TMI Blog2023 (7) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of section 9(1)(i) of the Act HELD THAT:- ITAT has come to the conclusion that activities highlighted by the AO are not carried out by the assessee at all and the services provided by the assessee to the Indian Customers were merely that of displaying / storing of data of Indian Subscribers, such services are limited to provision of E-commerce platform for advertising of products or services in India. ITAT came to the factual finding that the arrangement between assessee and the subscribers was for the provision of services for standard facility and not for rendering of any technical, managerial or consultancy services as provided in section 9(1)(vii) r/w Explanation 2 of the Act. ITAT has also relied upon the judgment of Kotak Securities Ltd. [ 2016 (3) TMI 1026 - SUPREME COURT ] constant human endeavour or human intervention is essential requirement for treating the rendering of services as technical . If any technology or a process has been put to operation automatically, wherein it operates without much human interface or intervention, then such technology per se cannot be held as rendering of technical services by human skills. Where there is a standard facility m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishment (DAPE). The DRP accordingly held that there was a permanent establishment / business connection of the assessee in India and its income was taxable in India as a business profit / business income. The DRP, however, rejected the argument of the AO that the payments received by the assessee was not taxable in India as FTS. The assessee and the department filed Appeals and Cross-Appeals before the ITAT, Mumbai against the directions of the DRP for the Assessment Years 2009-10, 2010-11 and 2011-12 as the issues involved in all these three assessment years were identical. The Department also filed an Appeal before the ITAT against the decision of the DRP. All the Appeals were disposed by the ITAT vide common order dated November 30, 2016. All Appeals of the Department were dismissed and the Appeals of Respondent assessee were allowed. 4. It is this order dated November 30, 2016 of the ITAT that is impugned in the Appeal by the Revenue and the following questions of law are proposed: A. Whether on the facts and in the circumstances of the case and in law, the Hon ble ITAT has erred in holding that Infomedia 18 Pvt. Ltd. does not constitute a business connection of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a.com Group has been explained in the impugned order as under:- 7. During years under consideration, the assessee has transacted with Alibaba.com Hong Kong Ltd. (Alibaba Hong Kong) by way of availing of a Web Hosting and related services. It has been clarified that Alibaba Hong Kong is not the parent company of the assessee as has been wrongly mentioned and presumed by the A.O. in the impugned assessment order. The Assessee has been regularly filing its accounts with Singapore Corporate Law authorities and its Income-Tax return with Singapore Tax authorities. The notice of assessment issued by the Singapore Tax authorities is also produced. Regarding the operating model of the assessee, Mr.Pardiwalla submitted that the Alibaba website, that is, www.alibaba.com, is commonly used by the entire Alibaba Group and services are being provided to the suppliers from all across the countries including India but excluding China, Hong Kong and Macau. The website facilitates Indian suppliers to do business online through a global trade market place. Indian subscribers subscribe to the assessee s service / facility offering under the International Trust Pass (ITP) and Gold Suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and successful authentication and verification by the third party agency; d. Once the Account is received by the Subscribers, they could proceed to display information about their business, products sold and offer to buy or sell products or services for visitors to the assessee s Website to browse; e. The users would click on the products that they wish to buy the further details about such products for contract details of the Subscriber, who has displayed / advertised the product; and f. The subscribers and the buyers reach out to each other and the communication is taken forward independently without any participation or involvement of the assesee. The limited role of the assessee is to provide a facility of posting an advertisement or displaying of the information about product of services in the electronic form (i.e., similar to digital Yellow Pages). To explain the process followed by the assessee, assessee had also filed copy of screen shots of the site displayed in the computer as to how the products and services are displayed on the Alibaba website and how it is being used by the subscribers. Mr. Pardiwalla submitted the assessee has a very lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribers are provided by Alibaba Hong Kong, since it is the owner of the Website; and lastly, the Website is a trade mark of Alibaba Hong Kong; b) Information constitutes a business connection for the assessee in India since the definition of business connection is an inclusive one; c) The subscription fees earned is partly in the nature of business income, royalty and fees for technical services; d) Business income:- The term source does not mean the location of the payer, but the place where profit-making activities are carried out. In other words, source is a profit-making apparatus , and since the Website constitutes a profit making apparatus for which payments are made to the assessee by the subscribers, therefore, income is deemed to accrue or arise in India under section 9(1)(i) of the Act. e) Fees for Technical Services:- The subscription fees earned is in the nature of fees for technical services on the ground that the scope of term fees for technical services is very wide and needs to be interpreted very broadly. The issue of taxability under Royalty had been rejected by the DRP and department did not challenge this aspect. Therefore, thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and is the trademark of Alibaba Hong Kong. AO has completely denied the existence of the assessee as an independent entity as if the assessee was only a front or a shadow entity of Alibaba Hong Kong. If the AO was so convinced that the entire activity in India to various subscribers was actually carried out by Alibaba Hong Kong and not by assessee, then we would have expected him to do something to Alibaba Hong Kong and not the assessee. 15. The ITAT has considered various documentary evidences, including the Tax Residency Certificate of assessee, and has come to a factual finding that it cannot be held that assesseee is either non-existent entity or some kind of conduit of Alibaba Hong Kong which is not even the parent company. The ITAT has even reproduced a group structure of Alibaba.com and has come to a conclusion that Alibaba.com Hong Kong is a separate entity than the assessee. There is a finding of fact that the assessee has been incorporated under the laws of Singapore and a tax residency certificate has been issued by the Inland Revenue Authority of Singapore. The tax residency and residence status of the assessee is also established by filing certificate of incorpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Authority. The ITAT held that the Hon ble Supreme Court, in that case, only observed that the Tax residency certificate does not prevent the tax authority to enquire into a possible tax fraud, which is not even the allegation in the matter at hand. 18. On the issue of as to whether assessee has any business connection in India in the form of Infomedia and whether Infomedia constitutes a dependent agency PE for the assessee in India, the ITAT first of all reiterates the finding it gave to the first issue on applicability of India-Singapore DTAA which was given after considering the business / operating model of the assessee in India. Thereafter, ITAT came to the conclusion on facts that assessee has limited role as its role is confined to facilitate the posting of the advertisement or displaying of the information about the product and services in the electronic form in to the web portal. The ITAT has come to a factual finding that the subscribers and the buyers reach out to each other from the information provided by the assessee and the communication is taken forward independently by the parties without any participation or involvement of the assessee, and most importantly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into several collaborations with other partners like assessee and assessee does not have any financial, managerial or any other type of participation in Infomedia, that Infomedia carries out host of other activities for other clients and Infomedia is an independent entrepreneur. Further while dealing with the assessee, Infomedia has been compensated for its services by the assessee. ITAT also has concluded on facts that the activities of Infomedia under the Cooperation Agreement with the assessee is in the ordinary course of business and in no way it is dedicated wholly or almost wholly to the assessee. 23. After arriving at these factual findings, ITAT came to the conclusion that when Infomedia is not a dependent agent, then, in view of Explanation 2, r/w proviso to section 9(1)(i), the income of the assessee cannot be held to be deemed to accrue or arise in India in terms of section 9(1)(i) of the Act. Once the income of the assessee cannot be taxed as business income in India under 9(1)(i) then it is not necessary to go into the DTAA. 24. On the revenue s appeal, where it had challenged the DRP s direction that the revenues received from India are taxable as Fees for T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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