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TMI Blog2022 (8) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... tax from the payments so made, the AO invoked the provisions of section 195 and made disallowance u/s 40(a)(ia). We find the CIT (A) upheld the action of the AO, the reason of which have already been reproduced in the preceding paragraph. It is the submission of the assessee that the charges paid to Amazon for various services provided by it are not under the nature of royalty. According to him, these are monthly charges which are fluctuating from month to month and there is no regular payment being made to Amazon. Further, the assessee did not acquire any right from Amazon for which the payments have been made but the payments have been made on the basis of services done by Amazon. Therefore, the payments so made do not fall under the category of Royalty and therefore, the assessee is not liable to deduct any tax from such Royalty. We find some force in the above argument of the assessee. From the various clauses of the agreement which are already reproduced in the preceding paragraphs and the copies of invoices raised, it can be safely concluded that cloud base services do not involve any transfer of rights to the assessee in any process. The grant of right to install and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.9,52,71,232/-. During the course of assessment proceedings, the Assessing Officer noted that the assessee has debited an amount of Rs.1,02,18,116/- towards web hosting charges. From the bills/invoices produced for the expenditure so claimed, the Assessing Officer noted that the said expenditure includes the payment towards AWS Data Transfer, Amazon Simple Storage Services, AWS Premium Support, Amazon Elastic Compute Could etc., He therefore, asked the assessee to furnish a note on the business carried on by the assessee. 3. After going through various details furnished by the assessee, the Assessing Officer noted that the assessee company is providing software platform to other business entities for carrying e-commerce by those entities. The assessee company charges fee for providing services to its customers subject to TDS. The assessee company has developed computer software facilities for e-commerce. The Assessing Officer further observed that the assessee was incorporated as a private limited company in India in accordance with the provisions of the Companies Act, 1956 on 14th May, 2007 with the primary objective of conducting software development and providing data m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has got the right to use the same in India. Even though the assessee has supplied/provided that software, later on, to different Indian companies, the assessee was having right to use the same in India. 6. Referring to the provisions of section 195, the provisions of DTAA between India and US, the Assessing Officer held that the TDS provisions would be applicable to the assessee. Relying on various decisions, the Assessing Officer made disallowance of Rs.1,02,18,116/- u/s 40(a)(ia) of the Act by concluding as under: 4.19 As narrated by the assessee, by acquiring those software licenses, the assessee has got the right to use the same in India. Even though the assessee has supplied/provided those software, later on, to different Indian companies, the assessee was having right to use the same in India. This right to use the software was in turn transferred to its clients. It was also clarified that the clients have made the TDS on the payments made to the assessee company. Thus, it is evident that the payments made by the assessee in respect of these software/licenses are in the nature of royalty within the meaning of section 9(1)(vi) of the Income Tax Act. These pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r included services, because they are not, as required under the treaty, ancillary to the application or enjoyment of a right, technical property, or similar information and are not for making available any technical knowledge, experience, skill, know how or processes. 4.12 When it was argued by the assessee that the said amount paid to US is not taxable under the provisions of India-USA, DTAA, the assessee was asked to submit an agreement entered with the US entity to show whether the payments made to US company are subject to Indian withholding taxes or not. In this regard, the assessee filed a letter received from the Amazon Web Services, which is as under: AWS Indian customers frequently ask whether payments they make to Amazon Web Services LLC (AWS) a US Company are subject to Indian withholding taxes. AWS position is that the answer is no. Payments made to AWS are not subject to Indian withholding taxes. Under the US Indian Treaty payments from Indian customers for A WS services are neither Royalties or Fees for included Services both of which are defined for purposes of the treaty, which are payment types generally subject to withholding . 4.13 From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having a permanent establishment in India as inapplicable, in so far as the taxability of non-residents is concerned. It is therefore evident that even though the nonresident organization is not having any place of business in India, the provisions of sec. 195 are applicable and the assessee is liable to deduct tax while making any payments to a nonresident. 4.17 In the case of Head Start Business Solutions P Ltd. 285 ITRT 530 (AAR), Transmission corporation of AP 239 1TR 587 (SC)- IMT Labs 287 ITR 450 (AAR) it was held that irrespective of the taxability of the same in the hands of foreign enterprise, it was legal obligation on the part of the assessee to deduct tax u/s. 195/1) of the Act. 4.18 The Hon'ble ITAT Hyderabad in the case of Frontline Soft Limited Vs. DCIT vide its order in 1TA Nos. 1080 1081/Hyd/2003 dated 3.8.2007 for A. Ys. 2002- 03 and 2003-04 held that purchase of software tantamount to payment of royalty and that purchase of software is not an asset. Therefore, withholding tax is liable on such purchases. 4.19 As narrated by the assessee by acquiring those software licenses, the assessee has got the right to use the same n India Even thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppealed to whittle down the statutory language which is otherwise unambiguous. If the amendment is not in the words used, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do manifest the intention of the legislature. The provisions of Section 195 are applicable and the appellant is liable to deduct tax by making any payment to a non-resident. The appellant s reliance On a specific provision as defined in Indo-USA DTAA does not hold merit as the provisions of the Income Tax Act are quite clear in this context. Keeping in view the facts, issue and circumstances of the instant case, it is held that Ground No.2 in appeal is dismissed. (IX) In the result, the appeal is dismissed 10. Aggrieved with such order of the learned CIT (A), the assessee is in appeal before the Tribunal by raising the following grounds: 1.0 That under the facts and circumstances of the case the orders passed u/s 143 of the I.T.Act is against the facts of the case and provisions of law. 1.1 The learned Commissioner of income tax(A) (in short CIT(A)) is not Correct in sustaining the disallowance of expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt to the extent caused by our breach of this Agreement, we and our affiliates are not responsible for unauthorized access to your account. You will contact us immediately if you believe an unauthorized third party may be using your account or if your account information is lost or stolen. You may terminate your account and this Agreement at any time in accordance with Section 7. 12. Referring to para 5.1 of the agreement placed at Page No.34 of the Paper Book, the learned Counsel for the assessee drew the attention of the Bench to the same which reads as under: 5.1. Service Fees. We calculate and bill fees and charges monthly. You will pay us the applicable fees and charges for use of the Service Offerings as described on the AWS Site using one of the payment methods we support. All amounts payable under this Agreement will be made without setoff or counterclaim, and without any deduction or with holding. Fees and charges for any new Service or new feature of a Service will be effective when we post updated fees and charges on the AWS Site unless we expressly state otherwise in a notice. We may increase or add new fees and charges for any existing Services by giving you a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of this Agreement. During and after the Tern, you will not assert, nor will you authorize, assist, or encourage any third party to assert, against us or any of our affiliates, customers, vendors, business partners, or licensors, any patent infringement or other intellectual property infringement claim regarding any Service Offerings you have used. You may only use the AWS Marks in accordance with the Trademark Use Guidelines . 15. He submitted that Amazon has not given any rights to the assessee and it has only provided services. Therefore, under no stretch of imagination it can be construed as royalty. 16. Referring to the decision of the Pune Bench of the Tribunal in the case of EPRSS Prepaid Recharge Services India (P) Ltd vs. Income Tax Officer reported in (2018) 100 Taxmann.com 52, he submitted that under identical circumstances, the Pune Bench of the Tribunal has held that where an assessee is engaged in distribution of recharge pens of various DTH providers via online network and paid web hosting charges to US based company for using its servers, since assessee did not possess and did not have any control over server or severs space being deployed by said compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed anew. With attrition the norm in IT Industry, the need to retain expert also is limited. Therefore, the facilities so provided by Amazon are not in the nature of off the shelf products but are specialized services/processes which fall under the definition of royalty. He accordingly submitted that the nature of functions involved in the elastic cloud compute are complex and require processing on the part of the end user. As such the functions are related to the process as defined under the definition of royalty as per Article 12 of Indo US DTAA. He accordingly submitted that the order of the learned CIT (A) being in accordance with law should be upheld. He also relied on various decisions. 20. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the assessee during the impugned A.Y has debited a sum of Rs.1.02 crores towards web hosting charges paid to Amazon towards AWS Data Transfer, Amazon Simple Storage Services, AWS Premium Support, Amazon Simple Notification Services, Amazon Ela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware to the assessee. The assessee in the instant case does not get any right of reproduction. The services, in our opinion, merely facilitate the flow of user data from the front run user through internet to the providers system and back. Therefore, the subscription fee in our opinion is merely a consideration for the online access of the cloud computing services for process and storage of data or run the applications but cannot be considered as Royalty within the meaning of section 9(1)(vi) of the Act. 23. We find an identical issue had come up before the Pune Bench of the Tribunal in the case of EPRSS Prepaid Recharge Services India (P) Ltd vs. Income Tax Officer (Supra) where the Tribunal following the decision of the Hon'ble Madras High Court in the case of Skycell Communications Ltd (Supra) held that the amount paid to Amazon for various service provided by it are not in the nature of royalty and hence provisions of section 40(a)(ia) are not applicable. Relevant portion of the said order of the Tribunal reads as under: 19. Now, another issue which needs to be seen is whether charges paid to Amazon for various services provided by it are in the nature of royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any right in property of Amazon and consequently, Explanation under section 9(1)(vi) of the Act is not attracted. It may be pointed out herein itself that the Assessing Officer had applied Explanation 2(iva) under section 9(1)(vi) of the Act in order to hold the assessee as having defaulted for non-deducting withholding tax. First of all, main provisions of section 9(1)(vi) of the Act are not attracted as the payment made by assessee is not in the nature of royalty. In any case, Explanation 2(iva) of section 9(1)(vi) of the Act covers cases of royalty i.e. consideration paid for the use or right to use any industrial, commercial or scientific equipment but not including the amount referred to in section 44BB of the Act. The assessee in the present case did not use or acquire any right to use any industrial, commercial or scientific equipment while using the technology services provided by Amazon and hence, the payment made by assessee cannot be said to be covered under clause (iva) to Explanation 2 of section 9(1)(vi) of the Act. In other words, even if the retrospective amendment is held to be applicable, the case of assessee of payment to Amazon being outside the scope of said Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not get any right of Microsoft Regional Sales Corporation, USA reproduction. The services are provided online via data centre located outside India. The Cloud services merely facilitate the flow of user data from the front-end users through internet to the provider's system and back. The ld. AO has fallen in error in interpreting it as licensing of the right to use the above Cloud Computing Infrastructure and Software (para 10.5 of the Ld. AO order). Thus, the subscription fee is not royalty but merely a consideration for online access of the cloud computing services for process and storage of data or run the applications. 7.2 While dealing with similar question in regard to the case of M/s. Salesforce.com Singapore Pte. (supra) where the said assessee was provider of comprehensive customer relationship management servicing to its customer by using Cloud Computing Services / Web Casting Services, the Bench in its order dated 25.03.2022 held as under : 28. Considering the facts of the case in totality, in light of the Master Subscription Agreement, we are of the considered view that the customers do not have any access to the process of the service provider i.e. the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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