9911796707
TMI Blog2020 (7) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant 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 F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumar, DRs ORDER PER N.K. PRADHAN, A.M. The captioned appeals filed by the assessee are directed against the order u/s 143(3) r.w.s. 144C(13) of the Income Tax Act 1961 (the Act ) dated 10.01.2014 passed by the Dy. Director of Income Tax (International Taxation)-3(2), Mumbai (hereinafter the AO ). As common issues are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience. We begin with the AY 2010-11 2. The grounds of appeal filed by the assessee read as under: On the facts and circumstances of the case and in law, the AO, as per the direction of DRP has: 1. erred in assessing total income at ₹ 2,09,18,639/- as against NIL returned income; 2. erred in considering infrastructure data centre charges of ₹ 95,62,479/- to be taxable as royalty under the Act as well as under India-Singapore Double Taxation Avoidance Agreement (DTAA); 3. erred in considering management services fees of ₹ 73,61,951/- to be taxable as FTS under India-Singapore DTAA; 4. erred in considering referral fees of ₹ 39,94,209/- to be taxable as royalty under the Act as well as under India-Singapore DTAA; 5. without prejudice to the above, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers. During the course of assessment proceedings, the appellant submitted before the AO that during the year under consideration, it had entered into IDC agreement with its Indian group companies [EPIL; RID ; SurfGold]. In the return of income, the appellant claimed non-taxability of revenues from Infrastructure Data Centre ( IDC ), Management Services and Referral Services by claiming benefit under Article 12 of the India-Singapore Double Taxation Avoidance Agreement ( DTAA ). The summary of the revenues claimed by the appellant as non-taxable is as under: Nature of transaction Amount in Rs. EIPL RID SurfGold Total IDC charges 31,70,166 35,20,225 28,72,088 95,62,479 Management Service Fees NIL NIL 73,61,951 73,61,951 Referral Fee NIL NIL 39,94,209 39,94,209 Total 31,70,166 35,20,225 1,42,28,248 2,09,18,639 The AO, after incorporating the direction of the Dispute Resolution Panel (DRP) passed a final assessment order dated 10.01.2014 by taxing (i) IDC charges of ₹ 95,62,479 as royalty as per provisions of the Act and the India-Singapore DTAA, (ii) management charges of ₹ 73,61,951 as Fees for Technical Services ('FTS') as per provisions of the Act and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with critical programs; users are able to access the applications after firewall is configured ; (iii) IDC by itself cannot process data, it can only host websites, web applications, firewalls, mail boxes etc. It is further stated that the services under IDC agreement are classified under 3 sub-heads : Administration and supervision of central infrastructure Mailbox hosing services Website hosting services It is explained that the gamut of IDC services are rendered with the help of servers located in Singapore and seasoned security professionals who understand global IT and security systems ; the IDC services ensure 100% uptime for critical external facing applications which need highly secured web environment and dedicated team of security experts to ensure 100% uptime of security systems (firewall, antivirus, access controls) which are also hosted on server in Singapore. The Ld. counsel gives the following illustrative examples of websites/applications/softwares hosted by Indian group companies on the Data Centre in Singapore : Web ordering application (www.ticketonline.co.in) Corporate website (www.edenred.co.in) or (http://www.accentivrewards.com/) Websites created for custome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the name of the appellant. Further, it is clarified that by virtue of the confidentiality clause inserted in the IDC agreement, there is an explicit understanding that the website/applications/data therein are to be kept as confidential and this clause is a typical clause inserted in IDC agreements purely with a view to facilitate smooth provisioning of IDC services to group companies and therefore by no means it should be construed so as to allow the other party to use or provide right to use any secret formula or process. To clarify further, it is stated that the management declaration to the effect that no confidential information was shared by Indian group companies under the IDC agreement has already been filed. In view of the above, the Ld. counsel submits that the 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. 5. On the other hand, the Ld. Departmental Representative (DR) submits that on perusal of the three IDC agreements, it is evident that the agreements are identical and they have been entered into for providing IT infrastructure management and hosting services; the agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in Singapore ; the Indian group companies directly remit IDC service payments towards the appellant s bank account in Singapore, (ii) IDC is an ISO 27001 certified data centre owned by Edenred Pte. and located in Singapore ; IDC services are provided using the IDC and IT/security team in Singapore, (iii) the services under the IDC agreement comprise of administration and supervision of central infrastructure ; mailbox hosting services and website hosting services, (iv) IDC services ensure 100% uptime for critical external facing applications which need highly secured web environment and dedicated team of security experts to ensure 100% uptime of security systems (firewall, antivirus, access controls) which are also hosted on server in Singapore. We further observe that examples of websites/applications/softwares hosted by Indian group companies on the data centre in Singapore are web ordering application, corporate website, websites created for customers of Edenred India entities while making a loyalty program for them. A perusal of the documents filed before the AO and DRP clearly indicate that (i) appellant has an infrastructure data centre, not information centre at Singapore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be said that the applicant receiving the services is enabled to apply the technology contained therein, (v) also there is nothing in the IT support services that answers the description of technical services as defined in the DTAA, (vi) therefore, the fees paid to AXA ARC by the applicant does not amount to fees for technical services within the meaning of the DTAA, (vii) as regards the payments made for providing access to software applications and to the server hardware system hosted in Singapore for internal purposes and for availing of related support services under the terms of the service agreement, same cannot be brought within the scope of the definition of royalty in Article 12.3, (viii) there is no transfer of any copyright in the computer software provided by AXA ARC and it cannot be said that the applicant has been conferred any right of usages of the equipment located abroad, more so, when the server is not dedicated to the applicant. Similarly, in the case of Standard Chartered Bank (supra), the assesseebank entered into an agreement with a Singapore company SPL, for the provision of data processing support for its business in India and that data processing is dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nown as Ezycargo at Singapore. The applicant received payments from an Indian subscribers for providing password to access and use the portal hosted from Singapore. The AAR held that payments made for concurrent access to utilize the sophisticated services offered by the portal would be covered by the expression royalty. We find that subsequently, after considering the decision in Cargo Community Network (P.) Ltd. (supra), Mumbai ITAT in the case of Standard Chartered Bank 11 ITR 721 and Yahoo India Pvt . 140 TTJ 195 held that no part of the payment could be said to be for use of specialized software on which data is processed as no right or privilege was granted to the company to independently use the computer. In the case IMT Labs (India) (P.) Ltd . (supra), the assessee, an Indian company, entered into an agreement with a non-resident American company for securing license of a particular software, which the applicant is entitled to use. The applicant has to pay license fee for usage of software to the American company. The AAR held that Smarterchild application software on the American company s server platform is scientific equipment licensed to be used for commercial purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal services (FTS) under the Act and the India-Singapore DTAA. It is clarified by him 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 provision of the Act. Refuting the finding of the AO at para 9.3 of the assessment order that the services provided by Edenred are in the nature of support services to equip the employees at managerial levels with core managerial skills relevant to managing the Indian business as incorrect, the Ld. counsel explains that these services are purely consultancy in nature to support various functions of Surf Gold and not to equip SurfGold employees with core managerial functions. 7.1 Referring to Article 12 (4) of the said DTAA, the Ld. counsel submits that the criteria to determine whether a service would qualify as FTS are as under : Mere rendering of services is not roped into FTS unless the person utilizing the services is able to make use of the technology contained in the technical knowledge etc. by himself in his busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connections with the management of its business and operations. Stating that the core business of the Indian entity is marketing of services and the appellant-company is providing support services to equip the employees at managerial level with core managerial skills relevant to managing the Indian business, the Ld. DR submits that the order passed by the AO be affirmed. Further, relying on the direction of DRP he submits that since the assessee is also providing facilities for computer infrastructure which has been held to be taxable as royalty, the management service fees should also be taxable as FTS as per clause 12(4)(a) of the said treaty. In support of his above contentions, the Ld. DR relies on the case laws in US Technology Resources Pvt. Ltd . 37 CCH 0161 (Cochin ITAT), Shell India Markets (P.) Ltd. 342 ITR 223 (AAR) and Perfetti Van Melle Holdings BV 342 ITR 200 (AAR). 9. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsultancy services rendered should be aimed at and result in transmitting of technical knowledge etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending on the provider. In the case of Intertek Services (307 ITR 418), the AAR has observed on the term make available as under : By making available the technical skills or know-how, the recipient of service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology 'make available', the technical knowledge, skills etc. must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and lot of technical knowledge and experience of the service provider would have gone into it. But, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen we turn to the case laws relied on by the Ld. DR. in US Technology Resources Pvt. Ltd. (supra), in terms of management service agreement between the assessee and the USA company, the latter provides highly technical services which are used by the assessee for making managerial decision, financial decision, risk management decision etc. The service of technical input, advice, expertise etc. rendered by the USA company are technical in nature as provided in clause 4(b) of the Article 12 of the DTAA. It is found that this case is reversed by the Hon ble Kerala High Court in 97 taxmann.com 642 dated 09.08.2018, wherein it is held that fees for management services received by US company would not be taxable in India as there is no transfer of technical knowledge by US company to Indian company. In S hell India Markets (P.) Ltd . (supra), the applicant is an Indian company, it has a network of retail fuel stations in India. SIPCL is a group company of assessee incorporated in UK. It is in the business of providing consultancy services to various group companies. The applicant has entered into Cost Contribution Agreement (CCA) with SIPCL for provisions of General Business Support Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 3rd ground of appeal. 10. Next we turn to the claim of the appellant of referral fees of ₹ 39,94,209/- as non-taxable. During the year under consideration, the appellant has received fees for referral services/other services of ₹ 39,94,209/- from SurfGold. It is stated by the Ld. counsel that the appellant has received the above referral fee from SurfGold on account of the following : - Appellant has entered into an global agreement with its global clients (viz. Hewlet Packard, Maritz, OC Tanner) who are interested in availing customer relationship. - At India level, SurfGold provides certain services to Edenred's clients. - To service Edenred's clients in India, SurfGold obtained certain support services from the Appellant for which the Appellant invoiced to Surfgold. - Surfgold pays 50% or such other percentage as may be agreed of the amount invoiced to its clients to Edenred for the support services provided. It is stated that the above reference is provided by the appellant from Singapore and the fees received by the appellant are directly remitted from SurfGold to the appellant s bank account in Singapore. Further, it is explained that the appellant do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght Frank (India) (P.) Ltd . v. ACIT (2019) 107 taxmann.com 363 (Mumbai-Trib.) In view of the above, it is submitted by the Ld. counsel that revenues under the referral agreement ought not to be taxed in the hands of the appellant as royalty under the Act and/or India-Singapore DTAA or FTS under the said DTAA. 11. On the other hand, the Ld. DR submits that the appellant-company and the Indian company are engaged in the same business. Moreover, the appellant is also providing IDC facilities and management services to the Indian company other than earning referral fees. It is stated by him that both these enterprises are associated enterprises as per the provisions of the Act and hence the whole arrangement is to be seen in this perspective rather than in isolation. It is further submitted that the appellant is referring its global clients to Indian entity and its brand and image is at stake, if the services are not to the satisfaction of its clients. It is argued that all the infrastructure, data processing, IT platform and storage are being done by the Indian entity at the appellant company s place in Singapore. Moreover, it has already entered into management agreement wherein the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referral services, a percentage of the amount realized from the referred customers (i.e. 30% on gross amount realized) was paid to the applicant. The AAR held that referral fee received in Singapore by the applicant, a Singaporean company from an Indian company for referring customers to the latter is neither business income u/s 9(1)(i) nor royalty u/s 9(1)(vi) nor fee for technical services u/s 9(1)(vii) r.w. Article 12(4)(b) of the DTAA between India Singapore and, therefore, it is taxable as business income in Singapore only as the applicant has no PE in India ; impugned receipt not being chargeable to tax under the provisions of the IT Act or under the provisions of DTAA, section 195 is not attracted . In Real Resourcing Ltd . (supra), the AAR, in the context of the India-UK DTAA, after relying on the Cushman Wakefield Ruling (supra) held that referral fee received by a UK company (applicant) from India based recruitment agency for referring potential Indian clients and candidates was not royalty or FTS. The relevant observations of the AAR in the context of Article 13 dealing with royalty/FTS is as under : 10. Collecting data and analyzing it and making a database for providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order post DRP directions. It is also stated that the appellant has filed a rectification application before the AO, which is still pending for disposal. In this context, we direct the AO to grant credit of TDS of ₹ 17,42,513/- to the appellant after due verification. 14. The 7th ground of appeal relates to levying interest u/s 234A of the Act amounting to ₹ 2,92,861/-. It is stated by the Ld. counsel that after granting credit of TDS of ₹ 17,42,513/-, interest levied u/s 234A of the Act will correspondingly reduce. It is further stated that the appellant has filed a rectification application before the AO, which is pending for disposal. In this context, we direct the AO to compute consequential levy of interest u/s 234A as per law after granting TDS credit due to the appellant. 15. The 8th 9th ground of appeal relate to levying interest u/s 234B of the Act amounting to ₹ 9,62,258/-. In the case of Boston Scientific International v. DIT (90 DTR 357), the Hon ble Bombay High Court has held that when entire income of assessee was subjected to deduction of tax at source, no interest could be imposed u/s 234B 234C. In the instant case, as mentioned ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid-19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial work all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon'ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown . Hon'ble Bombay High Court, in an order dated 15th April 2020, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
