA CHOWLA,VP The present bunch of appeals filed by assessee and the Revenue are against respective orders of Assessing Officer dated 01.01.2015; 16.11.2015 and 30.11.2016 relating to assessment years 2011-12, 2012- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... positions: 1.1 That the Tax Treaty provisions should apply in the Appellant's case and the learned AO while analyzing the whole transaction failed to appreciate in proper perspective, (a) the applicable Tax Treaty provisions, including the attendant protection and benefits arising there from, (b) the applicable case laws on the subject, and (c) the relevant international commentaries and reports in relation thereto. 1.2 That the insertion of Explanations 5 and 6 vide Finance Act 2012 (with retrospective effect from 1 June 1976) to section 9(1 )(vi) of the Act should not apply to and does not alter the tax treatment of a service transaction (as in the Appellant's case). That Explanations 5 and 6 only dispense with the condition of possession or control of the equipment in the hands of the customer and not the condition of use or right to use an equipment and! or process which is codified as a condition under Explanation 2 to section 9(i)(vi) of the Act. 1.3 That the finding of the learned AO that the insertion of Explanations 5 and 6 are only clarificatory in nature is incorrect. That these findings are incorrect because the learned AO has failed to appreciate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the customer. 2.2 That although the rendition of bandwidth service involves a large global network of equipments, which are employed by and under the exclusive dominion and control of the Appellant and other service providers for ultimate delivery of bandwidth services to the service recipients in India, such bandwidth services do not result in the use or right to use any equipment or use of a process by such service recipients. 2.3 That the two standard tests to qualify as an Equipment Royalty, as enunciated through various well- established judicial decisions, commentaries, reports and tax treaty interpretations, would fail when applied in the Appellant's case because: i) There is no contract between the Appellant and any service recipient in India that grants such service recipient the use or right to use any equipment, resulting in handing over of physical possession, control or use of the equipment, or any portion of the underlying telecommunications network, by the service recipient/payer for an agreed consideration; and ii) There is no economic exploitation of the global network for the commercial benefit of the service recipient/payer. 2.4 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal and Cable Wireless (supra), after detailed discussions in unequivocal terms, held that payment for bandwidth services (identical to the facts of the Appellant's case) would not constitute a Royalty both under section 9(i)(vi) of the Act and Article 12(3) of the relevant tax treaties; ii) The service providers, in both Dell International and Cable Wireless (supra) are engaged only in rendering bandwidth services to end customers who enjoy an uninterrupted service of receiving and sending voice and data in exchange for a consideration, which is again identical to the facts of the Appellant in its provision of bandwidth services to customers in India; iii) Both the tests, physical possession and control and! or economic exploitation for commercial benefit would not be satisfied in a pure service transaction because the use or right to use of equipment and! or economic exploitation of the segment remains in the hands of the service provider and not in the hands of the ultimate recipient of the bandwidth service, which is also the fact pattern in the Appellant's case; iv) In order to be consideration for the use or right to use of an equipment, both under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s pari materia with the provisions of the Act. 2.12 Without prejudice to the above, the ld. AO reliance on the decision of Hon'ble Madras High Court in case of Verizon Singapore Pte Ltd vs. ITO (supra) is misplaced as the judgment by the Hon'ble Madras High Court was in context of the transmission of data through under-sea cables using the Integrated Private Leased Circuit ('IPLC') technology whereas in the case of the Appellant, the transmission of data is based on use of both IPLC and Multi-Protocol Label Switching ('MPLS') technology. 2.13 That the learned AO erred in disregarding the principles laid down by Hon'ble Supreme Court in the case of BSNL vs Union of India (2006) (282 ITR 273) which held that a subscriber to a telephone service does not intend to obtain or acquire any right to use any equipment or any portion of the underlying telecommunications network. Similarly, while availing Bandwidth services, the customer also does not intend to obtain or acquire any right to use any equipment or any portion of the underlying telecommunication network. 3. Based on the facts and circumstances of the case and in law, the learned AO has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Verizon Singapore Pte Ltd. vs ITO [2013] 39 taxmann.com 70 (Madras) and in Special Bench of Delhi ITAT in the case of New Skies Satellite NV vs ADIT (2009) (126 TTJ 1). The DRP upheld the findings of the Assessing Officer in view of the ratio laid down by the Hon ble Madras High Court in the case of Verizon Singapore Pte Ltd. vs ITO (supra). The Assessing Officer passed the final assessment order against which the assessee is in appeal before us. 6. The Ld.AR for the assessee pointed out that the assessee provides data connectivity for high transmission of data. It was clarified by the Ld.AR for the assessee that it was providing services in the field of transmission of data outside India. Even the Indian companies availed such services from India for providing data outside India. Our attention was drawn to the assessment order with special reference to paras 7.3 to 7.5 and it was pointed out that the facts mentioned in the said paras are not that of the assessee. In para 7.6, the Assessing Officer talks of process Royalty and reference to Explanation 2 under section 9(1)(vi) of the Act and not to the provisions of DTAA. The Assessing Officer then referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reaty. (iii) The Explanations 5 and 6 to section 9(1)(vi) of the Act cannot be read into the Tax Treaty for the definition of equipment and! or process royalty. Further, the Tax Treaty specifically does not include transmission by satellite, cable, optic fiber or similar technology in the definition of Royalty under the Tax Treaty, whereas other tax treaties (including treaties entered after insertion of Explanations 5 and 6 vide Finance Act, 2012) do specifically capture such transmissions in the royalty definition. 8. Then reliance was placed upon the series of cases, which are as under:- I. Directorate of Income Tax vs New Skies Satellite-BV (Supra) II. Asia Satellite Telecommunication Co. Ltd. (supra) III. Verizon communication India Pvt Ltd. (ITA No.2235/Del/2019) dated 30th March 2019 IV. Thaicom Public Co. Ltd. [2018] 96 taxmann.com 577 9. The Ld. AR pointed out that the bandwidth services provided by the assessee company were not equipment/process royalty as per Article 12 under India Singapore Tax Treaty. He stressed that provision of bandwidth services for digital transmission of data by the assessee does not result in use of any equipment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ival contentions and perused the record. The issue which arises in the present appeal filed by the assessee for different Assessment Years is against the chargeability of amount received from Indian customers for providing bandwidth services outside India as equipment/process royalty u/s 9(1)(vi) of the Act and/or Article 12(3) of the India Singapore Tax Treaty. The assessee is a tax resident of Singapore and the bandwidth services are provided as standard services wherein the customer enjoys an uninterrupted 24x7 service to transmit voice and data at standard rate of reliability. Delivery of Bandwidth service at a particular speed (say 2 mbps) is nothing but a contract to deliver voice and data at a particular volume and speed, is the claim of the assessee. In case no service is provided or there is default of regular supply, then there is non-payment of consideration by the payee. The assessee claims that such rendition of service using an equipment/process and the customer being only a recipient of service would not attract equipment/process royalty, as the transaction would not fall within the expression use or right to use . Mere receipt of service using equipment under the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the definition of royalty in the section is with respect to permission granted to use the right in respect of the patent, invention, process, etc., all essentially forms of intellectual property. This permission restricts itself merely to the letting of the licensed asset. The permission does not go so far as to allow alienation of the asset itself. That being said, it is not so restricted as to qualify as a case where the licensor uses the asset himself albeit for the purposes of his customers Essentially therefore, Asia Satellite Telecommunications Co. Ltd. 's case (supra) held that the presence of control was a critical factor in adjudging whether there was use of a particular process .... [vide para 28]. 17. The Special Leave Petition against the decision of Delhi High Court in New Skies Satellite (supra) is pending before the Hon ble Supreme Court; but that does not render the decision of the Hon ble Delhi High Court ineffective. Further we find Delhi Benches of the Tribunal is several decisions have followed the decision of Hon ble Delhi High Court and has held that the receipt from band width services do not qualify as Royalty as per India Singapore Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts made to its associated enterprises on account of lease line charges and in turn, relying on the decision of Hon ble Bombay High Court in the Hon ble High Court in DIT Vs. WNS UK Ltd. (2013) 214 taxman 317 (Bom), held as under:- 21. In the present case also, though definition of Royalty under the Act had been amended, but the term Royalty under the DTAA between India and USA is not amended. In the absence of the same, we hold that in view of the definition of royalty under DTAA, the assessee is not liable to withhold tax on the payments made to its associated enterprise on account of lease line charges. We are not going into different decisions of the Tribunal on this aspect, in view of the ratio laid down by the Hon ble High Court of Delhi, which though is not jurisdictional High Court but the issue raised in the said appeal is similar to the issue raised before us in the present appeal. We may also point out that the Hon ble High Court of Delhi had also taken note of the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Seimens Aktiongesellschaft (supra), which in turn, has applied the ratio of the Hon'ble Supreme Court of Canada in R Vs. Melford Deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee on the other hand, has relied on the decision in WNS North America Inc. Vs. ADIT (supra) i.e. decision of Mumbai Bench of Tribunal, which has been approved by the Hon ble High Court in DIT Vs. WNS UK Ltd. (2013) 214 taxman 317 (Bom). The issue before the Hon ble High Court of Delhi was in the hands of recipient of lease line charges. The assessee therein had recovered internal telecommunication charges from WNS charges and the Tribunal held the amount in question was received by the said assessee as reimbursement of lease line charges and would not qualify either as royalty or as income attributable to PE in India and hence, it was held that there was no income earned by the assessee. The question before the Hon ble High Court was whether the amount received on account of reimbursement of lease line charges would qualify as royalty under Article 12 of India UK Treaty and the second question was in respect of charges being attributable to PE in India. The Hon ble High Court vide para 5 had noted the decision of Tribunal but had held that since the decision of Tribunal was based on the findings of fact, there was no reason to entertain question Nos.4 and 5. 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance was placed on decision of Hon ble Delhi High Court in New Skies Satellite (supra) and it was held as under:- 3.22. .The Hon ble High Court thereafter took note of various decisions on the issue including that of Hon ble High Court of Madras in Verizon Communications Singapore Pte. Ltd. (supra) and declined to conclusively determine or record a finding as to whether amendment to section 9(i)(vi) of the Act indeed was clarifactory as the Revenue suggested or prospective, give what its nature may truly be. The Hon ble High Court further commented that the issue of taxability of income of assessee may be resolved without redressal of above question purely because the assessee did not press the said line of argument and had instead stated that ultimate taxability of income shall rest on the interpretation of terms of DTAA. 25. Another objection which has been raised by the Assessing Officer in the assessment order is reliance on Special Bench decision of Tribunal in the case of New Skies Satellite (supra). The said reliance is misplaced as the Special Bench decision has been set aside and referred back by Hon ble Delhi High Court vide order dated 17.02.2011 for fresh a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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