9911796707
TMI Blog2014 (7) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... ent between the Appellant, its customers and Reuters India Private Limited ('RIPL') and holding that: a. the contractual arrangement lacks commercial substance and is illusionary and is a camouflage entered into to avoid payment of legitimate taxes; b. the corporate veil of RIPL, a separate legal entity, be lifted; and c. the equipment installed at the premises of the customer of Appellant is provided by the Appellant and not RIPL; 2. Failed to comprehend the facts and has erred in law and in facts in presuming certain facts listed in Annexure 1; 3. Erred in law and in facts in holding that the Appellant has provided equipment and related services including connectivity, network access, maintenance, updates and training to the customers through RIPL and in holding that the revenue received by Appellant is for use of equipment and is in the nature of royalty income under Article 13(3)(b) of the Double Taxation Avoidance Agreement between India and the United ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances of the case and in law, the learned members of the Dispute Resolution Panel ('DRP') erred in directing the Learned Deputy Director of Income Tax (International Taxation), Range -2(1), Mumbai ('Ld Assessing Officer') to proceed on the lines proposed in the draft assessment order, on the premise that the issues raised are similar to issues involved in the earlier assessment years and the matter is sub-judice. B. On the facts and in the circumstances of the case and in law, the learned members of the DRP erred in confirming the draft assessment proposed by the Ld Assessing Officer and in directing the Ld Assessing Officer to conclude the assessment on the following grounds: 1. That the subscription revenue received by Reuters Transaction Services Limited (,the Appellant') is in the nature of 'royalty' under Article 13(3) of the Double Taxation Avoidance Agreement between India and United Kingdom ('DTAA') and under Section 9(1)(vi) of the Income-tax Act, 1961 ('the Act'): 2. That the subscription revenue received by the Appellant is in the nature of 'Fees for Technical Service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the DTAA; 4. Following the assessment order of the previous assessment years and in placing reliance on the ASIC Market Assessment Report issued in 2005 on the activities of the Appellant in Australia and applying the observations of the ASIC to the Appellant's case in India; 5. Observing that RIPL is an 'agent' of the Appellant in India and the Appellant is dependent on RIPL and hence RIPL constitutes a dependant agent PE of the Appellant in India; 6. Observing that services are supplied by the Appellant to its subscribers in India and hence the revenue received by the Appellant from its subscribers accrue and arise in India; 7. Without prejudice to the above, the Ld Assessing Officer erred in law and in facts in computing the income chargeable to tax in India of the Appellant at 20 percent of the gross revenue of Rs. 65,228,026 as being profits attributable to the PE of the Appellant in India and ignoring the principles laid down by the Honourable Supreme Court in the case of DIT v Morgan Stanley (supra); &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the terms and conditions of these agreements as well as the provisions of the Act and DTAA- for determining the character of the income received by the assessee as well as the existence of PE of assessee in India. The Assessing Officer has held that the revenue received by the assessee during these years is in the nature of "Royalty" as well as Fee for Technical Services(FTS) which is subjected to tax in India under the provisions of Income Tax Act as well as DTAA. Alternatively the Assessing Officer has also held that even if the business profits of the assessee is taxable in India because the RIPL constitutes an agency PE of the assessee as well as the assessee is having equipment in India which constitutes a fixed base PE. 5. For the A.Y. 2008-09, the assessee filed an appeal before the CIT(A), challenging the action of the Assessing Officer. CIT(A) held that the service charges received by the assessee from the Indian subscribers is taxable as Royalty and Fee for Technical Services under the Act as well as under Article-13 clause 4(a) and 4(b) of the DTAA. The CIT(A) was of the view that the clause 4(c) of Article -13 of the U.K treaty has no application in this case as was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... experiences involving the transfer of know how provided to the subscribers. The Ld. Counsel has pointed out that the CIT(A) has placed reliance on the ruling of AAR in the case of Groupe Industriel Marcel Dassault which has been overruled by the Hon'ble High Court of Andhra Pradesh reported in 354 ITR 316(AP). The Ld. Sr. counsel has contended that Reuters India shall supply the equipments as well as connectivity through leased circuit services to the clients. The necessary equipments with access to dealing 2000-02 system has been provided by the local concern with whom the assessee is having a separate agreement for making the provisions of installation of equipments and connectivity. The clients shall pay all the charges for installation, telecommunication charges including rentals for lines to RIPL apart from the monthly payment to assessee for the services. The assessee in turn pay the RIPL UKGBP 1,000 per customer per month for providing marketing and support services to the assessee in India. Ld. Counsel has referred the decision of Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd (332 ITR 340) and submitted that the Hon'ble High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ISAC), IN RE (307 ITR 59) 2. Cable & Wireless Networks India (P) Ltd., ( 315 ITR 72) 3. Dell International services India P. Ltd. IN RE (305 ITR 37) 8. The Ld. Counsel has pointed out that after deciding the issue of royalty and fee for technical services, the CIT(A) has not gone into the issue of Permanent Establishment. Further the CIT(A) has held that the amount is taxable as fee for technical services under Article -13 clause 4(a) and clause 4(b) of the treaty and, therefore, in view of the CIT(A), clause 4(c) of Article -13 of the Indo-UK treaty has no application in this case. The Ld. Counsel has submitted that if the amount received is treated as fee for technical services under clause 4(a) and 4(b) of Article - 13 then the same is taxable at 15% of the gross amount of such royalty or fee for technical services whereas the CIT(A) has confirmed the 20% of taxability of the royalty on gross basis. The Ld. Counsel then submitted that though the CIT(A) has not discussed the issue of PE, however in case RIPL constitutes a PE of assessee in India then as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciples. He has referred clause 8 of Agreement of Reuters Service Contract between RIPL and Indian Banks and submitted that the Reuters Business Principles and any Order Form are an integral part of the Agreement. Thus the Ld. DR has submitted that this agreement is not an independent agreement but is an integral part of Reuters Business Principles and Order Form as contained in the master agreement. The activity performed by the RIPL are inseparable from the services provided by the assessee. The equipments and other installation provided through RIPL were on behalf of the assessee. No charges for use of equipments is to be paid by the clients to RIPL except the actual uses of the communication facility. The Ld. DR has submitted that the payment has been made by the Indian clients for use and right to use the equipment comprising the computer and communication and connection provided as well as the information and software provided by the assessee from its server. He has referred clause 8 of the RTS agreement and submitted that the assessee is providing software and license to the Indian clients to use the software to install and use the software at the site solely in the ordinary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent being called as royalty. The authority has discussed the term 'Plant' which would include any article or object fixed or movable, live or dead used by businessmen for carrying on his business and it is not necessary to confined to an apparatus which is used for mechanical and industrial business. The AAR has held that the word equipment construed in the light of section 9(1)(vi) (c) thus expand the normal meaning of word to cover even this specified categories of machinery or plant that would not constitute within its plain and ordinary meaning. The Ld. DR then relied upon the decision of this Tribunal dated 28.03.2014 in the case of Viacom "18" Media Pvt. Ltd. v. ACIT in ITA No. 1584/Mum/2010 and submitted that the Tribunal after considering the amended provisions of section 9(1)(vi) held that the transmission of satellite including uplinking, amplification, conversion for downlinking of any signal) falls under the expression "process". The Ld. DR has submitted that the Tribunal while deciding the issue of royalty has also considered the decisions, relied upon by the Ld. Counsel, in the case of Asia Satellite Telecommunications Co. Ltd as well as other cases. 10. In r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly through the equipments and connectivity provided by the assessee itself through its Indian subsidiary namely RIPL. The fee for providing the services is charged by the assessee from the Indian subscribers and actual uses of telecommunication are paid to the RIPL. The assessee is remunerating the RIPL for the services of marketing and installation of the equipment on behalf of the assessee to its clients. Thus though the equipments and other installation and connectivity are installed and provided through RIPL but the charges for the entire services and facility are paid by the clients to the assessee and not to the RIPL. The Ld. Counsel has also submitted that it is an integrated service rendered to the clients from its server situated in Geneva, therefore, there is no control or possession of the Indian clients to use or right to use the server of the assessee situated outside India. It is also contended that the assessee is rendering the services to the Indian clients by using its own server situated in Geneva and, therefore, in view of the decision of Hon'ble High Court of Delhi in the case of Asia Satellite Telecommunications Co. Ltd (supra), the charge/fee received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em facilitates the Indian subscribers i.e. Banks to deal in the foreign exchange with the other counterparts who are ready for the transaction of purchase and sale of foreign currency. Thus the role of the deal matching system is to provide a platform where both purchaser and seller find the respective match for the intended transaction of purchase and sale. Therefore, the decision of Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd (supra), is not applicable in the facts of the case and particularly when the said decision is based on the finding that the transponder capacity has only a media for uplinking and downlinking of signals of the broadcaster and TV operators to be transmitted to their customers without any manipulation for improvement, whereas in the case in hand, the assessee is providing not only media but also the necessary information and data which process the order of the clients and find the corresponding match to meet the order. 12. One more aspect which was involved and relevant for deciding the issue in the case of Asia Satellite Telecommunications Co. Ltd (supra) was the income deemed to accrue or arise in India on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received;or (b) are ancially and subsidiary to the application or enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or (c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design." 13. The payment received by the assessee against the services rendered to the Indian Banks whether falls under the term royalty or fee for technical services has to be decided by considering the definition as provided under the treaty and the real nature of the service provided in terms of the various contracts entered into between the parties. The various terms of agreement are defined under clause 1 of the RTS agreement and some of the relevant terms are defined as under:- "Application Programming Interface(API) means a subscriber interface for use with the related service; Autoquote Subscriber Interface means a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ludes the assessee's Application Programming Interface (API). All the services are rendered by the assessee on the site /office of the subscriber as per the clause 2.1 and 2.1.1 of the business principles as under: 2.1 Usage rights for information We classify services containing information into families sharing common business terms, as follows 2.1.1 Individual Services (listed here) Individual services are user-based Services priced, postitioned and packaged for users. For as long as they take the relevant service, users can: (a) View, manipulate and create Derived Data fron information for their individual use: (b) Store informatiion, Manipulated Information and/or Derived Data for their individual use; (c) Distribute and Redistribute limited extracts of information, Manipulated information and/or Derived Data to anyone, provided this is doen in a non -ystematic manner and (except for derived data) is attributed to Reuters: (d) Systematically Distribute Information and Manipulated Information if you comply with paragraph 2.4; and (e) Systematically Distribute and Redistribute certain derived Data if you either (i) Pay the relevant Derived Date Redistribute Service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyalty. 17.1 The nature of service rendered by the assessee includes the information concerning commercial use by the subscriber. Further the entire system of the assessee including the equipments and connectivity facility is provided at the site of the subscriber. Therefore, the assessee is providing the service in the form of information and solution to the need of the subscribers by providing the matching party. The entire system along with the matching system and connectivity involves processing of subscriber's business queries and orders and finding out the matching reply in the shape of counterpart demand or supply for execution of the transaction of purchase and sale of foreign exchange. This sytem of the assessee is available only to the subscribers who have been given the access to the information concerning commercial as well as processing the orders placed by the subscribers. It is the term of the contract/agreement that the subscriber is given the license to use the software running the system. 17.2 As per the terms and conditions stipulated in the agreement the Indian clients/subscribers accept the individual non-transferable and non exclusive license to use the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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