| 2017-TII-INSTANT-ALL-471 | 27 July 2017 |
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CASE LAWS CIT Vs STERIA INDIA LTD: SUPREME COURT OF INDIA (Dated: July 24, 2017) Income tax - Sections 90, 195, 201(1), 201(1A) & 245Q - India-France DTAA - Article 13. Keywords - beneficial provision - FTS - fees for technical services - management servies - make available clause - permanent establishment - PE - physical presence & separate notification. The Revenue Department preferred present SLP challenging the judgment, whereby the High Court had held that a separate Protocol signed between India and France which forms an integral part of the DTAA, did not need to be separately notified for the purpose of beneficial provisions in some other Convention between India and another OECD country, once the DTAA had itself been notified by the Central Government u/s 90. The High Court in its impugned judgment also held that where the expression 'managerial services' was itself outside the ambit of 'FTS' occurring in Article 13(4) of the Indo-UK DTAA, then the question of the assessee having to deduct tax at source from the payment made by it for such managerial services, would not arise. Having heard the parties, the Supreme Court condoned the delay and issued notices to respective parties directing their appearence for further hearing on the issue of taxability of 'managerial services' under Article 13(4) of DTAA between India & UK. Notice issued McKINSEY KNOWLEDGE CENTRE INDIA PVT LTD Vs ITO: DELHI ITAT (Dated: May 11, 2017) Income Tax Act – Sections 9(1)(vi) & 195 - India-Singapore DTAA - Article 12 Keywords - royalty – accessing database - commercial expolitation - copyrighted material - TDS The assessee is engaged in the export of computer software, rendering support services and acting as a back-office to its parent entity being Mc Kinsey and Co. Inc. Assessee for the purpose of its business is required to access certain database, maintained by Thomson Asia Pvt. Ltd, Singapore (Thomson) which provides general information on share price, market, commodity price, currency exchange rates etc. Thompson is a company incorporated in Singapore and is tax resident of Singapore, entitled to benefits under India Singapore DTAA. Assessee entered into a master agreement with Thomson, wherein certain payments were to be made by assessee for accessing the database of Thomson. Assessee made a payment of US $ 39,427.502 to Thomson. The assessee filed an application u/s 195(2) requesting ITO to issue an order of nil deduction of tax, in respect of payment of US $ 39,427.502 to Thomson as consideration for the database access. Assessee contended that the above payments are not in the nature of royalty as per section 9(1)(vi). It was contended that payments were merely for accessing databases and it does not have any license for commercial exploitation of copyright, with regard to database maintained and owned exclusively by Thomson. Rejecting submissions advanced by assessee, ITO passed order under section 195(2) treating the payment as Royalty/FTS, thereby directing assessee to withhold tax at source at rate of 20%. Subsequent to this, assessee filed tax residency certificate and TDS officer rectified the order passed by ITO to the extent of granting benefit to assessee under the treaty. As per revised order passed by ITO, the rate of withholding tax was granted at 10%, under Article 12 of treaty. On appeal, the ITAT held that, Whether payment made by Indian company merely for accessing certain database of Singapore based entity, can be taxed as 'royalty', if such access does not provide any license for commercial expolitation of copyright, with regard to the database owned exclusively by the owner entity - NO: ITAT Whether TDS deduction is warranted on above mentioned payments made for accessing copyrighted material of a company which is tax resident of Singapore – NO: ITAT + it is seen that the Delhi High Court in case of DIT vs. Infrasoft Ltd. - 2013-TII-50-HC-DEL-INTL, has held that Thomson provides general data relating to equity, share price, market, exchange rates, commodity prices etc which is publicly available. The database provided by Thomson to assessee is compilation Asian of general information, relating to share market which is neither relating to Thomson's own experience nor is it secret or divulged information. The payments made by assessee to Thomson are for merely accessing the database. With this access assessee has not received any knowledge as to how the databases are maintained nor does it have any licence for commercial exploitation of the Copyright with regard to the database maintained by Thomson. Assessee had claimed a limited right to use the information which is no doubt the “copyrighted information” solely belonging to Thomson under master agreement. Assessee is also not required to pay any third-party fee which is evident on reading of master agreement. The clauses in agreement are non-exclusive, non transferable and information available on database has to be used in accordance with the agreement only. Assessee is not allowed to exploit the database commercially under the agreement. Treaty provisions between India and Singapore unambiguously require the use of copyright to be taxed in the source country. The payment has been made by assessee for use of “copyrighted material” rather than for the use of copyright. In a case where assessee gets right to access “copyrighted material”, there is no dispute regarding the same to fall out of definition of term “Royalty”, under India Singapore DTAA. Assessee has only received access of copyrighted material, there is no dispute about payment falling out of definition of royalty. Therefore, attempt to bring payments made under explanation 2 clause (iv) to section 9(1)(vi) of the Act cannot be accepted. Therefore, following the decision of jurisdictional High Court in the case of DIT vs. Infrasoft Ltd., grounds raised by assessee is allowed. Assessee's Appeal allowed |
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