Brief of the case: The ITAT Chennai in the case of Vishwak Solutions Pvt. Ltd. held that the payments made to US based entity towards securing server space in US is not in the nature of fee for technical services or royalty within the meaning of Article 12 of India – US DTAA. The same is rather business profits as per Article 7 of DTAA which can be taxed in India only when the foreign entity has Permanent Establishment (PE) in India.
Facts of the case:
- The assessee company paid data storage space charges for securing space on server to INetU, a non-resident in US. The said payment was made without deducting tax at source.
- AO was of the view that the said payments are taxable in India as incomes deemed to accrue or arise in India because the same was in the nature of royalty and fee for technical services.
- CIT(A) decided the case in favour of assessee by holding that the said payments are income of non-resident as business profits which is not taxable as per Article 7 of India –US DTAA as the non-resident do not have any PE in India.
Contention of Assessee:
- The payment were not in nature of royalty as defined in Article 12 of DTAA has assessee had no right over the equipment in which data was stored. Further, the same cannot be taxed as fee for technical services as no technology was made available by non-resident to assessee within the meaning of ‘make available’ clause.
- Even if the payment is treated as royalty or FTS the disallowance u/s 40(a)(i) can be cured by Article 26(3) relating to non-discrimination clause.
Contention of Revenue: Departmental Representative strongly supported the orders of the Assessing Officer and submitted that payments made by the assessee towards providing server space fall under fees for technical services, therefore assessee must have deducted TDS u/s 195.
Held by ITAT Chennai:
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