Tungsten Network Ltd. Vs DCIT (ITAT Delhi)
Conclusion: Income of assessee company had arisen in India as the payer i.e. Genpact India was also situated in India. Therefore, under the primary source rule under section 5(2), the income received by assessee company accrued or arose in India. The process of providing technical services by the assessee and receiving payments having source in India as per above principles deserves to be held liable to tax.
Held: Assessee a UK company, provided cloud based e-invoicing software solution and related services. Assessee was granted the right to use this cloud-based services facility to Genpact India who in turn had made payment of Rs.3,31,98,980/- to the assessee. The income in hands of assessee was shown to be receipt of subscription fees. On 13th January, 2009, assessee’s Hungarian PE entered into a Master Services Agreement with Genpact International Inc., an US Company. The Master Service Agreement granted the assessee the authority to assign or sub-contract the powers and obligations of the agreement to any affiliate of Genpact. Consequently, Tungsten entered into a statement of work (“SOW”) with Genpact India Pvt. Ltd. to provide an exclusive e-invoicing portal license. This license enabled the generation of e-invoices for a specific customer of Genpact India, Glaxo smith Kline Services Unlimited (“GSK”,) which operated outside of India. Interestingly, the invoices generated by Genpact India for GSK pertain to several of Europeon countries except India. The vital question as to whether the taxability of income in hands of the assessee for providing license for right to use of the cloud based platform-E-Invoice Portal. Assessee a non- resident having income in India was liable for tax if the source was in India. In the event and income sourced in India was not characterized under the heads provided in the DTAA, the income would be taxable under the residual clause provided taxing right was allocated to source country in this case to India under the relevant DTAA. The assessment order held that the income received by the assessee company from Genpact India Pvt. Ltd. was taxable as fees for technical services in India being the income chargeable to tax both under the provisions of Income-tax Act and under the provisions of India-UK DTAA also. Since, all the objections of DRP were rejected the assessment order was passed. It was held that the source Rule was further explained by the Apex Court in GVK Industries case (332 ITR 130) where in the Apex Court had held that the income of receipt to be charged or chargeable in the country where the source of payment was located, to clarify, where the payer was located. Accordingly, the income of the assessee company had arisen in India as the payer i.e. Genpact India was also situated in India. Therefore, under the primary source rule under section 5(2), the income received by assessee company accrued or arose in India. As a result, further reference to deeming provisions under section 9 was undesirable for ascertaining of chargeability of income of the assessee under the provisions of Income-tax Act. Alternatively, only when the primary sourcing rule under section 5(2) failed to establish the chargeability, a reference to deeming rules under section 9 was necessary. In view of above material facts i.e. the process of providing technical services by the assessee and receiving payments having source in India as per above principles deserves to be held liable to tax.
