September 2020
Article 12 of India-Singapore DTAA; Section 9 of the Act – Provision for IT infrastructure management and mailbox / website hosting services were not in nature of royalty, whether under the Act or Article 12 of DTAA; fees for management services (such as sales support, financial advisory and human resources assistance) and fees for referral services did not satisfy the requirement of ‘make available’ under Article 12 of DTAA
By Dhishat B. Mehta | Bhaumik Goda
Chartered Accountants
16. [2020] 118
taxmann.com 2 (Mumbai-Trib.) Edenred (P) Ltd.
vs. DDIT ITA Nos.
1718/Mum/2014; 254/Mum/2015 A.Ys.: 2010-11 to
2012-13 Date of order: 20th
July, 2020
Article 12 of
India-Singapore DTAA; Section 9 of the Act – Provision for IT infrastructure
management and mailbox / website hosting services were not in nature of
royalty, whether under the Act or Article 12 of DTAA; fees for management
services (such as sales support, financial advisory and human resources
assistance) and fees for referral services did not satisfy the requirement of
‘make available’ under Article 12 of DTAA
FACTS
The assessee was a
Singapore tax resident company. It entered into certain agreements with its
group companies in India for rendering the following services:
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Infrastructure Data Centre (IDC) services
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Management services
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Referral services
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- Administration and supervision of central infrastructure
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- Financial advisory services
- Human resource assistance
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- Support services1 to serve clients in India that
were referred by assessee
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Relying upon
Article 12 of the India-Singapore DTAA, the assessee contended that income
received from the aforesaid agreements was not taxable in India. The A.O. as
well as the DRP rejected this contention of the assessee. The following is a
summary of the conclusions of the A.O. and of the DRP:
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Services
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Draft A.O. order
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Draft DRP direction
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Final assessment order
|
|
IDC charges
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Taxable as royalty under Act and DTAA
|
|
Management services
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Taxable as FTS under Act and DTAA
|
|
Referral fees
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Taxable as royalty under Act and DTAA
|
Taxable as royalty and FTS under Act and DTAA
|
Being aggrieved,
the assessee appealed to the Tribunal.
HELD
IDC Charges
- Facts pertaining
to IDC agreement are as follows:
- The assessee
had an infrastructure data centre and not an information centre in Singapore.
- The Indian
group companies did not access or use the CPU of the assessee; the IDC
agreement did not permit such use / access to group companies of the assessee
nor had the assessee provided any system which enabled group companies such use
/ access.
- The assessee
did not maintain any centralised data; IDC did not have any capability in
respect of information analytics, data management.
- The assessee
provided IDC service using its own hardware / security devices / personnel;
Indian group companies received standard IDC services without use of any
software; the assessee had used bandwidth and networking infrastructure for
rendering IDC services; Indian companies only received output generated by the
assessee using bandwidth and network but not the use of underlying
infrastructure.
- Consideration
paid by group companies was for IDC services and not for any specific
programme. Besides, the assessee had not developed any embedded / secret
software which was used by group companies.
- Having regard to
the case law relied upon by the assessee and the Tax Department, since the
assessee had merely provided IDC services, such as administration and
supervision of central infrastructure, mailbox hosting services and website
hosting services, income from IDC services was not in the nature of ‘royalty’,
whether under the Act or under the DTAA.
Management
Services
- The assessee had
provided management services to support Indian group companies in carrying on
their business efficiently and running the business in line with the business
model, policies and best practices uniformly followed by companies of the
assessee group.
- Services did not
‘make available’ any technical knowledge, skill, know-how or processes to
Indian group companies.
- Hence,
consideration received by the assessee for management services was not in the
nature of ‘fees for technical services’ under the DTAA.
Referral Fees
- The fees
received by the assessee in consideration for referral services did not ‘make
available’ any technical knowledge, skill, know-how or processes to Indian
group companies because there was no transmission of the technical knowledge,
experience, skill, etc. by the assessee to the group company or its clients.
- Hence, the
consideration received by the assessee for referral services was not in the
nature of ‘fees for technical services’, whether under the Act or under the
DTAA.
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1
Decision does not describe nature of services in detail
