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TMI Blog2025 (2) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... and Strategic Management Consultant and The Safe Consortium was appointed as advisors and facilitators for raising funds for DOTEPL. TSC had further appointed SCPL Singapore as its advisor for raising funds for DOTEPL and advisory fee of 0.75% of the amount of fund raised for DOTEPL was to be paid to the advisor SCPL by the mandator TSC. Thus, by no stretch of imagination the payment of advisory fee could be termed as a royalty or fee for technical services as it was in the nature of commission for the financial services rendered. It has been stated that no disallowance u/s 40(a)(i) was made in the initial assessment order and the subsequent proceedings initiated in response to the notice u/s 263 of the Act were quashed by the Tribunal, thereby rendering the consequential assessment order made to give effect to the finding in order u/s 263 of the Act as non-est. The income of the non-resident accrued outside India. It is not comprehensible as to on what basis the Ld. AO has apportioned the income in the ratio of 55% to 45% between India and Singapore and allowed 10% as expenses. Thus, in the absence of a PE, the income was neither liable to be assessed as business profit of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee as per order u/s 201(1)/201(1A) of the Act dated 29.03.2019 passed by AO. 5. Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not providing opportunity to the Assessing Officer for presenting his case and arguments. 6. Though the tax effect in the instant case which is below the threshold limit for filing further appeal before the Hon'ble ITAT in terms of Circular issued by the CBDT vide no. 17/2019, appeal is preferred as the case comes under exceptional clause as mentioned in the sub para I under para 3.1 as mandated by the CBDT vide circular No, 5/2024. 7. The appellant craves the leave to submit/delete/withdraw any other grounds(s) at the time of hearing." 1694/KOL/2024: "1. Whether in law or facts of the case, Ld. Commissioner of Income Tax 'Appeals) has erred in not considering the fact that the assessee has not deducted the tax deductible u/s 195 of the Income Tax Act, 1961 on any amount payable to Star Consortium Pvt. Ltd., Singapore when the nature of payment was in the nature of consultancy/advisory services and hence taxable as per IT Act 1961 or India Singapore-DTAA. 2. Whether in law or facts of the case, Ld. Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them from Singapore. There was also no finding and even no whisper that the said company had permanent establishment or any place of business or control or administration in India. Disallowance u/s 40(a)(i) was also not made for non-deduction of tax. However, subsequently the Ld. CIT by applying section 263, cancelled the said assessment and directed the AO to make enquiries with regard to the said payments as to whether the said party had any permanent establishment in India and on various other issues. The AO made consequential assessment wherein the AO has not disallowed the said payment for non-deduction of tax and also did not gave any finding that the assessee should have deducted the tax. The payment was disallowed by treating the same as not genuine. However, the assessee filed an appeal against the order u/s 263 before the ITAT. The ITAT quashed the order of the Ld CIT passed u/s 263 as a result of which the consequential order u/s 143(3)/263 of the IT Act passed by the AO disallowing the payment as not genuine lost its legs to stand upon and was also cancelled by the Ld CIT(A). The only finding of the AO that the payment was not genuine was washed away. There was no seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Ld. CIT(A) related to ground no. 4 to 6 and also drew our attention to para 1.1 of the assessment order. The facts of the case as mentioned in the order u/s 201(1)/201(1A) of the Act of the Ld. AO are as under: "1. Case History: 1.1 An information came to the possession of the office of the undersigned that during the period under consideration Le. 2011-12. Shri Hartaj Sewa Singh was working as Investment Banker and Strategic Management Consultant and running a consultancy concern under the name and style of "The Safe Consortium" (hereinafter referred to as "TSC"). It was further found that The Sale Consortium was appointed as Advisors and Facilitators for raising funds for "Darjeeling Organic Tea Estates Pvt. Ltd." (hereinafter referred to as 'DOTEPL) upto a sum of Rs. 500 crores on 20.09.2009. The mandate was earlier given for 24 months from the date of signing and later on it was extended upto 30.06.2011 on 10.01.2011. It was also agreed that success fee of 1% of the amount of fund raised shall be payable by the mandator. DOTEPL, to the advisor, TSC. 1.2 TSC has further appointed Star Consortium Pte Ltd. ", Singapore (he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a PE in India nor the payment was in the nature of royalty. The relevant extract from the order of the Ld. CIT(A) is as under: "Ground Nos. 4 to 6 relates to the merits of the tax demand u/s 201(1) of the Act. It is noted that the AO has held that the advisory fees paid by the appellant to M/s Star Consortium Pte Ltd was in the nature of royalty u/s 9(1)(vi) of the Act. It is noted that before the AO, the appellant had furnished the TRC of the payer and thus the provisions of DTAA between India and Singapore was to be examined, if beneficial to the appellant. Article 12 of the DTAA between India and Singapore defines royalty as follows:- "3. 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 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, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement comprise of administration and supervision of central infrastructure; mailbox hosting 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, anti virus, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for technical services within the meaning of the DTAA, (vii) as regards the payments made for providing 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 assessee-bank 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed by the expression royalty. We find that subsequently, after considering the decision in Cargo Community Network (P.) Ltd. (supra), Mumbai ITAT in the case of Standard Chartered Bank (supra) and Yahoo India (P.) Ltd. v. Dy. CIT [2011] 11 taxmann.com 431/46 SOT 105 (Mum.) (URO) 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, app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case. During the year both the assessee as well as the recipient were non-resident. The assessee was a Director with 50% share holding in SCPL of Singapore. However, SCPL was a company registered in Singapore, a non-resident and the director was also a non-resident. Merely because for some period the director may have been resident in India, it cannot be said that the key management decisions took place in India so as to hold that M/s. SCPL had a PE in India and the assessee was required to deduct TDS on the payment made to it. The assessee was rendering advisory services to DOTEPL through The Safe Consortium and was working as Investment Banker and Strategic Management Consultant and The Safe Consortium was appointed as advisors and facilitators for raising funds for DOTEPL. TSC had further appointed SCPL Singapore as its advisor for raising funds for DOTEPL and advisory fee of 0.75% of the amount of fund raised for DOTEPL was to be paid to the advisor SCPL by the mandator TSC. Thus, by no stretch of imagination the payment of advisory fee could be termed as a royalty or fee for technical services as it was in the nature of commission for the financial services rendered. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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