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TMI Blog2016 (5) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... a service to the customer, is something very distinct from allowing the customer to use a scientific equipment. The true test is in finding out the answer to the fundamental question- is it the consideration for rendition of services, even though involving the use of scientific equipment, or is it the consideration for use of equipment simplictor by the assessee? In the case of former, the consideration is not taxable, in the case of the latter, the consideration is taxable. A payment cannot be said to be consideration for use of scientific equipment when person making the payment does not have an independent right to use such an equipment and physical access to it. In the present case also, what the assessee is providing is essentially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 2 to Section 9 (1)(vi) of the Act 2. The relevant material facts are like this. The assessee before us is a US based company, engaged in the business of providing information technology solutions, including, amongst other things, web hosting services. During the relevant financial period, the assessee earned income from provision of managed hosting services to Indian entities, namely Malayala Manorama Co. Ltd. (Rs.1,71,69,021) and Cybermedia India Online Limited (Rs.22,59,194). In the income tax return filed by the assessee, the income so earned was disclosed but claimed to be not taxable in India in view of the provisions of articles 12 and 7 of the India USA Double Taxation Avoidance Agreement [(1991) 187 ITR 102 (Sta); Indo US ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsuring the foolproof security systems in these data centres and ensuring the equipment in these data centres runs smoothly. The Assessing Officer was of the view that in essence the receipt is for granting the right to use the scientific equipment which is taxable in India under item (va) of Explanation 2 to Section 9(1)(vi) as also Article 12(3) (b) of Indo US tax treaty. It was in this backdrop that the Assessing Officer held the receipts of the assessee are taxable in India. 4. Aggrieved by the stand so taken by the Assessing Officer, assessee carried the matter in appeal before the CIT(A). Learned CIT(A), in his brief operative part of the order, held that these services are provided using own or customer provided equipment and pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e beneficial vis- -vis the treaty provisions, the relief under the treaty provisions will continue to hold the field. The success of the Assessing Officer, even if he was actually entitled to the same on merits, would have been rather hollow. 8. That, however, is not the only reason why the appeal must fail. 9. We have noted that the very basis of the impugned addition is Assessing Officer s finding that the receipts in question were on account of use of scientific equipment, and, for that reason, giving rise to an income taxable under section 9(1)(vi) of the Act as also article 13(1)(b) of the Indo US tax treaty. This finding, however, proceeds on the fallacy that when a scientific equipment is used by the assessee for rendering a se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for use of scientific equipment when person making the payment does not have an independent right to use such an equipment and physical access to it. In the present case also, what the assessee is providing is essentially web hosting service, though with the help of sophisticated scientific equipment, in the virtual world. The scientific equipment used by the assessee enable rendition of such a service, and such a use, which is not even by the Indian entity, is not an end in itself. In this view of the matter, even though the services rendered by the assessee to the Indian entities may involve use of certain scientific equipment, the receipts by the assessee cannot be treated as consideration for the use of, or right to use of, scienti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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