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TMI Blog2023 (1) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal Number Impugned Order under challenge before the Tribunal ITA no.508/Mum./2016 Final assessment order dated 30/12/2015, passed by the AO under section 143(3) r/w section 144C(13) of the Act, pursuant to the directions dated 24/11/2015 issued by the learned DRP under section 144C(5) of the Act, for the assessment year 2012-13. ITA no.7247/Mum./2017 ITA no.7248/Mum./2017 Final assessment orders dated 31/10/2017, passed by the AO under section 143(3) r/w section 144C(13) of the Act, pursuant to the separate directions dated 22/09/2017 issued by the learned DRP under section 144C(5) of the Act, for the assessment years 2013-14 and 2014-15. ITA no.5193/Mum./2018 Final assessment order dated 13/07/2018, passed by the AO under section 143(3) r/w section 144C(13) of the Act, pursuant to the directions dated 18/05/2018 issued by the learned DRP under section 144C(5) of the Act, for the assessment year 2015-16. 2. Since all the aforesaid appeals pertain to the same assessee involving, inter-alia, similar issues in the assessment years under consideration, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to INR 1,03,26,605 as against INR 1,33,26,605 claimed in the return of income thereby leading to short grant of TDS of INR 30,00,000: 6. Interest under section 234A of the Act erred in levying interest under section 234A of the Act amounting to INR 32,431 which is not as per law. 7. Interest under section 2348 of the Act erred in levying interest under section 2348 of the Act amount to INR 2,08,486 disregarding the fact that the Appellant is a non-resident assessee and its entire revenues/ receipts are subject to tax withholding in India under section 195 of the Act and the Appellant is not liable to pay advance tax in respect of such revenues. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal." 4. The brief facts of the case are: The assessee is a company formed and incorporated in France and belongs to Edenred Group of company which operates worldwide. For the year under consideration, the assessee received Rs. 8,48,48,879 from 3 companies that are incorporated in India, namely Edenred (India) Private Ltd, Royal Images Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed DR') submitted that in the group company's case, the receipt was held to be not taxable as fees for technical services by the coordinate bench of the Tribunal, however, in the present case, the learned DRP held the fees to be royalty and therefore the said decision is not applicable to the present case. The learned DR further submitted that in the case of royalty there is no make available clause in the provisions of the India France DTAA. 8. We have heard the rival submissions and perused the material available on record. In the present case, vide draft assessment order, the AO held that TSIS Service Fee received by the assessee is taxable as royalty, while the Management Service Fee is taxable as fees for technical services. In further proceedings, the learned DRP came to the conclusion that services provided by the assessee are similar to the services provided by the group company of the assessee i.e. Edenred PTE Ltd. Accordingly, the learned DRP following its directions rendered in the case of group concern for the assessment years 2011-12 and 2012-13 directed that the consideration received by the assessee under both TSIS and Management Service Agreements are taxable in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers to have access to and use its Central Processing Unit ('CPU') in France against payment. Further, the assessee allows the use of its mainframe situated in France and also incidental electronic mail excess, consolidated data network expenses, and consolidated data network services to Indian group entities on a payment basis. The AO further held that the Indian company's access to mainframe computers through electronic connectivity on the basis of a contract for use establishes a business connection of the assessee with the Indian company in India. Accordingly, the AO came to the conclusion that income is taxable under the head royalty under section 9(1)(vi) of the Act. The AO also held that the income is also taxable as royalty under the provisions of India France DTAA. Accordingly, the AO added the income to the total income of the assessee as royalty taxable at 10% under the beneficial rate as per the DTAA. 10. We find that the taxability of income arising from similar services rendered by the assessee's group concern, namely, Edenred PTE Ltd came up for consideration before the coordinate bench of the Tribunal in Edenred PTE Ltd vs DCIT, in ITA No.2178/Mum./2017, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, access controls) which are also hosted on server in Singapore. We further observe that examples websites/applications/softwares hosted by Indian of 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 agreement, no such use/access is allowed, (iv) the appellant does not maintain any such central data (u) IDC is not capable of information analytics, data management, (vi) appellant only provides IDC service by using its hardware/security devices/personnel; all that the Indian group companies received are standard IDC services and not use of any software, (vii) bandwith and networking infrastructure is used by the appellant to render IDC services; Indian companies only get the output of usages of such bandwith and network and not its use, (viii) consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty' in Article 12.3, (vii) 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 Singapore and processed by SPL at Singapore is owned by the assessee. Thus what is used by the appellant is the computer hardware owned by SPL. The Tribunal held that (i) payment in question can be said to be a payment for a facility which is available to any person willing to use the facility, (ii) system software which is embedded in the computer hardware by which the computer hardware functions is not owned by SPL and SPL only has a license to use the system software; (iii) consideration received by SPL is for using the computer hardware which does not involve use or right to use a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilege 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 producing and hosting Interactive Agent' applications would be covered by the expression 'royalties' as used in Article 12. However, we find that in the instant case, appellant only provides service by using its hardware/security devices/personnel and not use of any software and therefore the above case is distinguishable from the present appeal. In ThoughtBuzz (P) Ltd. (supra), the applicant, a Singapore company was engaged in providing social media monitoring service for a company, brand or product. It was a platform for users to hear and engage with their customers, brand ambassado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate bench of the Tribunal in the case of sister concern. Since it has not been disputed that the facts of the present case are similar to the case of the assessee's group concern, wherein income arising from services of similar nature are held to be not taxable as royalty, therefore, we find merit in the plea of the assessee. Accordingly, respectfully following the aforesaid decision of the coordinate bench of the Tribunal, we direct the AO to delete the addition in respect of TSIS Service Fees received by the assessee. As a result, ground No. 2 raised in assessee's appeal is allowed. 12. During the year, the assessee earned Management Service Fees amounting to Rs. 7,19,02,857, from its aforesaid Indian group companies under the Management Service Agreement. Under the agreement, the services provided by the assessee broadly include management services in the nature of external communication services, strategy and development services, finance services, legal services, general management, and coordination services, and zone management services. There is no dispute regarding the fact that under the agreement entered into with each of the aforesaid entities the nature of services pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 4, raised in assessee's appeal, are general in nature and therefore, in view of aforesaid findings need no separate adjudication. 14. Ground no.5, raised in assessee's appeal is pertaining to short grant of credit of TDS. This issue is restored to the file of the AO with the direction to grant TDS credit, in accordance with the law, after conducting the necessary verification. As a result, ground no.5 raised in assessee's appeal is allowed for statistical purposes. 15. The issue arising in ground No. 6 raised in assessee's appeal is pertaining to the charging of interest under section 234A of the Act. Accordingly, we deem it appropriate to remand this issue to the file of AO for de novo adjudication after the necessary examination of the fact whether the return of income was filed by the assessee within the prescribed time under the Act. As a result, ground No. 6, raised in assessee's appeal is allowed for statistical purposes. 16. The issue arising in ground No. 7, raised in assessee's appeal, is pertaining to levy of interest under section 234B of the Act. In view of the decision of Hon'ble Supreme Court in DIT v. Mitsubishi Corporation, [2021] 438 ITR 174 (SC), ground No. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the India-France DTAA containing the Most Favoured Nation Clause and Article 12 of the India-USA DTAA which provides that only services which makes available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design are taxable as FTS/fees for included services, 4. Erred in computing gross tax Erred in computing gross tax as INR 85,88,382 as against INR 82,17,924; 5. Short grant of credit for Tax deducted at source (‗TDS') Erred in granting TDS credit amounting to INR 85,52,734 as against INR 91,65,609 claimed in the return of income thereby leading to short credit of TDS of INR 6,12,875; 6. Interest under section 234A of the Act Erred in levying interest under section 234A of the Act amounting to INR 356 which is not as per law; 7. Interest under section 234B of the Act Erred in levying interest under section 234B of the Act amounting to INR 19,580 disregarding the fact that the Appellant is a non-resident assessee and its entire revenue / receipts are subject to tax withholding in India under section 195 of the Act and the Appellant is not liable to pay advance tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal, the assessee has raised the following grounds:- "On being aggrieved by the order dated 31 October 2017 of the learned Deputy Commissioner of Income-tax (International Tax)-(2)(1)(2), Mumbai (AO) passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (the Act) as also directions usued by the DRP, Mumbai dated 22 September 2017, the present appeal is being preferred on the following grounds amongst others which, it is prayed, may be considered without prejudice to one another. On the facts and circumstances of the case and in law, the learned AO, as per the directions of DRP has: 1. General Grounds Erred in assessing total income at INR 5,39,54,650 as against returned income of INR 30,99,370; 2. Technology and Strategic Information Systems (TSIS) fees taxed as royalty Erred in considering TSIS charges of INR 41,31,404 to be taxable as royalty under the provisions of the Act and the India-France Double Taxation Avoidance Agreement (DTAA"); 3. Management service fees taxed as royalty a. Erred in characterizing and taxing management service fee amounting to INR 4,67,23,873 as royalty as against the characterization as Fees for Technical S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts are taxable as royalty. Since a similar issue has been decided in assessee's appeal being ITA No. 508/Mum./2016, for the assessment year 2012-13, therefore, our findings / conclusion rendered in the said appeal shall apply mutatis mutandis. Accordingly, grounds No. 2 and 3 raised in assessee's appeal are allowed. 27. The issue arising in grounds No. 1 and 4 are general in nature and therefore need no separate adjudication, in view of our aforesaid findings. 28. The issue arising in ground No. 5, raised in assessee's appeal, is pertaining to the levy of interest under section 234B of the Act. In view of the decision of the Hon'ble Supreme Court in DIT v. Mitsubishi Corporation, [2021] 438 ITR 174 (SC), ground No. 7, raised in assessee's appeal, is rendered consequential in nature and therefore is allowed for statistical purposes. 29. In the result, this appeal by the assessee is allowed for statistical purposes. ITA no.5193/Mum./2018 Assessee's Appeal - A.Y. 2015-16 30. In its appeal, the assessee has raised the following grounds:- "On being aggrieved by the order dated 13 July 2018 of the learned Assistant Commissioner of Income-tax (International Tax)-2(2)(1), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se pertaining to this issue are: During the year under consideration, the assessee earned management service fees amounting to Rs. 4,35,95,413 from its Indian group companies. The assessee claimed that the same is not liable to tax in India as per Article 13 read with the Protocol to the India France DTAA along with Article 12 of India Finland DTAA. Further, the assessee claimed that the said Management Service Fee is also not liable to be taxed in India as per Article 13 read with the Protocol to the India France DTAA along with Article 12 of India USA DTAA. The management services were rendered by the assessee under the same agreements with Indian group companies which were entered in the preceding assessment years. During the assessment proceedings, the assessee was asked to explain why this amount should not be taxed in India. In response thereto, the assessee submitted that the services are provided only to support the Indian group companies in carrying on business efficiently and running the business in line with the business model, policies, and best practices followed by the Edenred group. The assessee further submitted that these services are performed by the personnel of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehemently relied upon the orders passed by the lower authorities and submitted that the MFN clause as provided in the Protocol to the India France DTAA is not applicable to the present case in view of CBDT Circular No. 3/2022 dated 03/02/2022. Learned DR submitted that as per the said circular a separate notification has to be issued by India importing the benefits of the second treaty into the treaty with the First State, as required by the provisions of section 90(1) of the Act. However, there is no such notification that in India France DTAA the provisions of India USA DTAA will be imported. 36. We have considered the rival submissions and perused the material available on record. As noted above, during the year under consideration, the assessee rendered the services to its Indian group companies under Management Services Agreement which was executed in the preceding assessment year. Under the agreement, the services provided by the assessee broadly include management services in the nature of public relations services, corporate social responsibility, partnership opportunities, networking coordination, financial services, legal services / advices, human resources. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curring therein envisages that there could be a benefit on either score i.e. a lower rate or more restricted scope. One does not exclude the other. The other expression used is "if under any Convention, Agreement or Protocol signed after 1-9-1989 between India and a third State which is a member of the OECD". This also indicates that the benefit could accrue in terms of lower rate or a more restrictive scope under more than one Convention which may be signed after 1st September 1989 between India and a State which is an OECD member. The purpose of Clause 7 of the Protocol is to afford to a party to the Indo-France Convention the most beneficial of the provisions that may be available in another Convention between India and another OECD country." 38. In the present case, the assessee is a resident of France and thus in view of para-7 of the Protocol to the India France DTAA has sought the benefit of the restricted scope of the definition of 'fees for included services' as provided under the India USA DTAA. Article 12(4) of the India USA DTAA, defines the term 'fees for included services' as under: "(4) For purposes of this Article, "fees for included services" means payments of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.' 18. .............. In the case of Boston Consulting Group (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. However, in the present case, apart from merely using the terminology 'made available', the Revenue has not brought any instance on record where the Indian group companies were shown to have used such information without depending upon the assessee. The fact that the assessee continued to render the services, on a recurring basis, under the Management Services Agreement entered into by the assessee in the preceding assessment years also justifies the claim of the assessee that no technical knowledge, experience, skill, or know-how has been made available to the Indian group companies. Therefore, the management services rendered by the assessee under the Management Service Agreement do not constitute 'fees for included services' under the India USA DTAA. 41. The learned DR submitted that since there is no notification as per CBDT Circular No. 3/2022 dated 03/02/2022, in order to import the benefits of the India USA DTAA into the treaty with France, therefore, the Protocol to the India France DTAA cannot be invoked in the present case. We find that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first State only when the four conditions are fulfilled. There is no dispute that conditions enshrined under points (i) to (iii) are fulfilled in the instant case. The condition under point (iv) states that a separate notification should be issued by India importing the benefit of the second treaty into treaty with the first State as required u/s 90(1) of the Act. Thus, it becomes ostensible that the CBDT has mandated the issuance of a separate notification for importing the benefits of a treaty with second State into the treaty with the first State by relying on provisions of subsection (1) of Section 90 of the Income Act, 1961. Let us examine the prescription of section 90(1) of the Act which has been invoked as a shield for stipulating the fourth requirement. This section provides that: `The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India,- (a) for the granting of relief in respect of- (i) income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or.......and may, by notification in the Official Gazette, make such pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive intent is clearly to give it a retrospective effect. We are confronted with a circular, much less an amendment to the enactment, which attaches a new disability of a separate notification for importing the benefits of an Agreement with the second State into the treaty with first State. Obviously, such a Circular cannot operate retrospectively to the transactions taking place in any period anterior to its issuance. In view of the foregoing discussion, we are satisfied that the requirement of a separate notification for implementing the MFN clause, as per the recent CBDT circular dt. 03-02-2022, cannot be invoked for the year under consideration, which is much prior to the CBDT circular of the year 2022." 42. Thus, respectfully following the aforesaid decision of the coordinate bench of the Tribunal, we are of the considered view that CBDT Circular No. 3/2022 dated 03/02/2022 is not applicable to the present appeal. Therefore, in view of the aforesaid findings, we are of the considered opinion that the assessee is entitled to claim the benefit of the restricted definition under India USA DTAA in view of the Protocol to the India France DTAA. Since the assessee has been found not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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