TMI Blog2022 (2) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... DTAA, which will prevail. Since para 4(b) of Article 12 of the DTAA specifically covers consideration for use of any industrial or commercial equipment, the payment made by the assessee for use of the overall ICT Infrastructure set up by its Netherlands entity would fall within the term `Royalties under the DTAA. As the case is admittedly covered u/s.9(1)(vi) of the Act and also found to be covered by Article 12 of the amended DTAA, we hold that the amount paid by the assessee is chargeable to tax in the hands of the Netherlands entity. Failure of the assessee to deduct tax at source from payment made to the Netherlands entity clearly magnetizes section 40(a)(i) of the Act. We, therefore, accord our imprimatur to the view canvassed by the authorities in making and sustaining the disallowance. Assessee appeal dismissed. - ITA No. 48/PUN/2018 - - - Dated:- 9-2-2022 - SHRI R. S. SYAL , VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY , JUDICIAL MEMBER Assessee by : Shri Aliasger Rampurawala Revenue by : Shri Piyush Kamal Singh Yadav ORDER PER R. S. SYAL , VP : This appeal by the assessee is directed against the order passed by the ld. CIT(A)-5, Pune o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions in Virtual Court and scanned the relevant material on record. The issue before the Tribunal is to decide the nature of payment made by the assessee to VIBV. In case the amount paid by the assessee turns out to be chargeable to tax in the hands of its Netherlands associated enterprise and since the assessee failed to deduct tax at source, it would be hit by section 40(a)(i) of the Act mandating the disallowance. On the other hand, if the amount paid by the assessee is found not to be chargeable to tax either as reimbursement, or royalty or fees for technical services either under Act or under the DTAA, the assessee would escape the rigor of the provision. 5. In order to decide as to whether or not the amount paid by the assessee is chargeable to tax in the hands of Netherlands entity, we need to comprehend the real nature of transaction. The ld. AR invited our attention towards the Services Agreement between the assessee and its Netherlands entity (called in the Agreement as `Services ) entered on 01-09-2008, whose copy has been placed at page 49 onwards of the paper book. In the extant appeal, we are concerned only with the nature of Information Communication Technolo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this software were purchased, which were used by it in its overall ICT Infrastructure. Page 119 of the paper book, to which our attention was drawn by the ld. AR, contains details of ICT cost allocation by the Netherlands entity to the assessee for the months of November, 2011 to February, 2012. A perusal of this page transpires that for the months of November, 2011 to February, 2012, the assessee had 18 units of access (described as No. of workstations), 19 units of access, 18 units of access and 20 units of access respectively to the overall ICT Infrastructure. Fixed cost per unit of access for all the months was 403.91, giving fixed cost for the November, 2011 at 7270.38. Thereafter, a further amount towards share in the additional software cost at 568.95 was charged making the total charge at 7839.33 for the month of November, 2011. Similar is the position for other months given on the same page. The ld. AR was required to give bifurcation of month-wise total costs incurred by the Netherlands entity on maintaining the overall ICT Infrastructure and how it was allocated to the world-wide group-companies. No such information could be made available. To answer the query, the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase did not constitute Royalty in the hue of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT (2021) 432 ITR 472 (SC) is sans merits. Per contra, the software were purchased by the Netherlands entity for its own IT Infrastructure and were not transferred to the assessee. The ratio of the Hon ble Summit Court decision, if at all, would apply in the hands of the Netherlands entity at the time of purchase of the software from third party vendors before installing them in its overall ICT Infrastructure and not at the time of earning revenue from the group entities including the assessee for allowing access to its overall ICT Infrastructure. (iii) Qua the second part of the payment, the ld. AR contended that it was in the nature of `fees for technical services and, ergo, not chargeable to tax in the hands of Netherlands entity because nothing was made available by it to the assessee within the meaning of the DTAA. This contention is again fallacious and far-fetched. In fact, there are no such two categories of the ICT payment as claimed. The Invoices raised by the Netherlands entity contain only one monthlycharge figure, which is based on the units of access by each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is with the payer or is used directly by the payer or the location of such property is in India. In light of the definition of term `Royalty as given in section 9(1)(vi), it becomes overt that the payment made by the assessee for the use of the ICT Infrastructure of the holding company falls in the definition of `royalty and hence is chargeable to tax within the meaning of section 9(1)(vi)(b) of the Act. The ld. AR fairly admitted the chargeability of the amount in question u/s.9(1)(vi) of the Act. 11. He, however, stressed on the DTAA to argue that the amount of Royalty paid by the assessee for the use of overall ICT Infrastructure was not chargeable to tax in the hands of the Netherlands entity u/s.90(2) of the Act. There can be no dispute on the applicability of section 90(2), which provides that when the Central Government has entered into an agreement with the Government of any country outside India, inter alia, for avoidance of double taxation, then in relation to the assessee to whom such agreement applies, the provisions shall apply to the extent they are more beneficial to the assessee. Simply put, if the provisions of DTAA are more beneficial to an assessee vis- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process, or for information concerning industrial, commercial or scientific experience. (b) payments of any kind received as consideration for the use of, or the right to use industrial, commercial or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 and 8A (Shipping and Air Transport) from activities described in paragraph 2(a) of Article 8 or paragraph 4(b) of Article 8A. 15. A cursory glance at the definition of the term `Royalties makes it patent that the hitherto content of para 4 of Article 12 comprising of copyright royalty cases only became subject matter of sub-para (a) of the amended para 4 of Article 12. In addition, para 4(b) also came to be added, which deals exclusively with industrial royalty cases, thereby enveloping, consideration for the use of or the right to use industrial, commercial or scientific equipment, subject to certain exceptions, which are not applicable to the case under consideration. Thus, it is manifest that India and Netherlands have agreed to bring industrial royalty, of the nature as obtaining in the present appeal, within the scope of Article 12 of the DTAA w.e.f. 30-08-1999. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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