2023 (7) TMI 134 - HC - Income Tax

Taxability of foreign income in India - business connection in India or not? - subscription services are provided by the said Hong Kong Company - The website facilitates Indian suppliers to do business online through a global trade market place. - India and Hong Kong do not have a DTAA - as argued assessee has a very limited role which is merely confined to providing facility of posting and advertising or displaying of the information about the product and services in the Electronic Form - benefit of the India-Singapore DTAA - Whether assessee is merely an intermediary between the Indian subscribers and one Alibaba.com Hong Kong Limited? - 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 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 made available for public at large, without giving any special or exclusive services whether to a particular client or class of clients, then it cannot be brought within the ambit of technical services as stipulated in Explanation 2 to section 9(1)(vii). Therefore, on facts, even these grounds of the Revenue were correctly rejected in coming to a finding that no technical services had been provided by the Assessee to treat the subscription fees as to be in the nature of fees for technical services The entire subject matter of the appeal is fact based and in our view, no substantial question of law arises.

Summary

Issues Involved:
1. Business Connection in India
2. Permanent Establishment in India
3. Taxability as Fee for Technical Services (FTS)
4. Applicability of India-Singapore DTAA

Summary:

1. Business Connection in India:
The Assessing Officer (AO) held that the assessee, a non-resident company incorporated in Singapore, had a "business connection" in India through its agreement with Infomedia 18 Pvt. Ltd. (Infomedia), thus making its income taxable in India under section 9(1)(i) of the Income Tax Act, 1961. The Dispute Resolution Panel (DRP) confirmed this view, considering Infomedia as a dependent agent permanent establishment (DAPE). However, the Income Tax Appellate Tribunal (ITAT) found that the assessee's role was limited to facilitating the posting of advertisements and displaying information electronically, without involvement in supply or financial transactions, thereby not constituting a business connection in India.

2. Permanent Establishment in India:
The AO and DRP held that Infomedia constituted a permanent establishment (PE) of the assessee in India under Article 5 of the India-Singapore DTAA, making the income taxable as business profits. The ITAT disagreed, concluding that Infomedia acted as an independent agent in the ordinary course of business, and the assessee did not have any financial, managerial, or other participation in Infomedia. Consequently, the ITAT ruled that the assessee did not have a PE in India.

3. Taxability as Fee for Technical Services (FTS):
The AO alternatively held that payments made by Indian subscribers to the assessee were taxable in India as FTS under section 9(1)(vii) of the Act and the DTAA. The DRP rejected this argument. The ITAT found that the services provided by the assessee were limited to an E-commerce platform for advertising products or services, without any human intervention, and thus did not qualify as technical services. The ITAT relied on the Supreme Court's judgment in Kotak Securities Ltd., which emphasized the necessity of human intervention for services to be classified as technical.

4. Applicability of India-Singapore DTAA:
The AO denied the benefit of the India-Singapore DTAA, arguing that the assessee was merely an intermediary for Alibaba.com Hong Kong Limited and questioned the validity of the Tax Residency Certificate (TRC). The ITAT upheld the validity of the TRC issued by Singapore authorities, establishing the assessee's tax residency in Singapore. The ITAT concluded that the assessee was an independent entity, not a conduit for Alibaba Hong Kong, and was eligible for DTAA benefits.

Conclusion:
The ITAT's extensive factual findings led to the conclusion that the assessee did not have a business connection or PE in India, and the payments received were not taxable as FTS. The High Court dismissed the Revenue's appeal, stating that no substantial question of law arose.