9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2012 (2) TMI 534 - AT - Income TaxTDS u/s 195 - Held that - When the equipments were not operated used or under the control of the assessee then the payments made for availing the services of Rackspace cannot be said as royalty. When the payments are not in the nature of royalty as per Indo-USA DTAA as well as per Explanation 2 (via) of Sec. 9(1) of the I T Act then recipient of the said payments being non-resident having no PE is not liable to tax in India. Therefore the payments in the hands of Rackspace are not taxable in India and consequently no tax required to be deducted u/s 195 on such payment/remittance by the assessee as held by the Hon ble Supreme Court in the case of GE India Technology Centre P. Ltd. v. Commissioner of Income-tax reported in 2010 (9) TMI 7 - SUPREME COURT OF INDIA .
Issues Involved:
1. Whether the payment made by the assessee to Rackspace Inc., USA constitutes a payment for the use of equipment or for services. 2. Whether the payment qualifies as 'Fees for included Services' under the Income Tax Act and the Indo-USA DTAA. 3. Whether Rackspace Inc., USA has a Permanent Establishment (PE) in India. 4. Whether the assessee is liable to deduct tax at source on the payments made to Rackspace Inc., USA. 5. Whether the payments made by the assessee should be treated as royalty under the Income Tax Act and Indo-USA DTAA. Issue-wise Analysis: 1. Payment for Use of Equipment or Services: The CIT(A) held that the payment made by the assessee to Rackspace Inc., USA is for services provided and not for the use of any equipment. The CIT(A) referenced the Tribunal's decision in Kotak Mahindra Primus Ltd vs DDIT and the Authority for Advance Rulings in the case of ISRO Satellite Centre (ISAS), concluding that the services provided by Rackspace, although technical, do not constitute 'Fees for included Services' as no technology was made available to the assessee. 2. Fees for Included Services: The CIT(A) determined that the services provided by Rackspace Inc., USA, which included server management, bandwidth and connectivity, and security, do not qualify as 'Fees for included Services' under the Income Tax Act and Indo-USA DTAA. The services were deemed technical but did not involve the transfer of technology or know-how to the assessee. 3. Permanent Establishment (PE): The CIT(A) held that Rackspace Inc., USA does not have a Permanent Establishment (PE) in India. This conclusion was based on the fact that the equipment and servers used to provide the services were under the control of Rackspace and located outside India. Hence, the income from the services provided by Rackspace cannot be taxed as 'Business Income' in India. 4. Liability to Deduct Tax at Source: The CIT(A) concluded that the assessee has no liability to deduct tax at source under section 195 of the Income Tax Act. Since the payments made to Rackspace Inc., USA were not for the use of equipment but for services, and Rackspace did not have a PE in India, the payments were not taxable in India. Consequently, the assessee cannot be treated as an assessee in default for not deducting tax at source. 5. Treatment as Royalty: The Assessing Officer initially treated the payments made by the assessee to Rackspace Inc., USA as royalty under Explanation 2 to section 9(1)(vi) of the Income Tax Act and the Indo-USA DTAA. However, the CIT(A) disagreed, stating that the payments were for hosting services and not for the use of any equipment. The CIT(A) referenced the Delhi High Court's decision in Asia Satellite Telecommunications Co. Ltd vs Director of Income Tax, which clarified that payments for services where the equipment remains under the control of the service provider do not constitute royalty. Conclusion: The appeals filed by the revenue were dismissed. The CIT(A)'s order was upheld, confirming that the payments made by the assessee to Rackspace Inc., USA were for services and not for the use of equipment, did not qualify as 'Fees for included Services,' and were not taxable in India due to the absence of a PE. Consequently, the assessee was not liable to deduct tax at source on these payments.
|
