Recently ITAT Mumbai in the case of Standard Chartered Bank (Taxpayer) (ITA No. 3827/ MUM/ 2006) on the issue whether data processing charges paid by the Taxpayer would constitute ‘royalty’ under the Indian Tax Laws (ITL) and the India – Singapore Tax Treaty (Tax Treaty) held that the payments were made for use of a facility and not any process. Furthermore, in the absence of control or physical access to any equipment, it cannot be said that the payment was made for any use or right to use the equipment. Hence, payment would not amount to ‘royalty’ under the ITL and the Tax Treaty and would be business income not chargeable to tax in absence of PE.
Facts
- The Taxpayer, a non resident company, was engaged in the business of banking in India through various branches. It entered into an agreement with SPL, a Singapore company, for providing data processing support from outside India to the Taxpayer for its business in India (Agreement). The Agreement required SPL to make available disc storage capacity in its Data Centre at Singapore for the Taxpayer’s exclusive use.
- Before the Tax Authority, the Taxpayer submitted the following details about the nature of services:
-Raw input bank transaction data is transmitted in electronic form to SPL for processing.
– Processing is done by SPL at Singapore as per the Taxpayer’s requirement, using hardware and software (through human intervention), whenever required.
– The operating software of SPL’s mainframe computer was developed by third party vendors and licensed to SPL.
– Processed data is electronically transmitted back to India in the form of reports as per the Taxpayer’s specifications.
– SPL keeps a back up of the data and makes it available to the Taxpayer on request.
