TMI Blog2021 (4) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment is received for providing technical or managerial 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertaining to salary of Mr. Thomas Boutard is restored back to the assessing officer. Grounds 1, 2 3 are disposed of accordingly. 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 - HELD THAT:- Admittedly, this issue has been raised for the first time before us. Further, in case, the assessing officer decides the issue of cost recharge pertaining to the salary paid to Mr. Thomas Boutard in favour of the assessee, the issue will become academic. Keeping in view the aforesaid facts, we restore this issue to the assessing officer for adjudication after due opportunity of being heard to the assessee. Ground 4 is allowed for statistical purpose. - I.T.A. Nos. 7144/Mum/2017 and 5744/Mum/2018 - - - Dated:- 30-3-2021 - Saktijit Dey, Member (J) And N.K. Pradhan, Member (A) For the Appellant : Dhanesh Bafna, AR For the Respondents : Sanjay Singh, CIT (DR) ORDER Per Saktijit Dey, (JM) Captioned appeals by the same assessee are against the final assessment order passed under section 143(3) r.w.s. 144 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of India-Singapore DTAA is more beneficial to the assessee, they would prevail over the provisions of the Income-tax Act, 1961. It was further submitted by the assessee, the services provided to the Indian entity are in relation to data centre/managed services which includes remote monitoring of server, database situated outside India, disaster recovery and services, delivery management etc. Referring to the definition of 'royalty' under Article 12(3) of the India-Singapore DTAA it was submitted by the assessee that since the payment received from Atos India does not come within the ambit of either royalty as defined under Article 12(3) of the Tax Treaty or FTS under article 12(4) of India-Singapore DTAA and can only be treated as business profit. Therefore, in absence of a permanent establishment (PE) in India, the amount received cannot be taxable in India. The assessing officer, however, did not find merit in the submissions of the assessee. He held that the payment received by the assessee would come within the ambit of royalty, both, under section 9(1)(vi) as well as under Article 12(3) of the India-Singapore DTAA as the payment was for the use of or right to use of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch right to use granted to Atos India falls within the ambit of royalty under Article 12(3) of the India-Singapore DTAA as it amounts to right to use literary, scientific or artistic work. Thus, ultimately, the learned DRP approved the decision of the assessing officer in treating the amount received from managed services and project related services royalty and FTS. 7. Insofar as cost recharge pertaining to salary of employee, viz. Thomas Boutard, learned DRP observed that the assessee did not provide the exact nature of services rendered by the said person. However, considering the submissions of the assessee that the said employee has provided assistance for finalization of annual accounting results of Atos India, learned DRP concluded that the person concerned has imparted technical knowledge, experience or skill to the employees of Atos India which would enable the employees to render the task in future without his assistance. Therefore, the amount received towards cost recharge is in the nature of FTS under Article 12(4) of the India-Singapore DTAA. Accordingly, learned DRP upheld the decision of the assessing officer in this regard. 8. Drawing our attention to the deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property right remains always with the assessee and nothing is transferred to Atos India. He submitted, it cannot also be said that the assessee has allowed use or right to use of any industrial, commercial or scientific equipment. He submitted, while providing data centre services/managed hosting services with the help of sophisticated, scientific equipment viz. servers, neither Atos India nor any other party has any independent right to use it. It is only the assessee, who uses the equipment for rendering services. Thus, he submitted, the payment received for managed services and project related services cannot come within the purview of royalty under Article 12(3) of the tax treaty. In support of such contention he relied upon the following decisions:- 1. DCIT vs. Suvvis Communications Corporation 158 ITD 750 (Mum) 2. Edenred Pvt. Ltd. vs. DCIT - ITA 1718/Mum/2014 dt. 20-07-2020 3. Standard Chartered Bank vs. DDIT 45 SOT 494 (Mum) 11. As regards the decision of the departmental authorities that the payment can also be regarded as FTS, the learned Counsel drawing our attention to Article 12(4) of the tax treaty submitted, while rendering project related service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein they arise and according to the laws of that contracting state, subject to the condition that if the recipient is the beneficiary of royalty or FTS, the tax to be charged will not exceed 10%. Thus, he submitted, the provisions of Income-tax Act relating to royalty FTS including the clarificatory amendment have to be considered while determining the taxation and taxability of royalty FTS. 15. Insofar as case laws cited by the learned Counsel for the assessee, the learned Departmental Representative submitted, the decisions being factually distinguishable, would not apply to the assessee's case. 16. In rejoinder, the learned Counsel for the assessee submitted, the meaning of the terms royalty and FTS have to be found as per the definition provided under Article 12(3) and 12(4) of the India-Singapore DTAA. He submitted, though, Article 12(2) of India-Singapore DTAA provides for taxability of royalty and FTS in the contracting state from where it is received, however, it is only for the purpose of withholding tax at source at the prescribed rates. He submitted, since the term, 'royalty and FTS' have been specifically defined under Articles 12(3) and 12(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtered Bank, the scope of services includes the employees of the assessee in remotely maintaining and monitoring the server and computer equipment and in case of any breakdown in the server, to take immediate remedial measure for its smooth and continuous functioning. Further, the assessee is required to remotely manage databases and carry out overall monitoring activities. Further, the assessee has to ensure timely delivery and problem resolution to the customers of Atos India. As far as services relating to other projects are concerned, the assessee is required to provide server hosting services and carry out support services of the said server. 20. The departmental authorities have held, while providing the services the assessee has allowed the use or right to use of any industrial, commercial or scientific experience as well as allowed use or right to use of industrial, commercial or scientific equipment. According to the departmental authorities, the assessee has rented out the servers to Atos India which amounts to allowing use or right to use of an industrial, commercial, scientific equipment. 18. Keeping in view the aforesaid factual position, we have to examine wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that while rendering such services, the assessee has allowed Atos India or any other party use of commercial or scientific experience. Further, there is no material to show that the assessee has allowed use or right to use of any copyright of 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. Further, though, the learned DRP has observed that the assessee has allowed use or right to use of any industrial, commercial or scientific equipment by renting out the server; however, that finding is not based on any cogent evidence brought on record. The agreement entered by the assessee for project related services does not show that the assessee is renting out either the servers or any other equipment to Atos India while providing services. In this regard, we may refer to the agreement entered with Atos India for the Standard Chartered Bank project. As per clause 5.1 of the said agreement, it has been made clear that the ownership of the intellectual property rights would all along remain with the assessee and no part of it would be transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) IDC is an ISO 27001 certified data centre owned by Edenred Pte. and located in Singapore; IDC services are provided using the IDC and IT/security team in Singapore, (iii) the services under the IDC agreement comprise of administration and supervision of central infrastructure; mailbox hosting services and website hosting services, (iv) IDC services ensure 100% uptime for critical external facing applications which need highly secured web environment and dedicated team of security experts to ensure 100% uptime of security systems (firewall, antivirus, access controls) which are also hosted on server in Singapore. We further observe that examples of websites/applications/softwares hosted by Indian group companies on the data centre in Singapore are web ordering application, corporate website, websites created for customers of Edenred India entities while making a loyalty program for them. A perusal of the documents filed before the AO and DRP clearly indicate that (i) appellant has an infrastructure data centre, not information centre at Singapore, (ii) the Indian group companies neither access nor use CPU of the appellant, (iii) no CDN system is provided under the IDC a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in, (v) also there is nothing in the IT support services that answers the description of technical services as defined in the DTAA, (vi) therefore, the fees paid to AXA ARC by the applicant does not amount to fees for technical services within the meaning of the DTAA, (vii) as regards the payments made for providing access to software applications and to the server hardware system hosted in Singapore for internal purposes and for availing of related support services under the terms of the service agreement, same cannot be brought within the scope of the definition of 'royalty' in Article 12.3, (viii) there is no transfer of any copyright in the computer software provided by AXA ARC and it cannot be said that the applicant has been conferred any right of usages of the equipment located abroad, more so, when the server is not dedicated to the applicant. Similarly, in the case of Standard Chartered Bank (supra), the assessee - bank entered into an agreement with a Singapore company SPL, for the provision of data processing support for its business in India and that data processing is down outside India. Application software by which data is transmitted to hardware at Sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments from an Indian subscribers for providing password to access and use the portal hosted from Singapore. The AAR held that payments made for concurrent access to utilize the sophisticated services offered by the portal would be covered by the expression royalty. We find that subsequently, after considering the decision in Cargo Community Network (P.) Ltd. (supra), Mumbai ITAT in the case of Standard Chartered Bank 11 ITR 721 and Yahoo India Pvt. 140 TTJ 195 held that no part of the payment could be said to be for use of specialized software on which data is processed as no right or privilege was granted to the company to independently use the computer. In the case IMT Labs (India) (P.) Ltd. (supra), the assessee, an Indian company, entered into an agreement with a non-resident American company for securing license of a particular software, which the applicant is entitled to use. The applicant has to pay license fee for usage of software to the American company. The AAR held that 'Smarterchild' application software on the American company's server platform is scientific equipment licensed to be used for commercial purposes and therefore, payments made for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee would override the provisions of domestic law as per section 90(2) of the Act. 26. Having held so, now let us examine whether the payment received can be treated as FTS. Before we proceed to decide the issue, it is necessary to look at the definition of FEES FOR TECHNICAL SERVICES as per Article 12(4) of the India-Singapore DTAA, which reads as under:- 4. The term fees for technical services as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estic law. On a careful reading of Article 12 of India-Singapore DTAA as whole, it is found, Article 12(1) provides for taxation of royalty and FTS in the country of residence of the recipient. Definitions of royalty and FTS have been given under Article 12(3) and 12(4) of the tax treaty. Of course, Article 12(2) provides for taxation of royalty and FTS in the source country. However, in our considered view, Article 12(2) has to be read in conjunction with Article 12(1), 12(3) and (4) of the tax treaty and not on standalone basis. In our view, Article 12(2) will get triggered only if the amount received qualifies as royalty and FTS under the treaty provisions. Since, in the facts of the present case we have held that the payment received towards various project related services does not qualify as royalty and FTS under the treaty provisions, the applicability of Article 12(2) of the tax treaty would not arise. 30. As regards the payment of ₹ 10,67,392/-, being the cost recharge pertaining to the salary of Mr. Thomas Boutard, we find from record, the learned DRP has very categorically observed that inspite of the fact that the assessee was specifically asked to provide the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
