M/S. YAHOO WEB SERVICES INDIA PVT. LTD, MUMBAI V. THE DCIT RG 7(3),

ITA 506/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49380 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 20-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 22-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S SRIVASTAVA
• Assessee Lawyers: R MURALIDHAR
• Keywords: Business income; Double taxation relief; Advance ruling; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'L' BENCH, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND V. DURGA RAO, JUDICIAL MEMBER ITA NO. 506/MUM/2008 (ASSESSMENT YEAR: 2004-05) YAHOO INDIA P. LTD. DCIT, RANGE 7(3) BLDG. NO. 12, 6TH FLOOR, SOLITARE MUMBAI CORPORATE PARK, GURU HARGOVINDJI VS. MARG, ANDHERI (E), MUMBAI 400093 PAN - AAACY 1252 B APPELLANT RESPONDENT APPELLANT BY: SHRI R. MURALIDHAR RESPONDENT BY: SHRI R.S. SRIVASTAVA O R D E R PER P.M. JAGTAP, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LEARNED CIT(A) XXX, MUMBAI DATED 19.10.2007 WHEREBY HE CONFIRMED THE DISALLOWANCE OF ` 34,86,947/- MADE BY THE A.O. UNDER SECTION 40(A) ON ACCOUNT OF PAYMENT MADE BY ASSESSEE TO YAHOO HOLDIN GS (HONG KONG) LTD. WITHOUT DEDUCTING TAX AT SOURCE. 2. ASSESSEE COMPANY IN THE PRESENT CASE IS A FULLY OWN ED SUBSIDIARY OF YAHOO INC, USA, WHICH IS ENGAGED IN THE BUSINESS OF PROVIDING CONSUMER SERVICES SUCH AS SEARCH ENGINE, CONTENT AND INFORMA TION ON WIDE SPECTRUM OF TOPICS, E-MAIL, CHAT, ETC. IT FILED THE RETURN O F INCOME FOR THE YEAR UNDER CONSIDERATION ON 30.10.2004 DECLARING TOTAL INCOME OF NIL AFTER ADJUSTING THE BROUGHT FORWARD LOSSES TO THE EXTENT OF ` 3,91,47,123/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAS MADE A PAYMENT OF ` 34,86,947/- TO YAHOO HOLDINGS (HONG KONG) LTD. BEIN G COST OF SERVICES/RESEARCH MATERIAL/ADVERTISEMENT ME DIA. YAHOO HOLDINGS (HONG KONG) LTD. IS ENGAGED IN THE BUSINESS OF PROV IDING INTERNET SERVICES, TECHNOLOGICAL TOOLS AND MARKETING SOLUTIONS FOR BUS INESS TO CUSTOMERS IN HONG KONG. IT PROVIDES BANNER ADVERTISEMENT AND MIC ROSITE HOSTING SERVICES ON THE YAHOO HONG KONG PORTAL. THE BANNER ADVERTISE MENT IS ALSO KNOWN AS ITA NO. 506/MUM/2008 YAHOO INDIA P. LTD. 2 WEB BANNER, WHICH IS A FORM OF ADVERTISEMENT ON THE WORLD WIDE WEB. THIS FORM OF ONLINE ADVERTISING ENTAILS EMBEDDING AN ADV ERTISEMENT INTO A WEB PAGE. DURING THE YEAR UNDER CONSIDERATION, THE DEPA RTMENT OF TOURISM OF INDIA THROUGH AN ADVERTISEMENT AGENCY MEDIA TURF WO RLDWIDE INTENDED TO DISPLAY A BANNER ADVERTISEMENT DURING THE PERIOD FR OM 18 TH FEBRUARY 2004 TO 15 TH MARCH 2004 ON THE PORTAL OWNED BY YAHOO HOLDINGS ( HONG KONG) LTD. FOR THIS PURPOSE, IT HIRED THE SERVICES OF THE ASSE SSEE COMPANY TO APPROACH YAHOO HOLDINGS (HONG KONG) LTD. TO PROVIDE UPLOADIN G AND DISPLAY SERVICES FOR HOSTING THE BANNER ADVERTISEMENT AT YAHOO HONG KONG PORTAL. ACCORDINGLY, THE ASSESSEE COMPANY ENTERED INTO A CO NTRACT IN THE FORM OF MEDIA INSERTION ORDER FOR DISPLAY OF IMPRESSIONS WI TH THE DEPARTMENT OF TOURISM. THE TOTAL CONSIDERATION FOR THE SAME WAS A GREED AT ` 65,11,500/- OUT OF WHICH ASSESSEE COMPANY AGREED FOR GRANTING A GENCY DISCOUNT TO MEDIA TURF OF 25%. THE ASSESSEE COMPANY IN TURN HIR ED THE SERVICES OF YAHOO HOLDINGS (HONG KONG) LTD. FOR UPLOADING AND D ISPLAY OF BANNER ADVERTISEMENT ON ITS PORTAL AND THE CONSIDERATION F OR THE SAID SERVICE WAS AGREED AT US $75,464 EQUIVALENT TO INDIAN ` 34,86,947/-. THE SAID PAYMENT TO M/S. YAHOO HOLDINGS (HONG KONG) LTD. WAS MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WITHOUT DEDUCTING TAX AT SOURCE. THE STAND OF THE ASSESSEE AS TAKEN BEFORE THE A.O. WAS THAT SINC E THE SERVICES/OPERATIONS PERFORMED BY YAHOO HOLDINGS (HONG KONG) LTD. WERE E NTIRELY OUTSIDE INDIA AND SINCE YAHOO HOLDINGS (HONG KONG) LTD. HAD NO PR ESENCE IN INDIA, THE AMOUNT PAID TO THEM FOR THE SERVICES RENDERED OUTSI DE INDIA WAS NOT TAXABLE IN INDIA AND NO TAX, THEREFORE, WAS REQUIRED TO BE DEDUCTED AT SOURCE FROM THE PAYMENT OF THE SAID AMOUNT. ACCORDING TO THE A. O., THE INCOME ATTRIBUTABLE TO THE SERVICES CLAIMED TO BE RENDERED OUTSIDE INDIA HAD ACCRUED IN INDIA AS PER THE PROVISIONS OF SECTION 9 AND THE SAME BEING TAXABLE IN INDIA, THE ASSESSEE WAS REQUIRED TO DEDU CT TAX AT SOURCE BEFORE REMITTING THE SAID AMOUNT TO YAHOO HOLDINGS (HONG K ONG) LTD. SINCE NO SUCH TAX WAS DEDUCTED BY ASSESSEE COMPANY FROM THE PAYMENT REMITTED TO YAHOO HOLDINGS (HONG KONG) LTD., THE DEDUCTION CLAI MED BY ASSESSEE ON ACCOUNT OF THE SAID PAYMENT WAS DISALLOWED BY THE A .O. BY INVOKING THE PROVISIONS OF SECTION 40(A). ITA NO. 506/MUM/2008 YAHOO INDIA P. LTD. 3 3. THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 40( A) INTER ALIA WAS CHALLENGED BY THE ASSESSEE IN APPEAL FILED BEFORE T HE LEARNED CIT(A) AND ELABORATE SUBMISSIONS WERE MADE ON ITS BEHALF BEFOR E THE LEARNED CIT(A) IN SUPPORT OF ITS CASE THAT THE AMOUNT PAID TO YAHOO H OLDINGS (HONG KONG) LTD. WAS NOT TAXABLE IN THE HANDS OF THE SAID COMPANY IN INDIA AND NO TAX THEREFORE WAS DEDUCTIBLE AT SOURCE FROM THE PAYMENT OF THE SAID AMOUNT MADE TO YAHOO HOLDINGS (HONG KONG) LTD. IT WAS SUBM ITTED THAT THERE WAS NO BUSINESS CONNECTION BETWEEN ASSESSEE COMPANY AND YAHOO HOLDINGS (HONG KONG) LTD. AND, THEREFORE, NO INCOME FROM THE IMPUGNED TRANSACTION WAS DEEMED TO HAVE ACCRUED OR ARISEN TO THE SAID CO MPANY IN INDIA UNDER THE PROVISIONS OF SECTION 9(1)(I). IT WAS ALSO SUBM ITTED THAT YAHOO HOLDINGS (HONG KONG) LTD. IS ENGAGED IN THE BUSINESS OF PROV IDING BANNER ADVERTISEMENT AND MICROSITE HOSTING SERVICES ON ITS PORTAL AND THE RECEIPTS FROM THE IMPUGNED TRANSACTION OF HOSING BANNER ADVE RTISEMENT OF DEPARTMENT OF TOURISM OF INDIA ON THE SAID PORTAL W AS IN THE NATURE OF BUSINESS INCOME. IT WAS SUBMITTED THAT SINCE YAHOO HOLDINGS (HONG KONG) LTD. HAD NO PE IN INDIA, THE SAID AMOUNT CONSTITUTI NG ITS BUSINESS INCOME WAS NOT CHARGEABLE TO TAX IN INDIA. IT WAS FURTHER SUBMITTED THAT THE BANNER AD HOSTING SERVICES DO NOT INVOLVE USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT GRANTED BY YAHOO HOLDINGS (HONG KONG) LTD. TO THE ASSESSEE COMPANY SINCE THE UPLOADING AN D DISPLAY OF BANNER ADVERTISEMENT ON THE YAHOO HOLDINGS (HONG KONG) LTD . WERE ENTIRELY THE RESPONSIBILITY OF YAHOO HOLDINGS (HONG KONG) LTD. I T WAS SUBMITTED THAT ASSESSEE COMPANY WAS ONLY REQUIRED TO PROVIDE BANNE R AD TO YAHOO HOLDINGS (HONG KONG) LTD. FOR UPLOADING THE SAME ON THE PORTAL. IT WAS CONTENDED THAT IN ORDER TO TREAT ANY PAYMENT AS IN THE NATURE OF EQUIPMENT ROYALTY, THE SAME MUST BE MADE FOR THE USE OF OR RI GHT TO USE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENTS. IT WAS CONTEND ED THAT THE CUSTOMER/SUBSCRIBER MUST HAVE PHYSICAL POSSESSION A ND CONTROL OVER THE EQUIPMENT ALONGWITH SIGNIFICANT ECONOMICAL OR POSSE SSORY INTEREST IN THE EQUIPMENT. IT WAS CONTENDED THAT SINCE THE ASSESSEE COMPANY DID NOT POSSESS ANY DEGREE OF DOMAIN OR CONTROL OVER THE PO RTAL, THE PAYMENT MADE TO YAHOO HOLDINGS (HONG KONG) LTD. CANNOT BE CLASSI FIED AS EQUIPMENT ROYALTY UNDER THE PROVISIONS OF SECTION 9(1)(IVA). IT WAS REITERATED THAT THE ITA NO. 506/MUM/2008 YAHOO INDIA P. LTD. 4 SAID PAYMENT CONSTITUTED BUSINESS INCOME/PROFITS IN THE HANDS OF YAHOO HOLDINGS (HONG KONG) LTD. AND SINCE THE SAME WAS NO T CHARGEABLE TO TAX IN INDIA, ASSESSEE COMPANY WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE FROM THE PAYMENT THEREOF. 4. THE LEARNED CIT(A) DID NOT FIND MERIT IN THE SUBMIS SIONS MADE ON BEHALF OF THE ASSESSEE. HE HELD THAT IRRESPECTIVE O F THE DEFINITION OF BUSINESS CONNECTION, ONCE THE SOURCE OF INCOME WAS ESTABLIS HED TO BE IN INDIA, THE INCOME WAS DEEMED TO ACCRUED OR AROSE IN INDIA FOR THE PURPOSE OF SECTION 9 OF THE INCOME TAX ACT, 1961. AS REGARDS THE NATURE OF THE SAID INCOME, THE LEARNED CIT(A) HELD THAT ASSESSEE COMPANY HAD BOOKE D THE PORTAL OF YAHOO HOLDINGS (HONG KONG) LTD. FOR A SPECIFIC PERIOD AND THEREFORE THE PAYMENT AS AGREED TO WAS MADE BY THE ASSESSEE COMPANY TO YAHOO HOLDINGS (HONG KONG) LTD. OBVIOUSLY FOR USE OF COMMERCIAL OR SCIENTIFIC EQUIPMENTS. RELYING ON CLAUSE (IVA) OF EXPLANATION 2 TO SECTION 9(1)(VI), HE HELD THAT THE PAYMENT MADE FOR THE USE OR RIGHT TO USE ANY INDUSTRIAL, CO MMERCIAL OR SCIENTIFIC EQUIPMENT WAS IN THE NATURE OF ROYALTY AND THE SAME BEING TAXABLE IN INDIA IN THE HANDS OF YAHOO HOLDINGS (HONG KONG) LTD, ASSESS EE WAS UNDER OBLIGATION TO DEDUCT TAX AT SOURCE FROM THE SAID PAYMENT. RELY ING ON THE DECISION OF AUTHORITY FOR ADVANCE RULINGS IN THE CASE OF CARGO COMMUNITY NETWORK PTE LTD. 289 ITR 355, HE HELD THAT ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE FROM THE PAYMENT MADE TO YAHOO HOLDINGS (HONG KONG) LTD. AND SINCE NO SUCH TAX WAS DEDUCTED BY ASSESSEE, THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 40(A) WAS CONFIRMED BY THE LEARNED CIT(A). AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), ASSESSEE HAS PREFERRED THIS APP EAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND A LSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT TH E DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF PAYMENT MADE BY THE ASSESSEE TO YAHOO HOLDINGS (HONG KONG) LTD. FOR UPHOLDING AND DISPLAY OF BANNER ADVE RTISEMENT OF THE DEPARTMENT OF TOURISM OF INDIA ON ITS PORTAL WITHOU T DEDUCTION OF TAX AT SOURCE BY INVOKING THE PROVISIONS OF SECTION 40(A) HAS BEEN CONFIRMED BY THE LEARNED CIT(A) TREATING THE SAID PAYMENT AS IN THE NATURE OF ROYALTY RELYING CLAUSE (IVA) OF EXPLANATION 2 TO SECTION 9(1)(VI). THE SAID CLAUSE INSERTED BY THE FINANCE ACT, 2001 W.E.F. 01.04.2002 PROVIDES THAT ROYALTY INCLUDES ITA NO. 506/MUM/2008 YAHOO INDIA P. LTD. 5 CONSIDERATION PAID FOR THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT. AT THE TIME OF HEARING BEFORE US, THE LEARNED D.R. HAS ALSO MAINLY RELIED ON THE SAID CLAUSE IN SUPPORT OF REVENUES CASE ON THIS ISSUE. HE HAS CONTENDED THAT LEGISLATIVE INTENTION BEHIND INSERTION OF THE SAID CLAUSE IN THE STATUTE IS TO WIDEN THE DEFINITION OF ROYALTY. A PERUSAL OF THE RELEVANT PORTION OF THE BOARD CIRCULAR SHOWS THAT T HE LEGISLATIVE INTENTION BEHIND INSERTION OF THE SAID CLAUSE IS TO OVERCOME THE SITUATION WHERE NO TAX AT SOURCE WAS BEING DEDUCTED FROM THE PAYMENT OF LE ASE RENT OF INDUSTRIAL, COMMERCIAL AND SCIENTIFIC EQUIPMENT BY TAKING SHELT ER UNDER THE ERSTWHILE DEFINITION OF THE TERM ROYALTY AS GIVEN IN THE IN COME TAX ACT, 1961. THE LEGISLATIVE INTENTION TO INSERT CLAUSE (IVA) OF EXP LANATION 2 TO SECTION 9(1)(VI) IN THE STATUTE THUS IS TO COVER THE LEASE RENT OF INDU STRIAL, COMMERCIAL AND SCIENTIFIC EQUIPMENTS IN THE DEFINITION OF ROYALTY AND THE SAID DEFINITION HAS BEEN WIDENED TO THAT EXTENT ONLY. 6. IN SUPPORT OF REVENUES CASE ON THIS ISSUE, THE LEA RNED D.R. HAS ALSO RELIED ON THE DECISION OF THE HYDERABAD BENCH OF IT AT IN THE CASE OF FRONTLINE SOFT LTD. VS. DCIT 12 DTR 131 AS WELL AS THE DECISI ON OF THE AUTHORITY FOR ADVANCE RULINGS IN THE CASE OF CARGO COMMUNITY NETW ORK PTE. LTD. 289 ITR 355. WE HAVE CAREFULLY GONE THROUGH THESE DECISIONS CITED BY THE LEARNED D.R. IT IS OBSERVED THAT IN THE CASE OF FRONTLINE SOFT L TD. (SUPRA), A MERE RIGHT TO USE AN EQUIPMENT WAS HELD BY THE TRIBUNAL TO FALL W ITHIN THE AMBIT OF CLAUSE (IVA) OF EXPLANATION 2 TO SECTION 9(1)(VI) OF THE A CT. THE TRIBUNAL, IN COMING TO THE SAID CONCLUSION, FOLLOWED THE RULING OF THE ITA T DELHI SPECIAL BENCH IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. 78 TTJ (DEL) (SB) 489, WHICH HAS BEEN SUBSEQUENTLY OVERRULED BY THE HON'BL E DELHI HIGH COURT VIDE ITS JUDGEMENT REPORTED IN 232 CTR (DEL) 177. THE PR OPOSITION LAID DOWN BY THE TRIBUNAL IN THE CASE FOR FRONTLINE SOFT LTD. (S UPRA) THUS IS CONTRARY TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF ASIA SATELLITE COMMUNICATIONS CO. LTD. (SUPRA). IN THE CASE OF CAR GO COMMUNITY NETWORK PTE. LTD. (SUPRA) CITED BY THE LEARNED D.R., THE FA CTS INVOLVED WERE DIFFERENT IN AS MUCH AS THE SYSTEM CONNECT FEES PAID FOR PROVIDI NG ACCESS AND USE OF PORTAL HOSTED FROM SINGAPORE WAS INCLUSIVE OF TRAIN ING CHARGES, MONTHLY SUBSCRIPTION FEE, FEE FOR ADDITIONAL ACCESS AND HEL P DESK CHARGES. HAVING ITA NO. 506/MUM/2008 YAHOO INDIA P. LTD. 6 REGARD TO THE NATURE OF THIS COMPOSITE FEES, THE CO NTENTION OF THE ASSESSEE THAT THE CARGO BOOKING AGENCY NEVER USES THE SERVER OF THE ASSESSEE FOR PROCESSING OR OBTAINING ANY DATA WAS FOUND TO BE UN TENABLE BY THE AUTHORITY FOR ADVANCE RULINGS. IT WAS HELD THAT USE OF PORTAL WAS NOT POSSIBLE WITHOUT USE OF SERVER AND THE SERVER PLATFORM BEING A SCIEN TIFIC EQUIPMENT, THE PAYMENT MADE FOR CONCURRENT ACCESS TO UTILISE THE S OPHISTICATED SERVICES OFFERED BY THE PORTAL WOULD BE COVERED BY THE EXPRE SSION ROYALTY AS USED IN ARTICLE 12 OF THE DTAA AS WELL AS SECTION 9(1)(VI) OF THE INCOME TAX ACT, 1961. IN THE PRESENT CASE, THE AMOUNT WAS PAID BY ASSESSE E TO YAHOO HOLDINGS (HONG KONG) LTD. FOR THE SERVICES RENDERED FOR UPLO ADING AND DISPLAY OF THE BANNER ADVERTISEMENT OF THE DEPARTMENT OF TOURISM O F INDIA ON ITS PORTAL AND THERE WAS NO DIRECT USE BY THE ASSESSEE EITHER OF T HE PORTAL OR OF THE SERVER AS WAS THERE IN THE CASE OF CARGO COMMUNITY NETWORK PT E. LTD. THE DECISION OF THE AUTHORITY FOR ADVANCE RULINGS IN THE SAID CASE THUS IS NOT APPLICABLE TO THE FACTS OF THE CASE OF ASSESSEE. 7. ON THE OTHER HAND, THE DECISION OF THE AUTHORITY FO R ADVANCE RULINGS IN THE CASE OF ISRO SATELLITE CENTRE 307 ITR 59 AND IN THE CASE OF DELL INTERNATIONAL SERVICES (INDIA) P. LTD. 305 ITR 37 C ITED BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE FOUND TO BE DIRECTLY APPLICABL E TO THE ISSUE INVOLVED IN THE PRESENT CASE. IN THE CASE OF ISRO STELLITE CENT RE (SUPRA), THE QUESTION INVOLVED WAS WHETHER THE CONSIDERATION PAID BY ISRO TO IMMARSAT GLOBAL OF U.K. FOR USING THE IMMARSAT NAVIGATION TRANSPONDER CAPACITY WOULD BE ROYALTY UNDER THE DTAA BETWEEN INDIA AND U.K. THE A AR AFTER LOOKING INTO THE NATURE OF THE AGREEMENT, RULED THAT BY EARMARKI NG A SPACE SEGMENT CAPACITY OF THE TRANSPONDER FOR USE BY THE APPLICAN T, THE APPLICANT DID NOT GET POSSESSION (ACTUAL OR CONSTRUCTIVE) OF THE EQUI PMENT OF IMMARSAT GLOBAL OF U.K. NOR DID THE APPLICANT USE ANY EQUIPMENT OF IMMARSAT GLOBAL OF U.K. IT WAS HELD THAT THE PAYMENT MADE BY THE APPLICANT COULD NOT, THEREFORE, BE REGARDED AS PAYMENT MADE FOR THE USE OF THE EQUIPME NT OF INMARSAT GLOBAL OF THE U. K. THIS DECISION HAS BEEN FOLLOWED BY TH E HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELELCOMMUNICATIONS L TD. (SUPRA). IN THE CASE OF DELL INTERNATIONAL SERVICES (INDIA) P. LTD. (SUPRA) , IT WAS HELD BY THE AAR IN THE SIMILAR CONTEXT THAT THE WORD USE IN RELATION TO EQUIPMENT OCCURRING IN ITA NO. 506/MUM/2008 YAHOO INDIA P. LTD. 7 CLAUSE (IVA) OF EXPLANATION TO SECTION 9(1)(VI) IS NOT TO BE UNDERSTOOD IN THE BROAD SENSE OF AVAILING OF THE BENEFIT OF AN EQUIPM ENT. THE CONTEXT AND COLLOCATION OF THE TWO EXPRESSIONS USE AND RIGHT TO USE FOLLOWED BY THE WORD EQUIPMENT INDICATED THAT THERE MUST BE SOME POSITIVE ACT OF UTILIZATION, APPLICATION OR EMPLOYMENT OF EQUIPMENT FOR THE DESIRED PURPOSE. IF AN ADVANTAGE WAS TAKEN FROM SOPHISTICATED EQUIPM ENT INSTALLED AND PROVIDED BY ANOTHER, IT COULD NOT BE SAID THAT THE RECIPIENT/CUSTOMER USED THE EQUIPMENT AS SUCH. THE CUSTOMER MERELY MADE USE OF THE FACILITY, THOUGH HE DID NOT HIMSELF USE THE EQUIPMENT. WHAT WAS CONTEMPLATED BY THE WORD USE IN CLAUSE (IVA) OF EXPLANATION 2 TO SECTION 9(1)(VI) WAS THAT THE CUSTOMER CAME FACE TO FACE WITH THE EQUIPMENT, OPER ATED IT OR CONTROLLED ITS FUNCTIONS IN SOME MANNER. BUT IF IT DID NOTHING TO OR WITH THE EQUIPMENT AND DID NOT EXERCISE ANY POSSESSORY RIGHTS IN RELAT ION THERETO, IT ONLY MADE USE OF THE FACILITY CREATED BY THE SERVICE PROVIDER WHO WAS THE OWNER OF THE ENTIRE NETWORK AND RELATED EQUIPMENT. THERE WAS NO SCOPE TO INVOKE CLAUSE (IVA) IN SUCH A CASE BECAUSE THE ELEMENT OF SERVICE PREDOMINATED. THE PREDOMINANT FEATURES AND UNDERLYING OBJECT OF THE A GREEMENT UNERRINGLY EMPHASIZED THE CONCEPT OF SERVICE. THAT EVEN WHERE AN EARMARKED CIRCUIT WAS PROVIDED FOR OFFERING THE FACILITY, UNLESS THER E WAS MATERIAL TO ESTABLISH THAT THE CIRCUIT/EQUIPMENT COULD BE ACCESSED AND PU T TO USE BY THE CUSTOMER BY MEANS OF POSITIVE ACTS, IT DID NOT FALL WITHIN THE CATEGORY OF ROYALTY IN CLAUSE (IVA) OF EXPLANATION 2 TO SECT ION 9(1)(VI) OF THE ACT. 8. AS ALREADY NOTED BY US, THE PAYMENT MADE BY ASSESSE E IN THE PRESENT CASE TO YAHOO HOLDINGS (HONG KONG) LTD. WAS FOR SER VICES RENDERED FOR UPLOADING AND DISPLAY OF THE BANNER ADVERTISEMENT O F THE DEPARTMENT OF TOURISM OF INDIA ON ITS PORTAL. THE BANNER ADVERTIS EMENT HOSTING SERVICES DID NOT INVOLVE USE OR RIGHT TO USE BY THE ASSESSEE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT AND NO SUCH USE WAS ACTUALLY GRANTED BY YAHOO HOLDINGS (HONG KONG) LTD. TO ASSESSEE COMPANY . UPLOADING AND DISPLAY OF BANNER ADVERTISEMENT ON ITS PORTAL WAS E NTIRELY THE RESPONSIBILITY OF YAHOO HOLDINGS (HONG KONG) LTD. AND ASSESSEE COM PANY WAS ONLY REQUIRED TO PROVIDE THE BANNER AD TO YAHOO HOLDINGS (HONG KONG) LTD. FOR UPLOADING THE SAME ON ITS PORTAL. ASSESSEE THUS HAD NO RIGHT TO ACCESS THE ITA NO. 506/MUM/2008 YAHOO INDIA P. LTD. 8 PORTAL OF YAHOO HOLDINGS (HONG KONG) LTD. AND THERE IS NOTHING TO SHOW ANY POSITIVE ACT OF UTILIZATION OR EMPLOYMENT OF THE PO RTAL OF YAHOO HOLDINGS (HONG KONG) LTD. BY THE ASSESSEE COMPANY. HAVING RE GARD TO ALL THESE FACTS OF THE CASE AND KEEPING IN VIEW THE DECISION OF THE AUTHORITY OF ADVANCE RULINGS IN THE CASE OF ISRO SATELLITE CENTRE (SUPRA ) AND DELL INTERNATIONAL SERVICES (INDIA) P. LTD. (SUPRA), WE ARE OF THE VIE W THAT THE PAYMENT MADE BY ASSESSEE TO YAHOO HOLDINGS (HONG KONG) LTD. FOR THE SERVICES RENDERED FOR UPLOADING AND DISPLAY OF THE BANNER ADVERTISEMENT O F THE DEPARTMENT OF TOURISM OF INDIA ON ITS PORTAL WAS NOT IN THE NATUR E OF ROYALTY BUT THE SAME WAS IN THE NATURE OF BUSINESS PROFIT AND IN THE ABS ENCE OF ANY PE OF YAHOO HOLDINGS (HONG KONG) LTD. IN INDIA, IT WAS NOT CHAR GEABLE TO TAX IN INDIA. ASSESSEE THUS WAS NOT LIABLE TO DEDUCT TAX AT SOURC E FROM THE PAYMENT MADE TO YAHOO HOLDINGS (HONG KONG) LTD. FOR SUCH SERVICE S AND IN OUR OPINION, THE PAYMENT SO MADE CANNOT BE DISALLOWED BY INVOKING TH E PROVISIONS OF SECTION 40(A) FOR NON-DEDUCTION OF TAX. IN THAT VIEW OF THE MATTER WE DELETE THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LEARNED CIT(A) U/S 40(A) AND ALLOW THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JUNE 2011. SD/- SD/- (V. DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH JUNE 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXX, MUMBAI 4. THE CIT VII, MUMBAI CITY 5. THE DR, L BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.