TMI Blog2023 (2) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... nstall certain customer specified communication equipment and render miscellaneous services to the customer. According to Ld. counsel, connectivity charges are in the nature of Colocation services provided by the TATA Communications, UK and TATA Communications, USA for the purpose of connecting the assessee with the various customers in UK towards making the voice and data connectivity. As in the case of Verizon Communications Singapore Pte Ltd[ 2013 (11) TMI 1058 - MADRAS HIGH COURT] has clearly held that the use of the process was provided by the assessee whereby through assured bandwidth the customer is guaranteed the transmission of the data and voice. In such circumstances, it is held that the bandwidth is shared with others, however, has to be seen in the light of the technology governing the operation of the process and this by itself does not take the assessee out of the scope of the royalty as per Clause (iii) of Explanation 2 to s. 9(1)(vii) of the Act. As Hon ble Jurisdictional High Court [Supra] has clearly held on similar facts as in the present case before us i.e., Co-location services and connectivity services provided for the process of connecting by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of TDS u/s 40(a)(i) not called for. 3. The brief facts of the case are that the assessee-company filed its return of income for the relevant A.Y 2013-14 on 29.11.2016. The assessee-company is engaged in the business of Data Call Centre for Export of services Domestic BPO. The Assessing Officer (A.O) during the course of assessment proceedings noticed that the assessee has made payment with regard to connectivity charges paid the following charges: Name of the Party Amount paid in Rs. Novatel Ltd. 5009578 Tata Communications (UK) Ltd 7118249 TOTAL 12127827 4. The A.O required the assessee to furnish party wise break-up of the expenses debited in the P L along with compliance to TDS provisions of Chapter XVII-B of the Act. The A.O on perusal of the details filed by the assessee, noticed that the assessee has not deducted TDS in regard to the above stated connectivity charges. Hence, he required the assessee to explain as to why the connectivity charges are not disallowed as these paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s disallowance is upheld. This ground of appeal is dismissed. Aggrieved, the assessee came in appeal before Tribunal against the confirmation of disallowance of connectivity charges paid to TATA Communications (UK) Ltd. 6. Before us, the Ld. counsel for the assessee, Shri Vikram Vijayaraghavan, Advocate stated the facts that the assessee is operating an inbound and outbound call centre and is engaged in telemarketing services on behalf of its clients based in UK. The call centre executive sitting in the premises of the assessee makes outbound calls to UK on telephone members on potential customers or clients in the real time. In the process of calling by the executive to the person located in UK, the office data is converted into electrical data and is carried over by multiple entities. He explained that for the purpose of providing the services to its customers in UK, the assessee used the Co-location services and connectivity services provided by TATA UK for the purpose of connecting assessee with various customers in UK towards making the voice and data connectivity. The Ld. counsel for the assessee also drew out attention to assessee s paper book Pgs. 50 to 75, wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided tapes on an incidental basis; (g) securing or verifying cabling to connections; (h) cable organization, ties or labels usingCustomer-provided specifications (except cables of other services providers or any data circuits of Customer which is unmanaged and / or not under IDC Service Ops); (i) modifying existing basic cable layout (such as Ethernet or FDDI connections! (i.e.swapping or changing the ports);(j)inserting Customer provided media (CD/DVD) for application loading; (k) co-ordination with local vendors courier agencies for material to be accepted to be sent back to Customer based on the RMA vendor details/ provided by Customer (packing/unpacking loading/unloading or shifting rack mounting any such material shall be the responsibility of the Customer); (I) physical installation of new router cards without doing any configuration changes to Customer Equipment; (m) on line replacement of Customer-provided hardware components with Customer-provided spares (for the avoidance of doubt no off line activities will be performed);and (n) on line insertion of new or additional disk drives provided by the Customer (configuration of the added media shall be the responsibilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eckspace USA are in the nature of cloud hosting, data warehousing services etc., which are standard services provided to customers. Hence, the payments received on account of this cannot be called as a royalty . The Ld. counsel for the assessee also filed copy of India-US DTAA and also relied on the decision of Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited Vs. CIT in Civil Appeal NOs. 8733-8734 of 2018 (SC). 8. On the other hand, the Ld. Sr. D.R relied on the Jurisdictional High court decision in the case of Verizon Communications Singapore Pte Ltd. Vs. ITO [2014] 361 ITR 575 (Mad.) and stated that exactly identical issue was considered by Hon ble Madras High Court and considered that even if the payment is not treated as one for the use of the equipment, the use of the process was provided by the assessee, whereby through assured bandwidth the customer is guaranteed the transmission of the data and voice. He argued that the Hon ble Madras High Court has also explained that the bandwidth is shared with others, however, has to be seen in the light of the technology governing the operation of the process and this by itself does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration is not royalty, no arguments are made on permanent establishment or on the effect of the amendments. The assessee had submitted a detailed written submission on the clauses in the agreement and on the legal submissions. After considering the same, with reference to the arguments made by the learned senior counsel on the issue of royalty, vis-a-vis the agreement terms, we hold that the order of the Tribunal does not call for any interference. Although in his reply, learned senior counsel appearing for the assessee pointed out to Article 5 on permanent establishment to contend that VSNL is not an agent and hence cannot be construed as a permanent establishment of the assessee, no arguments are advanced on this account. In any event, in a virtual world, the physical presence of an entity has today become an insignifcant one; the presence of the equipment of the assessee, its rights and the responsibilities of the assessee, vis-a-vis the customer and the customers' responsibilities clearly show the extent of the virtual presence of the assessee which operates through its equipment placed in the customer's premises through which the customer has access to data on th ..... 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