Income-Tax Officer (IT), Ward -4, Pune V. M/s Sunguard Availability Services LLP, Pune

ITA 838/PUN/2022

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The case involves appeals by the Income Tax Officer, Ward 4, Pune against M/s. Sungard Availability Services LP concerning the assessment years 2018-19 and 2019-20. The primary issue was the taxability of income received by the assessee from services rendered to Infosys Ltd. and subsequently to McDonald's Corporation, both based in the USA. The Revenue contended that the income should be taxable in India under the provisions of the Income Tax Act and the India-USA Double Taxation Avoidance Agreement (DTAA). However, the CIT(A) had reversed the Assessing Officer's decision, leading to the Revenue's appeal to the Tribunal. The Tribunal upheld the CIT(A)'s decision, emphasizing that the services were rendered outside India and did not make available any technical knowledge or know-how that could be independently used by Infosys.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137601 (ITAT-PUNE)
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 16-01-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 23-11-2022
• Other Referred Cases: Groupo Antolin Irausa SA V/s. DDIT, M/s. Faurecia Automotive Holding V/s. DCIT, CIT V/s. De Beers India Minerals Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment
• Section: 143(3); 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “C”, PUNE BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI G.D. PADMAHSHALI, ACCOUNTANT MEMBER ITA Nos.838 & 839/PUN/2022 निर्धारण वषा / Assessment Years : 2018-19 & 2019-20 ITO (IT), Ward 4, Pune Vs. M/s. Sungard Availability Services LP 680, East Swedesford Road Wayne, Philadephia, Pennsylvania, United States PAN: ABTFS0527J Appellant Respondent आदेश / ORDER PER S.S. GODARA, JM : These Revenue‟s twin appeals for A.Ys. 2018-19 and 2019-20 arise against the CIT(A), Pune-13, Pune‟s DINs and Order Nos.ITBA/APL/S/250/2022-23/1046012870(1) and ITBA/APL/S/ 250/2022-23/1046014303(1); both dated 27.09.2022, respectively, in proceedings under Section 143(3) r.w.s. 144C of the Income Tax Act, 1961, in short „the Act‟. Assessee by Shri Siddhesh Chaugule Revenue by Shri Dipak Garg, CIT-DR Date of hearing 17-01-2023 Date of pronouncement 19-01-2023 ITA Nos.838 & 839/PUN/2022 Sungard Availability Services LP 2 Heard both the parties. Case files perused. 2. It transpires at the outset that the Revenue‟s former “lead” appeal ITA No.838/PUN/2022 for A.Y. 2018-19 raises the following substantive grounds: “(a) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in treating the amount of Rs.99,20,61,868/- as non taxable in India, on the ground that the services were rendered outside India, without appreciating the facts that the assessee had failed to fulfill all conditions as laid down in clause (b) of section 9(1)(vi) of the I. T. Act, 1961. (b) Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in treating the FTS received by the assessee from Infosys Ltd. being not accrued or arose in India without appreciating the fact the assessee had fulfilled all the conditions as enumerated in clause (b) of Article 12(4) of the India-USA DTAA.” 3. We further note that the only difference in A.Y. 2019-20 in Revenue‟s ITA No.839/PUN/2022 pleadings is that of the amount involved i.e. Rs.84,28,48,592/- since the sole substantive issue tends to be identical. 4. Both the learned representatives reiterated their respective stands against and in support of correctness of the CIT(A)‟s action in issue reversing the assessment findings holding the assessee‟s receipts in issue as taxable in India despite the fact that it had rendered the corresponding services in USA only. It further ITA Nos.838 & 839/PUN/2022 Sungard Availability Services LP 3 transpires that the instant sole issue raised at the Revenue‟s behest is no more res integra as the tribunal‟s recent order in the preceding assessment year 2017-18 involving the departmental appeal ITA No.258/PUN/2021 decided on 28.11.2022 has upheld the CIT(A) identical findings as follows: “2. The Revenue raises the following substantive grounds in the instant appeal:- “1. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in treating the amount of Rs.68,72,39,090/- as non taxable in India, on the ground that the services were rendered outside India, without appreciating the fact that the assessee had failed to fulfil all conditions as laid down in clause (b) of section 9(l)(vi) of the I T Act. 2. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in treating the FIS received by the assessee from Infosys Ltd, being not accrued or arose in India, without appreciating the fact that, the assessee had fulfilled all the conditions as enumerated in clause (b) of Article 12(4) of India-USA DTAA. 3. The appellant craves leave to add to, alter, amend, modify or withdraw all or any of the above ground(s) of appeal either at the time of the hearing or before the-hearing of this appeal.” 3. Both the learned representatives next invited our attention to the CIT(A)’s detailed discussion reversing the Assessing Officer’s action holding the sum of Rs.68,72,13,090/- as taxable in assessee’s hand as follows. “3.3 I have carefully considered the submission of the appellant in light of the facts of the case. Infosys Limited (Infosys), an Indian resident company had entered into an agreement to render software support services to McDonalds Corporation, A USA based entity. In order to render such services, Infosys had entered into subcontracting agreement with the appellant, SunGard Availability Services LP, a limited partnership, tax ITA Nos.838 & 839/PUN/2022 Sungard Availability Services LP 4 resident in USA. The appellant provides the following services to Infosys under the sub-contracting agreement: Cloud Infrastructure-Managed private cloud, Colocation and network services, Mainframe services, Disaster/Data recovery services. Perusal of the appellants submission brings out the following:  Income accrues or arises to a person at a place where the services are rendered. The place of “accrual” of income has judicially been interpreted to mean the place where the income generating activity takes place, irrespective of the sites of the payer. The Appellant renders services to Infosys, at or from its facilities located in USA; Necessary infrastructure/ equipment/ hardware/ software used for provision of the services by the Appellant under the subcontracting agreement are installed at facilities owned by Appellant, all of which are located in USA; The Appellant stores and processes all of McDonald’s data only at its specified facilities located in USA. The Appellant also provides Colocation services i.e. that allow Infosys to store their own equipment/hardware which is utilized by Infosys for provision of services to its customer i.e McDonalds. These services by its very nature can only be provided/utilized/ availed only where Colocation facilities/infrastructure is situated (which is in Philadelphia 1500 Spring Garden, 19130) Thus Infosys is availing and utilizing the services of the Appellant in USA, to earn income from its customer i.e. McDonald’s located in USA (i.e. from a source outside India). Infosys has availed the services from the Appellant for in turn rendering services to its customer outside India and hence the source of income lies outside India. In view of the same, Appellant’s case falls within the ambit of exception provided under clause (b) to Section 9(1)(vii) of the Act and income earned by the Appellant can not be deemed to accrue or arise in India. As per Clause (b) of Article 12(4) of India -USA DTAA, the amount received by the Appellant from rendering of services shall be taxable in India as “FIS” only if the, ITA Nos.838 & 839/PUN/2022 Sungard Availability Services LP 5 Services are in the nature of “Technical” or “Consultancy"; and Services make available technical knowledge, experience, skill knowhow or processes; or Services consist of the development or transfer of a technical plan or design. The contract is one for pure provision of services, with no technology or know-how being transferred to Infosys. This is evident from the Work order related to Cloud services (refer page no. 250-258 of factual paper book) and Work order related to Colocation services (refer page no. 264). Considering the nature of services provided such as collocation service mainframe services, data recovery services etc. in which infrastructure and backup / recovery services are provided, it is only a facility which is being given by the Appellant to Infosys / McDonald and not a transfer of technology/ service which can be used by Infosys independently in future on its ow without recourse to the Company.” 4. We have given our thoughtful consideration to vehement rival contentions. Mr. Chavan has filed a detailed note interalia re- iterating the assessment findings that the assessee had indeed provided fee for technical services “FTS” to M/s. Wipro Ltd. and therefore, the Assessing Officer had rightly invoked deeming fiction of income u/s. 9(1)(vii) read with Sec. 9(2) Explanation that mere absence of payee/assessee’s permanent establishment “PE” in India would not be fatal to the Revenue’s cause. He also quoted this tribunal’s co-ordinate bench order in Groupo Antolin Irausa SA V/s. DDIT ITA NO. 1442/PN/2017 that assessee’s services rendered to M/s. Wipro Ltd. in USA give rise to its taxability in India only. 5. We find no merit in Revenue’s instant arguments. This is for the precise reason that the assessee herein ; M/s. Sungard Availability Services LLP (a USA based entity) had entered into a service agreement with the payer M/s. Wipro Ltd.(Indian Company) providing the impugned services through the latter’s group company in USA to M/s. McDonald’s Corporation(USA) in USA only. Page 557 onwards in assessee’s paperbook contain it’s explanation before the Assessing Officer at 11/12/2019 regarding the four folded services i.e. Cloud Infrastructure Managed Private Cloud, Colocation, Mainframe and Data Recovery services. ITA Nos.838 & 839/PUN/2022 Sungard Availability Services LP 6 6. Mr. Chavan could hardly dispute that the even if we agree to Revenue’s arguments under section 9(1)(vii) r.w.s. 9 (2) Explanation that the above services give rise to application of Sec.9’s applicability (supra), the assessee is found very well entitled for the benefit of India USA double taxation avoidance agreement “DTAA” u/s 90(2) of the act wherein Article 12 (4) (b) stipulates taxability of the income arising therefrom only if the services concerned “make available technical knowledge” to the recipient/payer. Mr. Chavan could not refer to any material in the case file satisfying the forgoing “make available” condition in assessee’s services. This tribunals recent coordinate bench decision in M/s. Faurecia Automotive Holding V/s. DCIT ITA No. 784/PN/ 2015 dated 08.07.2019 holds in light of CIT V/s. De Beers India Minerals Pvt. Ltd. (2012) 346 ITR 467 (Kar.) that such “ make available” condition stipulates that the payer concerned is independently able to make use of the technical know-how etc. coming from the service provider’s side . We thus affirm the CIT(A)’s findings reversing the Assessing Officer’s action holding the amount in issue of Rs. 68,72,39,090/- as taxable in India. The Revenue’s instant sole substantive grievance fails accordingly.” 5. Learned counsel at this stage sought to invite our attention to the fact wrongly incorporated in the earlier order that the concerned payer herein was M/s. Infosys Limited all along which has been wrongly taken as M/s. Wipro Limited (supra). Be that as it may, the fact remains that the assessee has not rendered any services in India itself forms the most clinching aspect for us to follow our earlier above extracted order deciding the issue against the department. It is made clear that the Revenue‟s pleadings nowhere pinpoint any distinction on facts or law; as the case may be, in all these three assessment years. Faced with the situation, ITA Nos.838 & 839/PUN/2022 Sungard Availability Services LP 7 we adopt judicial consistency to affirm both the CIT(A)‟s orders herein under challenge. This Revenue‟s identical sole substantive ground fails therefor. No other ground or argument has been pressed before us. 6. These Revenue‟s twin appeals are dismissed in above terms. A copy of this common order be placed in the respective case files. Order pronounced in the Open Court on 19 th January, 2023. Sd/- Sd/- (G.D. PADMAHSHALI) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER प ु णे Pune; ददिधांक Dated : January, 2023 GCVSR आदेश की प्रतिलिपि अग्रेपिि/Copy of the Order is forwarded to: 1. अपीऱधर्थी / The Appellant; 2. प्रत्यर्थी / The Respondent; 3. The CIT(A), Pune-13 4. 5. The CIT(IT&TP), Pune विभागीय प्रविविवि, आयकर अपीलीय अविकरण, पुणे “C” / DR „C‟, ITAT, Pune 6. गार्ड फाईल / Guard file आदेशान ु सार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अविकरण ,पुणे / ITAT, Pune ITA Nos.838 & 839/PUN/2022 Sungard Availability Services LP 8 Date 1. Draft dictated on 17-01-2023 Sr.PS 2. Draft placed before author 18-01-2023 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.