ITO (INTERNATIONAL TAXATION), WARD- KOLKATA, KOLKATA V. HARTAJ SEWA SINGH, KOLKATA

ITA 1694/KOL/2024

AI Insights

The case involves Hartaj Sewa Singh, an investment banker and strategic management consultant, who arranged a loan for Darjeeling Organic Tea Estates P Ltd (DOTEPL) through Star Consortium Pte Ltd, Singapore. The Income Tax Officer (ITO), International Taxation, Kolkata, issued a show cause notice under section 201(1) for non-deduction of tax at source on payments made to Star Consortium. The CIT(A) allowed Singh's appeal, stating the payments were not taxable in India. The Revenue appealed to the ITAT, which upheld the CIT(A)'s decision, emphasizing that the payments did not constitute royalty or fees for technical services and the assessee was not in default for non-deduction of tax.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 46758 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Other Referred Cases: DIT v. New Skies Satellite BV, Edenred Pte. Ltd. Vs DDIT (IT), Bharati Axa General Insurance Co. Ltd. vs. AXA ARC, Standard Chartered Bank vs. Assessee, ExxonMobil Company India (P.) Ltd. vs. CIT, Reliance Jio Infocomm Ltd. vs. Assessee, Cargo Community Network (P.) Ltd. vs. Assessee, IMT Labs (India) (P.) Ltd. vs. Assessee, Thought Buzz (P.) Ltd. vs. Assessee
• Laws Referred To: Income Tax Act, 1961, India-Singapore DTAA
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MEANS OF POSITIVE ACTS; V
• Keywords: Tax effect; TDS; Rectification of order; Double taxation relief; Permanent establishment; Revision of order; Non-deduction of tax
• Section: 143(3); 195; 250; 13; 201(1)

Judgement Text

"आयकर अपीलीय अधिकरण कोलकाता 'सी' पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘C’ BENCH, KOLKATA श्री संजय गगग, न्याधयक सदस्य एवं श्री राक ेश धमश्रा, लेखा सदस्य क े समक्ष Before SRI SANJAY GARG, JUDICIAL MEMBER & SRI RAKESH MISHRA, ACCOUNTANT MEMBER I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 ITO (International Taxation), Ward- Kolkata Vs. Hartaj Sewa Singh (Appellant) (Respondent) PAN: ABHPS9122R Appearances: Assessee represented by: Sunil Surana, AR. Department represented by: Ruchika Sharma, Sr. DR. Date of concluding the hearing : December 31st, 2024 Date of pronouncing the order : January 30th, 2025 ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: Both the appeals filed by the Revenue are against the separate orders of the Ld. Commissioner of Income Tax (Appeals)- 22, Kolkata [hereinafter referred to as “the Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2012-13 dated 29.05.2024, which have been passed against the separate assessment orders u/s 154/201(1)/201(1A) and 201(1)/201(1A) of the Act. As the Page | 2 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 2 of 15 issues in both the appeals are common, they are being decided vide this common order for the sake of convenience and brevity. 2. The Revenue is in appeal before the Tribunal raising the following grounds of appeal: 1693/KOL/2024: “1. Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not considering the fact that the assessee has not deducted the tax deductible u/s 195 of the Income Tax Act, 1961 on any amount payable to Star Consortium Pvt. Ltd., Singapore when the nature of payment was in the nature of consultancy/advisory services and hence taxable as per IT Act 1961 or India Singapore-DTAA. 2. Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not treating the payment made to the Star Consortium Pvt. Ltd., Singapore as ‘Fees for Technical Services’ u/s 9(1)(vii) of the I T Act, 1961 and Article 12 of the India Singapore-DTAA, as the services provided by foreign entity was consultancy in nature. 3. Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not appreciating that the payment made by the assessee to Star Consortium Pvt. Ltd., Singapore also falls under ‘Royalty’ in terms of section 9(1)(vi) of the I T Act, 1961 and Article 12 of the India- Singapore DTAA, as the services provided by foreign entity was advisory in nature entailing delivery of a plan to the assessee. 4. Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not appreciating that the interest is chargeable on the no TDS deduction by the assessee as per order u/s 201(1)/201(1A) of the Act dated 29.03.2019 passed by AO. 5. Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not providing opportunity to the Assessing Officer for presenting his case and arguments. 6. Though the tax effect in the instant case which is below the threshold limit for filing further appeal before the Hon’ble ITAT in terms of Circular issued by the CBDT vide no. 17/2019, appeal is preferred as the case comes under exceptional clause as mentioned in the sub para I under para 3.1 as mandated by the CBDT vide circular No, 5/2024. 7. The appellant craves the leave to submit/delete/withdraw any other grounds(s) at the time of hearing.” Page | 3 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 3 of 15 1694/KOL/2024: “1. Whether in law or facts of the case, Ld. Commissioner of Income Tax ‘Appeals) has erred in not considering the fact that the assessee has not deducted the tax deductible u/s 195 of the Income Tax Act, 1961 on any amount payable to Star Consortium Pvt. Ltd., Singapore when the nature of payment was in the nature of consultancy/advisory services and hence taxable as per IT Act 1961 or India Singapore-DTAA. 2. Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not treating the payment made to the Star Consortium Pvt. Ltd., Singapore as ‘Fees for Technical Services’ u/s 9(1)(vii) of the I T Act, 1961 and Article 12 of the India Singapore-DTAA, as the services provided by foreign entity was consultancy in nature. 3. Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not appreciating that the payment made by the assessee to Star Consortium Pvt. Ltd., Singapore also falls under ‘Royalty’ in terms of section 9(1)(vi) of the I T Act, 1961 and Article 12 of the India- Singapore DTAA, as the services provided by foreign entity was advisory in nature entailing delivery of a plan to the assessee. 4. Whether in law or facts of the case, Ld. Commissioner of Income Tax (Appeals) has erred in not providing opportunity to the Assessing Officer for presenting his case and arguments. 5. Though the tax effect in the instant case which is below the threshold limit for filing further appeal before the Hon’ble ITAT in terms of Circular issued by the CBDT vide no. 17/2019, appeal is preferred as the case comes under exceptional clause as mentioned in the sub para I under para 3.1 as mandated by the CBDT vide circular No, 5/2024. 6. The appellant craves the leave to submit/delete/withdraw any other grounds(s) at the time of hearing.” 3. Brief facts of the case as per the statement of facts filed before the Ld. CIT(A) are that during the year under consideration i.e. FY 2011-12, the assessee was working as investment banker and strategic management consultant. The assessment in this case was completed u/s 143(3) after obtaining all details of the case and examining relevant facts. The assessee entered into an agreement with Darjeeling Organic Tea Estates P Ltd (DOTEPL) for arranging loan for them and Page | 4 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 4 of 15 simultaneously entered into agreement with Non-resident M/s Star Consortium Pte Ltd, Singapore so that loan could be arranged taking their services. The loan was in fact arranged by M/s Star Consortium Pte Ltd from foreign establishments and non-resident financiers with their efforts from Singapore. There is no finding that for the finance so arranged, the efforts were taken from India. The AO in the assessment proceedings was satisfied about the payment made to the non-resident M/s Star Consortium Pte Ltd. of Singapore for the services rendered by them from Singapore. There was also no finding and even no whisper that the said company had permanent establishment or any place of business or control or administration in India. Disallowance u/s 40(a)(i) was also not made for non-deduction of tax. However, subsequently the Ld. CIT by applying section 263, cancelled the said assessment and directed the AO to make enquiries with regard to the said payments as to whether the said party had any permanent establishment in India and on various other issues. The AO made consequential assessment wherein the AO has not disallowed the said payment for non-deduction of tax and also did not gave any finding that the assessee should have deducted the tax. The payment was disallowed by treating the same as not genuine. However, the assessee filed an appeal against the order u/s 263 before the ITAT. The ITAT quashed the order of the Ld CIT passed u/s 263 as a result of which the consequential order u/s 143(3)/263 of the IT Act passed by the AO disallowing the payment as not genuine lost its legs to stand upon and was also cancelled by the Ld CIT(A). The only finding of the AO that the payment was not genuine was washed away. There was no second appeal by the department. The copies of the orders referred to above were filed with the Ld. CIT(A). The fact, therefore, remains that the original assessment order has become Page | 5 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 5 of 15 final wherein there is no finding that the said party Star Consortium Pte Ltd had permanent establishment or that tax should have been deducted at source. It is rather established that the payment was made to the NRI who had no place of business or permanent establishment in India and this was duly accepted in Income tax Assessment. However, before the orders referred to above were passed by the ITAT or by the Ld CIT(A) reversing the order u/s 263 and consequential order u/s 143(3)/263 of the lower authorities respectively, the Ld. AO being ITO, International Taxation, issued show cause notice u/s 201(1) on 12.06.2017 and passed an order u/s 201(1)/201(1A) on 29.03.2019. Aggrieved with the order of the ITO, International Taxation, the assessee filed an appeal before the Ld. CIT(A) who vide order dated 29.05.2024 allowed the appeal by holding that the payment could not be held as royalty under the India-Singapore DTAA and therefore, the payment was not liable to be taxed in India. Aggrieved with the order of the Ld. CIT(A), the revenue has filed the appeal before the Tribunal. 5. Rival contentions were heard and the record and the submissions made have been examined. At the outset, the Ld. Counsel submitted that the appeal ITA No. 1693/KOL/2024 was not maintainable on account of low tax effect. However, the Ld. DR drew our attention to Circular No. 5/2024 dated 15.03.2024 wherein it is mentioned as under: 3.1 Monetary limits given in paragraph 4 with regard to filing appeal/SLP shall be applicable to all cases including those relating to TDS/TCS under the Act with the following exceptions where the decision to appeal/file SLP shall be taken on merits, without regard to the tax effect and the monetary limits: … In respect of litigation arising out of disputes related to TDS/TCS matters in both domestic and International taxation charges:- Page | 6 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 6 of 15 Where dispute relates to the determination of the nature of transaction such that the liability to deduct TDS/TCS thereon or otherwise is under question, or … Hence, on account of the fact that the same was covered in the exception, the appeal was taken up for adjudication. 6. The Ld. AR drew our attention to page 23 of the order of the Ld. CIT(A) related to ground no. 4 to 6 and also drew our attention to para 1.1 of the assessment order. The facts of the case as mentioned in the order u/s 201(1)/201(1A) of the Act of the Ld. AO are as under: “1. Case History: 1.1 An information came to the possession of the office of the undersigned that during the period under consideration Le. 2011-12. Shri Hartaj Sewa Singh was working as Investment Banker and Strategic Management Consultant and running a consultancy concern under the name and style of \"The Safe Consortium\" (hereinafter referred to as \"TSC\"). It was further found that The Sale Consortium was appointed as Advisors and Facilitators for raising funds for \"Darjeeling Organic Tea Estates Pvt. Ltd.\" (hereinafter referred to as 'DOTEPL) upto a sum of Rs.500 crores on 20.09.2009. The mandate was earlier given for 24 months from the date of signing and later on it was extended upto 30.06.2011 on 10.01.2011. It was also agreed that success fee of 1% of the amount of fund raised shall be payable by the mandator. DOTEPL, to the advisor, TSC. 1.2 TSC has further appointed Star Consortium Pte Ltd. \", Singapore (hereinafter referred to as 'SCPL') as advisors of TSC for raising of funds for DOTEPL on 09.02.2011 for an initial period of 12 months. In response, Advisory fee of 0.75% of the amount of fund raised for DOTEPI. was to be paid to the advisor, SCPL, by the mandator, TSC. 1.3 Shri Hartaj Sewa Singh, the assessee, was appointed as Chief Executive Officer of the company, SCPL of Singapore on 15.03.2011 and he has 50% share holding of this company. SCPL. Rest 50% shares are hold by Smt. Mehroo Suri, spouse of the assessee. 1.4 TSC raised a bill of Rs.93,37,500/- vide its' invoice dated 01.07.2011 in name of the DOTEPL for raising of fund of Rs.93.38 Cr for DOTEPL. 1.5 SCPL raised a bill of USD 1,55,800 vide its' invoice dated 08.07.2011 in the name of TSC for raising of fund for DOTEPL. An amount of USD 1,55,800 (equivalent to Rs.80,90,694/- @Rs.51.93) was remitted on 30.03.2012 to the Page | 7 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 7 of 15 SCPL by the TSC (Prop. Shri Hartaj Sewa Singh) without deduction of tax at source. 1.6 In the order 143(3) read with section u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as 'Act'), the Assessing Officer has also disallowed the payment made to SCPL by the assessee. Shri Hartaj Sewa Singh, to the tune of Rs.80,43,964/-. A notice u/s 201(1) of the Act was accordingly issued to the assessee in view of non-deduction of tax at source. 6. The Ld. AO held the assessee in default as per section 201(1) of the Act in relation to the remittance of Rs. 80,90,694/- and attributed 55% as the revenue generation in India and allowed an estimated expenditure @ 10% and computed the income tax liability @ 40%. 7. A perusal of the order of the Ld. AO shows that the Ld. AO after analysis held in para 4.2.4.1 of his order that in the instant case, the CEO and Director of the SCPL of Singapore has a fixed place of business in India, which is at his disposal in his proprietary concern, TSC located at Kolkata, India. Therefore, based on the above detailed discussions, it was apparent that SCPL has a PE in India and the payment was in the nature of business profit as there was a permanent establishment of SCPL in India. As an alternative argument and in addition to the above, he also held that the payment of Rs. 80,90,694/- was royalty on which TDS @ 20% was liable to be made. The Ld. CIT(A) allowed the appeal by holding that neither the recipient/payee had a PE in India nor the payment was in the nature of royalty. The relevant extract from the order of the Ld. CIT(A) is as under: “Ground Nos. 4 to 6 relates to the merits of the tax demand u/s 201(1) of the Act. It is noted that the AO has held that the advisory fees paid by the appellant to M/s Star Consortium Pte Ltd was in the nature of royalty u/s 9(1)(vi) of the Act. It is noted that before the AO, the appellant had furnished the TRC of the payer and thus the provisions of DTAA between India and Singapore was to be Page | 8 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 8 of 15 examined, if beneficial to the appellant. Article 12 of the DTAA between India and Singapore defines royalty as follows:- “3. The term \"royalties\" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use : (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(b) or 4(c) of Article 8.” From the above it is noted that the definition of ‘royalty’ in Article 12(3) of the said DTAA more beneficial vis-à-vis the Act i.e. Explanation 2 to section 9(1)(vi) of the Act. It is observed that the Hon’ble Delhi High Court in the case of DIT v. New Skies Satellite BV (382 ITR 114) has held that the provisions of DTAA shall prevail over provisions of the Act, if they are more beneficial. Coming back to the facts of the case, it is noted that the payment made to Star Consortium Pte Ltd was towards financial advisory services for arranging finance for Darjeeling Organic Tea Estates Pvt. Ltd. (DOTEPL). Since the transaction was successfully completed, the advisory fees was paid by way of 0.75% of the funding arranged. Having perused the mandate letter and taking note of the nature of services, the payment is noted to have been made towards advisory services and not for obtaining rights over any specific program or secret formula or process as alleged by the AO. I therefore note that the impugned payment does not qualify as ‘royalty’ within the meaning of Section 9(1)(vi) of the Act and therefore no income can be said to have accrued in India. In this connection, useful reference may be made to the decision of Hon’ble ITAT, Mumbai in the case of Edenred Pte. Ltd. Vs DDIT (IT) [186 ITD 605] wherein on similar facts and circumstances it was held that payments made for such services does not qualify as royalty under Article 12 of the DTAA. The relevant findings are as follows :- “6. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below: We find that (i) under the said IDC agreement, the appellant, essentially provides IT infrastructure management and mailbox/website hosting services to its Indian group companies; these IDC services are performed by the appellant's personnel in Singapore; the Indian group companies directly remit IDC service payments towards the appellant's bank account in Singapore, (ii) Page | 9 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 9 of 15 IDC is an ISO 27001 certified data centre owned by Edenred Pte. and located in Singapore; IDC services are provided using the IDC and IT/security team in Singapore, (iii) the services under the IDC agreement comprise of administration and supervision of central infrastructure; mailbox hosting services and website hosting services, (iv) IDC services ensure 100% uptime for critical external facing applications which need highly secured web environment and dedicated team of security experts to ensure 100% uptime of security systems (firewall, anti virus, access controls) which are also hosted on server in Singapore. We further observe that examples of websites/applications/softwares hosted by Indian group companies on the data centre in Singapore are web ordering application, corporate website, websites created for customers of Edenred India entities while making a loyalty program for them. A perusal of the documents filed before the AO and DRP clearly indicate that (i) appellant has an infrastructure data centre, not information centre at Singapore, (ii) the Indian group companies neither access nor use CPU of the appellant, (iii) no CDN system is provided under the IDC agreement, no such use/access is allowed, (iv) the appellant does not maintain any such central data (v) IDC is not capable of information analytics, data management, (vi) appellant only provides IDC service by using its hardware/security devices/personnel; all that the Indian group companies received are standard IDC services and not use of any software, (vii) bandwidth and networking infrastructure is used by the appellant to render IDC services; Indian companies only get the output of usages of such bandwith and network and not its use, (viii) consideration is for IDC services and not any specific program and (ix) no embedded/secret software is developed by the appellant. Against the above factual backdrop, let us discuss below the case laws relied on both sides. 6.1 We begin with the case laws relied on by the Ld. counsel. A plethora of precedents on the subject in which we are presently concerned compels us, in order to avoid prolixity, to refer only a few decisions below. In the case of Bharati Axa General Insurance Co. Ltd. (supra), the appellant, an Indian company carrying on business of general insurance entered into a service agreement with a Singapore company AXA ARC for receiving assistance such as business support, market information, technology support services and strategy support etc. from the latter. The AAR held that (i) though the services rendered by AXA ARC may well be brought within the scope of the definition of FTS under the IT Act as they answer the description of consultancy services or some of them may be categorized as technical services but the qualifying words \"make available technical knowledge, experience, Page | 10 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 10 of 15 skill, know-how, which enables the recipient of services to apply the technology contained therein\" in Article 12.4 of the DTAA make material difference, (ii) all technical or consultancy services cannot be brought within the scope of this definition unless they make available technical knowledge, know-how etc. which in turn facilitates the person acquiring the services to apply the technology embedded therein, (iii) services provided by AXA ARC to the applicant do not fulfil the requirements of the definition of FTS in the DTAA, (iv) even assuming that they are technical or consultancy services, it cannot be said that the applicant receiving the services is enabled to apply the technology contained therein, (v) also there is nothing in the IT support services that answers the description of technical services as defined in the DTAA, (vi) therefore, the fees paid to AXA ARC by the applicant does not amount to fees for technical services within the meaning of the DTAA, (vii) as regards the payments made for providing access to software applications and to the server hardware system hosted in Singapore for internal purposes and for availing of related support services under the terms of the service agreement, same cannot be brought within the scope of the definition of 'royalty' in Article 12.3, (viii) there is no transfer of any copyright in the computer software provided by AXA ARC and it cannot be said that the applicant has been conferred any right of usages of the equipment located abroad, more so, when the server is not dedicated to the applicant. Similarly, in the case of Standard Chartered Bank (supra), the assessee-bank entered into an agreement with a Singapore company SPL, for the provision of data processing support for its business in India and that data processing is down outside India. Application software by which data is transmitted to hardware at Singapore and processed by SPL at Singapore is owned by the assessee. Thus what is used by the appellant is the computer hardware owned by SPL. The Tribunal held that (i) payment in question can be said to be a payment for a facility which is available to any person willing to use the facility, (ii) system software which is embedded in the computer hardware by which the computer hardware functions is not owned by SPL and SPL only has a license to use the system software, (iii) consideration received by SPL is for using the computer hardware which does not involve use or right to use a process, (iv) there is nothing on record to establish that the hardware could be accessed and put to use by the assessee by means of positive acts, (v) therefore, it cannot be said that the payment by the assessee to SPL is royalty within the meaning of Article 12 of the treaty. In ExxonMobil Company India (P.) Ltd. (supra), the assessee had paid certain amount to 'EMCAP', Singapore towards global support fees. The AO opined that payment made by the assessee was in the nature of FTS as defined in Explanation 2 to section 9(1)(vii) of the Act. The Tribunal observed that as per terms of agreement, EMCAP had to provide management consulting, functional Page | 11 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 11 of 15 advice, administrative, technical, professional and other supporting services to the assessee; however, there was nothing in agreement to conclude that in course of such provision of service, EMCAP had made available any technical knowledge, experience, skill, know-how or process which enabled assessee to apply technology contained therein on its own. Therefore, the Tribunal held that payment made by the assessee could not be considered as FTS as defined under Article 12(4)(b) of the India-Singapore DTAA. In Reliance Jio Infocomm Ltd. (supra) for AY 2016-17, the Tribunal observes that though the India-Singapore Tax Treaty is amended by Notification No. SO 935(E) dated 23-3-2017, however, the definition of 'royalty' therein has not been tinkered with and remains as such. 6.2 Now we turn to the case laws relied on by the Ld. DR. In the case of Cargo Community Network (P.) Ltd. (supra), the assessee, a nonresident company has its registered office at Singapore. It is engaged in the business of providing access to an internet based air cargo portal known as Ezycargo at Singapore. The applicant received payments from an Indian subscribers for providing password to access and use the portal hosted from Singapore. The AAR held that payments made for concurrent access to utilize the sophisticated services offered by the portal would be covered by the expression royalty. We find that subsequently, after considering the decision in Cargo Community Network (P.) Ltd. (supra), Mumbai ITAT in the case of Standard Chartered Bank (supra) and Yahoo India (P.) Ltd. v. Dy. CIT [2011] 11 taxmann.com 431/46 SOT 105 (Mum.) (URO) held that no part of the payment could be said to be for use of specialized software on which data is processed as no right or privilege was granted to the company to independently use the computer. In the case IMT Labs (India) (P.) Ltd. (supra), the assessee, an Indian company, entered into an agreement with a non-resident American company for securing license of a particular software, which the applicant is entitled to use. The applicant has to pay license fee for usage of software to the American company. The AAR held that 'Smarterchild' application software on the American company's server platform is scientific equipment licensed to be used for commercial purposes and therefore, payments made for producing and hosting 'Interactive Agent' applications would be covered by the expression 'royalties' as used in Article 12. However, we find that in the instant case, appellant only provides service by using its hardware/security devices/personnel and not use of any software and therefore the above case is distinguishable from the present appeal. In Thought Buzz (P.) Ltd. (supra), the applicant, a Singapore company was engaged in providing social media monitoring service for a company, brand or product. It was a platform for users to hear and engage with their customers, Page | 12 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 12 of 15 brand ambassadors etc. across the internet. The applicant offered service on charging a subscription. The clients, who subscribe, can login to its website to do a search on what is being spoken about various brands and so on. The AAR held that the amount received from offering the particular subscription based service is taxable in India as royalty in terms of paragraph 2 of Article 12 of the DTAA between India & Singapore. However, we find that in the instant case, the appellant is only providing IDC service which includes administration and supervision of central infrastructure, mailbox hosting services and website hosting services and therefore, the ratio laid down in the above ruling is not applicable to the facts of the appellants case. 6.3 From the enunciation of law in BharatiAxa General Insurance Co. Ltd; ExxonMobil Company India (P.) Ltd; Standard Chartered Bank and Reliance JioInfocomm Ltd. (supra) narrated at para 6.1 hereinbefore, it is quite luculent that revenues under the IDC agreement ought not to be taxed in the hands of the appellant as royalty under the Act and/or India-Singapore DTAA. Therefore, we delete the addition of Rs. 95,62,479/- made by the AO towards IDC Changes allow the 2nd ground of appeal.” For the above reasons and the decision (supra), it is therefore held that the impugned payment to M/s Star Consortium Pte Ltd could not be held as royalty under the IndiaSingapore DTAA and therefore the said payment was not liable to tax in India. Having held so and in light of the decision of GE India Technology Cen.P. Ltd vs CIT (327 ITR 456), the appellant was under no obligation to deduct tax u/s 195 of the Act. Hence, the action of the AO holding the appellant to be an “assessee-in-default” and thereby raising the impugned demand u/s 201(1)/(1A) of the Act is held to be unjustified. On merits therefore, the impugned demand is directed to be vacated. Ground Nos. 4 to 6 are therefore allowed 8. We have considered the facts of the case. During the year both the assessee as well as the recipient were non-resident. The assessee was a Director with 50% share holding in SCPL of Singapore. However, SCPL was a company registered in Singapore, a non-resident and the director was also a non-resident. Merely because for some period the director may have been resident in India, it cannot be said that the key management decisions took place in India so as to hold that M/s. SCPL had a PE in India and the assessee was required to deduct TDS on the payment made to it. The assessee was rendering advisory services to Page | 13 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 13 of 15 DOTEPL through The Safe Consortium and was working as Investment Banker and Strategic Management Consultant and The Safe Consortium was appointed as advisors and facilitators for raising funds for DOTEPL. TSC had further appointed SCPL Singapore as its advisor for raising funds for DOTEPL and advisory fee of 0.75% of the amount of fund raised for DOTEPL was to be paid to the advisor SCPL by the mandator TSC. Thus, by no stretch of imagination the payment of advisory fee could be termed as a royalty or fee for technical services as it was in the nature of commission for the financial services rendered. It has been stated that no disallowance u/s 40(a)(i) of the Act was made in the initial assessment order and the subsequent proceedings initiated in response to the notice u/s 263 of the Act were quashed by the Tribunal, thereby rendering the consequential assessment order made to give effect to the finding in order u/s 263 of the Act as non-est. The income of the non-resident accrued outside India. It is not comprehensible as to on what basis the Ld. AO has apportioned the income in the ratio of 55% to 45% between India and Singapore and allowed 10% as expenses. Thus, in the absence of a PE, the income was neither liable to be assessed as business profit of the payee nor as royalty as per the finding of the Ld. CIT(A) and therefore, the finding of the Ld. CIT(A) in this regard is upheld and the appeal of the revenue is dismissed. 9. ITA No. 1694/KOL/2024 is the appeal of the revenue in connection with rectification order dated 20.02.2020 as interest was not levied in the original order u/s 201(1)/201(1A) of the Act. Since the assessee was held not to be in default, therefore, the levy of interest u/s 201(1A) of the Act was also consequentially vacated by the Ld. CIT(A). Since we have upheld the order of the Ld. CIT(A) treating the assessee as not Page | 14 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 14 of 15 liable to deduct tax and, therefore, not being an assessee in default, the revenue’s appeal in ITA No. 1694/KOL/2024 is also dismissed. 10. In the result, both the appeals filed by the revenue are dismissed. Order pronounced in the open Court on 30th January, 2025. Sd/- Sd/- [Sanjay Garg] [Rakesh Mishra] Judicial Member Accountant Member Dated: 30.01.2025 Bidhan (P.S.) Page | 15 I.T.A. Nos.: 1693 & 1694/KOL/2024 Assessment Year: 2012-13 Hartaj Sewa Singh. Page 15 of 15 Copy of the order forwarded to: 1. ITO (International Taxation), Ward- Kolkata. 2. Hartaj Sewa Singh, Mews III, 1C Tivoli Court, Ballygunge Circular Road, Beckbagan, Kolkata, West Bengal, 700019. 3. CIT(A)-22, Kolkata. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata "