TMI Blog2016 (4) TMI 1444X X X X Extracts X X X X X X X X Extracts X X X X ..... ng system. When the payments are not in the nature of 'Royalty as per Explanation-II (via) of Section 9(1)(vi) of the Act, then recipient of the said payments, being non resident, having no PE in India, is not liable to tax in India. Therefore, payments in the hands of M/s Pugmarks Inc Others are not taxable in India and consequently, no tax required to be deducted under section 195 on such payment/remittance by the assessee. Such payments, therefore, cannot be termed as 'royalty' - as found that services are rendered outside India by non-resident and paid outside India, then the provisions of Section 195 do not apply in case of such payments. As the company who had provided web hosting services, was located outside India and the server was also located outside India, income that had arisen is not taxable in India. We find that the issue is also covered in favour of the assessee by judgements in the case of People Interactive (I) Pvt.Ltd. [ 2012 (2) TMI 534 - ITAT MUMBAI ], Yahoo India Pvt. Ltd. [ 2011 (6) TMI 162 - ITAT, MUMBAI ] and decision in the case of Dell International Services (India) Pvt. Ltd. [ 2008 (7) TMI 9 - AUTHORITY FOR ADVANCE RULINGS ] No infi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arks Inc. and two other companies/persons. As the payments had been made in the US dollars to the companies and to the persons located outside India, the Assessing Officer questioned the assessee about non-deduction of tax on these payments u/s 195 of the Act. The assessee had filed a reply, but the Assessing Officer held that the assessee should have deducted tax u/s 195 in view of the clause (iva) of Explanation-2 to section 9(l)(vi), which gives the definition of royalty as the use or right to use any industrial, commercial or scientific equipment . The Assessing Officer mainly relied upon the decision of Hon'ble ITAT, Delhi in the case of M/s Millennium Infocom Technologies Ltd. (117 ITD 114). 6. During the course of appellate proceedings the Ld. Counsel for the appellant has filed a written submission, relevant portion of which is reproduced below: In this respect we submitted that the appellant company is not in possession of the equipment nor it is using the equipment solely for its own purposes, hence the payment cannot be treated as Royalty , and as such, in the absence of Permanent Establishment of the Foreign Company in India, the provisions of TDS u/s 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple case of purchase of Internet bandwidth by the assessee from Teleglobe. Further, in the case of Dell International Services (India) Pvt. Ltd., the Authority for Advance Ruling decided that : Dell India has no rights over any equipment of BTA that BTA utilizes for providing the bandwidth The same fiber link cables and other equipment are used by BTA for all customers, including Dell India. The telecom bandwidth is provided through a huge network of optical fibre cables laid under the ocean across several countries. BTA is using the South East Asia-Middle East-West Europe cable network, which is owned by a consortium of 16 international telecommunications companies (including VSNL and two other companies from India). BTA uses only a small fraction of this network and the space in the cable network is not dedicated to Dell India alone, but also is used by hundreds of BTA's customers in and outside India.The transaction is essentially one of providing bandwidth services for the two-way transmission of voice and data. BTA renders such services by means of a point-to-point dedicated circuit that it owns. The provision of services where a service provider uses its own equipmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its agent(being the domestic provider). Dell India does not possess nor has access to the equipment belonging to BTA. Hence, the payment could not be characterized as a royalty , nor could it be characterized as fees for included services under the India-U.S. treaty because no technical knowledge, experience, skill, etc., was being made available to Dell India. On. the basis of the above facts, it is very much clear that as the company is not in possession of the equipments nor it is using the equipment solely for its own purposes, hence the payment cannot be treated as Royalty or payment for technical services and as such in the absence of Permanent Establishment of the Foreign Company in India the provisions of TDS under section 195 of the Income Tax Act, 1 961 does not apply to the assessee company. The reliance is placed on authority for advance ruling judgment in case of ISRO Satellite Centre (ISAC), 307 ITR 59, which relied upon its earlier judgment in case of Dell International Service (P) Ltd., In re (2008) 218 CTR (AAR) 209 and held that payment made by applicant to IGL, a UK company for use of IGL's navigation transponder capacity by taking on lease th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or control its functions in some manner. The appellants had no possessory rights in relation to the computer mainframe. The appellants took advantage of a facility of use of sophisticated equipment installed and provided another, it could not be said that the recipient/customer used the equipment as such. The appellant merely made use of the facility, though they did not themselve use the equipment. There is nothing on record to establish that the hardware could be accessed and put to use by the appellants by means of positive acts. 3.3.1 In the instant case, the appellant had nothing to do with the equipment and it only made use of the facility created by the service providers, who were the owners of entire network and the related equipment. As the appellant company is neither in possession of equipment nor it uses the equipment solely for its own purposes, the payment cannot be termed as 'royalty'. If the services are rendered outside India by a non-resident and are also paid outside India, the provisions of section 195 do not apply in case of such payments. As the company who had provided web hosting services was located outside India and the server was also loc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e must be some positive act of utilization, application or employment of equipment for the desired purpose. If an advantage was taken from sophisticated equipment installed and provided by another, it could not be said that the recipient/customer used the equipment as such. The customer merely made use of the facility, though he did not himself use the equipment. What was contemplated b the 'word use in clause (iva) of Explanation 2 to section 9(l)(vi) was that the customer came face to face with the equipment, operated it or controlled its Junctions in some manner. But if it did nothing to or with the equipment and did not exercise any possessory right in relation thereto, it only made use of the facility created by the service provider who was the owner of the entire network and related equipment. There was no scope to invoke clause (iva) in such a case because the element of service predominated. The predominant features and underlying object of the agreement unerringly emphasized the concept of service. That even where an earmarked circuit was provided for offering the facility, unless there was material to establish that the circuit/ equipment could be accessed and put ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quipments/servers were under the control and possession of Non Resident Inc for providing facilities. The ld. counsel for the assessee relied upon following decisions : 1. Decision of Delhi High Court in the case of Asia Satellite Telecommunications Co . Ltd . Vs Director of Income Tax 332 ITR 340 in which it was held as under : Assessee a non-resident company, which has leased out transponder capacity on its satellites to v channels to relay their signals for Indian viewers cannot be said to be carrying out business operations in India as the programmes are uplinked by the TV channels outside India and are relayed by satellites situated outside Indian airspace without using any man, machinery or computer in India and, therefore, s. 9(l)(i) is not attracted. 2. Order of ITAT Mumbai Bench in the case of Yahoo India (P) Ltd . Vs DCIT 140 TTJ 195 in which it was held as under : Payment made by assessee to a foreign company for the services rendered by it for uploading and display of the banner advertisement on its portal was in the nature of business profit and not royalty and such payment was not chargeable to tax in India as the recipient has no PE in India and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the services made available and surveillance of the essential parameters connected with the trade including those of a particular/ single transaction that would lead credence to its authenticity is provided for by the Stock Exchange. All such services, fully automated, are available to all members of the stock exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by the Stock Exchange. Technical services like Managerial and Consultancy service would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available t o a l l and would therefore stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialized, exclusive and individual requirement of the user or cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is the essential hallmark of the expression technical services as appearing in Explanation 2 to Section 9(1)(vii) of the Act. 10. For the aforesaid reasons, we hold that the view taken by the Bombay High court that the transaction charges paid to the Bombay Stock Exchange by its members are for 'technical services' rendered is not an appropriate view. Such charges, really, are in the nature of payments made for facilities provided by the Stock Exchange. No TDS on such payments would, therefore, be deductible under Section 194J of the Act. 10. The ld. counsel for the assessee submitted that issue is covered in favour of the assessee by the above judgments and judgement relied upon by ld. CIT(Appeals). He has submitted that the decision cited by ld. DR are not applicable to the facts and circumstances of the case. 11. We have heard the rival submissions and perused the material on record. The ld. DR heavily relied upon clause (iva) of Explanation-2 below Section 9(1)(vi) of the Act regarding 'use' or 'right to use' any industrial, commercial or scientific equipment and contended that the web hosting charges are 'royalty' in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
