2023 (7) TMI 1049 - HC - Income Tax

Taxability of foreign income in India - Income deemed to accrue or arise in India - PE in India - consideration Received from Indian customers for use of Virtual Voice Network - Whether VVN is not taxable as Royalty u/a 13(3) of India-U.K. Taxation Avoidance Agreement (DTAA)? - Tribunal has come to a conclusion that the Revenue earned by Petitioner on this ground was only for a service rendered and not in the nature of making any technology available to the persons receiving the service - HELD THAT - Apex Court in the case of Kotak Securities Ltd. 2016 (3) TMI 1026 - SUPREME COURT held that constant human endeavor 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 interference or intervention, then such technology per-se cannot be held as rendering of technical services by human skills. As decided in Alibaba.Com Singapore E-Commerce Pvt. Ltd. 2023 (7) TMI 134 - BOMBAY HIGH COURT 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 - No substantial question of law.

Summary

Issues Involved:
The judgment deals with the following substantial questions of law:
1. Whether the consideration received from Indian customers for the use of Virtual Voice Network (VVN) is taxable as Royalty under the India-U.K. Taxation Avoidance Agreement (DTAA)?
2. Whether the above payments are covered under the definition of "Royalty" under the India-U.K. DTAA?
3. Whether the decision of ITAT Mumbai in a similar situation is applicable, or the payment should be considered as Royalty?

Summary:

Issue 1:
The Income Tax Appellate Tribunal (ITAT) passed an order concerning the Assessment Year (AY) 2010-11, where the Assessing Officer considered the receipt from Indian customers as fees for technical services. The Assessee contended that the revenue was business income not taxable in India due to the absence of Permanent Establishment. The connectivity service provided was deemed not to make technical knowledge available to customers, thus not qualifying as fees for technical services under the DTAA.

Issue 2:
The CIT(A) upheld the AO's decision, but the ITAT reversed it, emphasizing that the payment was for a service rendered, not for making technology available to customers. The Tribunal concluded that technical services should result in enabling the recipient to perform the same service without relying on the provider, which was not the case here.

Issue 3:
The Tribunal considered the role of the Assessee in providing connectivity services and concluded that the payment made by Indian customers was for a service using scientific equipment and technology, not for technical knowledge or patents. The judgment referenced previous cases to support the finding that no substantial question of law arose, ultimately dismissing the appeal.