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TMI Blog2020 (2) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... t distinguishable in this order also. Therefore, the finding above is quite applicable to the facts of the present case. Accordingly, we find that the issue is squarely covered by the decision of Hon ble ITAT in the assessee s own case hence, we decide these issues in favour of the assessee against the revenue. Income from cloud hosting services as fee for technical services within the meaning of Section 9(1)(vii) of the Act as well as fee for included services under Article 12(4)(a) of the IndoUS DTAA - HELD THAT:- On the basis of the finding given while deciding the issue no. 1 in which the income was not treated as royalty within the meaning of Explanation-2 to Section 9(1)(vi) of the Act as well as Article 12(3)(b) of the Indo-USA DTAA tax treaty. Accordingly, by following the decision of co-ordinate bench, the present issue is decided in favour of the assessee against the revenue. Direct the AO not to charge interest under section 234B - See NGC NETWORK ASIA LLC [ 2009 (1) TMI 174 - BOMBAY HIGH COURT] - I.T. A Nos.6195 And 4920/Mum/2018 - - - Dated:- 28-11-2019 - Shri M. Balaganesh, AM And Shri Amarjit Singh, JM Assessee by: Shri Nitesh Joshi/Milin Thakor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as the India - US tax treaty. 1.5. Without prejudice to aforesaid. the learned AO erred in holding that the amendment to the definition of 'royalty' under Section 9(I)(vi) of the Act made by Finance Act. 2012 is retrospective in nature and the same has only clarified the meaning of the term 'royalty under the Act. Ground no. 2: Income from cloud hosting services is also erroneously held as fees for technical services within the meaning of section 9(I)(vii) of the Act as well as fees for included services under Article 12(4)(a) of the India-US tax treaty 2.1 On the facts and circumstances of the case, the learned AO further erred in holding that the income from cloud hosting services is in the nature of Fees for Technical Services within the meaning of explanation (2) to clause (vii) of subsection (1) of section 9 of the Act. 2.2 On the facts and circumstances of the case, the learned AO erred in holding that the income from cloud hosting services also qualifies as fees for included services within the meaning of Article 12(4)(a) of the IndiaUS tax treaty. Ground no. 3: Erroneous levy of interest under Section 234B of the Act 3.1 On the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a mismatch of receipts as per 26AS and as per party-wise receipts furnished by assessee, therefore, the notice was also issued. After the reply of the assessee and in accordance in the direction of the DRP, the receipt in sum of ₹ 17,12,52,670/- was considered as Royalty and held to be taxable @ 10% as per IndiaUSA DTAA prescribed taxation rate. Feeling aggrieved, the assessee filed the present appeal before us. ISSUE Nos.1.1 to 1.5 4. At the very outset, the Ld. Representative of the assessee has argued that the issue has squarely covered by the decision of the Hon ble ITAT in the assessee s own case for the A.Y. 2012-13 in ITA. No.1634/M/2016, ITA. No.1075/M/2017 for the A.Y.2013-14 ITA. No.3507/M/2017 for the A.Y.2014-15 dated 29.05.2019, therefore, in the said circumstances, the issues are liable to be decided in favour of the assessee in accordance with law. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. Before going further, we deem it necessary to advert the finding of the Hon ble ITAT in the assessee s own case(supra) on record: - 10. We have heard the rival contentions and gone through the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 for the years 2011 and 2012. 12. We have gone through the provisions of Article 12(3) of the IndiaUSA Tax Treaty, wherein the term royalties' are defined to mean: (a) 'payments of any kind received as a consideration for the list of or the right to Use', any copyright of literary, artistic or scientific work including cinematograph or work on ten, tape or other means of reproduction for use in connection it radio or television broadcasting, any patent, trade mark, design or model, plan secret formula or process, or for information ('concerning industrial, commercial or scientific experience including gains derived from the alienation of any such rig/it or property which are Contingent on the productivity, use, or disposition thereof; and (b) Payments of any kind received as consideration for the use, or right to use, any industrial, commercial or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8 (Emphasis supplied). 13. As may be observed, the definition of royalty under Article 12(3) of the India-USA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's experience lies in the creation of / maintaining such information online. By granting access to the journals, the assessee neither shares its experiences, techniques or methodology employed in evolving databases with the users, nor imparts any information relating to them. As is clearly evident from the sample agreements, all that the customers get is the right to search, view and display the articles (whether online or by taking a print) and reproducing or exploiting the same in any manner other than for personal use is strictly prohibited. Further, the customers do not get any rights to the journal or articles therein. They can only view the article in the journal that they have subscribed to and cannot amend or replicate or reproduce the journal. Thus, the customers are only able to access journal/articles for personal use of the information. No 'use or right to use' in any copyright or any other intellectual property of any kind is provided by the assessee to its customers. Furthermore, the information resides on servers outside India, to which the customers have no right or access, nor do they possess control or dominion over the servers in any wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the specific location of the server in the Data Centre where the customer application, web mail, websites etc. In view of these facts, we are of the view that income from cloud hosting services has erroneously held as royalty within the meaning of explanation (2) to section 9(1)(vi) of the Act as well as Article 12(3)(b) of the Indo-USA DTAA by the AO and DRP. Even otherwise, there is no PE of the assessee in India and hence, no income can be taxed in India in term of Indo-US DTAA. We reverse the orders of the lower authorities and allow this issue of assessee s appeal. 5. On appraisal of the above mentioned finding, we find that the agreement between the assessee and its customers is for providing hosting and other ancillary services to the customers and not for the use of leasing any equipment. The data centre and the infrastructure therein used to provide these serves belongs to the assessee. The customers are not having physical control or possession over the servers and right to operate and manage this infrastructure/servers vest solely with the assessee. The agreement is to provide hosting services simpliciter and is not for the purpose of giving the underlying equipmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that the income from cloud hosting services is in the nature of Fees for Technical Services within the meaning of explanation (2) to clause (vii) of subsection (1) of section 9 of the Act. 2.2 On the facts and circumstances of the case, the learned AO erred in holding that the income from cloud hosting services also qualities as fees for included services within the meaning of Ankle 12(4)(a) of the India-US tax treaty. 18. As we have already decided the above issue that income from could hosting services is erroneously held as royalty, on the same reasoning, the income from cloud hosting services cannot be taxed as fee for technical services and this issue has been decided by the DRP against Revenue by holding the same as infructuous. For this Revenue is not in appeal. 7. The facts are not distinguishable at this stage. The Hon ble ITAT has treated this issue as in fructuous on the basis of the finding given while deciding the issue no. 1 in which the income was not treated as royalty within the meaning of Explanation-2 to Section 9(1)(vi) of the Act as well as Article 12(3)(b) of the Indo-USA DTAA tax treaty. Accordingly, by following the decision of co-ordinate be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of this Court was pleased to pass an order dt. 16th July, 2008 in IT Appeal (L) No. 1796 of 2007 in the case of the Director of IT (International Taxation) v. Morgan Guarantee International Finance Corporation, by applying the ratio of that judgment. 7. Our attention is also invited to the judgment of the Madras High Court in the case of CIT v. Madras Fertilisers Ltd. [1984] 149 ITR 703 (Mad), where the Madras High Court took the view that the amount of tax deductible at source is to be taken into consideration to determine the liability to pay the interest under s. 215. In that case, the assessee had not paid advance tax on interest income. The payer of interest had not deducted the tax. The learned Bench of the Madras High Court was of the view that levy of interest under s. 215 on assessee was not justified. 8. We are in respectful agreement with the view taken In the case of CIT v. Sedco Forex International Drilling Co. Ltd. ( supra), by the Uttaranchal High Court. We are clearly of the opinion that when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee assessee. 21. In view of the above, we direct the AO not to ch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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