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TMI Blog2024 (12) TMI 1336X X X X Extracts X X X X X X X X Extracts X X X X ..... which is provided for displaying advertisement on the website of third-party publishers. The assessee has merely provided the advertisement space bought from third-party publishers, which is also provided to other global customers of such publishers in the like manner. Equipment/installations are all owned by third-party publishers and the assessee/Criteo India does not have any role to play in either maintaining/involving into any managerial activities. Criteo India does not even have any economic/ possessory right with regard to the server of the third-party publishers and it is not at the disposal of the Assessee/ Criteo India. We also find that the right to modify/deal with the server in any manner, vest with the third-party publishers. The Services Agreement does not provide any right to use of any industrial, commercial, or scientific equipment or for imparting any information concerning technical, industrial, commercial, or scientific knowledge, experience or skill. In view of above, it is evident that the receipts for provision of advertisement space from Criteo India are not chargeable to tax in India as royalty under Article 12(3) of the India-Singapore DTAA. We according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .K. Aggarwal, CA, Shri Sarthak Bhandula, CA For the Department : Shri Vijay B. Vasanta, CIT- DR ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- This appeal by the assessee is preferred against the order of the ACIT, Cir 1(2)(1), International Tax, New Delhi dated 30.05.2023 u/s 143(3) r.w. 144C(13) of the Income-tax Act, 1961 [the Act, for short] pertaining to A.Y. 2020-21. 2. The grievances raised by the assessee read as under: "1. Additions made in the impugned assessment order amounting to INR 6,04,01,143. Ground No. 1.1 : That on the facts and circumstances of the case and in law, the Ld. AO erred in making addition and the Ld. DRP erred in confirming addition to the income of the Assessee in relation to receipts from data center related services amounting to INR 1,90,33,349 and receipts from provision of advertisement space amounting to INR 6,09,254 as royalty under section 9(1)(vi) of the Act and under Article 12(3) of India-Singapore Double Taxation Avoidance Agreement ('DTAA'), without appreciating that the said receipts are not in relation to use or right to use of a tangible property or equipment. Ground No. 1.2 : That on the facts and circumstances of the case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on need basis with its group entity in India, Criteo India Private Limited ('Criteo') which is also engaged in providing advertisement services to its customers in India. Criteo India paid Rs 6,04,33,792 to the assessee in lieu of provision of the aforementioned services and withheld taxes @ 10%, amounting to Rs. 60,43,400/-. 5. For the year under consideration, the assessee filed its return of income u/s 139(1) of the Act on 29.01.2021 declaring the receipts from Criteo India for the aforementioned services amounting to Rs. 6,04,33,792/- as exempt by relying on the restrictive definition of Royalty/Fee for Technical services ('FTS') under Article 12 of the India-Singapore DTAA. 6. The assessee also considered that as it does not have a PE in India as per Article 5 of the India-Singapore DTAA, such amounts were not chargeable to tax as 'business income' also in India as per Article 7 of the India-Singapore DTAA. Accordingly, the assessee claimed a refund of the taxes withheld while filing the ROI for the year. 7. The ROI was picked up for scrutiny assessment by issue of notice u/s 143(2) of the Act on 29.06.2021. Thereafter, multiple notices u/s 142(1) of the Act along with det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quipment in India. Criteo India has been provided with login credentials for it to remotely access only the data stored in relation to Criteo India's advertisers, which is used by Criteo India to render advertising services to its customers. There is no software or application provided by the Assessee to Criteo India. Further, there is no human intervention involved in the provision of data center related services by the Assessee to Criteo India. Further, Criteo India does not entail any physical access or possession or control over the data center or the server or any other related equipment of the Assessee. The assessee only provides a remote access to Criteo India for storage and retrieval of its data/business information. Thus, Criteo India does not own/control the underlying equipment/hardware or the software. They can only use the services through the internet for accessing the data stored in relation to its customers. 13. The ld. counsel for the assessee, referring to the concept of "the use of or right to use any scientific equipment" as provided in Article 12(3) of the India-Singapore DTAA for invoking "Royalty" provisions, submitted that provision of Data center rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with a separate transaction in relation to use and right to use of equipment. 18. The ld AR placed heavy reliance on the decision of the Hon'ble Delhi High court in the case of Asia Satellite Telecommunications Co. Ltd. (2011) (332 ITR 340) wherein the Hon'ble Court examined a similar issue of 'use or right to use' of equipment in the context of Telecommunication Services provided through the Transponder of a satellite. 19. Further, the ld. counsel for the assessee contended that the aforementioned principles of control and possession while interpreting the definition of Royalty have also been affirmed by the Hon'ble Jurisdictional High Court of Delhi in the case of Shin Satellite Public Co. Ltd. and New Skies Satellite B.V. [2016] 68 taxmann.com 8. 20. It is the say of the ld. counsel for the assessee that scope of Royalty under the Act was expanded by insertion of Explanations 5 and 6 to section 9(1)(vi) of the Act vide the Finance Act, 2012. However, no similar amendment was made under the tax treaties. In this regard, the assessee submitted that the data center related receipts received by the assessee are not taxable as per the provisions of India-Singapore DTAA as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments received for cloud computing services (AWS)not taxable as Royalty/FTS, since standard and automated services provided with no customization for any particular customer. Also, customers did not receive any right to use copyright or other IP involved in AWS service. 4. Reasoning Global EApplication Ltd. [2022] 145 taxmann.com 464 Hyderabad ITAT Cloud based services do not involve any transfer of rights. Hence, not taxable as Royalty. 5. MOL Corporation [2022] 140taxmann.com 121 Delhi ITAT affirmed by the SC of India SLP Appeal (C) No(s). 5857 of 2023) Subscription fees received for online access of cloud computing services not taxable as royalty as subscribers did not get any right of reproduction of patent / copyright. 6. Dow Jones & Company Inc. [2022] 135 taxmann.com 270 (Delhi ITAT) Payment made for access to database is not taxable as 'royalty' since such services do not result in transfer of a copyright. 7. Vishwak Solutions (P.) Ltd. [2015] 56 taxmann.com 158 (Chennai ITAT) Payment for storage and retrieval of data is towards hiring of storage space and not taxable as 'royalty' and can only constitute business income which in the absence of PE cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g services to its customers. The assessee has not placed any equipment in India nor has put the placed the equipment under the control/possession of Criteo India. These facts have not been controverted by the ld DR. 26. The assessee has received an amount of Rs 1,90,33,349/- from Criteo India during AY 2020-21 for the use of data center services. The basis of service charge is arrived at by recharging hosting charges (including rent, amortization/ depreciation, maintenance charges etc.) to Criteo India, along with a mark-up in proportion to the turnover. Just because the assessee basis of charging Criteo India by arriving at its own cost plus mark up, doesn't mean that Criteo India exercises control over the Data Centre. 27. With the facts as narrated above, we now come to the issue of the nature of receipts received by the assessee from data center related services, whether the same is "Royalty" or not. We find that the Article 12(3) of the India-Singapore DTAA defines the term 'Royalty' as follows: "The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a) Any copyright of a li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Services provided through the Transponder of a satellite. The Hon'ble Court observed that the transponder is an integral part of the satellite and it is entirely wrong to assume that a transponder is a self-contained operating unit, the control and constructive possession of which can be handed over by the satellite operator to its customers. The Court has categorically held that the satellite companies do not lease out the transponder to its customers. It rather uses the same itself for providing services to its customers. The assessee had merely given an access to the broadband available with the transponder to a particular customer. When the customer does not acquire physical possession of the transponder but simply its transmission capacity and when the satellite is operated by the Lessor and the Lessee has no access to the transponder, such payments would only be service payments. Accordingly, the payment does not amount to 'Royalty' for use of equipment. This principles of control and possession while interpreting the definition of Royalty have also been affirmed by the Hon'ble Jurisdictional High Court of Delhi in the case of Shin Satellite Public Co. Ltd. and New Skies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in scientific equipment, the receipts by the assessee cannot be treated as "consideration for the use of, or right to use of, scientific equipment" which is a sine qua non for taxability under section 9(1)(vi) read with Explanation 2(iva) thereto." 33. We therefore find that the expression "use or right to use" demands possession, active usage and control of the equipment in the hands of the customer. In the present case, the equipment relating to the data center related services is under control, possession, operation and use of the Assessee and not with Criteo India. There was no direct use by Criteo India either of the portal or of the server as was there in the case of Cargo Community Network Pte. Ltd placed reliance upon by the AO. By granting access to the information stored in the data center, the Assessee neither shares its own experience, technique or methodology employed in evolving data centers with Criteo India, nor imparts any information relating to them. In view of the above discussion and judicial pronouncements, we hold that the data center related receipts received by the assessee are not taxable as "Royalty" as per the provisions of India-Singapore DTAA as the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough its AdWords program could not be brought to tax in India as royalty as the assessee had not parted with copyright it held in AdWords program and hence it could not be said that any kind of technical knowhow had been transferred. The bench followed its decision in the case of Google India (P.) Ltd. [2022] 143 taxmann.com 302 (Bangalore - Trib.) wherein it held that income from sale of advertisement space on a website is not taxable in India if there is no PE of foreign enterprise in India and such income is not to be regarded as royalty or FTS. The ld AR relied on the following decisions: Chennai ITAT in the case of ESPN digital media (India) (p.) Ltd. [2022] 140 taxmann.com 442 Play Games 24X7 Private Limited [2023] 148 taxmann.com 471 (Mumbai - Trib.) Right Florists (P.) Ltd. [2013] 32 taxmann.com 99 (Kolkata - Trib.) Pinstorm Technologies Pvt. Ltd.[supra] Yahoo India P. Ltd [supra Urban Ladder [IT Appeal No. 615 (Bang.) of 2020, dated 17-8-2021] Interactive Avenues Pvt Ltd [TS-602-ITAT-2022(Mum)] Myntra Designs Pvt. Ltd. [TS-833-ITAT-2021(Bang)] Sical Logistics Ltd. v. Asstt. DIT [2017] 78 taxmann.com 158 (Chennai - Trib.) M/S Geo Connect Ltd. (54 ITR 481)(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot provide any 'right to use' of any industrial, commercial, or scientific equipment or for imparting any information concerning technical, industrial, commercial, or scientific knowledge, experience or skill. In view of above, it is evident that the receipts for provision of advertisement space from Criteo India are not chargeable to tax in India as 'royalty' under Article 12(3) of the India-Singapore DTAA. We accordingly direct the AO to delete the said addition. Accordingly, Ground No. 1.1 is allowed. 42. Ground No. 1.2 relates to receipts of Rs 3,84,54,562/- on account of Business Support Services being treated as FTS. 43. The ld. counsel for the assessee, referring to Article 12 (Royalties and Fees for Technical Services) of India Singapore DTAA, submitted that payment made for rendering any managerial, technical or consultancy service may be considered as FTS under the India- Singapore DTAA only if such services would 'make available' technical knowledge, experience, skill, know-how etc. only where the person availing the services is enabled to apply the services availed in his own right without recourse to the person providing such services. 44. The ld AR argued that in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TT Asia Pacific Holdings Pte Ltd. [2022] 141 taxmann.com 137 Hyderabad ITAT Inputs on company policy related matters; HRM; Services related to business development and business operations; Legal Support for corporate and compliance matters; Services related to corporate and compliance matters, etc. 5. ExxonMobil Company India (P.) Ltd. 92 taxmann.com 5 Mumbai ITAT Administrative service in the nature of controller, treasurers, public affairs, tax, human resources, law, safety, health and environment services, medical security, business procurement, etc. 6. Jefferies LLC [2024] 164 taxmann.com 468 (Mumba (ITAT) Management Oversight, Marketing, Finance and Accounting, HRM, Information Technology, Training, and Legal. 7. Tagit Pte Ltd. [2024] 159 taxmann.com 93 Delhi ITAT General Management Services; Product Strategy and Development Oversight; Sales and Marketing Support and Oversight; Financial Management; Control Support and Oversight; Statutory and Tax Compliance support and Oversight; Human Resources support and Oversight; Customer and Relations Management Support and Oversight; Project Management Support. 8. Herbalife International India (P.) Ltd. [2024] 164 taxma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the assessee mainly provides such services to its group companies in the APAC region since such group companies do not have a full-fledged finance, legal, HR, IT, business support teams of their own. The services are performed by the Criteo regional team based in Singapore, which comprise employees of the assessee. In respect of such services, the assessee recovers salary and other related costs of employees for the required assistance. Such employee cost is allocated to the relevant group entities in proportion of their turnover along with a mark-up. During AY 2020-21, Rs. 3,84,54,562/- has accrued from Criteo India for rendering finance, HR, IT, training support related assistance etc. in terms of the intercompany service agreement. 51. In respect of Business Support Services under sub-contracting of personnel of Rs 3,07,307/- and travel related services of Rs 19,96,671/-, the assessee is primarily providing services in the nature of human resource, finance, accounting, business and legal support, statutory compliance, information technology related services, financial planning and analysis functions. The assessee provides such services again on a recurring basis from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uot;making available", the technical knowledge, skill, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. 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 the future without depending upon the provider. 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 that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumulatively satisfied. What we seek to emphasize is that Article 13 in unambiguous terms creates an enduring, unfading and imperishable link between the furnishing of service and a transmission or conferment of technical expertise, knowledge and skill.' 55. Further, we find that the Assessing Officer has himself found merit in the arguments of the assessee and accepted at Para 7.2 of his order that the services rendered by the assessee do not make available knowledge, experience, know-how to the recipient and this is clearly visible from the examination of nature of the services rendered and the consequential benefits obtained by the recipient. The same reads as under: "9.2 The reply of the assessee has been considered. From the submissions of the assessee it is gathered that as per the assessee the services may qualify as technical services only when they make available technology, Know-how, skill, processes, experience etc. to the service recipient. In this regard it has been found that the services rendered by the assessee do not make available knowledge, experience, know-how to the recipient and this is clearly visible when one examines the nature of the services rende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "18. As mentioned elsewhere, the agreement is effective from 1- 1-2010 and we are in Assessment Years 2018-19 and 2019-120 [sic…20]. In our considered opinion, if the assessee had enabled the service recipient to apply the technology on its own, then why would the service recipient require such service year after year every year since 2010? 19. This undisputed fact in itself demolishes the action of the Assessing Officer/DRP. Facts on record show that the recipient of the services is not enabled to provide the same service without recourse to the service provider, i.e., the assessee. 20. In our humble opinion, mere incidental advantage to the recipient of services is not enough. The real test is the transfer of technology and on the given facts of the case, there is no transfer of technology and what has been appreciated by the Assessing Officer/ld. CIT(A) is the incidental benefit to the assessee which has been considered to be of enduring advantage. 21. In our understanding, in order to invoke make available clauses, technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and the techni ..... X X X X Extracts X X X X X X X X Extracts X X X X
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