February 2020

Article 12 of India-Singapore DTAA – Receipt from Indian group companies towards information technology and business support services did not qualify as royalty / FTS under India- Singapore DTAA

GEETA JANI | DHISHAT B. MEHTA
Chartered Accountants

18. ACIT vs. M/s FCI Asia Pte. Ltd.
ITA Nos. 2588 & 2589/Del/2015
A.Ys.: 2009-10 and 2010-11

Date of order: 6th January, 2020

Article 12 of India-Singapore DTAA – Receipt from Indian group companies towards information technology and business support services did not qualify as royalty / FTS under India- Singapore DTAA

FACTS

The assessee, a Singapore company, was engaged in providing IT support services as well as business support services to its affiliates in India. The IT support services included services such as centralised data centre, disaster recovery management and backup storage. The business support services included common services towards purchasing, communications and international relationship matters, legal and insurance
support services.

The assessee contended that the services rendered by it were standardised IT-related services. Although the affiliates were provided access to IT infrastructure, they were not conferred with any use or right to use the equipment which remained under the control of the assessee. Thus, payment for such services did not amount to royalty under the Act as well as the India- Singapore DTAA. Besides, the IT support services as well as business support services did not enable the affiliates to apply technical knowledge independently or to perform such services independently without any recourse to the assessee. Hence, in the absence of a ‘make available’ clause under the India-Singapore DTAA being satisfied, such services did not qualify as Fees for Technical services under the India-Singapore DTAA.

However, the AO contended that in the course of rendering services, the assessee granted a right to its affiliates to access the data centre / storage capacity maintained by
it. Thus, payments made by the affiliates were towards the use of, or the right to use, industrial, commercial and scientific equipment. Hence, the payments were in the nature of royalty under the Act as well as under Article 12 of the India-Singapore DTAA.

Aggrieved, the assessee appealed before CIT(A) who ruled in his favour. The aggrieved AO preferred an appeal before the Tribunal.

HELD

The services rendered by the assessee in relation to the centralised data centre, WAN bandwidth management, disaster recovery management, backup and offsite storage management and security management merely involved provision of a ‘facility’ and not a right to use the equipment. Hence, the payment received for such services did not qualify as royalty.

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