2020 (7) TMI 644 - AT - Income Tax

Income accrued in India - Royalty receipt - revenues under the IDC agreement - India-Singapore DTAA - HELD THAT - We find that in the instant case, appellant only provides service by using its hardware/security devices/personnel and not use of any software - the appellant is only providing IDC service which includes administration and supervision of central infrastructure, mailbox hosting services and website hosting services. From the enunciation of law in Bharati Axa General Insurance Co. Ltd 2010 (8) TMI 8 - AUTHORITY FOR ADVANCE RULINGS , ExxonMobil Company India (P.) Ltd 2018 (3) TMI 938 - ITAT MUMBAI , Standard Chartered Bank v. DDIT 2011 (5) TMI 580 - ITAT, MUMBAI , DCIT v. M/s Reliance Jio Infocomm Ltd 2019 (6) TMI 532 - ITAT MUMBAI narrated hereinbefore, it is quite luculent that revenues under the IDC agreement ought not to be taxed in the hands of the appellant as royalty under the Act and/or India-Singapore DTAA. Therefore, we delete the addition made by the AO towards IDC charges and allow ground of appeal of assessee. Claim of management service fees made by the appellant as non-taxable - HELD THAT - We find that the services provided under the management agreement broadly include (i) consultancy services to support the sales activities of Surf Gold, (ii) legal services, (iii) financial advisory services and (iv) human resource assistance. There is no dispute here that under the provisions of section 9(1)(vii) of the Act, rendering of management services will be taxable as FTS. However, Edenred, by virtue of section 90(2) of the Act, is eligible to rely on the provisions of the India-Singapore DTAA, should the same be more beneficial than the provisions of the Act. In this regard, we fruitfully rely on the judgment in the case of New Skies Satellite BV Ors 2016 (2) TMI 415 - DELHI HIGH COURT wherein it is held that provisions of DTAA shall prevail over the provisions of the Act, if they more beneficial. As per the India-Singapore DTAA, the services in the nature of managerial, technical or consultancy nature are taxable as FTS if such services are made available to the service recipient. We find that in the instant case, the management services are provided only to support SurfGold in carrying on its business efficiently and running the business in line with the business model, policies and best practices followed by the Edenred group. These services do not make available any technical knowledge, skill, knowhow or processes to SurfGold. Therefore, we delete the addition made by the AO towards management services fees and allow ground of appeal of assessee. Claim of referral fees as non-taxable - India-Singapore DTAA -HELD THAT - It is relevant to mention here that as per the India-Singapore DTAA, the services in the nature of managerial, technical or consultancy nature are taxable as FTS, if such services are made available to the service recipient. In the instant case, referral services/other services are provided to support Surf Gold in carrying on its business. These services do not make available any technical knowledge, skill, knowhow or processes to SurfGold because there is no transmission of the technical knowledge, experience, skill etc. from the appellant to SurfGold or its clients. The revenues under the referral agreement is not taxable in the hands of the appellant as royalty under the Act and/or India-Singapore DTAA or FTS under the India-Singapore DTAA. Addition to be deleted. Non granting credit for TDS - AO has not granted credit of TDS while computing the net tax liability under the Act while issuing the final assessment order post DRP directions - HELD THAT - As the appellant has filed a rectification application before the AO, which is still pending for disposal. We direct the AO to grant credit of TDS to the appellant after due verification. Levy of interest u/s 234A - Compute consequential as per law after granting TDS credit due to the appellant. Levying interest u/s 234B and interest u/s 234C - HELD THAT - As we have decided that the revenues from IDC agreement, management agreement and referral agreement are not taxable in India and therefore, the appellant is not liable to pay advance taxes. Accordingly, the levy of interest made by the AO u/s 234B is deleted.

Summary

Issues Involved:
1. Assessing total income at ?2,09,18,639/- against NIL returned income.
2. Taxability of infrastructure data centre charges as royalty under the Act and India-Singapore DTAA.
3. Taxability of management services fees as FTS under India-Singapore DTAA.
4. Taxability of referral fees as royalty under the Act and India-Singapore DTAA.
5. Taxability of referral fees as FTS under India-Singapore DTAA.
6. Granting credit for TDS of ?17,42,513/-.
7. Levying interest under section 234A of the Act amounting to ?2,92,861/-.
8. Levying interest under section 234B of the Act amounting to ?9,62,258/-.
9. Levying interest under section 234C of the Act amounting to ?1,05,638/-.

Issue-wise Detailed Analysis:

1. Assessing Total Income:
The AO assessed the total income at ?2,09,18,639/- against NIL returned income, considering various components taxable under the Act and India-Singapore DTAA.

2. Taxability of IDC Charges:
The appellant argued that IDC charges are not taxable as royalty under the India-Singapore DTAA, providing IT infrastructure management and hosting services from Singapore. The AO and DRP considered IDC charges as royalty. The Tribunal referred to various case laws, including Bharati Axa General Insurance Co. Ltd. and Standard Chartered Bank, and concluded that IDC services do not qualify as royalty under the DTAA. Therefore, the addition of ?95,62,479/- towards IDC charges was deleted.

3. Taxability of Management Services Fees:
The appellant received management fees from SurfGold and claimed it as non-taxable under the India-Singapore DTAA. The AO and DRP treated it as FTS. The Tribunal referred to Article 12(4) of the DTAA, which requires services to be "made available" to be considered FTS. The Tribunal found that the management services provided did not make available any technical knowledge, skill, or processes to SurfGold. Therefore, the addition of ?73,61,951/- towards management services fees was deleted.

4. Taxability of Referral Fees as Royalty:
The appellant received referral fees from SurfGold and claimed it as non-taxable under the DTAA. The AO and DRP considered it as royalty. The Tribunal referred to various case laws, including Cushman & Wakefield (S) Pte. Ltd. and Real Resourcing Ltd., and concluded that referral services do not qualify as royalty under the DTAA. Therefore, the addition of ?39,94,209/- towards referral fees was deleted.

5. Taxability of Referral Fees as FTS:
The appellant argued that referral services are not FTS under the DTAA. The Tribunal found that referral services did not make available any technical knowledge, skill, or processes to SurfGold. Therefore, the addition of ?39,94,209/- towards referral fees as FTS was deleted.

6. Granting Credit for TDS:
The appellant claimed credit for TDS of ?17,42,513/-, which was not granted by the AO. The Tribunal directed the AO to grant credit for TDS after due verification.

7. Levying Interest under Section 234A:
The appellant argued that interest under section 234A would reduce after granting TDS credit. The Tribunal directed the AO to compute the interest under section 234A after granting TDS credit.

8. Levying Interest under Section 234B:
The Tribunal referred to the case of Boston Scientific International and concluded that the appellant is not liable to pay advance taxes as the revenues from IDC, management, and referral agreements are not taxable in India. Therefore, the levy of interest under section 234B amounting to ?9,62,258/- was deleted.

9. Levying Interest under Section 234C:
The Tribunal concluded that the appellant is not liable to pay advance taxes as the revenues from IDC, management, and referral agreements are not taxable in India. Therefore, the levy of interest under section 234C amounting to ?1,05,638/- was deleted.

Procedural Issue:
The delay in pronouncement of the order beyond 90 days was justified due to the unprecedented situation caused by the COVID-19 pandemic and the subsequent lockdowns, as per the orders of the Hon'ble Supreme Court and Bombay High Court.

Conclusion:
The appeals filed by the assessee were allowed, and the additions made by the AO were deleted. The AO was directed to grant TDS credit and compute interest under sections 234A, 234B, and 234C accordingly.