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TMI Blog2016 (1) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... el, plan, secret formula or process”. The use by the Indian company of the CPU and the consolidated date network of the American company is not merely “use of or the right to use any industrial, commercial or scientific equipment” as envisaged in article 12(3)(b) of the DTA but more than that. It is the use of embedded secret software (an encryption product) developed by the American company for the purpose of processing raw data transmitted by the Indian company, which would also clearly fall within the ambit of article 12(3)(a) of the DTA between India and the USA. In this case, use of Transponder is involved which is not a self contained operating unit. It is in orbit with footprints all over the world so that its location cannot be attributed with reference to location of its customers. Thus the consideration paid is in the nature of royalty within the meaning article 12(3) of DTA between India and USA. - Decided against assessee. - ITA No. 952/Del/2006, ITA Nos. 1271 to 1274/Del/2009 - - - Dated:- 30-9-2015 - SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Assessee : S/sh Ved Jain Ashish Chadha, CAs For The Department : Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring operations and building and maintaining personalized e-business software, development and solutions. The assessee company entered with an agreement called communication agreement with Cincom Systems (India) Pvt. Ltd. on 10th April, 2010. In terms of this agreement, it was agreed that the assessee company shall provide access to Cincom Systems (India) Pvt. Ltd. to internet and other email and networking facilities along with other group concern. In consideration of providing these services, the assessee company was paid a sum of ₹ 36,03,940/- during the previous year, relevant to the assessment year 2002-03 and sum of ₹ 30,76,898/-; ₹ 40,68,720/-; ₹ 39,26,700/- and ₹ 39,84,030/-for the assessment years 2003-04, 2004-05, 2005-06 and 2006-07 respectively. For the assessment year 2002-03, the assessee company itself offered tax as fees for included services. However, before the CIT(A), it was contended that the amount was not taxable in India. On appeal before the CIT(A), the CIT(A) held that the payment is not in the nature of fee for included services, however, held that it was in the nature of royalty, placing reliance on the decision of Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Bench L . ii. Viacom 18 Media Pvt. Ltd. Vs. ACIT (International Taxation)-2(2), Mumbai [2004] 44 taxmann.com 1 (Mum.)(Trib.) in ITAT, Mumbai Bench L iii. Cargo Community Network (P.) Ltd. , (2002) 159 taxmann.com 243 (AAR-New Delhi) iv. [1999] 238 ITR 296 (AAR) [Before the Authority for Advance Rulings], P. No. 30 of 1999, IN RE. 4. We heard the rival submission and perused the material on record. From the perusal of the agreement entered by the assessee company with Cincom Systems (India) Pvt. Ltd., it is clear that the assessee provided the access to its internet by which it provides a gateway that will facilitate call centers to incoming and outgoing calls from India to the people of USA, referred as Cincom Gateway. In other words, the assessee company merely provided facility for a consideration. Then the question that comes up is whether the consideration paid for the use of such facility is in the nature of royalty as defined under the DTA between India and USA. Undisputedly, the impugned payment falls within the definition of royalty as defined under the provisions of 9(1)(vi) of the Act. However, since the assessee company is a resident of United States o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volume storage and high speed processing of data. The above CPU was accessed and used by various group entities located worldwide through a consolidated data network maintained in Hong Kong. The transactions done by a traveler in a particular country were reported to a centralized computer in that particular country. In India, the centralized computer was maintained by an Indian company located at Delhi. This company received information on compute through telephonic or microwave links about the use of credit cards and travellers cheques by travelers all over the country. It also serviced thirteen group companies in Asia and the Pacific in a similar manner. The information was then passed on to the Hong Kong computer centre of the American company. For carrying out this operation, the Indian Company obtained leased lines from VSNL. The American company charged the Indian Company for the use of its computers in Hong Kong and USA. The Indian company was a subsidiary of the American Company. The issue which was placed before the AAR, was whether the payment due to the American company from the Indian company was liable to tax in India and if so whether it was covered under article 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the royalties for fees for included services, being a resident of a contracting State carried on business in the other contracting State in which the royalties or fees for included services arise, through a PE situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the royalties or fees for included services are attributable to such permanent establishment or fixed base. In such a case the provisions of article 7 (Business Profits) or article 15 (Independent personal services) as the case may be shall apply. The ratio laid down in this case squarely applies to the facts of the present case. 6. The reliance placed by the learned counsel on the decision of Hon ble Delhi High Court in the case of Asia Satellite Telecommunication Co. Ltd. Vs. DIT [2011] 332 ITR 340 is totally misplaced. In this case, use of Transponder is involved which is not a self contained operating unit. It is in orbit with footprints all over the world so that its location cannot be attributed with reference to location of its customers. In our considered opinion, the ratio of the ruling of Authority for Advanced Ruling, reported in 238 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X
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