Case Law Details
Rackspace Vs DCIT (ITAT Mumbai)
Conclusion: Income from cloud hosting services had erroneously held 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 AO and DRP as 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 and even otherwise, there was no PE of the assessee in India and hence, no income could be taxed in India in term of Indo-US DTAA.
Held: Assessee has filed its return of income disclosing the total income earned from provisions of public cloud hosting and dedicated/ managed hosting of services to Indian customers. Assessee claimed that this income was in the nature of business income and not taxable in India in the absence of Permanent Establishment of the assessee in India i.e. (PE). AO held that the receipt received by assessee in respect to royalty and fee for technical services on account of public cloud hosting and dedicated/ managed hosting of services to Indian customers were taxable in India. It was held that the agreement between assessee and its customer was for providing hosting and other ancillary services to the customer and not for the use of / leasing of any equipment. The Data Centre and the Infrastructure therein was used to provide these services belong to the assessee. The customers did not have physical control or possession over the servers and right to operate and manage this infrastructure / servers vest solely with assessee. The agreements entered into the service level agreements. The agreement was to provide hosting services simpliciter and was not for the purpose of giving the underlying equipment on higher or lease. The customer was not even aware of the specific location of the server in the Data Centre where the customer application, web mail, websites etc. In view of these facts, income from cloud hosting services had erroneously held as royalty within the meaning of explanation (2) to section 9(1)(vi) of the Act as well as Article 12(3)(b) of the Indo-USA DTAA by the AO and DRP. Even otherwise, there was no PE of the assessee in India and hence, no income could be taxed in India in term of Indo-US DTAA.
FULL TEXT OF THE ITAT JUDGEMENT
These three appeals by the assessee are arising out of the different orders of Dispute Resolution Panel-2, Mumbai [in short ‘DRP’], in objection No. 279, 007, 037 vide direction dated 28.12.2015, 21.02.2017, 15.09.2016. The Assessments were framed by the Dy. Commissioner of Income Tax (Int. Tax)-Circle 4(1)(1), Mumbai (in short ‘DCIT/AO’) for the assessment years 2012-13, 2013-14 & 2014-15 vide order dated 15.01.2016, 07.11.2016, 08.12.2016 under section 144C(5) read with section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act).
Please become a Premium member. If you are already a Premium member, login here to access the full content.
