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| The Tax Publishers2020 TaxPub(DT) 0809 (Mum-Trib) INCOME TAX ACT, 1961
Section 9(1)(vi) Section 9(1)(vii) Article 12(3)(b)
Agreement between the assessee and its customers was for providing hosting and other ancillary services to the customers and not for the use of leasing any equipment customers were not having physical control or possession over the servers and right to operate and manage this infrastructure/servers vest solely with the assessee accordingly, it cannot be said as royalty within the meaning of Explanation (2) to section 9(1)(vi) as well as article 12(3)(b) of the Indo-USA DTAA by the AO and DRP moreover, there was no PE of the assessee in India and hence, no income can be taxed in India in term of Indo-US DTAA.
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Income - Deemed to accrue or arise in India under section 9(1)(vi)/9(1)(vii) - Business profits - Royalty or FTS/FIS--Income from cloud hosting services
Assessee was a company incorporated in and a tax resident of USA. During the year under consideration, the assessee earned income from cloud services including cloud hosting and other supporting and ancillary services provided to Indian Customers. Cloud hosting and other supporting and ancillary services provided to Indian Customers. The assessee filed the return of income and the notes stating therein that the cloud hosting services was not taxable as 'royalties' under Article 12 of the India-US tax treaty cloud support services were not in the nature of managerial, technical or consultancy services and consequently same do also not constitute fees for included services within the meaning of Article 12 of the India-USA DTAA. Assessee claimed that revenues earned on account of cloud hosting services constitute business profits and since it did not have Permanent Establishment (PE) in India under article 5 of the DTAA, the same would not be subject to tax in India under the provisions of article 7(1) of the DTAA. DRP confirmed order of AO.Held: The agreement between the assessee and its customers was for providing hosting and other ancillary services to the customers and not for the use of leasing any equipment. The data centre and the infrastructure therein used to provide these servers belongs to the assessee. Customers were not having physical control or possession over the servers and right to operate and manage this infrastructure/servers vest solely with the assessee. The agreement was to provide hosting services simpliciter and was not for the purpose of giving the underlying equipment on hire or lease. The customer was not knowing any location of the server in data centre, web mail, websites, etc. Accordingly, it cannot be said as royalty within the meaning of Explanation (2) to section 9(1)(vi) as well as article 12(3)(b) of the Indo-USA DTAA. Moreover, there was no PE of the assessee in India and hence, no income can be taxed in India in term of Indo-US DTAA. The issue was squarely, therefore, covered by the decision of ITAT in the assessee's own case.
Followed:ITAT in the assessee's own case for the assessment year 2012-13 in ITA. No. 1634/M/2016 and ITA. No. 1075/M/2017 for the assessment year 2013-14 & ITA. No. 3507/M/2017 for the assessment year 2014-15 dated 29-5-2019 : 2019 TaxPub(DT) 7760 (Mum-Trib).
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2010-11 & 2015-16
IN THE ITAT, MUMBAI BENCH
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