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2017 (2) TMI 633 - AT - Income TaxBenefits of Sec. 115A - Payments made to Standard Chartered Bank (SCB) India - payments for Royalty or Fees for Technical Services (FTS)- Held that - Since the assessee-company is incorporated in Hong Kong and is providing services/facilities for processing data to SCB from Hong Kong, therefore, the payment made by SCB India to assessee has to be seen from the perspective of domestic law, i.e. Income-tax Act and not under any treaty. There is neither transfer of any of right in respect of any patent, invention, model, design, secret formula or process or trademark or any similar property by the assessee to SCB, nor there is any imparting of any information or use of any of similar nature of things. Here, the entire equipment and technology which are used for processing the data is solely for performing the activity of assessee for itself while rendering data processing services to SCB. There is absolutely no transfer of any technology, information, knowhow or any of the terms used in Explanation 2 or any kind of providing of technology in the form of data centre, infrastructure, connectivity and application technology by the assessee to SCB for SCB s banking operations. Thus, we are of the opinion that the payment made by SCB to assessee-company does not fall within the realm of royalty and hence cannot be taxed in India as royalty u/s 9(1)(vi) of the Act. The payment made by SCB to assessee-company does not fall within the realm of fees for technical services as contained in Sec. 9(1)(vii), albeit the assessee has only provided a standard facility for data processing without any human intervention. Accordingly, we hold that the said payment is not taxable in India as fees for technical services in terms of Sec. 9(1)(vii) of the Act. Thus, the issue raised in ground no. 1.1 is decided in favour of the assessee. With regard to rate of tax u/s 115A however this issue will become purely academic because we have already held that the amount of payment received by assessee from SCB is not taxable in India. Credit of tax paid we direct the Assessing Officer to look into this issue and allow credit of tax paid as per the directions given by Tribunal in the stay petition. Chargeability of interest u/s 234B - It is admitted that this issue is covered in favour of assessee in view of the decision in the case of NGC Network Asia LLC, (2009 (1) TMI 174 - BOMBAY HIGH COURT). Accordingly, respectfully following the same we direct to delete the interest u/s 234B.
Issues Involved:
1. Whether payments made to Standard Chartered Bank (SCB), India to the assessee are payments for "Royalty" or "Fees for Technical Services (FTS)"? 2. Whether the benefits of Sec. 115A of the Act will be available to the assessee if the payments from SCB, India are held to be taxable as Royalty or/and FTS? 3. Whether the income should be taxed on gross receipts instead of net receipts? 4. Whether the assessee is entitled to tax credit for taxes paid? 5. Whether interest under section 234B of the Act is applicable? 6. Whether the initiation of penalty proceedings under section 271(1)(c) of the Act is valid? Detailed Analysis: 1. Nature of Payments: Royalty or Fees for Technical Services (FTS)? The primary issue was whether the payments made by SCB India to the assessee for data processing services constituted "Royalty" or "Fees for Technical Services (FTS)" under Section 9(1)(vi) and 9(1)(vii) of the Income Tax Act, 1961. - Royalty: The Assessing Officer (AO) argued that the payments were for the use of technology, data centers, infrastructure, connectivity, and application technology provided by the assessee to SCB India. The AO contended that this constituted "Royalty" as per Explanation 2 to Section 9(1)(vi). However, the Tribunal found that the assessee was merely providing data processing services using its own technology and infrastructure without transferring any right to SCB India. The Tribunal held that there was no use or right to use any process, model, design, invention, or equipment by SCB India, thus the payments did not qualify as "Royalty." - FTS: The AO also classified the payments as FTS, emphasizing the technical and managerial services provided by the assessee. However, the Tribunal noted that the data processing services were automated and did not involve significant human intervention. It concluded that the services provided were standard facilities rather than technical or consultancy services requiring human involvement. Thus, the payments did not qualify as FTS. 2. Applicability of Section 115A: The Tribunal noted that the issue of the rate of tax under Section 115A became academic since it had already concluded that the payments were not taxable in India as either Royalty or FTS. Therefore, the Tribunal did not delve into the specifics of whether the payments should be taxed at 20% or 10% under Section 115A. 3. Taxation on Gross vs. Net Receipts: The assessee argued that the income should be taxed on net receipts after deducting expenses attributable to gross receipts. Since the Tribunal held that the payments were not taxable in India, this issue was rendered infructuous. 4. Tax Credit for Taxes Paid: The Tribunal directed the AO to allow credit for taxes paid amounting to ?2 crores as per the directions given by the Tribunal in the stay petition. 5. Interest under Section 234B: The Tribunal held that interest under Section 234B was not applicable, following the decision of the Hon'ble Bombay High Court in the case of NGC Network Asia LLC, which stated that interest under Section 234B is not chargeable when the entire income is subject to tax deduction at source. 6. Penalty Proceedings under Section 271(1)(c): The Tribunal dismissed this ground as premature since the penalty proceedings were only initiated and not concluded. Conclusion: The Tribunal concluded that the payments made by SCB India to the assessee were neither "Royalty" nor "Fees for Technical Services" under the Income Tax Act, 1961. Consequently, the payments were not taxable in India. The Tribunal also directed the AO to allow tax credit for taxes paid and to delete the interest charged under Section 234B. The issue of penalty proceedings was dismissed as premature.
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