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TMI Blog2025 (2) TMI 767X X X X Extracts X X X X X X X X Extracts X X X X ..... ngineering Analysis [2021 (3) TMI 138 - SUPREME COURT]
Similarly, a reference is also made to the judgments of Infrasoft Ltd. [2013 (11) TMI 1382 - DELHI HIGH COURT] and ZTE Corporation [2017 (1) TMI 1338 - DELHI HIGH COURT] to hold High Court is not correct in referring to Section 9 (1) (vi) of the Income Tax Act after considering it in the manner that it has and then applying it to interpret the provisions under the Convention between the Government of the Republic of India and the Government of Ireland for the Avoidance of Double Taxation and for the Prevention of Fiscal Evasion with respect to Taxes on Income And Capital Gains - when a copyrighted article is sold, the end-user gets the right to use the intellectual property rights embodied in the copyright which would therefore amount to transfer of an exclusive right of the copyright owner in the work, is also wholly incorrect. Decided against revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision of the Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited-Vs.-Commissioner of Income Tax and Another [2021 SCC OnLine SC 159] ['Engineering Analysis (supra)' for short] to hold that assessee was not liable to deduct TDS on such payments made to non-residents. 4. These appeals have been admitted on the following substantial questions of law: i) Whether on the facts and in the circumstances of the case, the Tribunal Order can be said as perverse in nature holding that assessee is not liable to deduct TDS on payments made to non-residents by relying on the decision of Hon'ble Apex Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT, when facts of the Present case are entirely different and law laid down in said case cannot be applied to present case? ii) Whether on the facts and in the circumstances of the case, the Tribunal is right in law allowing appeal of the assessee by holding that there was no obligation on part of assessee to deduct TDS on payments made to Facebook Ireland, Ireland, Rocket Science Group, LLC, US and Amazon Web Services, Inc Non-resident companies on the ground that the payments ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seeking attention of Facebook users. (b) Payments made to Rocket Science Group, LLC, USA (Mail Chimp): M/s Rocket Science Group LLC has got "Mail Chimp" platform, which allows its users to send bulk email advertisements/marketing content to their customers using its marketing automation tools. (c) Payments made to Amazon Web Services Inc., US: The assessee-Company has availed cloud computing services from Amazon Web Services Inc. (AWS) for its online business needs. Cloud computing is an arrangement in which the cloud provider hosts the shared computing resources such as hardware, software applications etc., and the cloud user accesses them for storage, data processing etc., via internet on a need basis. In view of Cloud computing technology, Enterprises need not make investment in IT infrastructure (hardware, storage space, application softwares, other IT resources etc.) and they can use the required IT resources on payment of charges. Submissions: 7. The submissions of Sri. Ravi Raj. Y.V, learned counsel for the appellants-Revenue are, the ITAT had erred in allowing the appeals of the assessee by holding that there was no obligation on the part of the assessee to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , payee has designed a platform called Mailchimp which allows its users i.e., respondent in the instant case to send bulk e-mails for the purposes of advertisements/marketing content to its customers. 10.2. Insofar as payments made to Amazon Web services are concerned, the payments made were for cloud computing services from Amazon for its online business needs. Cloud computing is an arrangement in which provider i.e., Amazon hosts the shared computing resources such as hardware, software applications, etc., and the cloud user i.e., the respondent accesses them for storage, data processing, etc., via the internet on a need basis. Due to cloud computing technology, enterprises such as the respondent need not make investment in IT infrastructure (hardware, storage space, application softwares, etc.), and it can instead use the required IT resources on payment of charges to the host i.e., Amazon. 11. It is his submission that, due to these payments, the non-resident payees did not grant the respondent any rights in respect of the respective software nor did the respondent make such payments in consideration for being granted with the right for use of or right to use the copyright em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o stated, the ITAT has followed the ratio laid down by the Supreme Court in Engineering Analysis (supra) to hold that, the payments made to the aforesaid three non-resident Companies do not fall within the meaning of 'royalty' as defined in applicable DTAAs. So, he stated that, the reliance placed by the CIT(A) on the judgment in the case of Samsung Electronics Co. Ltd. (supra) is totally misconceived. 15. That apart, it is his submission that, the appellants-Revenue never challenged the CIT(A)'s order by contending that this Court's judgment in Samsung Electronics Co. Ltd.'s case (supra) would not apply to the facts of the instant case. According to him, even during the course of hearing before the ITAT, such a contention was never urged by the appellants-Revenue. That being so, the Revenue cannot now be permitted to approbate and reprobate by contenting that the judgment in Engineering Analysis' case (supra) would not apply. 16. According to Sri. Huilgol, the arbitrary flip-flop on part of the appellants-Revenue by urging that Engineering Analysis' case (supra) would not apply is ostensibly because the order which it was extensively relied upon i.e., Samsung Electronics Co. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso stated that, the various fact patterns extensively analyzed by the Supreme Court in Engineering Analysis' case (supra) do indeed cover the facts of the instant case insofar as it relates to the payments made by the respondent to Facebook, Mailchimp and Amazon given that these payments were made by an end-user resident in India i.e., the respondent herein to a foreign non-resident suppliers i.e., the said three payees. The said category of cases has been expressly dealt with by the Supreme Court. Lastly, without prejudice to his aforesaid contention that the present appeals of the Revenue ought to be dismissed in limine by this Court, a similar order was granted by this Court in M/s. Sasken Communication -Vs.-The Income Tax Officer [ITA No.267/2013, decided on 02.09.2024], disposing of the assessee's appeal by answering the question of law formulated therein in its favour in the light of the decision in Engineering Analysis' case (supra). This Court has granted liberty to the Revenue to seek review of the said order dated 02.09.2024 based on the outcome of the review petition filed before the Supreme Court as against the lead matter in Engineering Analysis' case (supra). 18. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproduce, disseminate or otherwise use Facebook at Work and Our content, except as expressly permitted by this Agreement or with our prior written permission; and (d) not use our copyrights, trademarks, protected designs and trade dress (including but not limited to Facebook, Facebook at Work, or any of the trademarks listed here (currently available at www.facebookbrand.com/trademarks), or any confusingly similar marks, except with our prior written permission. 5.3 You acknowledge and agree that any breach of this Section 5 may cause us irreparable harm for which damages are not an adequate remedy and that we may seek interim, preliminary or protective relief from any competent court to restrain your or your Users anticipated or actual breach of this Section 5. 5.4 Our Content made available on Facebook at Work is provided for information purposes only, is subject to change and will be updated from time to time without notice to you. ....... 17 Definitions. In this Agreement, unless otherwise stated ...... "Facebook at Work" means the features and services we make available, including but not limited to through the Facebook at Works websites, apps, and online servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs, and all related technology and intellectual property rights. Subject to the terms of this Agreement, we grant you a limited, revocable, non-exclusive, non-sublicenseable, non-transferrable license to do the following: (a) access and use the Services solely in accordance with this Agreement; and (b) copy and use the AWS Content solely in connection with your permitted use of the Services. Except as provided in this Section 8.3, you obtain no rights under this Agreement from us, our affiliates or our licensors to the Service Offerings, including any related intellectual property rights. Some AWS Content and Third-Party Content may be provided to you under a separate license, such as Apache License, Version 2.0, or other open source license. In the event of a conflict between this Agreement and any separate license, the separate license will prevail with respect to the AWS content or Third-Party Content that is the subject of such separate license. ................. 14. Definitions. "API" means an application programme interface. .............. "AWS Content" means Content we or any of our affiliates make available in connection with the Services or on the AWS S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which includes, inter alia, software facilities also. The purpose of compelling the assessee to use those facilities, as could be inferred by us, is to create an environment of ease in creating the "advertisement content" to suit the platforms of Facebook or Mailchimp. The environment of ease is beneficial and time saving to both the advertiser and the advertising platform. Thus the facilities have been created by the non-resident companies for mutual benefit. However, a person shall get the right to use those facilities only when he enters into an agreement with them for hosting his advertisement or for sending bulk mails, meaning thereby, the use of facilities is intertwined with the activity of placing advertisement in web portal of Facebook or sending bulk mails. In case of web hosting charges paid to AWS, the assessee is allowed to use the information technology infrastructure facilities. 17. We shall now refer to some of the decisions relied upon by Ld AR before us. The Kolkata bench of Tribunal, in the case of ITO vs. Right Florists (2013) (32 taxmann.com 99) (Kol-Trib.), has considered an issue - whether the payments made to foreign search engine portals for online adve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (100 taxmann.com 52) (Pune), which was relied upon by Ld A.R. The relevant discussions made and decision taken by Pune Tribunal are extracted below:- "11. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is in respect of charges paid by assessee to AWS. The assessee was engaged in sale of recharge pens and did not have the facility available with it of high technology equipments i.e. servers. So, in order to carry on its activity of distributorship of recharge pens, it used servers of Amazon, for which it paid web hosting charges. Before using the services available of Amazon online, it entered into an agreement, under which fees structure was provided. Copy of agreement is placed at pages 3 to 22 of Paper Book. The agreement is called AWS Customer Agreement, which contains the terms and conditions that governs assessee's access to and use of Service Offerings. It was agreement between Amazon Web Services, Inc. and you i.e. assessee. It is provided that agreement takes effect when you click an "I Accept" button. Clause 1.1 lays down that 'you' (assessee) may access and use the Service Offerings in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esignations or AWS and its affiliates that we may make available to you in connection with this Agreement.' 13. The assessee has used services and has made monthly payments to Amazon. The assessee has attached sample invoice of Amazon at pages 23 to 41 of Paper Book and ledger extract of Amazon in its books at pages 1 and 2 of Paper Book. The assessee had filed submissions before the Assessing Officer giving detailed note on web hosting charges, which was as under:- "Web Hosting Charges: (a) Primarily EPRSS requires servers to run the various online recharges. Due to this there is a very high requirement of Servers. Since 'purchase/maintenance of servers and its upkeep require skilled manpower, BPRS does not have the same. Hence servers are taken on hire from Amazon, in is cloud units. Ledger copy attached Extract of web agreement also attached." 14. Further, the assessee has also pointed out the nature of its business vide written note before the Assessing Officer and explained as under:- '1. Primarily the "a" requires servers to run the various online recharges. Due to this there is a very high requirement of servers. Since purchase/maintenance of servers an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessee being not allowed as deduction in its hands, in view of provisions of section 40 (a) (i) of the Act. We reverse the orders of authorities below in this regard. We are not going into the issue raised by assessee that Amazon is not having PE in India and hence, no liability to deduct tax in India. 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, if any, or not. The assessee has placed on record the copy of agreement with Amazon, which we have referred in the paras hereinabove. He has also placed on record the copies of bills raised by Amazon online. The perusal of details filed by assessee of monthly charges paid, it transpires that the same are fluctuating from month to month and there is no regular payment being made to Amazon. In case of provision of royalty to a person, then as seen from the terms and conditions of various agreements, there is fixation of price to be paid and there may be variation on account of use of certain services but first there has to be basic price fixed. However, in the facts of present case, looking at the documentation, the billing is segregate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service. 8. When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver who controls the vehicle and monitors its movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train or in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at source on the payments made to the railway or the airline for having used it for travelling from one destination to another. When a person travels by bus, it cannot be said that the undertaking which owns the bus service is rendering technical service to the passenger and, therefore, the passenger must deduct tax at source on the payment made to the bus service provider for having used the bus. The electricity supplied to a consumer cannot, on the ground that generators are used to generate electricity, transmission lines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Analysis Centre of Excellence (P) Ltd (supra), the issue related to "issuing of license to use software", i.e., the software purchased by a person shall be used by the buyer for his own business purposes. Since the license was granted without parting the copy rights attached to the software, the Hon'ble Supreme Court held that the payments received by the non-resident software companies cannot be taxed as "royalty" under the provisions of DTAA and hence there is no requirement to deduct tax at source from the payment made to them by a resident assessee. 21. In the instant case, the recipients, i.e, M/s Facebook and Rocket Science group only allow the assessee to use their facilities for the purpose of creating advertisement content. The payment made to Amazon Web Services (AWS) is only for using the information technology facilities provided by it, that too the billing would depend upon the extent of usage of those facilities. In fact, these non-resident companies do not give any specific license for use or right to of any of the facilities (which include software) and those facilities are not going to be used for the use in the business of the assessee. The right to use those fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirement to deduct tax at source from those payments u/s 195 of the Act. Hence the assessee herein cannot be considered as an assessee in default u/s 201 (1) of the Act. 25. Accordingly, we set aside the orders passed by Ld CIT(A) for the years under consideration and direct the AO to delete the demand raised u/s 201 (1) of the Act and also the consequential interest charged u/s 201 (1A) of the Act in all the three years under consideration. 26. In the result, all the appeals of the assessee are allowed." 21. The conclusion drawn by the ITAT is that, the recipients of the payments i.e., Facebook and Rocket Science Group only allowed the assessee to use their facilities for the purpose to use their advertisement contents. The payment to Amazon Web Services is only for using information technology facilities provided by it, that too the billing would depend upon the extent of usage of those facilities. The ITAT has come to a conclusion that the facilities provided by the non-resident Companies are only enabling facilities which help a person to place his advertisement contents on the platform of Facebook or to use MailChimp facility effectively. In case of Amazon, the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respect to Taxes on Income And Capital Gains, [ Notification No. GSR 105(E) [45/2002 (F. No. 503/6/99-FTD)], dated 20-2-2002.] ["India-Ireland DTAA"]. Article 12 of the aforesaid treaty defining "royalties" would alone be relevant to determine taxability under the DTAA, as it is more beneficial to the assessee as compared to Section 9 (1) (vi) of the Income Tax Act, as construed by the High Court. Here again, Section 90 (2) of the Income Tax Act, read with Explanation 4 thereof, has not been properly appreciated. 120. Fifthly, the finding that when a copyrighted article is sold, the end-user gets the right to use the intellectual property rights embodied in the copyright which would therefore amount to transfer of an exclusive right of the copyright owner in the work, is also wholly incorrect. For all these reasons, therefore, the judgment of the High Court of Karnataka in Synopsis Intl. [CIT v. Synopsis International Old Ltd., 2010 SCC OnLine Kar 5512] also does not state the law correctly." 22. So, in view of the aforesaid conclusion, Sri. Huilgol is justified to state that the issue in hand is covered by the judgment of the Supreme Court in the case of Engineering Analysis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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