January 2019

Article 12 of India-USA DTAA; Explanation 2 to section 9(1)(vi), payment made towards web hosting charges not taxable as royalty under the Act as well as the DTAA

Geeta Jani / Dhishat B. Mehta
Chartered Accountants

14.  TS-623-ITAT-2018 (Pune) EPRSS Prepaid Recharge Services India P. Ltd. vs. ITO Date of Order: 24th October, 2018 A.Y.: 2010-11

 

Article 12 of India-USA DTAA; Explanation 2 to section 9(1)(vi), payment made towards web hosting charges not taxable as royalty under the Act as well as the DTAA

 

Facts

The Taxpayer is a private Indian company engaged in distribution and sale of recharge pens of various DTH providers via online network. In order to run its business, the Taxpayer required access to servers. Instead of purchasing servers and incurring expenditure on its maintenance, Taxpayer hired server space under a web hosting agreement from a foreign company (“FCo”).

 

The Taxpayer did not withhold taxes while making payment to FCo for such services on the contention that payment for web hosting services did not qualify as royalty or FTS.

AO, however, held that the payments were made for the use of servers which amounted to use of commercial equipment. Hence, they qualified as royalty u/s.9(1)(vi) of the Act. Aggrieved, the Taxpayer appealed before CIT(A), who upheld the order of AO.

 

The Taxpayer appealed before the Tribunal.

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