The Tax Publishers2019 TaxPub(DT) 7760 (Mum-Trib)

INCOME TAX ACT, 1961

Section 90

Agreement between assessee and its customer was for providing hosting and other ancillary services to the customer and not for use of/leasing of any equipment. The Data Centre and Infrastructure therein was used to provide services belonged to assessee and customer did not have physical control or possession over the servers and right to operate and manage this infrastructure/servers vested solely with assessee. The customer was not even aware of the specific location of server in Data Centre. In view of these facts, income from cloud hosting services was erroneously held as royalty within the meaning of Explanation 2 to section 9(1)(vi) as well as Article 12(3)(b) of Indo-US DTAA. Even otherwise, assessee had no PE in India and hence, no income could be taxed here.

Double taxation relief - Agreement between India and US - Income from cloud hosting services -

Assessee based at USA earned income from provision of public cloud hosting and dedicated/managed hosting services to Indian customers. AO held the income to be in the nature of royalty and, therefore, taxable in India. Held: Agreement between assessee and its customer was for providing hosting and other ancillary services to the customer and not for use of/leasing of any equipment. The Data Centre and Infrastructure therein was used to provide these services belonged to assessee and customers did not have physical control or possession over the servers and right to operate and manage this infrastructure/servers vested solely with assessee. The customer was not even aware of the specific location of server in Data Centre. In view of these facts, income from cloud hosting services was erroneously held as royalty within the meaning of Explanation 2 to section 9(1)(vi) as well as Article 12(3)(b) of Indo-US DTAA. Even otherwise, assessee had no PE in India and hence, no income could be taxed in India.

Relied:Americal Chemical Society v. Dy. CIT ITA No. 6811/Mum/2017 for the assessment year 2014-15 vide Order, dt. 30-4-2019.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13 to 2014-15

INCOME TAX ACT, 1961

Section 234B

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