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TMI Blog2023 (4) TMI 1163X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and direct the AO to delete the impugned addition on account of receipts from Atos India towards project-related services pertaining to Standard Chartered Bank Project. Taxability of receipts from Atos India for the support services pursuant to the Regional Service Agreement - AO only referred to the Regional Support Agreement entered by the assessee with Atos India, but neither analysed the various services rendered by the assessee under the aforesaid agreement nor analysed the terms of the agreement to come to the conclusion that the receipts are in the nature of Royalty and/or Fees for Technical Services under the Act and the DTAA. DRP also did not analyse any of the above aspects and rejected the objections filed by the assessee by merely placing reliance upon its directions rendered in assessee s own case for the assessment year 2014-15, wherein this issue was not involved. Since the factual aspect pertaining to the taxability of receipt under the Regional Service Agreement has not been properly examined by any of the lower authorities vis- -vis the terms of the agreement and services rendered therein, we deem it appropriate to remand this issue to the file of AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant humbly prays that the Learned AO be directed to not treat the aforesaid receipts as 'Fees for technical services' under Article 12(4)(a) of the DTAA. 4. On the facts and in the circumstances of the case and in law, the Learned AO and the DRP erred in not considering that the sum of Rs. 10,76,69,690 is in the nature of Business Profits under Article 7 of the DTAA, not taxable in India as the Appellant did not have a Permanent Establishment in India under Article 5 of the DTAA. The Appellant humbly prays that the Learned AO be directed to not treat the aforesaid receipts as 'Business Profits' under Article 7 of the DTAA and not tax in absence of Permanent Establishment in India. 5. On the facts and in the circumstances of the case and in law, while calculating the tax liability of the Appellant, the Learned AO has erred in allowing short credit of Tax deducted at source by its customers of Rs. 63,14,556. The Appellant prays that Ld. AO be directed to kindly allow the credit of tax deducted at source. 6. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in levying charging consequential interest u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 7 of the India Singapore Double Taxation Avoidance Agreement ( DTAA ). However, since the assessee did not have a Permanent Establishment in India in terms of Article 5 of the DTAA, the amount received from Atos India is not taxable in India. 4. The Assessing Officer ( AO ) vide draft assessment order dated 16/04/2021, passed under section 143(3) r/w 144C of the Act did not agree with the submissions of the assessee and held that the consideration received by the assessee from the Indian entity is nothing but Royalty within the definition as per Article 12(3) of the India Singapore DTAA. The AO further held that the receipts also get covered within the ambit of Royalty under the provisions of section 9(1)(vi) of the Act. Without prejudice, the AO also held that the payments are also in the nature of Fees for Technical Services under the provisions of the Act and India Singapore DTAA. Accordingly, the AO made an addition of Rs. 10,76,09,690, on account of payment received from Atos India in respect of project-related services and regional support services. 5. The assessee filed detailed objections before the learned DRP against the addition made by the AO. Vide di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Singapore DTAA. 8. We have considered the rival submissions and perused the material available on record. We find the coordinate bench of the Tribunal in assessee s own case in Atos Information Technology Singapore Pte. Ltd. vs DCIT, in ITAs No.7144/Mum./2017 and 5744/Mum./2018, vide order dated 30/03/2021, for the assessment years 2014-15 and 2015-16 held that payment received by the assessee from various projects related services, including Standard Chartered Bank Project, would not qualify as Royalty/Fees for Technical Services. The relevant findings of the coordinate bench of the Tribunal, in the aforesaid decision, are as under:- 18. Keeping the aforesaid factual position in perspective, we have to examine, whether each kind of payments received by the assessee qualifies either as royalty or FTS under the relevant provisions of India-Singapore DTAA. As far as the project related services rendered by the assessee, there is unanimity between the parties that they relate to data centre and mailbox hosting services. What is meant by mailbox hosting services? It is a service where both incoming and outgoing emails are managed by a separate shared or dedicated server. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 right, property or information? (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise / from activities described in paragraph 4(A) or 4(f) of Article 8. 21. A reading of the Article 12(3) makes it clear that it provides for three basic situations to consider a payment to be in the nature of royalty. Firstly, the payment must be for the use or right to use concerning industrial, commercial or scientific experience. Secondly, it must be for use or right to use any copyright of a literary, artistic or scientific work including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process. Thirdly, it must be for use or right to use any industrial, commercial or scientific equipment. It has to be examined, whether any of the aforesaid conditions either on stand-alone basis or cumulatively apply to the payments receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of literary, artistic or scientific work including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process. The payment received is also not for use of information concerning industrial, commercial or scientific experience. In our considered opinion, the services rendered by the assessee are purely IT infrastructure management and mailbox hosting services and for rendering which the assessee has neither allowed use or right to use of any copyright of literary, artistic or scientific work, etc. or use of information concerning industrial, commercial or scientific experience or has allowed use or right to use any industrial, commercial or scientific equipment. 24. In case of DCIT vs Suvvis Communication Corporation (supra), the co-ordinate bench has held, the true test for finding out whether the consideration is for rendition of services, though, involving the use of scientific equipment or the consideration is for use of equipment simpliciter. In the facts of the present case, there cannot be two opinions about the fact that, though, in course of rendition of services there may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d network and not its use, (viii) consideration is for IDC services and not any specific program and (ix) no embedded/secret software is developed by the appellant. Against the above factual backdrop, let us discuss below the case laws relied on both sides. 6.1 We begin with the case laws relied on by the Ld. counsel. A plethora of precedents on the subject in which we are presently concerned compels us, in order to avoid prolixity, to refer only a few decisions below. In the case of Bharati Axa General Insurance Co. Ltd. (supra), the appellant, an Indian company carrying on business of general insurance entered into a service agreement with a Singapore company AXA ARC for receiving assistance such as business support, market information, technology support services and strategy support etc. from the latter. The AAR held that (i) though the services rendered by AXA ARC may well be brought within the scope of the definition of FTS under the IT Act as they answer the description of consultancy services or some of them may be categorized as technical services but the qualifying words make available technical knowledge, experience, skill, know-how, which enables th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the computer hardware which does not involve use or right to use a process, (iv) there is nothing on record to establish that the hardware could be accessed and put to use by the assessee by means of positive acts, (v) therefore, it cannot be said that the payment by the assessee to SPL is royalty within the meaning of Article 12 of the treaty. In ExxonMobil Company India (P.) Ltd. (supra), the assessee had paid certain amount to 'EMCAP', Singapore towards global support fees. The AO opined that payment made by the assessee was in the nature of FTS as defined in Explanation 2 to section 9(1)(vii) of the Act. The Tribunal observed that as per terms of agreement, EMCAP had to provide management consulting, functional advice, administrative, technical, professional and other supporting services to the assessee; however, there was nothing in agreement to conclude that in course of such provision of service, EMCAP had made available any technical knowledge, experience, skill, knowhow or process which enabled assessee to apply technology contained therein on its own. Therefore, the Tribunal held that payment made by the assessee could not be considered as FTS as defined und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and or product. It was a platform for users to hear and engage with their customers, brand ambassadors etc. across the internet. The applicant offered service on charging a subscription. The clients, who subscribe, can login to its website to do a search on what is being spoken about various brands and so on. The AAR held that the amount received from offering the particular subscription based service is taxable in India as 'royalty' in terms of paragraph 2 of Article 12 of the DTAC between India Singapore. However, we find that in the instant case, the appellant is only providing IDC service which includes administration and supervision of central infrastructure, mailbox hosting services and website hosting services and therefore, the ratio laid down in the above ruling is not applicable to the facts of the appellant's case. 6.3 From the enunciation of law in Bharati Axa General Insurance Co. Ltd; ExxonMobil Company India (P.) Ltd; Standard Chartered Bank v. DDIT; DCIT v. M/s Reliance Jio Infocomm Ltd narrated at para 6.1 hereinbefore, it is quite luculent that revenues under the IDC agreement ought not to be taxed in the hands of the appellant as royalty u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which enables the person acquiring the services to apply the technology contained therein. Therefore, the most crucial factor which requires examination is, while rendering services, whether the assessee has made available any technical knowledge, experience, skill, know-how or process in terms of section 12(4)(b). In our view, the material on record would not persuade one to conclude so. The true meaning of the aforesaid provision is, not only the payment is received for providing technical or managerial services, but, while doing so the service provider also makes available any technical knowledge, experience, skill, know-how or process, etc. to the recipient of services, which enables the person acquiring such services to apply the technology contained therein independent of the service provider. In other words, the service recipient must be in a position to apply the technical knowledge, experience, skill, know-how, etc. without requiring the permission or presence of the service provider. 28. In the facts of the present case, there is nothing on record to suggest that Atos India can use any technical knowledge, experience, skill, know-how or process, etc. independently o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Service Agreement, we find that the AO only referred to the Regional Support Agreement dated 02/02/2017 entered by the assessee with Atos India, however, neither analysed the various services rendered by the assessee under the aforesaid agreement nor analysed the terms of the agreement to come to the conclusion that the receipts are in the nature of Royalty and/or Fees for Technical Services under the Act and the DTAA. We find that the learned DRP also did not analyse any of the above aspects and rejected the objections filed by the assessee by merely placing reliance upon its directions rendered in assessee s own case for the assessment year 2014-15, wherein this issue was not involved. Since the factual aspect pertaining to the taxability of receipt under the Regional Service Agreement has not been properly examined by any of the lower authorities vis- -vis the terms of the agreement and services rendered therein, we deem it appropriate to remand this issue to the file of AO for de novo adjudication. Needless to mention that no order shall be passed without affording reasonable opportunity of being heard to the assessee. As a result, grounds No. 1-4 raised in assessee s appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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