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TMI Blog2021 (1) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... 016. Keeping in view the aforesaid submissions of the parties, we proceed to dispose of the grounds raised in the appeal. 3. Ground No. 1 being a general ground does not require specific adjudication. 4. In ground No. 2, the assessee has challenged the taxability of Rs. 1,86,50,124/- received towards Infrastructure and Hosting Data Centre (IDC) charges by treating it as royalty. 5. Briefly the facts are, the assessee is a company incorporated in Singapore and is also a tax resident of that country. Basically, the assessee is engaged in provision of services relating to developing, marketing and implementing incentive based strategies and technologies to build loyalty and to reward long-term relationships through the utilization of the internet, wireless technology and offline solutions to its clients. During the previous year relevant to the assessment year under dispute, the assessee provided three different categories of services to its three Indian group companies on payment basis, the services provided by the assessee to its Indian group companies are as under:- (i) Infrastructure and Hosting Data Centre (IDC) services. (ii) Management services. (iii) Referral/others s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ardware and software facilities involving substantial investment and capable of very high volume storage and high processing of data. He observed, on receiving payment, assessee allows its Indian group companies and their approved customers to have access and to use its Central Processing Unit (CPU) at Singapore. The Assessing Officer observed, the use of CPU by the Indian group companies establishes strong business connection between the assessee and the group companies. He observed, not only the assessee allows use of its mainframe computers at Singapore but also allows incidental electronic mail access, consolidated data network access and consolidated data network services to the Indian group entities on payment basis. Thus, he concluded that the payment received by the assessee from IDC services is for use of or right to use design or model, plan, secret formula or process or for information concerning industrial commercial or scientific experience within the meaning of the term royalty as per Article 12(3)(a) of the India Singapore (DTAA). Alternatively, he held, the payment received by the assessee can also be treated as royalty as it is for use of industrial, commercial or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 embedde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de consultancy services in connection with the management of the Indian group Company's business and operation. During the assessment proceedings, the assessee submitted that for providing such services the assessee has entered into specific agreement with the Indian group company. By filing elaborate written submissions the assessee submitted that since the services provided under agreement are not of the nature as provided u/s 9(1)(vii) of the Act as well as Article 12 of India- Singapore DTAA, they cannot be treated as FTS. Further, it was submitted, I course of providing such services the assessee has not made available any technical knowhow, knowledge, skill etc. Therefore, it cannot be treated as FTS under treaty provisions. The Assessing Officer, however, did not accept the submissions of the assessee. He held that as per the terms of the agreement the assessee is required to equip the employees at managerial level with core management skills relevant to managing the Indian business. He further observed, such training/support services are specific to the Indian group company and are not general in nature. He observed, such services are rendered to support the sale activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins the expression 'make available' as under : "Article 12(4): The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: a. are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or b. make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or c. consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein." Thus as per the India-Singapore DTAA, the services in the nature of managerial, technical or consultancy nature are taxable as FTS if such services are 'made available' to the service recipient. We find that in the instant case, the management services are provided only to support SurfGold in carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the recipient of service, the further question is whether such provision of services enables the person acquiring the services to apply the technology contained therein. This test specifically laid down in clause (b), in our view, is not satisfied and the legal position clarified by this Authority while interpreting more or less similar Treaty provisions applies with greater force to the present case in view of the narrow language employed in the India-Singapore DTAA. Providing comments and suggestions after reviewing the strategies and plans developed by the Applicant, giving suggestions to the Applicant to improve the product developed by it so as to bring it in line with the common practices followed by other AXA entities across the globe, providing HR support assistance, assisting the Applicant in choosing cost effective re-insurance partners, reviewing the actuarial methodologies developed by the Applicant and providing suggestions and inputs to achieve standard actuarial practices and processing guidelines in connection with the settlement of claims, marketing and risk analysis, fall short of the requirements laid down in the definition of fees for technical services in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture; it cannot be said that recipient of the services was in a position to duplicate similar skill or technology or techniques in future without the aid or assistance of the assessee for carrying out similar assignments. In the case of Perfetti Van Melle Holdings BV (supra), the applicant is a company based in Netherlands and it is in the business of manufacture and sale of sugar confectionary and gun. It also provides operational and other support services for the benefit of companies of Perfetti group situated in various countries. It has entered into a service agreement with the group company (Perfetti India). The AAR held that when the expertise in running the industry run by the group is provided to the Indian entity in the group to be applied in running the business, the employees of the Indian entity get equipped to carry on that business model on their own without reference to service provider, when the service agreement comes to an end. It is not as if for making available, the recipient must also be conveyed specially the right to continue the practice put into effect and adopted under the service agreement on its expiry. It is found that this case is reversed and set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case in assessment year 2012-13 held that the amount received by the assessee is in the nature of royalty and FTS. 15. Having considered the submissions of the parties and perused the material on record, we find that identical issue came up for consideration before the Tribunal in assessee's own case in assessment years 2010-11 to 2012-13. While deciding the issue the Tribunal, in the order referred to earlier, the Tribunal has recorded a categorical finding that the referral fee is neither in the nature of royalty nor FTS. The relevant observations of the Tribunal in this regard are reproduced here under:- "12. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In the instant case, the appellant has received fees for referral services/other services of Rs. 39,94,209/- from Surf Gold in the year under consideration. It is relevant to mention here that as per the India-Singapore DTAA, the services in the nature of managerial, technical or consultancy nature are taxable as FTS, if such services are 'made available' to the service recipient. In the instant case, referral services/other services are pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contention of Revenue is accepted, it would amount to unwarranted expansion of the terms FTS and royalties. Consideration for providing information concerning industrial, commercial or scientific experience basically involves the sharing of technical know-how and experience which is not the case here........ We do not think that the criterion envisaged by art. 13.4(a) of DTAA has been satisfied in the instant case." In Knight Frant (India) (P.) Ltd. (supra), the Tribunal held that (i) where referral fees was received by foreign concern for introducing clients to assessee-Indian company, providing international real estate advisory and management services, since referral services were rendered entirely outside India, it would not fall within the scope of 'tota ..... X X X X Extracts X X X X X X X X Extracts X X X X
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