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TMI Blog2022 (5) TMI 1603X X X X Extracts X X X X X X X X Extracts X X X X ..... unts to J and P coats Limited, an associate enterprise, towards Bandwidth charges. 2.2 From the records, the Ld.AO observed that assessee remitted following amounts to J&P Coats Ltd. towards bandwidth charges. F.Y Amount Paid 2015-16 Rs. 6,05,47,045.78 2016-17 Rs. 4,60,99,541.75 2.3 The Ld.AO noticed that assessee had not deducted TDS as per the provisions of section 195 of the Act and therefore proceedings u/s. 201(1) was initiated by issuing notice dated 31.01.2018 calling upon assessee to show cause as to why it should not be treated as an assessee in default in respect of tax not deducted at source in respect of the payments in question. In support, the representative of assessee furnished explanation vide letter dated 09.02.2018 wherein various agreements were filed. 2.4 An agreement dated 01/01/2008, was entered into between the assessee and J&P Coats, titled "Applications Support and Wide Area Network Support Services Agreement. Under this agreement, the J&P Coats Ltd.,( hereinafter referred to as J&P Coats), agreed to provide to the assessee, following services: (i) Application support services, i.e., As per the agreement, J& P Coats with IBM, UK and SAP (UK) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alculations, 2.7 The assessee submitted that, in order to render Wide Area Network Support Service to the assessee and other group entities across the globe, an agreement was enetered by J&P Coats, with British Telecom Plc., UK (hereinafter referred to as BT) dated 11.04.2006, called the Master Global Framework Agreement (hereinafter referred to as MGFA) whereby, BT agreed to provide services to the J&P Coats. It further submitted that, Schedule 18 to the MGFA gives list of sites, at which BT was to provide its services. The list includes India and includes sites used by the assessee in India. 2.8 The MGFA defines "services" and "sites" as follows: "Services" means the services to be provided by BT to Coats at any given time during the Term and as described under Schedule 1 (Services) and any other services agreed by the Parties to be provided by BT to Coats Group under this Agreement; "Sites" means the Sites which are used by Coats Group and to which BT has agreed to provide the Services as such Sites are listed in Schedule 18 (Coats Site List) and may be added to or removed in accordance with Schedule 9 (Change Control Procedure); 2.9 Persons to whom services are to be rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith ISDN capability (ISDN to be supplied by Coats) for the purpose of resilient backup. The data centres at Ipiranga (Brazil), Guangzhou (China), Charlotte (USA) and Vienna (Austria) are to be provided with dual access links, in all cases routed diversely (subject to Coats Site infrastructure providing for such diverse routing) and dual MPLS Ports each supporting Class of Service 2. A number of Sites will be connected via a private WAN connection to an existing Coats Site for onward connectivity to the BT MPLS network. These are detailed as follows: Site Connected to MPLS network via: Mauritius Long line to Stockley Park site, UK Madagascar Lonq line to Hammarsdale site, South Africa Zimbabwe Long line to Hammarsdale site, SA Bangladesh (Dhaka) Long line to Bangalore HQ site, India Bangladesh (Chittagong) Local connection to Dhaka site, India, then via long line to Bangalore (as above) Pakistan (Karachi) Long fine to Stockley Park site. UK Pakistan (Lahore) Local connection to Karachi site, Pakistan, then long line to Stockley Park (as above) Sri Lanka (Colombo) Lonq line to Bangalore HQ site, India Sri Lanka (Horana) Local connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in case of CIT v. Tejaji Farasram Kharawalla Ltd. Reported in 67 ITR 95 g) Decision of Hon'ble Delhi High Court in case of CIT v. Industrial Engineering Projects (P) Ltd reported in 202 ITR 1014 g) Owen v. Pook (Inspector of Taxes) 74 ITR 147 (HL) h) Decision of Hon'ble Delhi High Court in case of ACIT vs Modicon Network (P) Ltd reported in 14 SOT 204 2.15 The Ld.AO examined the nature of payment in the light of the definition of "Royalty" under the Act and as per the India UK DTAA. 2.16 The Ld.AO referred to clause (via) of Explanation-2 to Sec.9(1)(vi) of the Act, which provides that, consideration for "the use or right to use any industrial, commercial or scientific equipment" is regarded as Royalty. He also referred to the definition of 'Royalty' as given in Article 13(3)(b) of the India UK DTAA, which has similar clause "payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment". According to the Ld.AO, the consideration paid to J&P Coats by the assessee was for "use" or "right to use" towards dedicated bandwidth and the equipment associated with the network, and therefore, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 195 of the Act. 2.24 Aggrieved by the order Ld.CIT(A), the assessee is in appeal before the this Tribunal. 3. It is submitted by both sides that the grounds raised on the above facts are identical for both the years under consideration. For the sake of convenience, we reproduce herewith the grounds for A.Y. 2016-17 in IT(IT)A No. 1344/Bang/2019 as under: "The grounds stated hereunder are independent of and without prejudice to one another. The Appellant submits as under: General 1. The order passed by the learned Commissioner of Income Tax (Appeals) ['Ld. CIT (A)'] is bad under the law and on facts. 2. The Ld. CIT(A) has erred in upholding the action of the Learned Deputy Commissioner of income Tax (International Taxation) Circle - 1(2) ('Ld. DCIT') in treating the Appellant as an `assessee in default' within the meaning of section 201(1) /201(1A) of the Income-tax Act, 1961 ('the Act'). Cost to cost reimbursement 3. The CIT(A) has erred in law and in facts by not appreciating that the amount paid by the Appellant to JPCL is in the nature of cost to cost reimbursement and had no element of income accruing or arising to JPCL in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal." 4. The Ld.AR submitted that the question whether a payment to a non-resident is in the nature of royalty or not has to be tested in the light of the relevant provisions of DTAA between India and the country of which the non-resident payee is a tax resident. The Ld.AR submitted that, J&P coats is a tax resident UK, and therefore, income of a non-resident in India on the income that is received or is deemed to be received in India; or accrues or arises, or is deemed to accrue or arise to it in India, is taxable in India, only if, the payment in question can be characterized as "Royalty" under the provisions of Indo-UK DTAA. 5. He submitted that the term "Royalty" has been defined in Explanation 2 to section 9(l)(vi) of the Act as follows: "Explanation 2.-For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for- (i) the transfer of all or any right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of coordinate bench of this Tribunal in assessee's case of ITO v M/s. Madura Coats (P) Ltd.(supra), wherein, very same payment in the context of tax deduction obligation was held the telecom bandwidth facility would not be characterised as 'royalty', under the Act and the DTAA. 8. Ld.AR submitted that, the Authority for Advance Rulings (AAR) in the following decisions, held that, connectivity charges paid for use of telecom bandwidth would not be characterized as 'royalty' under the Act and the DTAA- * Decision of AAR in case of Dell International Services India-305 ITR 37 * Decision of AAR in case of ISRO Satellite Centre vs DIT-307 1TR 59 * Decision of AAR in case of Cable and Wireless Networks India (P) Ltd vs DIT-315 1TR 72 9. It was submitted that, the AAR in Dell International Services (supra) propounded the following principles in this regard- * The provision of telecom bandwidth facility by means of dedicated circuits and other network installed and maintained by the service provider does not amount to a lease of equipment. * The service provider utilises its own network and provides a facility that enables the service recipient to transmit voice a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". 12. It was submitted that data connectivity is primarily provided by BT & J&P Coats merely recoups portion of the costs from assessee, based on usage by assessee. The Ld.AR thus submitted that, the payment made by assessee to JP Coats would not fall within the ambit of the term `fees for technical services' under the Act, in the absence of any services being rendered by J&P Coats to assessee. The Ld.AR placed reliance on: * Decision of the Hon'ble Madras High Court in case of Skycell Communications Ltd v DCIT reported in (2001) 251 ITR 53 (Mad) and; * decision of Hon'ble Delhi High Court in CIT &Ors. vs Bharti Cellular And Others reported in (2008) 175 Taxman 573 13. He submitted that, in these decisions it was held that, provision of cellular services cannot be treated as technical services. Without prejudice, to the above, the Ld.AR placed reliance on Article 13 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r DTAA with similar wordings can be used. In this regard, reliance was placed on the following judicial precedents: * Decision of the AAR in case of lntertek Testing Services India (P) Ltd reported in 175 Taxman 375 The AAR relied upon the Memorandum of Understanding, examples and explanatory appended to the DTAA between India and United States of America in order to arrive at a better understanding of the treaty law between India and United Kingdom. * Decision of Hon'ble Karnataka High Court in A.E.G Telefunken v. CIT reported in 233 ITR 129, wherein Hon'ble Court compared the DTAA entered with German Democratic Republic with the DTAA entered with Finland for achieving a better understanding of the term fees for technical services. * Decision of Hon'ble Mumbai Bench in case of Raymond Ltd vs. DCIT, reported in 86 ITD 791 relied on the Memorandum of Understanding, examples and explanation appended to the DTAA between India and US, in order to arrive at a better understanding of the treaty law between India and UK. 16. The Assessee submitted that the MOU under the Indo-US DTAA can be used to explain the concept of 'make available' under the Indo- UK DTAA. Under Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness Connection in India under the Act or * Permanent Establishment ("PE") in India under the relevant DTAA (in the present case, under the Indo-UK DTAA). 19. It was submitted that J&P COats does not have a Business Connection in India under the Act or a Permanent Establishment ("PE") in India as per the provisions of Indo-UK DTAA. In the absence of a PE or a business connection in India, it was submitted that the receipts pertaining to the recoveries of data connectivity charges would not be taxable as business profits in India. It was held that, the assessee is thus an 'assessee in default' under section 201(1) of the Act, for non deduction of TDS under section 195 of the Act on the amount aid to J&P Coats Ltd. 20. Aggrieved by the order passed by the Ld.CIT(A), the assessee is in appeal before this Tribunal. 21. Before us, the Ld.AR submitted that, the view taken by authorities below is based on the amendment made to section 9(1)(vi) of the Act, by introduction of Explanation 5 and Explanation 6 by 2012. He submitted that prior to 2012, the Delhi High Court in Asia Telecommunications Co. Ltd. vs. DIT reported in (2011) 332 ITR 340 held that, for a payment to be regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r not, would be regarded as 'royalty'; and * Thirdly, the definition of 'royalty' under the DTAA does not cover consideration for use of Industrial, Commercial or Scientific ('ICS') Equipment, while the definition under the IT Act cover such consideration for use of ICS equipment. 24. He placed reliance on the principles laid down by the Hon'ble Supreme Court in case of Engineering for Analysis Centre of Excellence (P) Ltd reported in (2021) 125 Taxmann.com 42. On the question whether the provisions of the Act can override the provisions of the DTAA, the Hon'ble Court held that, Explanation 4 was inserted in section 9(1)(vi) of the Act in 2012, to clarify that, the "transfer of all or any rights" in respect of any right, property, or information included and had always included the "transfer of all or any right for use or right to use a computer software". The Hon'ble Court held that, Explanation 4 to section 9(1)(vi) expanded the scope of 'royalty' under Explanation 2 to section 9(1)(vi). Prior to the amendment, payment could be treated as 'royalty' only if, it involved a transfer of all or any rights in copyright by way of license or other similar arrangements under the Copyr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the said explanation also use identical terms. The words which surround the word 'process' in clauses (i) to (iii) of Explanation 2 to section 9(1 )(vi), refer to various species of intellectual properties such as patent, invention, model, design, formula, trade mark etc. The expression 'similar property' used at the end of the list, further fortifies the stand that the terms 'patent, invention, model, design, secret formula or process or trade mark' are to be understood as belonging to the same class of properties viz. intellectual property. 29. 'Intellectual property' as understood in common parlance means, Knowledge, creative ideas, or expressions of human mind that have commercial value and are protectable under copyright, patent, service mark, trademark, or trade secret laws from imitation, infringement, and dilution. Intellectual property includes brand names, discoveries, formulas, inventions, knowledge, registered designs, software, and works of artistic, literary, or musical nature. 30. We refer to the commentary in Prof.Klaus Vogel's Commentary on Double Taxation Convention, wherein, the term 'Royalty' is defined as under: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34. Now, by Finance Act, 2012, Explanation 5 & 6 were added with retrospective effect from 1.6.1976 which reads as under:- "Explanation 5: For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not- (a) The possession or control of such right, property or information is with the payer; (b) Such right, property or information is used directly by the payer; (c) The location of such right, property or information is in India. Explanation 6: For the removal of doubts, it is hereby clarified that the expression "process" includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret." 35. By insertion of Explanation 5 & 6, meaning of word 'Process' has been widened. As per these explanations, the word 'Process' need not be 'secret', and situs of control & possession of right, property or information has been rendered to be irrelevant. However, in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & Wireless Networks India(P.)Ltd., In re, reported in (2009) 182 Taxman 76 * Decision of AAR in case of ISRO Satellite Centre reported in 2008) 307 ITR 59 * Decision of AAR in case of Dell International Services (India) P. Ltd.In.re. reported in (2008) 172 Taxman 418. The above decisions, lay down that, in order to satisfy 'use or right to use', the control and possession of right, property or information should be with payer. 40. In the decision of Authority For Advance Ruling, in case of Cable & Wireless Networks India(P.)Ltd., In re(supra), a similar issue was considered wherein Cable & Wireless Networks India(P.)Ltd was a company incorporated in India part of Cable & Wireless Group of companies. Cable & Wireless Networks India(P.)Ltd., was engaged in providing international long distance and domestic long distance telecommunication services in India. As per the agreement Cable & Wireless Networks India(P.)Ltd., would provide the Indian leg of service of using its own network and equipments and network of other domestic operators. Similarly, the international leg of services would be provided by the UK group company using its international infrastructure and equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nery (which was with the contractor) and control of the machinery was highlighted. The ratio of that decision cannot be pressed into service to conclude that the right of usage of equipment does not carry with it the right of control and direction whereas the phrase 'right to use' implies the existence of such control. Even in a case where the customer is authorized to use the equipment of which he is put in possession, it cannot be said that such right is bereft of the element of control. We may clarify here that notwithstanding the above submission, it is the case of applicant that, it has neither possession nor control of any equipment of BTA. 12.6 The other case cited by the learned counsel for applicant to explain the meaning of expressions 'use' and 'right to use' is that of BSNL v. UOI (2006) 3 STT 245 (SC). Even that case turned on the interpretation of the words "transfer of right to use the goods" in the context of sales-tax Acts and the expanded definition of sale contained in clause (29A) of section 366 of the Constitution. The question arose whether a transaction of providing mobile phone service or telephone connection amounted to sale of go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means to employ for any purpose, to employ for attainment of some purpose or end, to convert to one's service or to put to one's use or benefit. (Beach v. Liningston) "'Use', as a noun, is synonymous with benefit and employment and as a verb has meaning to employ for any purpose, to employ for attainment of some purpose or end, to avail one's self, to convert to one's service or to put to one's use or benefit". (Esfeld Trucking Inc. v. Metropolitan Insurance Co.) 12.8 The word 'use' in relation to equipment occurring in clause (iva) is not to be understood in the broad sense of availing of the benefit of an equipment. The context and collocation of the two expressions 'use' and 'right to use' followed by the words "equipment" suggests that there must be some positive act of utilization, application or employment of equip-ment for the desired purpose. If an advantage is taken from sophisticated equipment installed and provided by another, it is difficult to say that the recipient/customer uses the equipment as such. The customer merely makes use of the facility, though he does not himself use the equipment. 13. It is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e' occurring in the relevant provision does not simply mean taking advantage of something or utilizing a facility provided by another through its own network. What is contemplated by the word 'use' in clause (iva) is that the customer comes face to face with the equipment, operates it or controls its functioning in some manner, but, if it does nothing to or with the equipment (in this case, it is circuit, according to the revenue) and does not exercise any possessory rights in relation thereto, it only makes use of the facility created by the service provider who is the owner of entire network and related equipment. There is no scope to invoke clause (iva) in such a case because the element of service predominates. 13.2 Usage of equipment connotes that the grantee of right has possession and control over the equipment and the equipment is virtually at his disposal. But, there is nothing in any part of the agreement which could lead to a reasonable inference that the possession or control or both has been given to the applicant under the terms of the agreement in the course of offering the facility. The applicant is not concerned with the infrastructure or the access ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the commentary relied by the Ld.Counsel form Prof. Klaus Vogel's Commentary on Double Taxation Convention, wherein 'Secrete formulae or process' is defined as under: Secret formulae or processes: This covers Know-how in the narrower sense of the term viz., all business, secrets of a commercial or industrial nature. In most of the countries, they enjoy at least relative protection or are capable of being protected. That is why Article 12(2) very properly use, in connection with such formulae, etc., the criterion 'right to use', which is pertinent to them (letting) as it is in the case of absolute proprietary rights. As a rule, the 'right to use' already come into existence in these instance by authorized information(legitimate disclosure of secrets). It may be restricted in the point of time in respect of the period following the expiry of the license. On the difference between a product with relatively simple technology, and a business secret. 43. We note that, in case of DCIT v. PanAmSat International Systems Inc., reported in (2006) 9 SOT 100, Hon'ble Delhi High Court distinguished the decision of Asia Satellite Telecommunication Co. Ltd. v. Dy. CITT reported in (2003) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applied to the word "trademark" because once registered there is nothing secret about the trademark and the impossibility of reading the word "secret" before the word "trademark" further strengthens the view that the word "secret" cannot be read before the word "process" also. This naturally takes us to the question whether there is anything in article 12.3(a) of the DTAA between India and USA which militates against such a view. It must be remembered that India had no DTAA with Hongkong and hence the view taken by the Tribunal (supra) with regard to the clause (iii) of Explanation 2 below section 9(1)(vi) would apply if we were to also interpret the same provision. But article 12.3(a) is worded as below : "The term 'royalties' as used in this article means : * payments of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la or process," in article 12.3(a) of the treaty refer to various species of intellectual properties such as patent, trademark, design or model, plan, etc. Thus the words "secret formula or process" must also refer to a specie of intellectual property applying the rule of ejusdem generis or noscitur a socii. 20. That takes us to a consideration of the question whether the process carried on by the assessee is a secret process. On this question, we have weighed the elaborate arguments advanced by both the sides carefully and hold that so far as the transponder technology is concerned there appears to be no "secret technology", known only to a few. There is evidence adduced before us to show that the technology is even available in the form of published literature/book from which a person interested in it can obtain knowledge relating thereto. There is no evidence led from the side of the Department to show that the transponder technology is secret, known only to a few, and is either protected by law or is capable of being protected by law. This aspect of the matter was not required to be considered by the Tribunal in the case of Asia Satellite Telecommunication Co. Ltd. (supra) b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " two way dedicated bandwidth and the equipment associated with the network and therefore the payment was in the nature of Royalty. We have already seen that the Assessee has placed reliance on decisions of AAR in the case of Dell International Services (supra), Cable & Wireless Networks (I) Pvt.Ltd., (supra) and ISRO Satellite Centre (supra) wherein it was held that providing telecom bandwidth facility by means of dedicated circuits and other network installed and maintained by the service provider does not amount to a lease of equipment. The AO distinguished those decisions by pointing out observations of the AAR in the case of Dell International Services(supra) wherein the AAR observed "May be, a fraction of the equipment in visible form may find its place at the applicant's premises for the purpose of establishing connectivity or otherwise. But, it cannot be inferred from this fact alone that the bulk of consideration paid is for the use of that item of equipment". According to the AO the above observations shows that what has to be seen is the importance of the equipment installed in the customer's premises for establishing connectivity. He referred to Schedule 18 of the MGFA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh its own network. What is contemplated by the word 'use' in cl. (iva) is that the customer comes face to face with the equipment, operates it or controls its functioning in some manner, but, if it does nothing to or with the equipment (in this case, it is circuit, according to the Revenue) and does not exercise any possessory rights in relation thereto, it only makes use of the facility created by the service provider who is the owner of entire network and related equipment. There is no scope to invoke cl. (iva) in such a case because the element of service predominates." 19. After quoting the above highlighted portion of the ruling of AAR, the AO proceeded to hold that the services provided by BT requires use of Routers belonging to BT by MCPL and a positive act is required to be done by MCPL in relation to the router installed at its premises by BT. MCPL has to provide the necessary infrastructure in its premises to host the router and has to adapt their Local Area Network to work with the BT routers. Since the answer is yes as per the decision of the Hon'ble AAR, the payment for the use of the network amounts to Royalty. 20. The AO thereafter referred to another part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the process was provided whereby through assured bandwidth the customer is guaranteed the transmission of the date and voice. The fact 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 royalty. Thus the consideration being for the use and the right to use of the process, it is royalty with the meaning of clause (iii) of Expln.2 to Sec.9(1)(vii) of the Act. Clause(iii) of Expln.-2 to Sec.9(1)(vi) provides that consideration received for use of any patent, invention, model, design, secret formula or process or trade mark or similar property, would be royalty. According to the AO even though the statutory provisions use the expression secret process, even ordinary/simple process shall be covered by the definition. In coming to the above conclusion the AO relied on the decision of the Special Bench ITAT Delhi in the case of New Skies Satellites N.V. Vs. ACIT (Intl.Tax) (2009) (126 TTJ 1) has taken the view that the provision of the transponder through which the telecasting companies are able to uplink the desired images/data and downlin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication support and Wide Area Network support services between the Assessee and MCPL and submitted that the Wide Area Network support services provided were merely connectivity services and are not for use of any equipment or process as understood by the revenue and therefore cannot be characterized as "Royalty" either under the Act or under the DTAA. It was submitted that the Assessing Officer's reliance on the decision of Hon'ble Madras High Court in Verizon Singapore Pte. Ltd. vs ITO (supra) and decision of Special Bench of ITAT, Delhi, in New Skies Satellite (supra) was misplaced. It was submitted that the Hon'ble Delhi High Court has reversed the decision of Special bench in New Skies Satellite BV which is reported in 68 taxmann.com 8, and the issue stands covered by Asia Satellite Telecommunications Co. Ltd. vs DCIT [2011] 332 ITR 340 (Del.). It was submitted that the consideration amount received for providing bandwidth services would not be taxable as equipment royalty or process royalty under the Tax Treaty. The transaction does not result in equipment royalty under the Tax Treaty as there is no use or right to use any industrial, commercial or scientific equipment by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Finance Act, 2012 cannot be applied to India-UK DTAA. 25. The learned DR primarily reiterated the stand of the revenue as contained in the order of assessment. His submission was that reimbursements to the extent it is for rendering services has to be regarded as income. In this regard he relied on the decisions which has been cited by the AO in the order of assessment. He placed reliance on the decision of the Hon'ble Madras High Court in the case of Verizon Communications Singapore Pvt.Ltd. (supra) for the proposition that payment of use of bandwidth facility would be in the nature of royalty both under the Act and the DTAA between India and Singapore and that decision will equally apply to India-UK DTAA. 26. We have heard the rival submissions perused the material on record. The issue which arises in the present appeal filed by the Assessee for different Assessment Years is against the chargeability of amount received from MCPL by the Assessee towards BT charges for providing WAN connectivity/bandwidth services outside India as equipment/process royalty u/s 9(1)(vi) of the Act and/or Article 13(3) of the India UK DTAA. The Assessee is a tax resident of UK. The bandwidt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Authority for Advance Ruling held that the word 'use' in relation to equipment occurring in Expln-2 (iva) to Sec.9(1)(vi) is not to be understood in the broad sense of availing of the benefit of an equipment. The context and collocation of the two expressions 'use' and 'right to use' followed by the word "equipment" suggests that there must be some positive act of utilization, application or employment of equipment for the desired purpose. If an advantage is taken from sophisticated equipment installed and provided by another, it is difficult to say that the recipient/customer uses the equipment as such. The customer merely makes use of the facility, though he does not himself use the equipment. The Hon'ble Delhi High Court in the case of DIT v. New Skies Satellite BV [2016] 68 taxmann.com 8/238 Taxman 577/382 ITR 114 and CIT v. Siemens Aktiongesellschaft [2009] 177 Taxman 8/310 ITR 320 (Bom.) have also taken similar view in the context of use of transponder facility. This view has been affirmed by the Mumbai ITAT in the case of Dy. CIT v. Reliance Jio Infocomm Ltd. [2019] 108 taxmann.com 325 (Mum.), wherein it has been held that u/s.9(1)(vi) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation usage directly by the payer, location of the right are not matters of concern in deciding the character of payment as 'royalty'. The customer has a significant economic interest in the Assessee's equipment to the extent of the bandwidth hired by the customer. The bandwidth capacity made available on a dedicated basis for the entire contract period, even if it does not involve a possessory interest, the amount received by the Assessee in a way is also for the use of process. The definition of 'royalty' under DTAA and the Indian Income-tax Act are in para materia. As rightly pointed out by the revenue, Explanation 6 defines 'process' to mean and include transmission by satellite (cable, optic fibre, or by any other similar technology, whether or not such process is secret. 29. The provisions of Expln-5 and 6 referred to in the decision of the Hon'ble Madras High Court in the case of Verizon Communication (supra) reads thus: Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not- (a) the possession or control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpln.5 to Section 9(1)(vi) of the Act, indeed was clarificatory as the Revenue suggested or prospective and the Court was of the view that the issue of taxability of income of Assessee may be resolved without redress of above question purely because the Assessee did not press the said line of argument and had instead stated that ultimate taxability of income shall rest on the interpretation of terms of DTAA. 30. It was submitted by the learned counsel for the Assessee that internationally, it is accepted that when payments are made for such services, they are not in the nature of 'royalties'. It has been internationally accepted that payments for satellite broadcasting services, transponder services, bandwidth services etc. are not to be considered 'royalties'. It is also accepted that bandwidth fees cannot be considered as payments for the 'use of process'. In so far as use or use of equipment is concerned, as long as there is no control established over the equipment. This view has been endorsed by the OECD Model Commentaries as well. This view has specifically been upheld by the Authority for Advance Rulings in India in the case of Dell International (supra) and the Hon'ble D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lace. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; (ii) Before taxing any person, it must be shown that he falls within the ambit of the charging section byclear words used in th e section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of Legislature'sfailure to express itself clearly". 32. We have already seen the two divergent views one taken by the Hon'ble Delhi High Court in the case of Asia Satellite (supra) and Bombay High Court in the case of Siemens Aktiongesellschaft (supra) and the other view taken by the Hon'ble Madras High Court in the case of Verizon Communication (supra). There is no decision of the Hon'ble Karnataka High Court brought to our notice, which is the jurisdictional High Court as far as this Tribunal is concerned. Applying the rule that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. v. DDIT, Circle (1) International Taxation, New Delhi [2019] 101 taxmann.com 492." 49. We note that the Ld.CIT(A) relied on the decision of Hon'ble Delhi Tribunal in case of J.C. Bamford Excavators Ltd. vs. DDIT (supra) in order to conclude that the payments made by the assessee to J&P Coats is towards providing services of a technical nature that are also made available. 50. We have perused the decision of Hon'ble Delhi Tribunal and note that the facts there are are as under: "4. It is imperative to understand the facts of the case in hand. M/s JCB Bamford Excavators Ltd ['JCBE' the appellant for short] is a company incorporated under the laws of UK. It is a non-resident company for the purposes of Indian Tax Laws and is a tax resident of UK under Article 4 of the DTAA entered into between India and UK. On 5.03.2004, JCBE entered into Technology Transfer Agreement [TTA] with JCB India to licence the know-how and related technical documents consisting of all drawings and designs with an exclusive right to manufacture and market the technology/excavator loader in the territory of India under the brand name '3DX'." 51. The Hon'ble Delhi Tribunal further whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering services after the grant of IP Rights. The ld. DR was also fair enough to candidly accept this position. Thus, it follows that albeit the amount of royalty received by the assessee arises out of IP Rights which are in the nature of right or property but the same cannot be considered under para 6 of Article 13 because it is not effectively connected with the service PE of the assessee in India." ....................... 25. In the light of the above, it would be preferable to go through the contests of agreement dated 17.12.2007 [Tripartite Agreement]: 'Page 1, Clause (C): Under a Technology Transfer Agreement dated 5 March 2004 (the "Technology Agreement") JCB UK granted to JCB India an exclusive license under JCB UK's intellectual property to manufacture, assemble and sell licensed products (as defined in the Technology Agreement) in India and a non-exclusive licence under JCB UK's intellectual property to sell the Licensed Products outside India as determined by mutual written agreement between the parties. (D) JCB UK now wishes for JCB investments to manage the licensing of JCB UK's intellectual property to JCB India going forward. .... "P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as having been made available to the recipient of the services. Substance will rule over form." 52. From the above facts of the case that was considered by Hon'ble Delhi Tribunal, it is clear that there was an existence of service PE and that assessee in India and there was an admitted transfer of technology in the agreement for which the payment was rendered as observed by Hon'ble Delhi Tribunal as under. This itself makes the present facts distinguishable in case of assessee as the revenue has not made out a case of permanent establishment of J&P Coats in India which has been also observed by Coordinate Bench of this Tribunal in a decision passed in case of J&P Coats for various assessment years referred to hereinabove. In the order passed by the Ld.CIT(A), we note that the revenue is doubting, if the payment made could be FTS, however took the view of the payments to be FTS by relying on various decisions which are a subject matter of royalty. Thus the revenue has actually not made out a case for taxing the payments by the assessee as FTS. 53. The plea of the Assessee was in terms of paragraph 4(c) of Article 13 of DTAA, that payments of any kind in consideration for renderi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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