9911796707
TMI Blog2021 (4) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... se of certain amount received as royalty or/and FTS is concerned, relevant facts are, the assessee is a company incorporated in Singapore and is also a tax resident of that country. As stated by the assessing officer, during the year under consideration the assessee had provided certain services to its group concern in India, viz. Atos India Pvt. Ltd. (Atos India) and received payment. The details of services rendered and payment received are as under:- 1. Project related services pertaining to Nokia Siemens Project Rs. 1,41,70,645/- 2. Project related services pertaining to Standard Chartered Bank project Rs. 69,93,459/- 3. Services related to other projects Rs. 6,86,078/- 4. Cost recharge pertaining to salary of Thomas Boutard Rs. 10,67,392/- Total Rs. 2,29,17,574/- 4. It is also a fact on record, the aforesaid services are provided to Atos India in pursuance to agreements executed between them. In the return of income filed for the impugned assessment year, the assessee did not offer the payment noted above as income. In course of assessment proceedings, when the assessing officer called upon the assessee to explain as to why the payment received from the Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of India-Singapore DTAA. Having so observed, the learned DRP went on to analyse and examine each of the services rendered by the assessee and observed that while rendering managed services, the assessee provides entire server hosting services and carries out support services of the server for enabling efficient and secured availability of server. They observed, the managed servers are leased out to the service recipient and is in control and possession of the lessee for all practical purposes. They observed, the provision of hosting service inherently involves use of assessee's hardware and software by the person who has rented the server. The access and control over the server are with the user and the assessee is merely required to ensure 24 hours availability of the server. While coming to such conclusion, learned DRP referred to certain information available in web. Thus, learned DRP concluded that the assessee provides equipment and associated software and services to manage the equipment, hence, such services clearly fall within the ambit of section 9(1)(vi) read with Explanation 4(a) as well as Article 12(3)(b) of the India-Singapore DTAA. 6. As far as project r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Counsel submitted, the core activity of the assessee is to provide data centre/managed services to Atos India, which essentially are in the nature of Information Technology (IT) infrastructure management and mailbox hosting services to Atos India. He submitted, all these services are performed by assessee's employees in Singapore and from the data centers located in Singapore. To support his contention regarding the nature of services provided by the assessee, the learned Counsel drew our attention to certain documents placed in the paper book, stated to be the agreement executed for Nokia Siemens project and Standard Chartered Bank project. Referring to these documents, the learned Counsel submitted, the services rendered by the assessee cannot be termed as royalty. 9. Drawing our attention to Article 12(3) of the India Singapore DTAA, he submitted, while providing data centre/managed services, the assessee has not transferred any information concerning industrial, commercial or scientific experience. Further, he submitted, the assessee has also not allowed use or transferred any right to use of any copyright of a literary, artistic or scientific worth including cinemato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owhow to Atos India's employees which can be used by Atos India independently. He submitted, this can be ascertained from the fact that in future years also, though, the assessee had received payment towards assistance provided to Atos India by Mr. Thomas Boutard, the assessing officer has not made any addition. Thus, he submitted, the amount received cannot be treated as FTS. For such proposition, assessee has relied upon the decision of Hon'ble jurisdictional High Court in case of Diamond Services International P. Ltd. vs. UOI (supra). 13. The learned Departmental Representative submitted, the payment received by the assessee for various services rendered is clearly in the nature of royalty and FTS. In this context, he specifically referred to various observations of learned DRP. Further, he submitted, the terms "royalty & FTS" have to be interpreted as per the laws of the contracting state wherein they arise. That being the case, he submitted, the provisions of section 9(1)(vi) and 9(1)(vii) would apply. Referring to the aforesaid provisions, the learned Departmental Representative submitted, the payment received by the assessee squarely falls within the ambit of royalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has also received payment towards cost recharge pertaining to salary of a person, viz. Mr. Thomas Boutard. There is no dispute between the parties that the assessee is a tax resident of Singapore; hence, is governed by the provisions of the India-Singapore DTAA. 18. Keeping the aforesaid factual position in perspective, we have to examine, whether each kind of payments received by the assessee qualifies either as royalty or FTS under the relevant provisions of India-Singapore DTAA. As far as the project related services rendered by the assessee, there is unanimity between the parties that they relate to data center and mailbox hosting services. What is meant by mailbox hosting services? It is a service where both incoming and outgoing emails are managed by a separate shared or dedicated server. All email messages and associated files of the client are stored on a server. Similarly, datacenter service encompasses all services and facility related components and activities that support the implementation, maintenance, operation and enhancement of a datacenter, which is an environment that provides processing, storage, networking, management and distribution of data within a ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(A) or 4(f) of Article 8." 21. A reading of the Article 12(3) makes it clear that it provides for three basic situations to consider a payment to be in the nature of royalty. Firstly, the payment must be for the use or right to use concerning industrial, commercial or scientific experience. Secondly, it must be for use or right to use any copyright of a literary, artistic or scientific work including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process. Thirdly, it must be for use or right to use any industrial, commercial or scientific equipment. It has to be examined, whether any of the aforesaid conditions either on stand-alone basis or cumulatively apply to the payments received by the assessee while rendering services to Atos India. 22. As could be seen from the facts on record, while rendering such services, none of the employees of the assessee have visited India. Not only the servers and other hardware are located outside India but the employees of the assessee have rendered such services remotely, while located in Singapore. 23. As discussed earlier, the assessee is simp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management and mailbox hosting services and for rendering which the assessee has neither allowed use or right to use of any copyright of literary, artistic or scientific work, etc. or use of information concerning industrial, commercial or scientific experience or has allowed use or right to use any industrial, commercial or scientific equipment. 24. In case of DCIT vs. Suvvis Communication Corporation (supra), the co-ordinate bench has held, the true test for finding out whether the consideration is for rendition of services, though, involving the use of scientific equipment or the consideration is for use of equipment simpliciter. In the facts of the present case, there cannot be two opinions about the fact that, though, in course of rendition of services there may be involvement of or use of scientific equipments, but, the consideration received is not for use of equipment simpliciter, but for rendering services. 22. In case of Edenred Pte. Ltd. vs. DCIT (supra), the co-ordinate bench, while considering a somewhat similar issue has held as under:- "We find that (i) under the said IDC agreement, the appellant, essentially provides IT infrastructure management and mail box/web ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xity, to refer only a few decisions below. In the case of Bharati Axa General Insurance Co. Ltd. (supra), the appellant, an Indian company carrying on business of general insurance entered into a service agreement with a Singapore company AXA ARC for receiving assistance such as business support, market information, technology support services and strategy support etc. from the latter. The AAR held that (i) though the services rendered by AXA ARC may well be brought within the scope of the definition of FTS under the IT Act as they answer the description of consultancy services or some of them may be categorized as technical services but the qualifying words "make available technical knowledge, experience, skill, know-how, which enables the recipient of services to apply the technology contained therein" in Article 12.4 of the DTAA make material difference, (ii) all technical or consultancy services cannot be brought within the scope of this definition unless they make available technical knowledge, knowhow etc. which in turn facilitates the person acquiring the services to apply the technology embedded therein, (iii) services provided by AXA ARC to the applicant do not fulfill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;, Singapore towards global support fees. The AO opined that payment made by the assessee was in the nature of FTS as defined in Explanation 2 to section 9(1)(vii) of the Act. The Tribunal observed that as per terms of agreement, EMCAP had to provide management consulting, functional advice, administrative, technical, professional and other supporting services to the assessee; however, there was nothing in agreement to conclude that in course of such provision of service, EMCAP had made available any technical knowledge, experience, skill, knowhow or process which enabled assessee to apply technology contained therein on its own. Therefore, the Tribunal held that payment made by the assessee could not be considered as FTS as defined under Article 12(4)(b) of the India-Singapore DTAA. In M/s. Reliance Jio Infocomm Ltd. (supra) for AY 2016-17, the Tribunal observes that though the India-Singapore Tax Treaty is amended by Notification No. SO 935(E) dated 23.03.2017, however, the definition of 'royalty' therein has not been tinkered with and remains as such. 6.2 Now we turn to the case laws relied on by the Ld. DR. In the case of Cargo Community Network (P.) Ltd. (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Article 12 of the DTAC between India & Singapore. However, we find that in the instant case, the appellant is only providing IDC service which includes administration and supervision of central infrastructure, mailbox hosting services and website hosting services and therefore, the ratio laid down in the above ruling is not applicable to the facts of the appellant's case. 6.3 From the enunciation of law in Bharati Axa General Insurance Co. Ltd; ExxonMobil Company India (P.) Ltd; Standard Chartered Bank v. DDIT; DCIT v. M/s. Reliance Jio Infocomm Ltd. narrated at para 6.1 hereinbefore, it is quite luculent that revenues under the IDC agreement ought not to be taxed in the hands of the appellant as royalty under the Act and/or India-Singapore DTAA. Therefore, we delete the addition of Rs. 95,62,479/- made by the AO towards IDC charges and allow the 2nd ground of appeal." 25. The observations of the co-ordinate bench in the aforesaid decision would squarely apply to the facts of the present case. Therefore, we are of the considered opinion that the payment received by the assessee for rendering services relating to various projects would not qualify as royalty under Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagerial services, but, while doing so the service provider also makes available any technical knowledge, experience, skill, know-how or process, etc. to the recipient of services, which enables the person acquiring such services to apply the technology contained therein independent of the service provider. In other words, the service recipient must be in a position to apply the technical knowledge, experience, skill, know-how, etc. without requiring the permission or presence of the service provider. 28. In the facts of the present case, there is nothing on record to suggest that Atos India can use any technical knowledge, experience, skill, know-how or process, etc. independently on its own without requiring the involvement of the assessee. Therefore, in our considered opinion, the tests and conditions of Article 12(4)(b) are not satisfied. That being the case, the payment received by the assessee from various projects related services would not qualify as FTS either. That being the case, the payment received by the assessee has to be treated as business profits; hence, would not be taxable in absence of a permanent establishment in India. 29. At this stage we must deal with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard shall qualify as FTS under Article 12(4)(b) of India-Singapore Tax Treaty. Accordingly, this issue is restored to the assessing officer for fresh adjudication, after due opportunity of being heard to the assessee. 31. To sum up, the addition made of the payment received towards various project related services by treating them as royalty and FTS is hereby deleted in view of our detailed finding hereinabove. Whereas, the issue relating to payment of cost recharge pertaining to salary of Mr. Thomas Boutard is restored back to the assessing officer. Grounds 1, 2 & 3 are disposed of accordingly. 32. In ground 4, the assessee has raised the issue of levy of surcharge and education cess on the tax liability computed. It is the case of the assessee that the total tax payable cannot exceed the tax rate as prescribed under Article 2 of India-Singapore Tax Treaty. In support of such contention, the learned Counsel for the assessee has relied upon the following decisions:- 1. DIC Asia Pacific Pte. Ltd. vs. ADIT 52 SOT 447 2. Capgemini SA vs. DCIT 160 ITD 13 (Mum) 33. Admittedly, this issue has been raised for the first time before us. Further, in case, the assessing officer decides ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
