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TMI Blog2022 (5) TMI 1603X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess' need not be secret , and situs of control possession of right, property or information has been rendered to be irrelevant. However, in our opinion, all these changes in the Act, do not affect the definition of Royalty as per DTAA. As per Explanation 5 6, the word 'process' includes and shall be deemed to included, transmission by satellite (including uplinking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. However, the Explanation does not do away with the requirement of successful exclusivity of the right in respect of such process being with the person claiming 'royalty' for granting its usage to a third party. In present facts of the case, the J P Coats has neither leased nor has given on hire any network to the assessee. Instead the assessee reimbursed the cost incurred by J P Coats towards the bandwidth charges provided by BT to all the Coats group companies world wide.Therefore it cannot be said that the assessee has 'used' the network belonging to J P coats. On perusal of the agreement, between assessee and J P Coats w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then on attribution of income without establishing a PE J P Coats in India. In this regard we refer to relevant observation of Coordinate Bench of this Tribunal reproduced hereinabove to hold that J P Coats do not have a PE in India. Accordingly, we are of the view that the payments made by assessee to J P Coats cannot be held to be taxable in India as it does not amount to income as per DTAA as well as Income tax Act. Assessee in default u/s. 201(1) - Since it is held that the assessee was not liable to deduct TDS on the payments made to J P Coats for A.Ys. 2016-17 2017-18, the assessee cannot be held to be an assessee in default , u/s. 201(1) of the Act. We accordingly, delete the disallowance and the interest computed u/s. 201(1A) of the Act on the payments made by assessee to J P Coats for both years under consideration. - Smt. Beena Pillai, Judicial Member And Ms. Padmavathy S, Accountant Member For the Assessee : Shri Ajay Rotti, CA. For the Revenue : Shri Shehnawaz ul Rahaman, Addl. CIT (DR). ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeals are filed by assessee against order dated 30.03.2019 passed by Ld. CIT(A)-12, Bangalo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereby BT provides wide area network services to subsidiary companies and associated enterprises of the J P Coats. J P Coats with a view to formalise the arrangement with provision of wide area network services entered into the agreement with the assessee. The support services covered under the ambit of Wide Area Network Support services are described in Schedule-II to the Agreement. 2.5 Clause-5 of the agreement provides as follows: 5. Wide Area Network Support Services 5.1. During the Term 1.11(1 as from the Effective Date the Service Provider shall make Wide Area Network Support Services available to the User in accordance with the User's reasonable requirements. These requirements shall include, inter alias, 5.1.1 setting up a global wide area network capable of supporting transaction processing; 5.1.2 providing global wide area network access to sites of India business- operations that meet required service levels for transaction processing and messaging; 5.1.3 carrying out periodic inspection and maintenance activities on the network hardware and communication links to ensure continued provision of assured service levels to the User. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GFA to mean: Local Agreement means an agreement entered into between the relevant member of BT Group and the relevant member of Coats Group in relation to one or more countries based on this Agreement substantially in accordance with the example set out within Schedule 8 (Pro-Forma Local Agreement) 2.11 Schedule I to the MGFA details the services and the relevant clauses in so far as the issue to be decided in this appeal is concerned reads as follows: SCHEDULE 1 SERVICES 1. Purpose of Schedule This Schedule describes the scope of the Services to be provided to the Sites by BT to Coats under this Agreement. 2. Scope of Services The scope of Services are defined as a BT Global WAN with BT's end to end Managed Services including all network elements as set out in Schedule 18 (Coats Site List) and management of those services where the service boundary is the Ethernet Port on the router (CPE) presented to the customer LAN, inclusive of the private WAN connections detailed in this Schedule. 3. Sites BT will provide the Services described in this Agreement to the Sites as set out in Schedule 18. This list provides the detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Local connection to Colombo site, Sri Lanka, then long line to Bangalore (as above) Sri Lanka (Kelaniya) Local connection to Colombo site, Sri Lanka, then long line to Bangalore (as above)+ Morocco (Casabianca) Long line to Stockley Park site, UK Tunisia (Tunis) Long line to Stockley Park site, UK 5.2 Network Equipment The routers provided will be Cisco, as defined in Schedule 18 (Coats Site List), with standard Interface Operating System (IOS) software. 2.12 The assessee further submitted that, Schedule I also refers to management services (i.e., help desk for user), service desk, fault management, etc. These are incidental to use of WAN by the user. It is thus submitted that, the agreement by which J P Coats agreed to provide WAN services to the assessee referred to herein above is covered under the definition of Local Agreement under the MGFA. 2.13 The assessee submitted that, the sum of Rs. 6,05,47,045.78/- paid towards Bandwidth Charges to the J P Coats was not subjected to TDS. The Ld.AO calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment . According to the Ld.AO, the consideration paid to J P Coats by the assessee was for use or right to use towards dedicated bandwidth and the equipment associated with the network, and therefore, the payment was in the nature of Royalty . 2.17 The Ld.AO, based on the above, rejected the theory of cost to cost reimbursement on the ground that, what is to be seen is whether the payment is for services rendered then whether the charge for the services is equivalent to the cost or not becomes immaterial. He observed that, once the income falls under the category mentioned in Sec.9(1)(vi) of the Act i.e., royalty, then it is taxable, irrespective of whether it is equivalent to the cost of the service provider. 2.18 The Ld.AO also held the amount to be in the nature of FTS. 2.19 Aggrieved by the order passed by the Ld.AO, the assessee filed objections before the Ld.CIT(A). 2.20 Before the Ld.CIT(A), the assessee raised various objections alleging that, the amount paid by the assessee cannot be considered neither to be royalty under section 9(1)(vi) r.w. Expl. 5 6, nor Fee for technical services under section 9(1)(vii) or the Act. The assessee submitted on follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cost to cost reimbursement 3. The CIT(A) has erred in law and in facts by not appreciating that the amount paid by the Appellant to JPCL is in the nature of cost to cost reimbursement and had no element of income accruing or arising to JPCL in India and hence tax need not be withheld on the same under section 195 of the Act. 4. The Ld. CIT(A) has also erred in law and in facts by holding that in a cost to cost reimbursement arrangement the nature of income has to be determined based on the contract, agreement, risks taken, and functions performed, which is irrelevant in the absence of any element of income. Taxability as Royalty income 5. The Ld. CIT(A) has erred in law and on facts in holding that the Appellant has a constructive possession over the equipment, and therefore, the payment made by the Appellant to J P Coats Limited ('JPCL') would amount to Royalty. While doing so, the Ld. CIT(A) has failed to appreciate that the Appellant has no possession (whether physical or constructive) over the equipment whatsoever. 6. The Ld. CIT(A) has erred in law and facts concluding that the payments made by the Appellant to JPCL constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act as follows: Explanation 2. For the purposes of this clause, royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head Capital gains ) for (i) the transfer of all or any rights (including the granting of a license) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ; (iv )the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing principles in this regard- The provision of telecom bandwidth facility by means of dedicated circuits and other network installed and maintained by the service provider does not amount to a lease of equipment. The service provider utilises its own network and provides a facility that enables the service recipient to transmit voice and data through the media of telecom bandwidth and accordingly there is no use or right to use equipment within the meaning of clause (via) of Explanation 2 to section 9(1)(vi) of the Act. Provision of bandwidth facility does not tantamount to use of or right to use any secret process. The AAR mentioned that similar bandwidth services through private circuits are being provided by many other telecom operators and hence the royalty definition relating to secret process is not attracted while providing telecom bandwidth facility. 10. Reliance was also placed on the following judicial precedents in support of assessee s contention that, provision of telecom bandwidth facility would not be characterised as royalty under the Act and the DTAA Hon'ble High Court of Delhi in the case of CIT Vs. Expeditors International (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DCIT reported in (2001) 251 ITR 53 (Mad) and; decision of Hon ble Delhi High Court in CIT Ors. vs Bharti Cellular And Others reported in (2008) 175 Taxman 573 13. He submitted that, in these decisions it was held that, provision of cellular services cannot be treated as technical services. Without prejudice, to the above, the Ld.AR placed reliance on Article 13 of Indo UK DTAA, wherein, Paragraph 4 defines the term 'fees for technical services' that reads as under: (4) For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term fees for technical services means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) any ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ; or (b) any ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received ; or (c) make available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Raymond Ltd vs. DCIT, reported in 86 ITD 791 relied on the Memorandum of Understanding, examples and explanation appended to the DTAA between India and US, in order to arrive at a better understanding of the treaty law between India and UK. 16. The Assessee submitted that the MOU under the Indo-US DTAA can be used to explain the concept of 'make available' under the Indo- UK DTAA. Under Para 4(b) of Article 12 of the Indo-US DTAA, technical and consultancy services are considered as included services only if they make available technical knowledge, expertise, skill, knowhow or processes or consists of the development and transfer of a technical plant or technical design to such person. The MOU explains that the category of services included in para 4(b) of Article 12, is narrow, because it excludes any service, that does not make technology available to the person acquiring the service. The MOU further states that the technology will be considered made available when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service, does not per se mean tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d.CIT(A), the assessee is in appeal before this Tribunal. 21. Before us, the Ld.AR submitted that, the view taken by authorities below is based on the amendment made to section 9(1)(vi) of the Act, by introduction of Explanation 5 and Explanation 6 by 2012. He submitted that prior to 2012, the Delhi High Court in Asia Telecommunications Co. Ltd. vs. DIT reported in (2011) 332 ITR 340 held that, for a payment to be regarded as royalty under the Act or under the DTAA, there has to use of the intellectual property by the payer. It is submitted that, the Explanation 5 seeks to treat any payment as royalty, whether or not the payer uses the process . 22. The Ld.AR submitted that prior to 2012, the Delhi Tribunal in Asia Satellite Telecommunications Co. Ltd. vs. DCIT reported in (2003) 85 ITD 478 held that, the word secret does not qualify the word process in the Act. He submitted that, subsequently, in DCIT vs. PanAmSat International Systems Inc. reported in (2006) 9 SOT 100, the Delhi Tribunal held that, process should be a 'secret process', for the payment thereof to constitute royalty under the DTAA. He submitted that, the issue was then referred to Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n included and had always included the transfer of all or any right for use or right to use a computer software . The Hon ble Court held that, Explanation 4 to section 9(1)(vi) expanded the scope of royalty under Explanation 2 to section 9(1)(vi). Prior to the amendment, payment could be treated as royalty only if, it involved a transfer of all or any rights in copyright by way of license or other similar arrangements under the Copyright Act. Hon ble Court thus held that, once DTAA applies, the provisions of the Act can only apply to the extent they are more beneficial to the assessee, and therefore, the definition of royalty will have the meaning assigned to it, by the DTAA, which was more beneficial. 25. On the contrary, the Ld.CIT.DR relied on the analysis by the Ld.CIT(A) on the issue. 26. We are of the view that the payments made by assessee to J P Coats needs to be analysed under following categories: A. Whether payment received by assessee could be considered as Royalty as per section 9(1)(vi) read with Explanation 2, 5 6 of the Act ? 27. The Ld.AO and CIT(A) held the payment received to be Royalty , as they are of the view that, there is use of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial value and are protectable under copyright, patent, service mark, trademark, or trade secret laws from imitation, infringement, and dilution. Intellectual property includes brand names, discoveries, formulas, inventions, knowledge, registered designs, software, and works of artistic, literary, or musical nature. 30. We refer to the commentary in Prof.Klaus Vogel's Commentary on Double Taxation Convention, wherein, the term Royalty is defined as under: Paragraph 2 contains definition of the term royalties . These relate, in general, to rights or property constituting different forms of literary and artistic property, the elements of intellectual property specified in the text and information concerning industrial, commercial or scientific experience. The definition applies to payments for the use of, or the entitlement to use, rights of the kind mentioned, whether or not they have been, or are required, registered in a public register. The definition covers both payments made under a license and compensation which a person would be obliged to pay for fraudulently copying or infringing the right. 31. Thus the word process must also refer to specie of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. 35. By insertion of Explanation 5 6, meaning of word 'Process' has been widened. As per these explanations, the word 'Process' need not be secret , and situs of control possession of right, property or information has been rendered to be irrelevant. However, in our opinion, all these changes in the Act, do not affect the definition of Royalty as per DTAA. The word employed in DTAA is 'use or right to use', in contradistinction to, transfer of all or any rights or 'use of', in the domestic law. As per Explanation 5 6, the word 'process' includes and shall be deemed to included, transmission by satellite (including uplinking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. However, the Explanation does not do away with the requirement of successful exclusivity of the right in respect of such process being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orated in India part of Cable Wireless Group of companies. Cable Wireless Networks India(P.)Ltd., was engaged in providing international long distance and domestic long distance telecommunication services in India. As per the agreement Cable Wireless Networks India(P.)Ltd., would provide the Indian leg of service of using its own network and equipments and network of other domestic operators. Similarly, the international leg of services would be provided by the UK group company using its international infrastructure and equipments. The Cable Wireless Networks India(P.)Ltd., sought for advance ruling in respect of nature of payments made by Cable Wireless Networks India(P.)Ltd., to the UK Group company, whether the payment is taxable as royalty or FTS under section 9(1)(vi)/(vii). The AAR relied on following decisions: Decision of Hon ble Supreme Court in case of BSNL vs. UOI reported in (2006) 3 STT 245 Decision of AAR in case of Dell International Services India Ltd. In.re reported in (supra) Decision of Hon ble Madras High Court in case of CIT vs. Neyveli Lignite Corpn. Ltd. reported in (2000) 243 ITR 459 Decision of coordinate bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment of BTA. 12.6 The other case cited by the learned counsel for applicant to explain the meaning of expressions 'use' and 'right to use' is that of BSNL v. UOI (2006) 3 STT 245 (SC). Even that case turned on the interpretation of the words transfer of right to use the goods in the context of sales-tax Acts and the expanded definition of sale contained in clause (29A) of section 366 of the Constitution. The question arose whether a transaction of providing mobile phone service or telephone connection amounted to sale of goods in the special sense of transfer of right to use the goods. It was answered in the negative. The underlying basis of the decision is that there was no delivery of goods and the subscriber to a telephone service could not have intended to purchase or obtain any right to use electro-magnetic waves. At the most, the concept of sale in any subscriber's mind would be limited to the handset that might have been purchased at the time of getting the telephone connection. It was clarified that a telephone service is nothing but a service and there was no sale element apart from the obvious one relating to the handset, if any. This judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of availing of the benefit of an equipment. The context and collocation of the two expressions 'use' and 'right to use' followed by the words equipment suggests that there must be some positive act of utilization, application or employment of equip-ment for the desired purpose. If an advantage is taken from sophisticated equipment installed and provided by another, it is difficult to say that the recipient/customer uses the equipment as such. The customer merely makes use of the facility, though he does not himself use the equipment. 13. It is the contention of the revenue that dedicated private circuits have been provided by BTA through its network for the use of the applicant. The utilization of bandwidth upto the requisite capacity is assured on account of this. The electronic circuits being 'equipment' are made available for constant use by the applicant for transmission of data. The access line is installed for the benefit of the applicant. Therefore, the consideration paid is towards rent for circuits and the physical components that go into the system. It is further contended that rendition of service by way of maintenance and fault repairs is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated equipment. There is no scope to invoke clause (iva) in such a case because the element of service predominates. 13.2 Usage of equipment connotes that the grantee of right has possession and control over the equipment and the equipment is virtually at his disposal. But, there is nothing in any part of the agreement which could lead to a reasonable inference that the possession or control or both has been given to the applicant under the terms of the agreement in the course of offering the facility. The applicant is not concerned with the infrastructure or the access line installed by BTA or its agent or the components embedded in it. The operation, control and maintenance of the socalled equipment, solely rests with BTA or its agent being the domestic service provider. The applicant does not in any sense possess nor does it have access to the equipment belonging to BTA. No right to modify or deal with the equipment vests with the applicant. In sum and substance, it is a case of BTA utilizing its own network and providing a service that enables the applicant to transmit voice and data through the media of telecom bandwidth. The predominant features and underlying object o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solute proprietary rights. As a rule, the right to use already come into existence in these instance by authorized information(legitimate disclosure of secrets). It may be restricted in the point of time in respect of the period following the expiry of the license. On the difference between a product with relatively simple technology, and a business secret. 43. We note that, in case of DCIT v. PanAmSat International Systems Inc., reported in (2006) 9 SOT 100, Hon ble Delhi High Court distinguished the decision of Asia Satellite Telecommunication Co. Ltd. v. Dy. CITT reported in (2003) 85 ITD 478 and held as under: 19. The question that first comes up for consideration is whether section 9(1)(vi) of the Income-tax Act, read with the Explanation 2 below thereto, is applicable. This also involves the subsidiary question whether the issue is covered by the order of the Delhi Bench of the Tribunal in the case of Asia Satellite Telecommunication Co. Ltd. (supra) which is also a case of a non-resident company based in Hongkong which owned a transponder and allowed it to be used by broadcasters. Both issues are interlinked in the sense that in the above order the Tribunal has h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow section 9(1)(vi) would apply if we were to also interpret the same provision. But article 12.3(a) is worded as below : The term royalties as used in this article means : payments of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, 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 or property which are contingent on the productivity, use or disposition thereof; and In Asia Satellite Telecommunication Co. Ltd. s case (supra) the Tribunal pointed out, while repelling the argument that the word secret also qualifies the word process appearing in clause (iii) of Explanation 2, that there is no comma after the word secret till the end of the clause and had the intention been to qualify the word process also with the word secret there would have been a comma after th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... logy is concerned there appears to be no secret technology , known only to a few. There is evidence adduced before us to show that the technology is even available in the form of published literature/book from which a person interested in it can obtain knowledge relating thereto. There is no evidence led from the side of the Department to show that the transponder technology is secret, known only to a few, and is either protected by law or is capable of being protected by law. This aspect of the matter was not required to be considered by the Tribunal in the case of Asia Satellite Telecommunication Co. Ltd. (supra) because the view taken by the Tribunal was that there was no requirement in clause (iii) of Explanation 2 below section 9(1)(vi) of the Act that the process involved, for which the payment is being made, should be a secret process. But in the view we have taken on the language employed by article 12.3(a) of the treaty coupled with the punctuation and the setting and surrounding words, the payment would be considered as royalty only if it is made for the use of a secret process. Since there is nothing secret about the process involved in the operation of a transponder, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguished those decisions by pointing out observations of the AAR in the case of Dell International Services(supra) wherein the AAR observed May be, a fraction of the equipment in visible form may find its place at the applicant s premises for the purpose of establishing connectivity or otherwise. But, it cannot be inferred from this fact alone that the bulk of consideration paid is for the use of that item of equipment . According to the AO the above observations shows that what has to be seen is the importance of the equipment installed in the customer s premises for establishing connectivity. He referred to Schedule 18 of the MGFA where importance has been assigned to the routers at various sites and the type of network connectivity and the capacity of the network. Since MCPL was aware of the two-way dedicated bandwidth and the equipments provided by BT, the payment by MCPL to the Assessee is in the nature of Royalty . The AO thereafter referred to a part of paragraph 13.1 of AAR s ruling in the case of Dell (supra). We have reproduced the whole paragraph and highlighted the portion quoted by the AO in the order of assessment, so that one can understand the context in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e element of service predominates. 19. After quoting the above highlighted portion of the ruling of AAR, the AO proceeded to hold that the services provided by BT requires use of Routers belonging to BT by MCPL and a positive act is required to be done by MCPL in relation to the router installed at its premises by BT. MCPL has to provide the necessary infrastructure in its premises to host the router and has to adapt their Local Area Network to work with the BT routers. Since the answer is yes as per the decision of the Hon ble AAR, the payment for the use of the network amounts to Royalty. 20. The AO thereafter referred to another part of the ruling in Paragraph 13.1 (which we have quoted above in bold letters and underlined) by AAR in the case of Dell(supra) and observed that as per Schedule 17 of the MGFA wherein it is provided that the Assessee should provide reasonable location and operating environment, free of any charge for BT equipment (i.e., rack and shelf space, power socket, ambient temperature control, customer connectivity and IP address allocation and management). The above clause in the MGFA according to the AO showed that both the Assessee and MCPL wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 to Sec.9(1)(vi) provides that consideration received for use of any patent, invention, model, design, secret formula or process or trade mark or similar property, would be royalty. According to the AO even though the statutory provisions use the expression secret process, even ordinary/simple process shall be covered by the definition. In coming to the above conclusion the AO relied on the decision of the Special Bench ITAT Delhi in the case of New Skies Satellites N.V. Vs. ACIT (Intl.Tax) (2009) (126 TTJ 1) has taken the view that the provision of the transponder through which the telecasting companies are able to uplink the desired images/data and downlink the same in the desired area is a process . To constitute royalty , it is not necessary that the process should be a secret process . The fact there is a comma after the words secret formula or process in the DTAA does not mean that a different interpretation has to be given to the DTAA as compared to the Act. The argument that there is no use of the satellite by the payer as it has no control or possession of the satellite is not acceptable. To constitute royalty , it is not necessary that the instruments through w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench of ITAT, Delhi, in New Skies Satellite (supra) was misplaced. It was submitted that the Hon ble Delhi High Court has reversed the decision of Special bench in New Skies Satellite BV which is reported in 68 taxmann.com 8, and the issue stands covered by Asia Satellite Telecommunications Co. Ltd. vs DCIT [2011] 332 ITR 340 (Del.). It was submitted that the consideration amount received for providing bandwidth services would not be taxable as equipment royalty or process royalty under the Tax Treaty. The transaction does not result in equipment royalty under the Tax Treaty as there is no use or right to use any industrial, commercial or scientific equipment by the customer' availing the bandwidth services. The transaction does not result in process royalty under the Tax Treaty as there is no use of any process by the customer availing the bandwidth services. Hence, does not fall in the definition of royalty as per Tax Treaty. Explanations 5 and 6 to section 9(1)(vi) of the Act cannot be read into the Tax Treaty for the definition of equipment and/or process royalty. Further, the Tax Treaty specifically does not include transmission by satellite, cable, optic fiber or similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position that payment of use of bandwidth facility would be in the nature of royalty both under the Act and the DTAA between India and Singapore and that decision will equally apply to India-UK DTAA. 26. We have heard the rival submissions perused the material on record. The issue which arises in the present appeal filed by the Assessee for different Assessment Years is against the chargeability of amount received from MCPL by the Assessee towards BT charges for providing WAN connectivity/bandwidth services outside India as equipment/process royalty u/s 9(1)(vi) of the Act and/or Article 13(3) of the India UK DTAA. The Assessee is a tax resident of UK. The bandwidth services are provided as standard services wherein the customer enjoys an uninterrupted service to transmit voice and data at standard rate of reliability. The Assessee claims that such rendition of service using an equipment/process and the customer being only a recipient of service would not attract equipment/process royalty, as the transaction would not fall within the expression use or right to use . Mere receipt of service using equipment under the control, possession and operation of service provider would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quipment installed and provided by another, it is difficult to say that the recipient/customer uses the equipment as such. The customer merely makes use of the facility, though he does not himself use the equipment. The Hon'ble Delhi High Court in the case of DIT v. New Skies Satellite BV [2016] 68 taxmann.com 8/238 Taxman 577/382 ITR 114 and CIT v. Siemens Aktiongesellschaft [2009] 177 Taxman 8/310 ITR 320 (Bom.) have also taken similar view in the context of use of transponder facility. This view has been affirmed by the Mumbai ITAT in the case of Dy. CIT v. Reliance Jio Infocomm Ltd. [2019] 108 taxmann.com 325 (Mum.), wherein it has been held that u/s.9(1)(vi) of the Act, payment for 'bandwidth services' is not assessable as 'royalty' if the Assessee only has access to services and not to any equipment. The Assessee also did not have any access to any process which helped in providing of such bandwidth services. All infrastructure process required for provision of bandwidth services was always used and under the control of the service provider and was never given either to the Assessee or to any other person availing the said services. 28. The view ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;royalty' under DTAA and the Indian Income-tax Act are in para materia. As rightly pointed out by the revenue, Explanation 6 defines 'process' to mean and include transmission by satellite (cable, optic fibre, or by any other similar technology, whether or not such process is secret. 29. The provisions of Expln-5 and 6 referred to in the decision of the Hon ble Madras High Court in the case of Verizon Communication (supra) reads thus: Explanation 5. For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not (a) the possession or control of such right, property or information is with the payer; (b) such right, property or information is used directly by the payer; (c) the location of such right, property or information is in India. Explanation 6. For the removal of doubts, it is hereby clarified that the expression process includes and shall be deemed to have always included transmission by satellite (including uplinking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is accepted that when payments are made for such services, they are not in the nature of royalties . It has been internationally accepted that payments for satellite broadcasting services, transponder services, bandwidth services etc. are not to be considered royalties . It is also accepted that bandwidth fees cannot be considered as payments for the use of process . In so far as use or use of equipment is concerned, as long as there is no control established over the equipment. This view has been endorsed by the OECD Model Commentaries as well. This view has specifically been upheld by the Authority for Advance Rulings in India in the case of Dell International (supra) and the Hon ble Delhi High Court in the case of Asia Satellite (supra). The amendment to the definition of Royalty by the Finance Act, 2012 with retrospective effect has expanded the definition of Royalty , by laying down that consideration paid may be classified as made for the use of equipment and thus, classified as royalties irrespective of the possession or control of the equipment with the payer or use by the payer or the location of the equipment being in India. However, this retrospective amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of Legislature sfailure to express itself clearly . 32. We have already seen the two divergent views one taken by the Hon ble Delhi High Court in the case of Asia Satellite (supra) and Bombay High Court in the case of Siemens Aktiongesellschaft (supra) and the other view taken by the Hon ble Madras High Court in the case of Verizon Communication (supra). There is no decision of the Hon ble Karnataka High Court brought to our notice, which is the jurisdictional High Court as far as this Tribunal is concerned. Applying the rule that if two interpretations are possible on tax liability benefit of interpretation is given to the subject, we follow the ruling of the Hon ble Delhi High Court in the case of Asia Satellite (supra) and Bombay High Court in the case of Siemens Aktiongesellschaft (supra) and hold that in the case of Assessee, the consideration received for providing bandwidth facility will not be taxable as equipment royalty or process royalty. The plea of the Assessee in this regard is accepted and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there are are as under: 4. It is imperative to understand the facts of the case in hand. M/s JCB Bamford Excavators Ltd ['JCBE' the appellant for short] is a company incorporated under the laws of UK. It is a non-resident company for the purposes of Indian Tax Laws and is a tax resident of UK under Article 4 of the DTAA entered into between India and UK. On 5.03.2004, JCBE entered into Technology Transfer Agreement [TTA] with JCB India to licence the know-how and related technical documents consisting of all drawings and designs with an exclusive right to manufacture and market the technology/excavator loader in the territory of India under the brand name '3DX'. 51. The Hon ble Delhi Tribunal further while addressing the issue therein observed as under: 9. We will first address to this contention of the ld. AR. As mentioned elsewhere, in earlier years, the appellant had licence to know-how and related technical documents consisting of all drawings and designs with an exclusive right to manufacture and market the technology/excavator loader in the territory of India under the brand name 3DX to JCB India. During the year under consideration, we find th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of the above, it would be preferable to go through the contests of agreement dated 17.12.2007 [Tripartite Agreement]: 'Page 1, Clause (C): Under a Technology Transfer Agreement dated 5 March 2004 (the Technology Agreement ) JCB UK granted to JCB India an exclusive license under JCB UK's intellectual property to manufacture, assemble and sell licensed products (as defined in the Technology Agreement) in India and a non-exclusive licence under JCB UK's intellectual property to sell the Licensed Products outside India as determined by mutual written agreement between the parties. (D) JCB UK now wishes for JCB investments to manage the licensing of JCB UK's intellectual property to JCB India going forward. .... PAYMENT TERMS 6.1 JCB Investments shall provide JCB UK on a biannual basis within 30 days of the 30th June and 31st December in each year with Royalty accounts showing the following for each preceding half year: 6.1.1 The royalty payable by JCB India under the License (or by and other permitted sub-licensee where applicable); and 6.1.2 The amount of any withholding tax to be paid under Clause 6.3. 6.2 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal as under. This itself makes the present facts distinguishable in case of assessee as the revenue has not made out a case of permanent establishment of J P Coats in India which has been also observed by Coordinate Bench of this Tribunal in a decision passed in case of J P Coats for various assessment years referred to hereinabove. In the order passed by the Ld.CIT(A), we note that the revenue is doubting, if the payment made could be FTS, however took the view of the payments to be FTS by relying on various decisions which are a subject matter of royalty. Thus the revenue has actually not made out a case for taxing the payments by the assessee as FTS. 53. The plea of the Assessee was in terms of paragraph 4(c) of Article 13 of DTAA, that payments of any kind in consideration for rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) would be regarded as fees for technical services' if it 'makes available' technical knowledge, experience, skill knowhow or processes, or consist of the development and transfer of a technical plan or technical design. In the present facts there is no such technic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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