Article 13 of India-UK DTAA; section 9 of the Act – As subscription income from provision of deal matching system for foreign exchange dealing was providing ‘information concerning industrial, commercial or scientific work’, income was royalty

6.  [2018] 96 taxmann.com
354 (Mumbai – Trib.)

DCIT vs. Reuters Transaction Services Ltd.

ITA Nos.: 1393 & 2219 (Mum.) of 2016

Date of Order: 3^rd August, 2018

A.Ys.: 2012-13

Article 13 of India-UK DTAA; section 9 of the Act – As
subscription income from provision of deal matching system for foreign exchange
dealing was providing ‘information concerning industrial, commercial or
scientific work’, income was royalty

Facts       

The Taxpayer was a company
incorporated in, and tax resident of the UK. It was providing access to its
electronic deal matching system for foreign exchange dealings. Its server was
located in Switzerland. The Taxpayer had entered into an agreement with its
group company in India for marketing of its system.

In the course of assessment
proceedings, the AO observed that: the income of the Taxpayer was not covered
under Article 13(6) of India-UK DTAA; the Taxpayer had a PE in India; and
therefore, the income of the Taxpayer was taxable as royalty. However, since
the Taxpayer had disputed the existence of the PE, Article 13(6) was held to be
inapplicable.

Following the Tribunal decision in
case of the Taxpayer in earlier years, the DRP upheld the draft order of the AO
to the effect that the payment received by the Taxpayer from its subscribers
was for use of its equipment and process and hence, it qualified as  royalty, both under the Act and India-UK
DTAA. The DRP further held that the server of the Taxpayer in Switzerland
extended to the equipment provided in India by the Taxpayer to the subscribers
constituted an equipment PE in India of the Taxpayer.

Held

u   In the earlier years, the
Tribunal had held that income received by the Taxpayer from subscribers in
India was royalty.

u   The Taxpayer had failed to
bring on record any evidence to counter the finding of facts by the Tribunal.

u   Hence, the subscription
income received by the Taxpayer was in the nature of royalty. Since the
subscription income was in the nature of royalty, there was no need to examine
whether the Taxpayer had PE in India. Article 13(6) can be invoked only if
existence of a PE is not in dispute. Since the Taxpayer has contended before
the lower authorities that it does not have a PE in India, Article 13(6) cannot
be applied.