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

ITA 6599/MUM/2009

• Counselvise Citation: 659919914 RSA 2009
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 11-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Keywords: Double taxation relief
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO. 6599/MUM/2009 ASSESSMENT YEAR: 2006-2007 M/S ATOS ORIGIN IT SERVICES SINGAPORE PTE. LTD., C/O. ATOS ORIGIN INDIA PVT. LTD., 126/127 SDF IV, SEEPZ, ANDHERI (EAST), MUMBAI 400 096. PAN: AAECA9266F VS. DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)-1(1), MUMBAI 400 020. (APPELLANT) (RESPONDENT) ITA NO. 105/MUM/2010 ASSESSMENT YEAR: 2006-2007 ASST. DIT(IT)-1(1), ROOM NO.117, SCINDIA HOUSE, 1 ST FLOOR, BALLARD ESTATE, N.M. ROAD, MUMBAI 400 038. VS. M/S. ATOS ORIGIN SERVICES (SINGAPORE) PTE. LTD., C/O. PRICEWATER COOPERS PVT. LTD., 252, V.S. MARG, SHIVAJI PARK, MUMBAI 400 028. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DHANESH BAFNA REVENUE BY : SHRI JITENDRA YADAV DATE OF HEARING:05/01/2012 DATE OF PRONOUNCEM ENT: 25/01/2012 ORDER PER P.M. JAGTAP, A.M: THESE TWO APPEALS, ONE FILED BY THE ASSESSEE BEING ITA NO.6599/M/2009 AND OTHER FILED BY THE REVENUE BEING ITA NO.105/M/2010, ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE OR DER OF LD. CIT (A)-10, MUMBAI DATED 29.10.2009. ITA NO.6599/M/2009 & ITA NO.105/M/2010 2 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E BEING ITA NO.6599/M/2009 WHICH INVOLVE A SOLITARY ISSUE RELAT ING TO THE TAXABILITY OF THE AMOUNT OF RS. 8,41,37,165/- RECEIVABLE TO THE ASSES SEE FROM STANDARD CHARTERED BANK (SCB IN SHORT) IN INDIA. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY IN CORPORATED IN SINGAPORE. IT IS NON-RESIDENT IN INDIA. IT ENTERE D INTO A HUBBING AGREEMENT FOR THE PROVISION OF DATA PROCESSING SUPPORT TO SCB , ANOTHER NON-RESIDENT COMPANY ENGAGED IN THE BUSINESS OF BANKING IN INDIA . DURING THE YEAR UNDER CONSIDERATION, IT RECEIVED A SUM OF RS. 8,41,37,165 /- FROM SCB FOR PROVIDING SERVICES/FACILITIES FOR THE PROCESSING OF DATA TO S CB THROUGH HARDWARE AND SOFTWARE FACILITIES OWNED AND HELD IN SINGAPORE. T HE SAID AMOUNT WAS CLAIMED BY THE ASSESSEE AS NOT TAXABLE IN INDIA. AFTER PER USING THE AGREEMENT BETWEEN THE ASSESSEE AND SCB, THE ASSESSING OFFICER HELD TH AT ALTHOUGH THE SCB WAS NOT IN PHYSICAL POSSESSION OF INFRASTRUCTURE OWNED BY THE ASSESSEE FOR THE PURPOSE OF DATA PROCESSING, IT DID HAVE CONSTRUCTIV E CONTROL OVER THE SAME. ACCORDING TO THE AO, ALL THESE EQUIPMENTS OWNED BY THE ASSESSEE WERE AVAILABLE AT THE DISPOSAL OF SCB AND IT WAS THEREFO RE, A CASE OF RENTING OUT THE SAID EQUIPMENTS BY THE ASSESSEE TO SCB. HE HELD TH AT THE PAYMENT MADE BY SCB TO THE ASSESSEE THEREFORE, WAS IN THE NATURE OF ROYALTY AS PER ARTICLE 12(3)(A) OF DTAA BETWEEN INDIA AND SINGAPORE AND TH E SAME WAS CHARGEABLE TO TAX IN INDIA. 3. THE MATTER WAS CARRIED BEFORE THE LD. CIT (A) AN D IT WAS SUBMITTED BEFORE HIM THAT PROVIDING SERVICES FOR PROCESSING O F DATA OF CUSTOMERS WAS ITA NO.6599/M/2009 & ITA NO.105/M/2010 3 FORMING PART OF REGULAR BUSINESS ACTIVITY OF THE AS SESSEE AND THE AMOUNT RECEIVABLE FROM SCB FOR PROVIDING SUCH SERVICES WAS ITS BUSINESS PROFIT. IT WAS CONTENDED THAT SINCE THE ASSESSEE DID NOT HAVE A PE IN INDIA DURING THE YEAR UNDER CONSIDERATION, SUCH BUSINESS PROFIT WAS NOT C HARGEABLE TO TAX IN INDIA AS PER ARTICLE 7(1) OF DTAA BETWEEN INDIA AND SINGA PORE. THE LD. CIT (A) DID NOT FIND ANY MERIT IN THIS STAND OF THE ASSESSEE. HE AGREED WITH THE ASSESSING OFFICER THAT IT WAS A CASE OF RENTING OUT OF HARDWA RE AND EMBEDDED SOFTWARE BY THE ASSESSEE IN FAVOUR OF SCB AND INCOME EARNED BY THE ASSESSEE FROM SCB THEREFORE, WAS IN THE NATURE OF ROYALTY WITHIN THE MEANING OF ARTICLE 12(3) OF DTAA AS WELL AS CLAUSE (III) OF EXPLANATION 2 TO SEC. 9(1)(VI) OF THE ACT. HE THEREFORE, UPHELD THE ORDER OF THE AO BRINGING TO T AX, THE AMOUNT PAYABLE BY SCB TO ASSESSEE AS ROYALTY IN INDIA. AGGRIEVED BY THE ORDER OF THE LD. CIT (A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE T RIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LEAR NED REPRESENTATIVES OF BOTH THE SIDES, THE ISSUE INVOLVED IN THIS APPEAL OF THE REVENUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO ORDINATE BENCH OF THIS TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR AY 200 4-05 VIDE ITS ORDER DATED 11.5.2011 PASSED IN ITA NO.1457/MUM/2008 WHEREIN IT WAS HELD THAT ROYALTY AS DEFINED IN ARTICLE 12(3) OF DTAA BETWEEN INDIA A ND SINGAPORE MEANT PAYMENT OF ANY KIND RECEIVED AS CONSIDERATION FOR U SE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT. IT WAS HELD THAT IN THE CONTEXT AND COLLOCATION OF THE EXPRESSION USE AND RIGHT TO USE FOLLOWED BY THE WORD EQUIPMENT INDICATE THAT THERE MUST BE SOME POSITI VE USE OR EMPLOYMENT OF ITA NO.6599/M/2009 & ITA NO.105/M/2010 4 EQUIPMENT FOR THE DESIRED PURPOSE AND THE CUSTOMER MUST COME FACE TO FACE WITH THE EQUIPMENT, OPERATE IT OR CONTROL IT OR CON TROL ITS FUNCTIONING IN SOME MANNER. IT WAS HELD THAT IF ONLY AN ADVANTAGE WAS TAKEN FROM SOPHISTICATED EQUIPMENT INSTALLED AND PROVIDED BY ANOTHER PERSON, IT COULD NOT BE SAID THAT THE RECIPIENT/CUSTOMER USED THE EQUIPMENT AS SUCH. IT WAS HELD THAT EVEN IN A CASE WHERE AN EARMARKED CIRCUIT IS PROVIDED FOR O FFERING THE FACILITY, IT DOES NOT FALL WITHIN THE CATEGORY OF ROYALTY UNLESS THER E IS MATERIAL TO ESTABLISH THAT THE CIRCUIT/EQUIPMENT CAN BE ASSESSED AND PUT TO US E BY MEANS OF SOME POSITIVE ACTS. THE TRIBUNAL HELD THAT SCB DID NOT HAVE A RIGHT TO ACCESS THE COMPUTER HARDWARE OF THE ASSESSEE FOR TRANSMITTING RAW DATA FOR FURTHER PROCESSING AND IT DID NOT HAVE ANY CONTROL OVER COM PUTER HARDWARE OR PHYSICAL ACCESS TO IT. IT WAS HELD THAT THERE WAS THUS NOTHING TO SHOW ANY POSITIVE ACT OF UTILIZATION, APPLICATION OR EMPLOYM ENT OF EQUIPMENT OF THE ASSESSEE BY THE SCB FOR THE DESIRED PURPOSE AND THE AMOUNT RECEIVABLE BY SCB COULD NOT BE TREATED AS ROYALTY WITHIN THE MEAN ING OF ARTICLE 12(3). THE TRIBUNAL THEREFORE ACCEPTED THE CLAIM OF THE ASSESS EE THAT THE SAID AMOUNT WAS IN THE NATURE OF BUSINESS PROFIT AND SINCE THE ASSESSEE DID NOT HAVE PE IN INDIA, THE SAME WAS NOT CHARGEABLE TO TAX IN INDIA. THE SAID DECISION RENDERED BY THE TRIBUNAL IN ASSESSEES CASE FOR AY 2004-05 HAS BEEN FOLLOWED BY THE TRIBUNAL IN AY 2005-06 TO GIVE RELIEF TO THE ASSESSEE ON A SIMILAR ISSUE VIDE ITS ORDER DATED 27.5.2011 PASSED IN ITA NO.242 8/MUM/2009. SINCE THE ISSUES INVOLVED IN THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE FACTS RELEVANT THERETO ARE SIMILAR TO AY 2004-05 AND 2005-06, WE R ESPECTFULLY FOLLOW THE ITA NO.6599/M/2009 & ITA NO.105/M/2010 5 ORDERS OF THE TRIBUNAL FOR AY 2004-05 AND 2005-06 A ND DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED. 6. AS REGARDS THE APPEAL OF THE REVENUE, THE LEARNE D REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE SOLITARY ISSUE INVOL VED THEREIN RELATING TO CHARGING OF INTEREST U/S 234B IS ALSO SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE BY THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) VS. NGC NETWORK ASIA L LC 313 ITR 187 WHEREIN IT WAS HELD THAT WHEN THE ENTIRE INCOME OF NON-RESIDEN T ASSESSEE WAS LIABLE FOR DEDUCTION AT SOURCE BY THE PAYER, THERE WAS NO OBLI GATION ON THE PAYEE TO PAY ADVANCE TAX IN RESPECT OF HIS INCOME AND NO INTERES T U/S 234B COULD BE CHARGED. RESPECTFULLY FOLLOWING THE SAID DECISION OF HONBLE JURISDICTIONAL HIGH COURT, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT (A) DELETING THE INTEREST CHARGEABLE BY THE AO U/S 234B AND DISMISS THE APPEAL OF THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY, 2012 SD/- SD/- (N.V. VASUDEVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 25 TH JANUARY, 2012. OKK* ITA NO.6599/M/2009 & ITA NO.105/M/2010 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- CONCERNED 4. COMMISSIONER OF INCOME TAX, CONCERNED 5. DEPARTMENTAL REPRESENTATIVE, BENCH L, MUMBAI TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI