Case Law Details
Case Name : ACIT Vs. Vishwak Solutions Pvt. Ltd. (ITAT Chennai)
Appeal Number : IT Appeals No. 1935 & 1936/Mds/2010 C.O. No. 187/Mds/2013 & ITA Nos. 67 & 1634/Mds/2014
Date of Judgement/Order : 30/01/2015
Related Assessment Year : 2004-05 & 2005-06
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:
- The point of dispute in the present case is that whether the payment made by assessee company to non-resident in US towards hiring of storage space on server in US would be taxable in India so as to make assessee liable to deduct tax at source in India.
- ITAT concurred with the findings of CIT (A) who held that the payments are not in nature of royalty as the same is not made for use of a right of any industrial, commercial or scientific equipment. Further , the same is not fee for technical services (FTS) within the meaning of Article 12 of India –US DTAA because non-resident does not ’make available’ any technical knowledge to assessee such that the same can be utilized by assessee without recourse to service provider.
- The incomes earned by non-resident is business profits as per Article 7 of India-US DTAA which cannot be taxed in India as the non-resident is not having Permanent Establishment (PE) in India.
- All these findings make it very clear that the said payments made to non-resident in India is not liable to tax in India.