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2021 (10) TMI 14 - AT - Income TaxIncome accrued in India - Taxability of infrastructure data centre (IDC) charges as royalty - HELD THAT - As decided in own case 2021 (1) TMI 76 - ITAT MUMBAI we hold that IDC charges received by the assessee is not in the nature of royalty. Accordingly, additions are deleted. Addition of other service charges (referral fee) as royalty - HELD THAT - As decided in own case 2021 (1) TMI 76 - ITAT MUMBAI we hold that referral fee received by the assessee is not in the nature of royalty. Accordingly, addition made in both the assessment years under dispute is deleted. Respective ground is allowed. Addition of member login fee as royalty - HELD THAT - As decided in own case 2020 (7) TMI 644 - ITAT MUMBAI Assessee merely provides a standard facility to the Indian entity without granting any exclusive right in respect of any copyright, process, etc. It is further relevant to observe, learned DRP, while deciding the issue has clearly and categorically observed that member login services are similarly to IDC services. If that is the factual position, the member login fee cannot be treated as royalty since, while deciding assessee's appeal challenging the taxability of fees received towards IDC services, the Tribunal has consistently expressed the view that the services cannot be treated as royalty under the India-Singapore Tax treaty. In aforesaid view of the matter, we hold that member login fee is not in the nature of royalty under the treaty provision. Accordingly, addition is deleted.
Issues Involved:
1. Infrastructure data center charges taxed as royalty. 2. Other service charges taxed as royalty. 3. Member login fee taxed as royalty. Issue-wise Detailed Analysis: 1. Infrastructure Data Center Charges Taxed as Royalty: The appellant contested the taxability of infrastructure data center (IDC) charges of INR 2,16,28,003 as royalty under the Income Tax Act and the India-Singapore Double Taxation Avoidance Agreement (DTAA). The Tribunal noted that this issue had been a recurring dispute since assessment year 2010-11. In previous rulings, the Tribunal consistently held that IDC charges are not taxable as royalty. Specifically, the Tribunal observed that the IDC services provided by the appellant involved IT infrastructure management and mail box/website hosting services performed in Singapore. The Indian group companies did not access or use the CPU or any software of the appellant, and the services rendered were standard IDC services without any transfer of software or technical know-how. Citing precedents such as Bharati Axa General Insurance Co. Ltd. and Standard Chartered Bank, the Tribunal concluded that IDC charges do not qualify as royalty under the Act or the DTAA. Consequently, the addition was deleted for the assessment year 2016-17, following the same rationale as in previous years. 2. Other Service Charges Taxed as Royalty: The appellant also challenged the taxability of other service charges (referral fees) of INR 1,63,710 as royalty. The Tribunal referenced its earlier decisions, where it had ruled that referral services provided to support business activities do not make available any technical knowledge, skill, or processes to the recipient. In previous cases, such as Cushman & Wakefield (S) Pte. Ltd. and Real Resourcing Ltd., it was established that referral fees do not constitute royalty or fees for technical services under the DTAA. The Tribunal reiterated that the referral services in question did not involve any transmission of technical know-how and were merely supportive in nature. Therefore, the referral fees were not taxable as royalty, and the addition was deleted. 3. Member Login Fee Taxed as Royalty: The appellant disputed the classification of member login fees of INR 1,00,98,887 as royalty. The Tribunal referred to its prior ruling for the assessment year 2015-16, where it had determined that member login services were similar to IDC services. The Tribunal had previously held that such services do not grant any exclusive rights or involve the transfer of any copyright or process. The Tribunal maintained that member login fees should not be treated as royalty under the India-Singapore DTAA. As there was no change in the factual position for the assessment year 2016-17, the Tribunal followed its earlier decision and deleted the addition. Conclusion: The appeal was allowed, with the Tribunal deleting the additions related to IDC charges, other service charges, and member login fees, as these were not considered royalty under the Income Tax Act or the India-Singapore DTAA. The Tribunal's decisions were consistent with its rulings in previous assessment years, emphasizing the non-taxability of these charges as royalty. General grounds raised by the appellant were dismissed. The order was pronounced on 22/09/2021.
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