ATOS ORIGIN IT SERVICES SINGAPORE PTE. LTD, MUMBAI V. ADIT (IT)-1(1), MUMBAI

ITA 2428/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48992 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 23-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 16-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MALATHI SHRIDHARAN
• Assessee Lawyers: SHEETAL BANDEKAR
• Keywords: Double taxation relief; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L : MUMBAI BEFORE SHRI N.V. VASUDEVAN,(JM) AND SHRI RAJENDRA SINGH,(AM) ITA NO.2428/MUM/2009 ASSESSMENT YEAR :2005-06 ATOS ORIGIN IT SERVICES SINGAPORE PTE LTD. C/O., ATOS ORIGIN INDIA PVT. LTD. 126/127 SDF IV, SEEPZ, ANDHERI (E) MUMBAI-400 096. ..( APPELLANT ) P.A. NO. (AAECA 9266 F) VS. ASSTT. DIRECTOR OF INCOME TAX- (INTL. TAXATION)-1(1) MUMBAI. ..( RESPONDENT ) APPELLANT BY : SHRI DHANESH BAFNA AND MS. SHEETAL BANDEKAR RESPONDENT BY : MS. MA LATHI SHRIDHARAN O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30.1. 2009 FOR THE ASSESSMENT YEAR 05-06. THE ONLY DISPU TE RAISED BY THE ASSESSEE IS REGARDING TAXABILITY OF RS.12,92,68,070 /- RECEIVABLE FROM THE ASSESSEE FROM STANDARD CHARTERED BANK (SCB) AS ROY ALTY. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE WHO WAS TAX RESIDENT OF SINGAPORE HAD ENTERED INTO A HUBBING AG REEMENT FOR PROVIDING DATA PROCESSING SUPPORT TO STANDARD CHARTERED BANK (SCB) A NON RESIDENT COMPANY ENGAGED IN THE BUSINESS OF BANKING IN INDIA . THE ASSESSING OFFICER ON PERUSAL OF AGREEMENT NOTED THAT SCB INDIA THOUGH IT WAS NOT IN PHYSICAL POSSESSION OF INFRASTRUCTURE OWNED BY THE ASSESSEE FOR THE PURPOSE OF DATA PROCESSING, IT DID HAVE CONSTRUCTIVE CONTROL OVER T HE SAME BECAUSE IT COULD UTILIZE THE SAME AS PER TERMS OF AGREEMENT. IT WAS ALSO OBSERVED BY HIM ITA NO.2428/M/09 A.Y:05-06 2 THAT THESE EQUIPMENTS WERE AT THE DISPOSAL OF SCB I NDIA AND IT WAS A CASE OF RENTING OUT OF DISC SPACE IN HARDWARE SYSTEM AND TH EREFORE, THE PAYMENT MADE BY SCB WAS ROYALTY AS PER ARTICLE 12(3)(A) OF DTAA BETWEEN INDIA AND SINGAPORE. THE ASSESSING OFFICER FURTHER OBSERVED THAT USE OF EMBEDDED SECRET SOFTWARE PROVIDED BY THE ASSESSEE FOR PROCES SING RAW DATA ALSO FELL WITHIN THE AMBIT OF ARTICLE 12(3)(A) OF DTAA. THE ASSESSING OFFICER ACCORDINGLY TAXED PAYMENT AS ROYALTY. 3. THE ASSESSEE DISPUTED THE DECISION OF THE ASSESS ING OFFICER AND SUBMITTED BEFORE CIT(A) THAT PROVIDING SERVICES FOR PROCESSING OF DATA OF CUSTOMERS WAS PART AND PARCEL OF NORMAL BUSINESS AC TIVITY OF THE ASSESSEE AND, THEREFORE, FEE PAYABLE BY ASSESSEE WAS PER SE BUSINESS PROFIT OF THE ASSESSEE. THUS, UNDER THE PROVISIONS OF ARTICLE 7(1 ) OF DTAA, THE BUSINESS PROFIT COULD BE TAXED IN INDIA ONLY IF THE ASSESSEE HAD PERMANENT ESTABLISHMENT (PE) IN INDIA. SINCE ASSESSEE DID NO T HAVE A PE IN INDIA, INCOME WAS NOT TAXABLE. CIT(A) HOWEVER, DID NOT AC CEPT THE CONTENTIONS RAISED. HE AGREED WITH THE FINDING OF ASSESSING OFF ICER THAT IT WAS A CASE OF RENTING OUT OF DISC SPACE IN THE HARDWARE SYSTEM AN D EMBEDDED SOFTWARE BY THE ASSESSEE IN FAVOUR OF SCB INDIA AND THEREFORE, THE INCOME EARNED BY THE ASSESSEE WAS OF THE NATURE OF ROYALTY WITHIN THE ME ANING OF ARTICLE 12(3) OF DTAA AND ALSO WITHIN THE MEANING OF CLAUSE (III) OF EXPLANATION (2) BELOW SEC.9(VI) OF THE INCOME TAX ACT. HE THEREFORE CONF IRMED THE ORDER OF ASSESSING OFFICER ASSESSING THE AMOUNT AS ROYALTY. AGGRIEVED BY SAID DECISION THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 4. BEFORE US LD. AR FOR THE ASSESSEE AT THE VERY OU TSET POINTED OUT THAT THE SAME ISSUE HAD ALREADY BEEN DECIDED BY THE TRIB UNAL IN ASSESSEES OWN CASE IN ITA NO.1457/MUM/2008 FOR ASSESSMENT YEAR 20 04-05 IN WHICH TRIBUNAL ALLOWED THE CASE OF THE ASSESSEE HOLDING T HAT THE AMOUNT RECEIVABLE BY ASSESSEE WAS NOT TAXABLE AS ROYALTY. THE LD. DE PARTMENTAL REPRESENTATIVE FAIRLY CONCEDED THAT THE ISSUE WAS C OVERED BY THE SAID DECISION OF THE TRIBUNAL. ITA NO.2428/M/09 A.Y:05-06 3 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. THE DISPUTE IS REGARDING TAXABILITY OF THE AMOUNT RECEI VED BY ASSESSEE FROM SCB INDIA FOR USE OF DISC SPACE IN THE HARDWARE OF THE ASSESSEE AT ITS DATA CENTRE IN SINGAPORE. THE AUTHORITIES BELOW HAVE HELD THAT IT WAS A CASE OF RENTING OUT OF DISC SPACE ALONGWITH EMBEDDED SOFTWARE OF TH E INFRASTRUCTURE OF THE ASSESSEE AND THEREFORE, THE INCOME WAS OF THE NATU RE OF ROYALTY UNDER THE PROVISIONS OF ARTICLE 12(3) OF DTAA BETWEEN INDIA A ND SINGAPORE. WE FIND THAT THE SAME ISSUE HAS ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2004-05 IN W HICH THE TRIBUNAL NOTED THAT AS PER DEFINITION IN ARTICLE 12(3)(B), ROYALTY MEANT PAYMENT OF ANY KIND RECEIVED AS A CONSIDERATION FOR USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OTHER THAN PAYMENTS RECEIV ED FROM ACTIVITY DESCRIBED IN PARA-4(B) OF ARTICLE 8. THE TRIBUNAL OBSERVED T HAT IN THE CONTEXT AND COLLOCATION OF 2 EXPRESSIONS USE AND RIGHT TO US E FOLLOWED BY THE WORD EQUIPMENT INDICATED THAT THERE MUST BE SOME POSIT IVE USE OR EMPLOYMENT OF EQUIPMENT FOR THE DESIRED PURPOSE. THE CUSTOMER MUST COME FACE TO FACE WITH THE EQUIPMENT, OPERATE IT OR CONTROL IT OR CON TROL ITS FUNCTIONS IN SOME MANNER. IF AN ADVANTAGE WAS TAKEN FROM SOPHISTICATE D EQUIPMENT INSTALLED AND PROVIDED BY ANOTHER PERSON IT COULD NOT BE SAID THAT THE RECIPIENT/CUSTOMER USED THE EQUIPMENT AS SUCH. EVE N WHERE AN EARMARKED CIRCUIT WAS PROVIDED FOR OFFERING THE FACILITY, UNL ESS THERE WAS MATERIAL TO ESTABLISH THAT THE CIRCUIT/EQUIPMENT COULD BE ACCES SED AND PUT TO USE BY MEANS OF SOME POSITIVE ACTS, IT DID NOT FALL WITHIN THE CATEGORY OF ROYALTY. THE TRIBUNAL HELD THAT IN THIS CASE, THE ASSESSEE D ID NOT HAVE THE RIGHT TO ACCESS THE COMPUTER HARDWARE EXCEPT FOR TRANSMITTIN G RAW DATA FOR FURTHER PROCESSING. THE ASSESSEE HAD NO CONTROL OVER COMPUT ER HARDWARE OR PHYSICAL ACCESS TO IT. THEREFORE, THERE WAS NOTHING TO SHOW ANY POSITIVE ACT OF UTILIZATION, APPLICATION OR EMPLOYMENT OF EQUIPMENT FOR THE DESIRED PURPOSE. THE TRIBUNAL ACCORDINGLY HELD THAT PAYMENT WAS NOT ROYALTY WITHIN THE MEANING OF ARTICLE 12(3)(B). FACTS, IN THIS YEAR A RE IDENTICAL. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2004- ITA NO.2428/M/09 A.Y:05-06 4 05 IS ASSESSEES OWN CASE (SUPRA), WE SET ASIDE THE ORDER OF THE CIT(A) AND DELETED THE ADDITION MADE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.5.2011. SD/- SD/- (N.V. VASUDEVAN) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 27.5.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.