9911796707
TMI Blog2020 (7) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... returned income; 2. erred in considering infrastructure data centre charges of Rs. 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 Rs. 73,61,951/- to be taxable as FTS under India-Singapore DTAA; 4. erred in considering referral fees of Rs. 39,94,209/- to be taxable as royalty under the Act as well as under India-Singapore DTAA; 5. without prejudice to the above, erred in considering referral fees also to be taxable as FTS under India-Singapore DTAA; 6. erred in not granting credit for TDS of Rs. 17,42,513/-; 7. erred in levying interest under section 234A of the Act amounting to Rs. 2,92,861/- without granting the credit of taxes withheld; 8. erred in levying interest under section 234B of the Act disregarding the fact that the Appellant is a non-resident assessee and its entire revenues/ receipts are subject to tax withholding in India under section 195 of the Act and the Appellant is not liable to pay advance lax in respect of such revenues; 9. without prejudice to the above, erred in levying Interest under section 234B of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 95,62,479 as royalty as per provisions of the Act and the India-Singapore DTAA, (ii) management charges of Rs. 73,61,951 as Fees for Technical Services ('FTS') as per provisions of the Act and the India-Singapore DTAA and (iii) referral fees of Rs. 39,94,209 as royalty as per provisions of the Act and the India-Singapore DTAA and as FTS as per provisions of the India-Singapore DTAA. To summarize, the positions pertaining to each revenue stream of the appellant are tabulated as under : Nature of transaction Return of income Draft Assessment Order DRP directions Final Assessment order IDC charges Agreement dated Nov 2009 Claimed as not taxable Taxable as royalty under the Act and India- Singapore DTAA Taxable as royalty under the Act and India-Singapore DTAA Taxable as royalty under the Act and India- Singapore DTAA Management Service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 customers of Edenred India entities while making a loyalty program for them (e.g. - http://www.ideachampionsclub.com). 4.1 The Ld. counsel argues that the appellant being a non-resident has an option u/s 90(2) of the Act to be governed under the provisions of the Act or the provisions of the India-Singapore DTAA, whichever is more beneficial and accordingly to establish the non-taxability of IDC charges, the appellant wishes to rely on the narrower definition of 'royalty' under the said DTAA. To put is simply the contention is to rely on Article 12(3) of the said DTAA as it is more beneficial vis-à-vis the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 agreement is non-transferable/nonassignable and cannot be sub-licensed without appellant's prior written approval. It has further been provided in this agreement that the IDC's skill and experience relating to the services shall remain the sole property of the assessee-company and will not constitute a transfer of proprietary rights. As per the agreement, in consideration for these facilities, the Indian entities shall pay to the appellant-company technical IT services fees. Referring to the details of services to be provided as given in 'Appendix - 2' ,the Ld. DR refuting the appellant's clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, (ii) the Indian group companies neither access nor use CPU of the appellant, (iii) no CDN system is provided under the IDC agreement, no such use/access is allowed, (iv) the appellant does not maintain any such central data (v) IDC is not capable of information analytics, data management, (vi) appellant only provides IDC service by using its hardware/security devices/personnel ; all that the Indian group companies received are standard IDC services and not use of any software, (vii) bandwith and networking infrastructure is used by the appellant to render IDC services ; Indian comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 down outside India. Application software by which data is transmitted to hardware at Singapore and processed by SPL at Singapore is owned by the assessee. Thus what is used by the appellant is the computer hardware owned by SPL. The Tribunal held that (i) payment in question can be said to be a payment for a facility which is available to any person willing to use the facility, (ii) system software which is embedded in the computer hardware by which the computer hardware functions is not owned by SPL and SPL only has a license to use the system software ; (iii) consideration rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 and therefore, payments made for producing and hosting 'Interactive Agent' applications would be covered by the expression 'royalties' as used in Article 12. However, we find that in the instant case, appellant only provides service by using its hardware/security devices/personnel and not use of any software and therefore the above case is distinguishable from the present appeal. In ThoughtBuzz (P.) Ltd. (supra), the applicant, a Singapore company was engaged in providing social media monitoring service for a company, brand or product. It was a platform for users to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees 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 business or for his own benefit and without recourse to the performer of the services in future. * The technical knowledge, experience, skill etc. must remain with the person utilizing the services even after the rendering of the services has come to an end. * The language of the DTAA also indicates transmission of the technical knowledge etc. from the person rendering the services to the person utilizing the same, including some sort of durability or permanency of the result of the 'rendering of the services' which will remain at the dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, (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 of the Hon'ble Delhi High Court in the case of New Skies Satellite BV & Ors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 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, that is not enough to fall within the description of services which make available the technical knowledge, etc. 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 future without depending on the provider." In the case of M/s Bharati Axa General Insurance Co. Ltd., the AAR has ruled as under : "9. The definition of FTS as contained in clause (b) of Article 12.4 is exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Shell 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 Services (BSS). While providing General BSS, SIPCL works closely with the employees of the applicant and supports/advices them. Thus, General BSS is made available to the applicant. However, we find that subsequently, after considering the decision in the case of Shell India (supra), the Mumbai ITAT in the case of Linklaters LLP (ITA No. 1690/Mum/2015) dated 31.01.2017 held that from none of legal advisory services it can be said that technical knowledge, skill, experience, knowh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... let 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 does not own any brand/trademark/patented process and although the AO/DRP has held that the high quantum of payment by SurfGold to appellant is due to brand value, since there can be no brand/trademark owned by the appellant, there is no question of assigning any such value to the brand/trademark to SurfGold so as to be construed as royalty under the Act/India-Singapore DTAA. Further, our attention was drawn to the certificate which has filed by the appellant that it does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 assessee would provide all the services including training to its manpower for best practices, technical support and other support in its business and hence by entering into these agreements, the appellant has ensured that the services being rendered by the Indian company are world-class. Referring to the direction of the DRP, the Ld. DR submits that since the appellant is also providing facilities for computer infrastructure, which has been held to be taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingapore 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 providing information on suitable candidates for recruitment, even if they are in the nature of consultancy services, cannot be considered to be ancillary and subsidiary to the enjoyment/application of the right or information referred to in para 3(a). Moreover, by access to the database, it cannot be said that the information concerning industrial, commercial or scientific experience will be transmitted by the applicant to the recruiting agencies. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS of Rs. 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 Rs. 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 earlier, we have decided that the revenues from IDC agreement, management agreement and referral agreement are not taxable in India and therefore, the appellant is not liable to pay advance taxes. Accordingly, the levy of interest of Rs. 9,62,258/- made by the AO u/s 234B is deleted. 16. The 10th, 11th & 12th ground of appeal relate to levying of interest of Rs. 1,05,638/- by the AO u/s 234C of the Act. In the instant case, as mentioned earlier, we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cedented 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, has, besides extending the validity of all interim orders, has also observed that, "It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly", and also observed that "arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020". ..... X X X X Extracts X X X X X X X X Extracts X X X X
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