9911796707
TMI Blog2022 (8) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... mazon Elastic Compute Could etc., He therefore, asked the assessee to furnish a note on the business carried on by the assessee. 3. After going through various details furnished by the assessee, the Assessing Officer noted that the assessee company is providing software platform to other business entities for carrying e-commerce by those entities. The assessee company charges fee for providing services to its customers subject to TDS. The assessee company has developed computer software facilities for e-commerce. The Assessing Officer further observed that the assessee was incorporated as a private limited company in India in accordance with the provisions of the Companies Act, 1956 on 14th May, 2007 with the primary objective of conducting software development and providing data management and solutions for various e-commerce applications. The company facilitates business in developing their online channels and managing them easily. The Platform that makes it possible is 'Mart jack'. The company is also into benefiting business, which have huge consumer base, in terms of monetizing their existing revenue channels further through 'Mart Jack Exchange' - a solution that enables any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions, the Assessing Officer made disallowance of Rs.1,02,18,116/- u/s 40(a)(ia) of the Act by concluding as under: "4.19 As narrated by the assessee, by acquiring those software licenses, the assessee has got the right to use the same in India. Even though the assessee has supplied/provided those software, later on, to different Indian companies, the assessee was having right to use the same in India. This right to use the software was in turn transferred to its clients. It was also clarified that the clients have made the TDS on the payments made to the assessee company. Thus, it is evident that the payments made by the assessee in respect of these software/licenses are in the nature of 'royalty' within the meaning of section 9(1)(vi) of the Income Tax Act. These payments were made to US, which is a foreign company. Hence, tax was deductible on the said payments in accordance with the provisions of section 195 of the Act. However, the assessee did not withhold tax in full while making payments. For this reason, the expenditure of Rs.1,02,18,116/- relating non-withholding of tax is hereby disallowed u/s 40(a)(ia) of the Act". 7. The Assessing Officer also made various other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmit an agreement entered with the US entity to show whether the payments made to US company are subject to Indian withholding taxes or not. In this regard, the assessee filed a letter received from the Amazon Web Services, which is as under: "AWS Indian customers frequently ask whether payments they make to Amazon Web Services LLC (AWS) a US Company are subject to Indian withholding taxes. AWS position is that the answer is no. Payments made to AWS are not subject to Indian withholding taxes. Under the US Indian Treaty payments from Indian customers for A WS services are neither Royalties or Fees for included Services both of which are defined for purposes of the treaty, which are payment types generally subject to withholding". 4.13 From the said letter, it is also mentioned at page 4 that Indian AWS customers are free to withhold taxes, however, should they do so they must remit to AWS the Jull amount of the service fees originally invoiced. Withhold taxes must be separately compute and remitted. Original amounts invoiced by AWS cannot be reduced for the amount of the withholding tax. 4.14 Prom the above, it can be concluded that the US entity of the assessee Company ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of AP 239 1TR 587 (SC)- IMT Labs 287 ITR 450 (AAR) it was held that irrespective of the taxability of the same in the hands of foreign enterprise, it was legal obligation on the part of the assessee to deduct tax u/s. 195/1) of the Act. 4.18 The Hon'ble ITAT Hyderabad in the case of Frontline Soft Limited Vs. DCIT vide its order in 1TA Nos. 1080 & 1081/Hyd/2003 dated 3.8.2007 for A. Ys. 2002- 03 and 2003-04 held that purchase of software tantamount to payment of royalty and that purchase of software is not an asset. Therefore, withholding tax is liable on such purchases. 4.19 As narrated by the assessee by acquiring those software licenses, the assessee has got the right to use the same n India Even though the assessee has supplied provided those software later on, to different Indian companies, the assessee was having right to use the same in India This right to use the software as n tum transferred to its clients. It was also clarified that the clients have made the TDS on the payments made to the assessee company. Thus, it is evident that the payments made by the assessee in respect of these software 7 licenses are in the nature of royalty within the meaning of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as defined in Indo-USA DTAA does not hold merit as the provisions of the Income Tax Act are quite clear in this context. Keeping in view the facts, issue and circumstances of the instant case, it is held that Ground No.2 in appeal is dismissed. (IX) In the result, the appeal is dismissed" 10. Aggrieved with such order of the learned CIT (A), the assessee is in appeal before the Tribunal by raising the following grounds: "1.0 That under the facts and circumstances of the case the orders passed u/s 143 of the I.T.Act is against the facts of the case and provisions of law. 1.1 The learned Commissioner of income tax(A) (in short CIT(A)) is not Correct in sustaining the disallowance of expenditure made by the Assessing officer u/s.40(a) (i) of the I.T.Act. 1.2 The learned CIT (A) ought to have held that the payments made by the assessee company (known as Web Hosting Charges) towards the services used relating to data storing, transfer etc. from Amazon Web Services aré not in the nature of "Royalty" within the meaning of sec.9(i) (vi) of the I.T.Act 1.3 The interpretation and the finding of the learned CIT (A) that the provisions of sec.195 of I.T. Act would automatica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drew the attention of the Bench to the same which reads as under: "5.1. Service Fees. We calculate and bill fees and charges monthly. You will pay us the applicable fees and charges for use of the Service Offerings as described on the AWS Site using one of the payment methods we support. All amounts payable under this Agreement will be made without setoff or counterclaim, and without any deduction or with holding. Fees and charges for any new Service or new feature of a Service will be effective when we post updated fees and charges on the AWS Site unless we expressly state otherwise in a notice. We may increase or add new fees and charges for any existing Services by giving you at least 30 days' advance notice. We may charge you interest at the rate of 1.5% per month (or the highest rate permitted by law, if less) on all late payments". 13. He submitted that a perusal of the fees and payment clause would show that the payment is based on the basis of the volume of the services offered and therefore, it is not in the nature of royalty. 14. Referring to para 8.4 and 8.5 of the agreement placed at page No.37 of the Paper Book, he drew the attention of the Bench to the same w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only provided services. Therefore, under no stretch of imagination it can be construed as royalty. 16. Referring to the decision of the Pune Bench of the Tribunal in the case of EPRSS Prepaid Recharge Services India (P) Ltd vs. Income Tax Officer reported in (2018) 100 Taxmann.com 52, he submitted that under identical circumstances, the Pune Bench of the Tribunal has held that where an assessee is engaged in distribution of recharge pens of various DTH providers via online network and paid web hosting charges to US based company for using its servers, since assessee did not possess and did not have any control over server or severs space being deployed by said company while providing e-services as per agreement, there was no scope to conclude that e-service charges paid to US company amounted to royalty. 17. Referring to the Delhi Bench of the Tribunal in the case of Microsoft Regional Sales Pte Ltd reported in (TS-317-ITAT- 2022(DEL) in ITA No.1553/Del/2016 order dated 13.04.2022, he submitted that the Tribunal under identical circumstances has held that the subscription received by Microsoft Regional Sales Pte. towards Cloud base service is not royalty income in its hands. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 12 of Indo US DTAA. He accordingly submitted that the order of the learned CIT (A) being in accordance with law should be upheld. He also relied on various decisions. 20. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the assessee during the impugned A.Y has debited a sum of Rs.1.02 crores towards web hosting charges paid to Amazon towards AWS Data Transfer, Amazon Simple Storage Services, AWS Premium Support, Amazon Simple Notification Services, Amazon Elastic Compute Could etc., According to the Assessing Officer, these payments were in respect of software/services being in the nature of royalty within the meaning of section 9(1)(vi) of the I.T. Act. The assessee is utilizing the services of Amazon Web Services for data transfer, storage services which are related to process contained in the definition of royalty. According to him, the expression process includes transmission by satellite (including up-linking, amplification, conversion for downlinking of any signal), cable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal issue had come up before the Pune Bench of the Tribunal in the case of EPRSS Prepaid Recharge Services India (P) Ltd vs. Income Tax Officer (Supra) where the Tribunal following the decision of the Hon'ble Madras High Court in the case of Skycell Communications Ltd (Supra) held that the amount paid to Amazon for various service provided by it are not in the nature of royalty and hence provisions of section 40(a)(ia) are not applicable. Relevant portion of the said order of the Tribunal reads as under: "19. Now, another issue which needs to be seen is whether charges paid to Amazon for various services provided by it are in the nature of royalty, if any, or not. The assessee has placed on record the copy of agreement with Amazon, which we have referred in the paras hereinabove. He has also placed on record the copies of bills raised by Amazon online. The perusal of details filed by assessee of monthly charges paid, it transpires that the same are fluctuating from month to month and there is no regular payment being made to Amazon. In case of provision of royalty to a person, then as seen from the terms and conditions of various agreements, there is fixation of price to be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of royalty i.e. consideration paid for the use or right to use any industrial, commercial or scientific equipment but not including the amount referred to in section 44BB of the Act. The assessee in the present case did not use or acquire any right to use any industrial, commercial or scientific equipment while using the technology services provided by Amazon and hence, the payment made by assessee cannot be said to be covered under clause (iva) to Explanation 2 of section 9(1)(vi) of the Act. In other words, even if the retrospective amendment is held to be applicable, the case of assessee of payment to Amazon being outside the scope of said Explanation 2(iva) to section 9(1)(vi) of the Act, cannot make the assessee liable to deduct tax at source. In other words, the assessee is not liable to deduct withholding tax and such non deduction of withholding tax does not render the assessee in default and consequently, no disallowance of amount paid as web hosting charges is to be made in the hands of assessee for such non deduction of withholding tax and hence, provisions of section 40(a)(i) of the Act are not attracted. The grounds of appeal raised by assessee are thus, allowed." 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cloud computing services for process and storage of data or run the applications. 7.2 While dealing with similar question in regard to the case of M/s. Salesforce.com Singapore Pte. (supra) where the said assessee was provider of comprehensive customer relationship management servicing to its customer by using Cloud Computing Services / Web Casting Services, the Bench in its order dated 25.03.2022 held as under : "28. Considering the facts of the case in totality, in light of the Master Subscription Agreement, we are of the considered view that the customers do not have any access to the process of the service provider i.e. the assessee, and the assessee does not have any access except otherwise provided in the master subscription agreement to the data of the subscriber. 29. In our considered opinion, all the equipments and machines relating to the service provided by the assessee are under its control and are outside India and the subscribers do not have any physical access to the equipment providing system service which means that the subscribers are only using the services provided by the assessee." 7.3 The Mumbai Tribunal in the case of DDIT v Savvis Communication Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
