S.

Forum Case name AY Brief facts Held Forward reference Comment

No.

1. Supreme Engineering 2001-02 • The assessee- 86. The question of law posed before us in these appeals has 1. Attachmate
Court of Analysis Centre of and company (EAC) was a been answered in several rulings - some by the AAR, some by Corporation vs.
India Excellence (P.) Ltd 2002-03 resident Indian end- the High Court of Karnataka, and some by the High Court of DCIT [2022] 140
V. CIT [2021] 125 user of shrink-wrapper Delhi. These authorities will now be dealt with sequentially. taxmann.com 152
taxmann.com 42 computer software, (ITAT Delhi)
directly imported from .
the United State of . 2. Synamedia
America (USA). Limited v. DCIT
117. The conclusions that can be derived on a reading of the
• The Assessing Officer [2022] 140
aforesaid judgments are as follows:
after applying article taxmann.com 265
12(3) of the Double (i) Copyright is an exclusive right, which is negative in nature, (ITAT Bangalore)
Taxation Avoidance being a right to restrict others from doing certain acts.
Agreement (DTAA), (ii) Copyright is an intangible, incorporeal right, in the nature of 3. Google India (P.)
between India and a privilege, which is quite independent of any material Ltd. v. DCIT [2022]
USA, and upon substance. Ownership of copyright in a work is different from the 143 taxmann.com
applying section ownership of the physical material in which the copyrighted work 302 (ITAT
9(1)(vi), found that may happen to be embodied. An obvious example is the Bangalore)
what was in fact purchaser of a book or a CD/DVD, who becomes the owner of
transferred in the the physical article, but does not become the owner of the 4. GE India
transaction between copyright inherent in the work, such copyright remaining Industrial (P.) Ltd.
the parties was exclusively with the owner. V. ADIT [2022] 145
copyright which taxmann.com 335
attracted the payment (iii) Parting with copyright entails parting with the right to do any (ITAT Hyderabad)
of royalty and thus, it of the acts mentioned in section 14 of the Copyright Act. The
was required that tax transfer of the material substance does not, of itself, serve to 5. IBM Singapore
be deducted at source transfer the copyright therein. The transfer of the ownership of (Pte.) Ltd. V. DCIT
by the Indian importer the physical substance, in which copyright subsists, gives the [2021] 131
and end-user, EAC. purchaser the right to do with it whatever he pleases, except the taxmann.com 330
Since this was not right to reproduce the same and issue it to the public, unless (ITAT Bangalore)
done for both the such copies are already in circulation, and the other acts
assessment years, mentioned in section 14 of the Copyright Act.
EAC was held liable to (iv) A licence from a copyright owner, conferring no proprietary
pay the amount that it interest on the licensee, does not entail parting with any 6. Altisource
had not deducted as copyright, and is different from a licence issued under section Business Solutions
TDS, along with 30 of the Copyright Act, which is a licence which grants the (P.) Ltd. Vs. ACIT
interest under section licensee an interest in the rights mentioned in section 14(a) and [2021] 127
201(1A). The appeal 14(b) of the Copyright Act. Where the core of a transaction is to taxmann.com 800
before the authorize the end-user to have access to and make use of the (ITAT Bangalore)
Commissioner (CIT) "licensed" computer software product over which the licensee
was dismissed. has no exclusive rights, no copyright is parted with and
However, the appeal consequently, no infringement takes place, as is recognized by
 before the Income Tax section 52(1)(aa) of the Copyright Act. It makes no difference
Appellate Tribunal whether the end-user is enabled to use computer software that
(ITAT) succeeded in is customised to its specifications or otherwise.
which the ITAT (v) A non-exclusive, non-transferable licence, merely enabling
followed its previous the use of a copyrighted product, is in the nature of restrictive
order dated 18-2-2005, conditions which are ancillary to such use, and cannot be
passed in Samsung construed as a licence to enjoy all or any of the enumerated
Electronics Co. Ltd. v. rights mentioned in section 14 of the Copyright Act, or create
ITO [2005] 94 ITD 91 any interest in any such rights so as to attract section 30 of the
(Bang.). Copyright Act.
• The High Court of
Karnataka, on an (vi) The right to reproduce and the right to use computer
examination of the software are distinct and separate rights, as has been
End-User Licence recognized in Starte Bank of India (supra) (see paragraph 21),
Agreement (EULA) the former amounting to parting with copyright and the latter, in
involved in the the context of non-exclusive EULAs, not being so.
transaction, found that 118. Consequently, the view contained in the determinations of
what was sold by way the AAR in Dassault Systems K.K. (supra) and Geoquest
of computer software Systems B.V. (supra) and the judgments of the High Court of
included a right or Delhi in Ericsson A.B. (supra), Nokia Networks OY (supra),
interest in copyright, Infrasoft Ltd. (supra), ZTE Corporation (supra), state the law
which thus gave rise to correctly and have our express approval. We may add that the
the payment of royalty view expressed in the aforesaid judgments and determinations
and would be an also accords with the OECD Commentary on which most of
income deemed to India's DTAAs are based.
accrue in India under
.
section 9(1)(vi) ,
requiring the deduction .
of tax at source. 168. Given the definition of royalties contained in Article 12 of
the DTAAs mentioned in paragraph 41 of this judgment, it is
clear that there is no obligation on the persons mentioned in
section 195 of the Income-tax Act to deduct tax at source, as the
distribution agreements/EULAs in the facts of these cases do
not create any interest or right in such distributors/end-users,
which would amount to the use of or right to use any copyright.
The provisions contained in the Income-tax Act (section 9(1)(vi),
along with explanations 2 and 4 thereof), which deal with royalty,
not being more beneficial to the assessees, have no application
in the facts of these cases.
169. Our answer to the question posed before us, is that the
amounts paid by resident Indian end-users/distributors to non-
resident computer software manufacturers/suppliers, as
consideration for the resale/use of the computer software
through EULAs/distribution agreements, is not the payment of
 royalty for the use of copyright in the computer software, and
that the same does not give rise to any income taxable in India,
as a result of which the persons referred to in section 195 of the
Income-tax Act were not liable to deduct any TDS under section
195 of the Income-tax Act. The answer to this question will apply
to all four categories of cases enumerated by us in paragraph 4
of this judgment.

2. ITAT Delhi Salesforce.com AY 2010- • The assessee- 13. We have given thoughtful consideration to the contentions 1. MOL Corporation
Singapore Pte. V. 11 to company was a tax of the ld. DR and have duly considered the written submissions. v.
DDIT [2022] 137 2016-17 resident of Singapore. In our understanding of the facts, the assessee provides web- ACIT [2022] 140
taxmann.com 3 The assessee based online access to its customer's data hosted on servers taxmann.com 121
rendered customer located in data centers maintained by the assessee outside (ITAT Delhi)
relationship India. The assessee does not have any data centers in India
management (CRM) and hence it cannot be considered to have a fixed place of 2. Microsoft
services to its business in India. The assessee neither has a place of Regional Sales Pte.
customers by management in India nor has any equipment or personnel in Ltd. v. DCIT [2022]
generating reports and India. This fact has also been accepted by the ld. CIT(A) in his 140 taxmann.com
summaries based on order. Therefore, in the absence of granting any control over the 70 (ITAT Delhi)
the proprietary equipment belonging to the assessee to its customers, the
information fed into the allegation of the AO that the amount so received will constitute
assessee's database 'Royalty' is not acceptable.
by the client itself. The
access to the 17. In our considered view, the income earned by the assessee
assessee's database from the Indian customers with respect to the subscription fees
was for limited duration for CRM cannot be taxed as royalty as per section 9(1)(vi) of the
for which subscription Act as well as article 12(3) of the treaty.
fees was paid to the .
assessee.
.
• The Assessing Officer
held that the assessee
was providing services 29. In our considered opinion, all the equipments and machines
in the form of web relating to the service provided by the assessee are under its
services which were control and are outside India and the subscribers do not have
made available to any physical access to the equipment providing system service
users over a network, which means that the subscribers are only using the services
and by entering into the provided by the assessee.
agreement, clients do
not get ownership 30. In light of the above discussion, we have no hesitation to
rights but only get a hold that the subscriber fees received by the assessee do not
fall within the ambit of royalty under section 9(1)(vi) of the Act
 right to use the nor under article 12 of the India - Singapore DTAA. The
equipment and Assessing Officer is accordingly directed to delete the impugned
software and therefore, additions
the same would be
squarely covered
under the definition of
royalty, both under
section 9(1)(vi) as well
as under article 12 of
India Singapore DTAA.
• On appeal, the
Commissioner
(Appeals) upheld the
decision of the
Assessing Officer on
ground that cloud
computing
services/web hosting
services involve the
use of a process
because the facility to
use the cloud
computing has
effectively led to use of
technology driven
process by the end
user.
3. ITAT Pune EPRSS Prepaid AY 2010- • The assessee- “11. We have heard the rival contentions and perused the 1. Reasoning
Recharge Services 11 and company was engaged record. The issue which arises in the present appeal is in Global E-
India (P.) Ltd. V. 2011-12 in distribution of respect of charges paid by assessee to AWS. The assessee Application Ltd. v.
ITO [2018] 100 recharge pens of was engaged in sale of recharge pens and did not have the DCIT
taxmann.com 52 various DTH providers facility available with it of high technology equipments i.e. [2022] 145
via online network. servers. So, in order to carry on its activity of distributorship of taxmann.com 464
• The assessee had recharge pens, it used servers of Amazon, for which it paid web (ITAT Hyderabad)
claimed deduction of hosting charges. Before using the services available of Amazon
web hosting charges. online, it entered into an agreement, under which fees structure
The assessee was provided. Copy of agreement is placed at pages 3 to 22 of
explained the nature of Paper Book. The agreement is called AWS Customer
web hosting services Agreement, which contains the terms and conditions that
i.e. it required servers governs assessee's access to and use of Service Offerings. It
to run various online was agreement between Amazon Web Services, Inc. and you
recharges. Due to this, i.e. assessee. It is provided that agreement takes effect when
there was very high you click an "I Accept" button. Clause 1.1 lays down that 'you'
requirement of servers. (assessee) may access and use the Service Offerings in
 Since purchase accordance with agreement. In clause 1.2, it is provided that to
/maintenance of access services, 'you' (assessee) must create an AWS account
servers and its upkeep associated with a valid e-mail address. Clause 1.3 provides that
require skilled if you (assessee) would like support for the services other than
manpower and the support we generally provide to other users of the services
assessee did not have without charge, then you can enroll for customer support in
the same, hence accordance with the terms of AWS Support Guidelines. Clause
servers were taken on 2.1 lays down that Amazon could change, discontinue, or
hire from Amazon, in deprecate any of the Service Offerings or change or remove
its cloud units. features or functionality of the Service Offerings from time to
• According to time. As per clause 4.1, you (assessee) are solely responsible
Assessing Officer web for the development, content, operation, maintenance and use
hosting charges for use of Your Content. Now, coming to clause 5.5, which provides the
of servers, T was Service Fees to be paid, agreement provided that Amazon
nothing but charges would calculate and bill fees and charges monthly. It is further
paid for use of agreed that you (assessee) have to pay applicable fees and
commercial charges for use of Service Offerings as described on AWS site
equipments within using one of the payment modes they support. We may refer to
meaning of section clause 8.4 which lays down the Service Offerings License,
9(1)(vi), read with under which it is provided that Amazon or its affiliates or
Explanation 2 and licensors own and reserve all right, title and interest in and to the
Explanation 5 of the Service Offerings. However, limited, revocable, non-exclusive,
said clause, thereby, non-sublicensable, non-transferrable license is granted to you
assuming the (assessee) to do the following during the term:—
character of royalty (i) access and use the Service solely in accordance with this
and consequently, agreement; and
liable to deduction of
tax at source. Since the (ii) copy and use the AWS Content solely in connection with your
assessee had not permitted use of the Services.
deducted withholding .
tax out of said
.
payment, the same
was not allowed as 19. Now, another issue which needs to be seen is whether
deduction in the hands charges paid to Amazon for various services provided by it are
of assessee. in the nature of royalty, if any, or not. The assessee has placed
• The Commissioner on record the copy of agreement with Amazon, which we have
(Appeals) upheld the referred in the paras hereinabove. He has also placed on record
order of Assessing the copies of bills raised by Amazon online. The perusal of
Officer in holding that details filed by assessee of monthly charges paid, it transpires
the payment made by that the same are fluctuating from month to month and there is
assessee was covered no regular payment being made to Amazon. In case of provision
by the term 'Royalty' as of royalty to a person, then as seen from the terms and
per amended conditions of various agreements, there is fixation of price to be
provisions of paid and there may be variation on account of use of certain
Explanation 2(iva) of services but first there has to be basic price fixed. However, in
section 9(1)(vi) of the the facts of present case, looking at the documentation, the
Act. billing is segregated into various services i.e. AWS services,
storage services, etc. and the assessee before us has filed a
chart of summary of services availed. The first such services are
on account of service charges for Elastic Compute Cloud. As
per clause 1, it is on account of use of service provider Linux; as
per clause 1.2, Windows and as per clause 1.3, Windows & SQL
Server stanard and clause 1.4 of Bandwidth. The total service
charges for Elastic Compute Cloud are USD 40,253.17. The
month-wise details of said payments made by assessee from
September, 2009 to March, 2010 reflected that in the first month,
charges totaled to USD 4269.02, in October at USD 5599.36
and there on
.
.
20. The Hon'ble High Court of Madras in Skycell
Communications Ltd. (supra) have held that web hosting
charges are not in the nature of royalty. The said principle has
further been applied in various decisions of the Tribunal as relied
upon by the learned Authorized Representative for the
assessee.
21. The aspect which needs to be seen is whether the assessee
is paying consideration for getting any right in respect of any
property. The assessee claims that it does not pay for such right
but it only pays for the services. The claim of assessee before
us was that it was only using services provided by Amazon and
was not concerned with the rights in technology. The fees paid
by assessee was for use of technology and cannot be said to be
for use of royalty, which stands proved by the factum of charges
being not fixed but variable i.e. it varies with the use of
technology driven services and also use of such services does
not give rise to any right in property of Amazon and
consequently, Explanation under section 9(1)(vi) of the Act is
not attracted. It may be pointed out herein itself that the
Assessing Officer had applied Explanation 2(iva) under section
9(1)(vi) of the Act in order to hold the assessee as having
defaulted for non deducting withholding tax. First of all, main
provisions of section 9(1)(vi) of the Act are not attracted as the
payment made by assessee is not in the nature of royalty. In any
case, Explanation 2(iva) of section 9(1)(vi) of the Act covers
cases of royalty i.e. consideration paid for the use or right to use
any industrial, commercial or scientific equipment but not
including the amount referred to in section 44BB of the Act.
 The assessee in the present case did not use or acquire any
right to use any industrial, commercial or scientific equipment
while using the technology services provided by Amazon and
hence, the payment made by assessee cannot be said to be
covered under clause (iva) to Explanation 2 of section 9(1)(vi)
of the Act. In other words, even if the retrospective amendment
is held to be applicable, the case of assessee of payment to
Amazon being outside the scope of said Explanation 2(iva) to
section 9(1)(vi) of the Act, cannot make the assessee liable to
deduct tax at source. In other words, the assessee is not liable
to deduct withholding tax and such non deduction of withholding
tax does not render the assessee in default and consequently,
no disallowance of amount paid as web hosting charges is to be
made in the hands of assessee for such non deduction of
withholding tax and hence, provisions of section 40(a)(i) of the
Act are not attracted. The grounds of appeal raised by assessee
are thus, allowed.”
4. ITAT Google India (P.) AY 2009- • Google (GIL) was the 31. The lower authorities have held that the assessee has been -
Bangalore Ltd. vs. DCIT 10 to exclusive licensee and granted the use of or right to use trademarks, other brand
(International 2012-13 principal operator of features and the process owned by Google Ireland for the
Taxation) [2022] the computerised purpose of distribution of Adwords program and consequently
143 taxmann.com advertising program the sums payable to Google Ireland are royalty. As per Article
302 i.e., "Google AdWords 12 of India - Ireland DTAA, consideration for the use of or right
Program" for the whole to use any patent, trade mark, design or model, plan, secret
world outside USA. formula or process is regarded as royalty. In the present case,
The Google AdWords as per the distribution agreement, "Google Brand Features"
program displayed means the Google trade names, trademarks, service marks,
advertisements on logos, domain names, and other distinctive brand features, with
Google's search some but not all examples at
engine. "http://www.google.com/permissions/trademarks.html" (or such
• The assessee- other URL that Google may provide from time to time), and such
company (GIPL) was other trade names, trademarks, service marks, logos, domain
engaged in the names, or other distinctive brand features that Google may
business of providing provide to Distributor for use solely under this Agreement. As
Information per para 6 of the distribution agreement, each party shall own
Technology (IT) and all right, title and interest, including without limitation all
Information Intellectual Property Rights, relating to its Brand Features and
Technology Enabled Google Irland grants to the assessee/distributor nonexclusive
Services (ITES) to its and nonsublicensable licence during the Term to display Google
group companies. Brand Features solely for the purpose of distributor's marketing
Further, the assessee and distribution of AdWords Program under the terms and
also acted as a subject to the conditions set forth in this Agreement. It is thus
distributor for AdWords evident that the trademark and other brand features are not
Programme in India. used independently or de hors the distribution agreement but
• The assessee had they are incidental or ancillary for the purpose of carrying out the
entered into Google marketing and distribution of Adword program. The Delhi High
AdWords Program Court in DIT v. Sheraton International Inc [2009] 178 Taxman
Distribution Agreement 84/313 ITR 267 held that when the use of trade mark, trade
with (GIL) and as per name etc are incidental to the main service of advertisement,
the agreement, the publicity and sales promotion and further when there is no
assessee was consideration payable for such use of trade mark, trade name
appointed as a non- etc, the consideration cannot be characterised as royalty.
exclusive distributor of Applying the said principle, in the present case, use of Google
AdWords programme Brand Features etc are de hors any consideration payable to
to the advertisers in Google Ireland and further they are incidental and ancillary for
India against achieving the main purpose of marketing and distributing the
distribution fees. If in Google Adwords Program. Hence, the lower authorities were
case, the revenue not right in treating the payments as Royalty.
recorded by the 32. As regards the applicability of 'use of or right to use
assessee from the sale industrial, commercial or scientific equipment" the CIT(A) held
of online that the assessee cannot be said to have gained right to use any
advertisement space scientific equipment, since, Google Ireland has not parted with
to Indian Advertisers the copyright it holds in the Adwords program and hence it
was less than its cost cannot be said that any kind of technical knowhow has been
(incurred in connection transferred to the assessee company. The CIT(A) was not in
with its distribution agreement with the AO on the above issue without prejudice to
function) plus the his view in holding that the remitted amount is royalty on
specified margin, GIL different grounds. The revenue has not challenged the said
was required to finding of CIT(A). Hence, the impugned payments cannot be
compensate the regarded as made for 'use of or right to use industrial,
assessee for the commercial or scientific equipment'. The remaining portion of
difference. However, definition of 'Royalty' under the India-Ireland DT AA is
where the revenue consideration for information concerning industrial, commercial
recorded by the or scientific experience. The AO has not characterised the
assessee from the sale impugned payments as a consideration for the above. In any
of online case, CIT(A) has given a finding that it cannot be said that any
advertisement space kind of technical knowhow has been transferred to the assessee
to Indian Advertisers company. This has not been challenged by the revenue.
was more than the cost
plus the specified 33. Thus on an overall analysis of the entire facts on record, we
margin of the hold that the impugned payments cannot be regarded as royalty
assessee, the under the India - Ireland DTAA.
assessee was required
to make the payment to
GIL.
• The assessee
explained that the
payments made by it to
GIL were not in the
 nature of 'royalty' under
the Act and India -
Ireland DTAA and was
in the nature of
advertisement fees.
• The Assessing Officer,
however, rejected the
contentions of the
assessee and
observed that the sums
payable under the
distribution agreement
to GIL were for the right
to sell AdWords
program, use of or right
to use various IP rights
(process, trademarks,
brand features,
copyright, know-how)
in adwords program
and use of or right to
use industrial,
commercial or
scientific equipment.
The Assessing Officer,
thus, concluded that
such sums were
covered by the
definition of 'Royalty'
under the Act and the
DTAA.
• The Commissioner
(Appeals) confirmed
the action of the
Assessing Officer in
holding that the
distribution fees was
actually consideration
received for the right to
use/license to use a
computer
program/process i.e.,
Adwords program.
However,
Commissioner
 (Appeals) held that the
assessee could not be
said to have gained
right to use any
scientific equipment
since Google Ireland
had not parted with the
copyright it held in the
Adwords program and,
hence, it could not be
said that any kind of
technical know-how
had been transferred to
the assessee
company.
5. HC Delhi Asia Satellite 1997-98 • The assessee- “58. In the light of our discussion explaining Explanation 2 to 1. Adore
Telecommunication company was section 9(1) of the Act, let us proceed to apply these principles Technologies (P.)
s Co. Ltd. V. DIT incorporated in on the facts of the case. The starting point has to be the nature Ltd. v. ACIT [2022]
[2011] 197 Taxman Hongkong and carried of services provided by the appellant to its customers as per the 145 taxmann.com
263 on business of private agreement arrived at between them. Keeping in view the 597 (ITAT Delhi)
satellite aforesaid operation of the satellites, we revert back to the
communications and agreement entered into between the appellant and its 2. CIT v. Intelsat
broadcasting facilities. customers. It is clear from various clauses of the agreement Corporation [2023]
During the relevant (and noticed above), the appellant is the operator of the 146 taxmann.com
assessment year, it satellites. It also remains in the control of the satellite. It had not 96 (HC Delhi)
was the lessee of a leased out the equipments to the customers. On this basis, it is
satellite, called Asia- argued by the appellant that the equipment is used by the 3. Standard
Sat 1 and was the appellant and it is only providing and rendering services to its Chartered Bank v.
owner of a satellite, customers and not allowing the customers to use the process. DDIT [2011] 11
called AsiaSat 2. In the case of ISRO (supra), AAR has narrated in detail the taxmann.com 105
Those satellites were process of the operation of a satellite and the role played by the (ITAT Mumbai)
launched by the transponder therein
assessee and were
placed in a .
geostationary orbit in .
the orbital slots. Those
60. Once we keep in mind the aforesaid important aspects, it is
satellites neither used
not difficult to find the answer to the question posed. In fact, we
the Indian orbital slots
can say that it is so provided by the AAR in ISRO's case (supra).
nor were they
A close scrutiny of the said ruling of the AAR would clearly
positioned over Indian
reveal that where the operator has entered into an agreement
airspace.
for lease of transponder capacity and has not given any control
• However, the footprint
over parts of satellite/transponder, the provisions of sub-clause
area (the area of
(vi) would not apply. In the present case also, the appellant had
earth's surface over merely given access to a broadband available in a transponder
which a signal is which can be utilized for the purpose of transmitting the signals
relayed from satellite) of the customer. In that case, after taking note in depth, the
of those satellites operation and the functioning of transponder, the AAR
covered the territory of emphasized on the fact that data sent by the telecast operator
India. The assessee does not undergo any change for improvement through the
entered into an media of transponder…….
agreement with TV .
channels,
communication .
companies or other 66. It was also not disputed that each transponder requires
companies who continuous and sustained support of each of the above-
desired to utilize the mentioned systems of the satellite without which it simply cannot
transponder capacity function. Consequently, it is entirely wrong to assume that a
available on its satellite transponder is a self-contained operating unit, the control and
to relay their signals. constructive possession of which is or can be handed over by
The customers had the satellite operator to its customers. On the contrary, the
their own relaying transponder is incapable of functioning on its own. In fact, the
facilities, which were Tribunal has itself demonstrated so in the order as is clear from
not situated in India. the following :
From those facilities,
"A bare perusal of this meaning reveals that equipment is an
the signals were
instrument or tool which is capable of doing some job
beamed into space
independently or with the help of other tools. A part of a
where they were
equipment incapable of performing any activity in itself cannot
received by a
be termed as an equipment. We take an example of scissors
transponder located in
which has two blades. This scissor is an equipment but when
the assessee's
satellite. The role of the one blade is separated from the other blade, it ceases to be an
equipment. In other words, the blade in isolation cannot be
assessee in this cycle
termed as an equipment. Reverting to the facts of the present
was that of receiving
case, we find that the transponder is not an equipment in itself.
the signals, amplifying
On other words, it is not capable of performing any activity when
them and after
divorced from the satellite. It was fairly conceded by the Ld. AR
changing frequency
that the transponder in itself without other parts of satellite is not
relaying them over the
capable of performing any function. Rightly so because satellite
entire footprint area.
is not plotted at a fixed place. It rotates in the same direction and
For that service, the TV
speed as the earth. If it had been fixed at a particular place or
channels made
the speed or direction had been different from that of earth, it
payments to the
could not have produced the desired results. Transponder is
assessee. It was the
part of satellite, which is fixed in the satellite and is neither
case of the assessee
moving in itself nor assisting the satellite to and the transponder,
that it had no role
namely, a part of it, playing howsoever important role, cannot be
whatsoever to play
termed as equipment."
either in the uplinking
activity or in the 67. Even after stating so, the Tribunal did not take the aforesaid
receiving activity and view to its logical conclusion, viz., the process carried on in the
its role was confined to transponder in receiving signals and retransmitting the same, is
 space where the an inseparable part of the process of the satellite and that
transponder, which it process is utilized only by the appellant who is in control thereof.
made available to its Whether it is done with or without amplification of the signal
customers, performed would not make any difference, in such a scenario.
a function which it was 68. We are inclined to agree with the argument of the learned
designed to perform. Senior counsel for the appellant that in the present case, control
• The only activity of the satellite or the transponder always remains with the
performed by the appellant. We may also observe at this stage that the terms
assessee on earth was "lease of transponder capacity", "lessor", "lessee" and "rental"
the telemetry, tracking used in the agreement would not be the determinative factors.
and control of the It is the substance of the agreement which is to be seen. When
satellite which was we go through the various clauses of the said agreement, it
carried out from a becomes clear that the control always remained with the
control centre at appellant and the appellant had merely given access to a
Hongkong. For that broadband available with the transponder, to particular
reason, the assessee customers. We may also point out that against the decision of
claimed that no part of the AAR in ISRO's case (supra) Special Leave Petition was
the income generated dismissed by the Supreme Court (see Puran Singh Sahni's case
by it from the (supra).
customers to whom the
aforesaid services .
were provided was .
chargeable to tax in
79. For the aforesaid reasons, we are unable to subscribe to the
India. The Assessing
view taken by the Tribunal in the impugned judgment on the
Officer, however, held
interpretation of section 9(1)(vi) of the Act. We, thus, answer
that the assessee had
Question No. (3) in favour of the assessee and against the
entered into
revenue and set aside the order of the Tribunal on this aspect.
agreements with
various companies for
lease of transponders
for downlinking
programmes to various
countries including
India and, therefore, its
income was
chargeable to tax in
India. On appeal, the
Commissioner
(Appeals) concluded
that the assessee did
not have any
agreement with any
Indian company and
was not rendering any
service to any Indian
 company and,
therefore, it could not
be said that it had a
business connection in
India. He also held that
the assessee was not
carrying out any
operations in India, as
the only operations
carried out by it were in
the satellite which was
located outside India.
• The mere fact that the
assessee had put in
place a satellite in a
manner that
downlinked signals
could be received in
the Indian territory
would not result in an
inference that any part
of the assessee's
business operations
was carried out in
India. Accordingly, he
held that no income
could be deemed to
have accrued or arisen
in India in terms of
section 9(1)(i). He,
however, held that the
customers were using
the secret process put
in place in the
transponder on the
satellite and the
payments were made
for that purpose and
not for the mere use of
a physical asset.
• He, therefore, came to
the conclusion that the
amount paid to the
assessee by its
customers represented
royalty as defined in
the Explanation 2 to
section 9(1)(vi) and
was chargeable to tax
in India. Aggrieved by
the said order, both,
the assessee as well
as the Assessing
Officer, filed appeals
before the Tribunal.
The Tribunal
concluded that the
obligation of the
assessee was to make
available programmes
to the TV channels in
India through the
transponder on its
satellite and it could
acquire the right to
receive its income only
if the programmes
were made available in
India and, therefore,
the Tribunal held that
the assessee had a
business connection in
India. The Tribunal
further held that no part
of the assessee's
income was
chargeable to tax in
India in terms of
section 9(1)(i), as no
operations to earn the
income were carried
out in India. The
Tribunal, however,
upheld the view of the
Commissioner
(Appeals) that the
amount paid to the
assessee by its
customers represented
income by way of
 royalty as defined in
the Explanation 2 to
section 9(1)(vi).
6. ITAT Pinstorm AY 2006- • The assessee- “6. We have heard arguments of both the sides and also 1. Google India (P.)
Mumbai Technologies (P.) 07 company engaged in perused the relevant material on record. It is observed that a Ltd. v. DCIT [2022]
Ltd v. ITO [2012] 24 the business digital similar issue had come up for consideration before the Tribunal 143 taxmann.com
taxmann.com 345 advertising and in the case of Yahoo India (P.) Ltd. v. Dy. CIT [2011] 46 SOT 302 (ITAT
internet marketing 105 / 11 taxmann.com 431 (Mum.)(URO), the Tribunal decided Bangalore)
utilizes the internet the same in favour of the assessee for the following reasons
search engine such as given in paragraph No.8 of its order: 2. ESPN Digital
Google, Yahoo etc. to Media (India) (P.)
buy space in "8. As already noted by us, the payment made by assessee in Ltd. v. DCIT [2022]
advertising on the the present case to Yahoo Holdings (Hong Kong) Ltd. was for 140 taxmann.com
internet on behalf of its services rendered for uploading and display of the banner 442 (ITAT Chennai)
clients. The search advertisement of the Department of Tourism of India on its
engine carried out its portal. The banner advertisement hosting services did not
own programme involve use or right to use by the assessee any industrial,
whereby the assessee commercial or scientific equipment and no such use was
booked certain words actually granted by Yahoo Holdings (Hong Kong) Ltd. to
called 'key words'. assessee company. Uploading and display of banner
Whenever any person advertisement on its portal was entirely the responsibility of
searched through the Yahoo Holdings (Hong Kong) Ltd. and assessee company was
net for a specific 'key only required to provide the banner Ad to Yahoo Holdings (Hong
word', the Kong) Ltd. for uploading the same on its portal. Assessee thus
advertisement of the had no right to access the portal of Yahoo Holdings (Hong Kong)
assessee or its client Ltd. and there is nothing to show any positive act of utilization or
was displayed. Google employment of the portal of Yahoo Holdings (Hong Kong) Ltd.
did such online by the assessee company. Having regard to all these facts of
advertising business in the case and keeping in view the decision of the Authority of
Asia from its office in Advance Rulings in the case of Isro Satellite Centre 307 ITR 59
Ireland. and Dell International Services (India) (P.) Ltd. 305 ITR 37, we
• During the year under are of the view that the payment made by assessee to Yahoo
consideration, the Holdings (Hong Kong) Ltd. for the services rendered for
assessee company uploading and display of the banner advertisement of the
had made a payment Department of Tourism of India on its portal was not in the
of Rs. 1,09,35,108 to nature of royalty but the same was in the nature of business
Google Ireland Ltd. profit and in the absence of any PE of Yahoo Holdings (Hong
and the said amount Kong) Ltd. in India, it was not chargeable to tax in India.
was claimed as Assessee thus was not liable to deduct tax at source from the
'advertisement payment made to Yahoo Holdings (Hong Kong) Ltd. for such
expenditure'. While services and in our opinion, the payment so made cannot be
making the said disallowed by invoking the provisions of section 40(a) for non-
payment, no tax at deduction of tax. In that view of the matter we delete the
source was deducted disallowance made by the A.O. and confirmed by the learned
CIT (A) u/s 40(a) and allow the appeal of the assessee."
by the assessee on the 7. As the issue involved in the present case as well as all the
ground that the amount material facts relevant thereto are similar to the case of Yahoo
paid to Google Ireland India (P.) Ltd. (supra), we respectfully follow the decision
Ltd. constituted rendered by the co-ordinate Bench of this Tribunal in the said
business profits of the case and delete the disallowance made by the A.O. and
said company and confirmed by the Ld. CIT (A) by invoking the provisions of sec.
since the said 40(a)(i) holding that the amount paid by the assessee to M/s.
company did not have Google Ireland Ltd. for the services rendered for uploading and
a permanent display of banner advertisement on its portal was in the nature
establishment (PE) in of business profit on which no tax was deductible at source since
India, the amount paid the same was not chargeable to tax in India in the absence of
was not chargeable to any PE of Google Ireland Ltd. in India.
tax in India. According
to the Assessing 8. In the result, the appeal of the assessee is allowed.”
Officer the services
rendered by the Ireland
company to the
assessee company
was in the nature of
'technical services' and
hence, the assessee
company was liable to
deduct the tax at
source from the
payment made against
the said services.
Since no such tax at
source was deducted
by the assessee, the
deduction claimed by
the assessee on
account of expenditure
incurred on payment of
'advertisement
charges' to Google
Ireland Ltd. was
disallowed by the
Assessing Officer by
invoking the provisions
of section 40(a)(i). On
appeal, the
Commissioner
(Appeals) confirmed
the said disallowance
 made by the Assessing
Officer

7. ITAT Rackspace, US Inc AY 2010- • The brief facts of the “4. At the very outset, the Ld. Representative of the assessee 1. MOL Corporation
Mumbai v. DCIT [2020] 113 11 and case are that the has argued that the issue has squarely covered by the decision v. DCIT. [2022] 137
taxmann.com 382 2015-16 assessee did not file of the Hon'ble ITAT in the assessee's own case for the A.Y. taxmann.com 286
any return of income 2012-13 in ITA. No.1634/M/2016, ITA. No.1075/M/2017 for the (ITAT Delhi)
for the A.Y.2010-11 A.Y.2013-14 & ITA. No.3507/M/2017 for the A.Y.2014-15 dated
and certain 29.05.2019, therefore, in the said circumstances, the issues are
transactions were seen liable to be decided in favour of the assessee in accordance with
in the NMS data base law. However, on the other hand, the Ld. Representative of the
available in 1- Taxnet Department has refuted the said contention. Before going
System based on further, we deem it necessary to advert the finding of the Hon'ble
which the AO recorded ITAT in the assessee's own case (supra) on record: —
reason to believe in
accordance with "10. We have heard the rival contentions and gone through the
provisions of Section facts and circumstances of the case. We noted that as per the
147 of the I.T. Act that provisions of section 9(1)(vi) of the Act royalty is taxable in India
the income has inter alia if the payer an Indian resident, except where the royalty
escaped taxation. After is payable in respect of a right, property, information or service
obtaining the approval used for the payer's business outside India or for earning
from CIT(IT)-4 and income outside India. Explanation 2 to section 9(1)(vi) of the Act
recording the reasons dealing with the definition of royalty inter alia includes payment
for reopening of the for use or right to use an industrial, commercial or scientific
assessment dated equipment. Considering the fact that Rackspace USA
31.03.2017, notice u/s customers only avail hosting services and do not use, possess
148 of the Act was or control the equipment used for providing hosting services
issued and served (which are owned and controlled by Rackspace US), the
upon the assessee. payment for hosting services made by Indian customers to
Thereafter, the notices Rackspace USA does not fall within the ambit of the said
u/s 143(2) & 142(1) of definition. Finance Act, 2012 inserted an amendment in the
the Act were issued definition of royalty whereby the definition of royalty was
and served upon the expanded by inserting Explanation 4, 5 and 6 to section 9(1)(vi)
assessee. The of the Act (with retrospective effect from I June 1976).
assessee is a company Explanation of section 9(I)(vi) of the Act reads as under:
incorporated in and a "For the removal of doubts, it is hereby clarified that the royalty
tax resident of USA. includes and has always included consideration in respect of
During the year under any right, property or information, whether or not- (a) the
consideration, the possession or control of such right, property or information is
assessee earned with the payer; (b) such right, property or information is used
income from cloud directly by the payer; (c) the location of such right, property or
services including information is in India."
cloud hosting and other
11. The above amendment clarified that any payments made for
supporting and
the 'use of equipment would be classified as 'royalties'
ancillary services
provided to Indian irrespective of the possession or control of the equipment with
Customers. The the payer or use by the payer or the location of the equipment
assessee filed the being in India. But, under the provisions of section 90(2) of the
return of income and Act, an assesse can opt be governed by the provisions of the
the notes stating tax treaty to the extent they are more beneficial than the
therein that the cloud provisions of the Act. We noted the fact that Rackspacc USA is
hosting services was tax resident of USA and therefore, is entitled to claim the
not taxable as beneficial provisions of India-USA tax Treaty with respect to the
'royalties' under Article taxability of its income earned from Indian payers. The Tax
12 of the India-US tax Residency Certificate along with Form 10F has been submitted
treaty as the customers by the assessee vide letter dated 29.01.2015 and 13.02.2015
do not operate the for the years 2011 and 2012.
equipment or have .
physical access to or
control over the .
equipment used by the 13. As may be observed, the definition of royalty under Article
assessee to provide 12(3) of the India-USA Tax Treaty in respect of payment for use
cloud support services or right to use equipment is in pari-materia with the pre-
and do not make amendment definition of royalties in the Act. The said definition
available technical of "royalties" is exhaustive and not inclusive and therefore, it has
knowledge, to be given the meaning as contained in the Article itself and no
experience, skill, other meaning should be looked upon.
know-how etc., to its
14. From the above, it is clear that the services provided by
Indian Customers and
Rackspace USA to that Indian customers are not covered by the
the cloud support
above definition of 'royalties' provided in the India USA Tax
services are not in the
nature of managerial, Treaty since Rackspace USA is providing hosting services to
the Indian customers and does not give any equipment or
technical or
control over the equipment. The term 'use' or 'right to use' for
consultancy services
the purpose of the tax treaty entails that the prayer has a
and consequently
possession/ control over the property and/ or the said property
same do not constitute
is at its disposal. There is no privilege or right granted to the
fees for included
Indian customers over the servers and other equipment used to
services within the
provide cloud hosting services. The equipments are not used by
meaning of Article 12
the customers and the same are used by Rackspace USA to
of the India-USA
provide service to the customers. The services provided by the
Double Tax Avoidance
Rackspace USA are in the nature of cloud hosting, data
Agreement (DTAA).
warehousing services etc. which are standard services provided
The assessee claimed
to customers. There is no agreement to hire or lease out any
that revenues earned
equipment but only a service level agreement.
on account of cloud
hosting services 15. In the light of the above, we are of the view that the
constitute business amendments in the domestic tax law cannot be read into the tax
profits and since it did treaty as there is no change in the definition of 'royalties' under
not have Permanent the India-USA Tax Treaty. Therefore, the retrospective
Establishment (PE) in amendment in the royalty definition under the Act does not
India under Article 5 of impact the definition of 'royalties' in the India-USA Tax Treaty.
the DTAA, the same Further, the identical issue has been decided by the co-ordinate
would not be subject to Bench of this Tribunal in the case of Americal Chemical Society
tax in India under the v. DCIT in ITA No. 6811/Mum/2017 for the AY 2014-15 vide
provisions of Article order dated 30.04.2019, wherein identical issue was decided by
7(1) of the DTAA. Para 17 to 19 as under: —
There was a mismatch 17. We have heard the rival submissions and perused the
of receipts as per 26AS relevant material on record including the order of the lower
and as per party-wise authorities on the issue in dispute. We find that issue with
receipts furnished by respect to the PUBS division coincides with the issues on the
assessee, therefore, CAS fee. The journal provided by the PUBS division do not
the notice was also provide any information arising from assessee's previous
issued. After the reply experience. The assessee's experience lies in the creation of /
of the assessee and in maintaining such information online. By granting access to the
accordance in the journals, the assessee neither shares its experiences,
direction of the DRP, techniques or methodology employed in evolving databases
the receipt in sum of with the users, nor imparts any information relating to them. As
Rs.17,12,52,670/- was is clearly evident from the sample agreements, all that the
considered as 'Royalty' customers get is the right to search, view and display the articles
and held to be taxable (whether online or by taking a print) and reproducing or
@ 10% as per India- exploiting the same in any manner other than for personal use
USA DTAA prescribed is strictly prohibited. Further, the customers do not get any rights
taxation rate. to the journal or articles therein.
They can only view the article in the journal that they have
subscribed to and cannot amend or replicate or reproduce the
journal. Thus, the customers are only able to access
journal/articles for personal use of the information. No 'use or
right to use' in any copyright or any other intellectual property of
any kind is provided by the assessee to its customers.
Furthermore, the information resides on servers outside India,
to which the customers have no right or access, nor do they
possess control or dominion over the servers in any way.
Therefore, the question of such payments qualifying as
consideration for use or right to use any equipment, whether
industrial, commercial or scientific, does not arise. 18. To put a
comparison, if someone purchases a book, then the
consideration paid is not for the use of the copyright in the book/
article. The purchaser of a book does not acquire the right to
make multiple copies for re-sale or to make derivative works of
the book, i.e., the purchaser of a book does not obtain the
copyright in the book. Similarly, the purchaser of the assessee's
journals, articles or database access does not have the right to
make copies for re-sale and does not have the right to make
derivative works. In short, the purchaser has not acquired the
copyright of the article or of the database. What the buyer gets
is a copyrighted product, and accordingly the consideration paid
is not royalty, but for purchase of a product. In the instant case
too, what is acquired by the customer is a copyrighted article,
copyrights of which continue to lie with assessee for all
purposes. lt is a well settled law that copyrighted article is
different from a copyright, and that consideration for the former,
i.e. a copyrighted article does not qualify as royalties. 19. Thus,
the principles noted by us in the earlier part of this order in the
context of the income earned by way of CAS fee are squarely
applicable to the subscription revenue received from customers
of PUBS division for sale of journal also, and accordingly PUBS
fee also does not qualify as 'Royalty' in terms of section 9(1)(vi)
of the Act as well as Article 12(3) of the India-USA DTAA."
16. From the above facts and circumstances, we are of the view
that the agreement between the assessee and its customer is
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 is used to provide
these services belong to the assessee. The customers do not
have physical control or possession over the servers and right
to operate and manage this infrastructure / servers vest solely
with the assessee. The agreements entered into the service
level agreements. The agreement is to provide hosting services
simpliciter and is not for the purpose of giving the underlying
equipment on higher or lease. The customer is 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, we are of the view that income from cloud hosting
services has 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 is no PE of the assessee in India and hence,
no income can be taxed in India in term of Indo-US DTAA. We
reverse the orders of the lower authorities and allow this issue
of assessee's appeal."
5. On appraisal of the above mentioned finding, we find that the
agreement between the assessee and its customers is for
providing hosting and other ancillary services to the customers
and not for the use of leasing any equipment. The data centre
and the infrastructure therein used to provide these serves
belongs to the assessee. The customers are not having physical
control or possession over the servers and right to operate and
 manage this infrastructure/servers vest solely with the
assessee. The agreement is to provide hosting services
simpliciter and is not for the purpose of giving the underlying
equipment on hire or lease. The customer was not knowing any
location of the server in data centre, web mail, websites etc.
Accordingly, it cannot be said 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 Data by the AO and DRP. Moreover,
there is no PE of the assessee in India and hence, no income
can be taxed in India in term of Indo-US DTAA. The facts are
not distinguishable in this order also. Therefore, the finding
above is quite applicable to the facts of the present case.
Accordingly, we find that the issue is squarely covered by the
decision of Hon'ble ITAT in the assessee's own case(supra),
hence, we decide these issues in favour of the assessee against
the revenue.
8. ITAT Delhi Ariba Inc, New AY 2004- • Brief facts of the case “24. Now, we refer to the issue whether receipt should be taxed -
Delhi vs ADIT ITA 05 to are that the assessee as royalty within the meaning of Article 12(3)(b) of the India USA
No.1470/Del./2015 2011-12 is a company DTAA and also under Explanation 2(iva) to section 9(1)(vi).
incorporated in the
USA. The assessee is 25. The assessee’s submission in this regard is that this
engaged in the payment was not received by the assessee for any use of
business of conducting commercial or scientific equipment, hence it cannot be in the
Competitive Bidding nature of royalty under Article (12)(3)(b) of the DTAA and
Events i.e. On-line Explanation 2 (iva) of section 9(1)(vi) of the Act. Assessee’s
global auctions. It submission is that it is merely providing services to Ariba India
provides online auction and in the course of providing these online auction services, it
services from its Global provides access to the online auction platform. Hence, it is the
Market Operations plea of the assessee that such access does not entail providing
Centres ('GMOC') a right to use the equipment owned by the assessee on which
located outside India. the online auction platform is maintained. It is further amply
In India, the assessee made clear that Hon’ble Courts have consistently held that if the
provides such services contract is primarily for rendering services, the consideration
to Ariba India Pvt. Ltd. thereof cannot constitute royalty merely for the reason that the
(earlier known as services are being provided through use of equipment. In this
Freemarkets Services regard, assessee has placed reliance on the decision of Hon’ble
Pvt. Ltd. hereinafter Delhi High Court in the case of Asia Satellite
referred to as 'Ariba Telecommunications Co. Ltd. (supra) wherein Hon’ble Delhi
India') a wholly-owned High Court held that consideration paid to a satellite company
subsidiary of the for uplinking and down linking of TV signals will not be royalty
assessee. for use of transponders inside the satellite. In our considered
• For the A.Y. 2004-05, opinion, this case law applies on the fours on the present case.
the assessee earned 26. Further assessee placed reliance on the decision of ISRO
an amount of Satellite Centre (ISAC) (supra), wherein, it was held that for
Rs.3,90,17,222/- from equipment royalty to arise, the payer needs to have control over
Ariba India. According the equipment. If the payer merely receives a service without
to the assessee, the control or possession of the equipment, no royalty can arise. We
receipts from Ariba find that it is nobody’s case that on the platform that is being
India were in the nature used by the AE, the AE has any such control over it. To the
of business profits and same effect, following decisions are cited :-
it did not qualify as (i) Director of Income-tax v. New Skies Satellite BY (2016)
'royalty or fees for
technical services' in 382 ITR 114 (Del HC)
terms of Article 12 of 27. Further the assessee's submission is cogent that a perusal
the Indo-US Double of the agreement shows the factual position that there is no
Tax Avoidance parting of any exclusive right by the assessee in favour of the
Agreement ('DTAA'). customer and it is a mere provision of service by the assessee
Accordingly, in the to Ariba India. The customer only avails a service and pays for
absence or a it. The assessee has merely conducted online auction on its
permanent platform and at all times, the control on process and information
establishment, the etc. remains with the assessee. The other case laws referred by
assessee offered Nil the ld. Counsel for the assessee hereinabove are also germane
income in its return of and support the case of the assessee. In this regard, we may
income. In the also refer to the decision of Salesforce.com Singapore Pte vs
assessment order for The Dy DIT Circle 2(2) International Taxation, ITA Nos.4582 to
this year, the AO held 4584, 6090/Del./2010 ITA No.3923/Del./2012 ITA
that Ariba India was a No.1538/Del./2013 ITA Nos.1469 & 1470/Del./2015 Delhi TS-
dependent agent PE of 222-ITAT-2022(DEL) wherein ITAT held that by granting access
the assessee in India to the information forming part of the database, the Assessee
and that the income neither shares its own experience, technique or methodology
arising to the assessee employed in evolving databases with the users, nor imparts any
is taxable as business information relating to them, thus the income earned by the
income under Article 5 Assessee cannot be taxed as royalty as per section 9(1)(vi) as
read with Article 7 of well as Article 12C of the DTAA.
the DTAA. The AO
28. In the background of the aforesaid and following the
estimated the
precedents, we sustain the assessee's plea that it cannot be
expenses incurred by
said that the receipts of the assessee from Ariba India can come
the assessee for
within the purview of "royalty" as defined under Article 12(3) of
maintaining requisite
the DTAA and the assessee has been merely providing services
infrastructure for
of conducting online auctions to Ariba India and no exclusive
conduct of online
right to use the equipment / process has been granted in favour
auction at 50% of gross
of either Ariba India or its customers in India to qualify as
receipts and
"royalty".
accordingly, the
balance 50% of the
gross receipts were
deemed to be income
of assessee. The
assessment was
 completed at an
income of
Rs.1,95,08,611/-
against the Nil income
returned by the
assessee. Initially the
AO taxed this income
at the rate of 15% but
subsequently through
an order u/s 154 of the
Act taxed the same at
the rate of 41%.
Alternatively, the
payments received by
the assessee from
Ariba India were held
as royalty income
under Article 12 of the
DTAA.
• For the A.Y. 2005-06
and 2006-07, the
assessee received an
amount of
Rs.1,25,82,496/- and
Rs.53,77,834/-
respectively from Ariba
India but filed its return
of income at Nil income
In the assessment
order passed for these
years, the AO held the
receipts of the
assessee from Ariba
India to be in the nature
of royalty income and
taxed the same at the
rate of 15%. Moreover,
the AO assessed the
assessee at an income
of Rs.7,12,21,675/-
against the actual
receipts of
Rs.1,25,82,496/- for
A.Y. 2005-06 and at
Rs.8,83,60,840/-
 against the actual
receipts of
Rs.53,77,834/- for the
A.Y. 2006-07. This was
done by the AO on the
basis of the agreement
between the assessee
and Ariba India
according to which
Ariba India was to pay
to the assessee 45% of
its receipts for the
online auction services
provided to it by the
assessee whereas it
actually paid only
7.95% of its earning to
the assessee
amounting to
Rs.1,25,82,496/- in
A.Y. 2005-06 and
about 3% of its
earnings amounting to
Rs.53,77,834/- in A.Y.
2006-07. The AO
further held that the
Ariba India was
assessee's DAPE in
India and alternatively
the payments received
by the assessee from
Ariba India were in the
nature of business
income.
• The CIT(A), vide
consolidated order
dated 14th July 2010
passed for AYs 2004-
05 to 2006-07
(Impugned Order for
AYs 2004-05 to 2006-
07), held that the
receipts of the
Assessee are taxable
as royalty under Article
 12(3)(b) and also that it
has a DAPE in India in
term of Article 5(4)(a)
and Article 5(4)(c) of
the DTAA. Further. the
royalty income is
attributable to the
DAPE of the Assessee
and should be taxed at
the rate of 20% under
section 440 read with
section 115A( I )(b) of
the Income Tax Act.
1961 (ITA). However,
for AY 2005-06 and
2006-07, theCIT(A)
held that that only the
actual income can be
taxed and not the
notional income (15%
of the gross receipts of
Ariba India that were
taxed by the AO).
9. Supreme CIT v. Kotak AY 2005- • By the impugned order, “4. Aggrieved by the finding that transaction charges paid to the 1. Ariba Inc, New
Court of Securities Ltd. 06 the High Court of Stock Exchange are fees for "technical services", the Delhi vs ADIT ITA
India [2016] 67 Bombay held that the assessee—Kotak Securities Ltd. is in appeal before us whereas No.1470/Del./2015
taxmann.com 356 transaction charges the Revenue seeks to challenge the later part of the order of the (ITAT Delhi)
paid by a member of High Court set out above. The assessee is also in appeal
the Bombay Stock against similar orders passed in respect of subsequent 2. Elsevier
Exchange to transact assessment orders in the case of the assessee itself. As the Information
business of sale and order of the High Court, with regard to transaction charges being Systems GmbH
purchase of shares in the nature of fee for technical services, has been made [2019] 106
amounts to payment of applicable to the assessments in case of other assessees, such taxmann.com 401
a fee for 'technical of the assessees who are aggrieved thereby have filed the other (ITAT Mumbai)
services' rendered by appeals before us.
the Bombay Stock 3. Hitachi Metglas
Exchange and, . (India) (P.) Ltd. v.
therefore, under the . DCIT [2021] 133
provisions of section taxmann.com 267
6. What meaning should be ascribed to the word "technical
194J, on such (ITAT Delhi)
services" appearing in Explanation 2 to clause (vii) to Section
payments TDS was
9(1) of the Act is the moot question. In CIT v. Bharti Cellular Ltd.
deductible at source.
[2011] 330 ITR 239/[2010] 193 Taxman 97 this Court has
The said deductions
observed as follows:
not having been made
by the assessee, the
entire amount paid to 'Right from 1979, various judgments of the High Courts and
the Bombay Stock Tribunals have taken the view that the words "technical
Exchange on account services" have got to be read in the narrower sense by applying
of transaction charges the rule of noscitur a sociis, particularly, because the words
was not deducted in "technical services" in section 9(1)(vii), read with Explanation 2
computing the income comes in between the words "managerial and consultancy
chargeable under the services".'
head 'profits and gains
of business or 7. "Managerial and consultancy services" and, therefore,
profession' of the necessarily "technical services", would obviously involve
assessee for the services rendered by human efforts. This has been the
assessment year in consistent view taken by the courts including this Court in Bharti
question in view of the Cellular Ltd's. case (supra). However, it cannot be lost sight of
provisions of section that modern day scientific and technological developments may
40(a)(ia). tend to blur the specific human element in an otherwise fully
Notwithstanding the automated process by which such services may be provided.
above, the Bombay The search for a more effective basis, therefore, must be made.
High Court held that in 8. A reading of the very elaborate order of the Assessing Officer
view of the apparent containing a lengthy discourse on the services made available
understanding of both by the Stock Exchange would go to show that apart from
the assessee and the facilities of a faceless screen based transaction, a constant
revenue with regard to upgradation of the services made available and surveillance of
the liability to deduct the essential parameters connected with the trade including
TDS on transaction those of a particular/single transaction that would lead credence
charges paid to the to its authenticity is provided for by the Stock Exchange. All such
Bombay Stock services, fully automated, are available to all members of the
Exchange right from stock exchange in respect of every transaction that is entered
the year 1995, i.e., into. There is nothing special, exclusive or customised service
coming into effect of that is rendered by the Stock Exchange. "Technical services"
section 194J till the like "Managerial and Consultancy service" would denote
assessment year in seeking of services to cater to the special needs of the
question, benefit, in the consumer/user as may be felt necessary and the making of the
facts of the case, same available by the service provider. It is the above feature
should be granted to that would distinguish/identify a service provided from a facility
the assessee and the offered. While the former is special and exclusive to the seeker
disallowance made by of the service, the latter, even if termed as a service, is available
the Assessing Officer to all and would therefore stand out in distinction to the former.
under section 40(a)(ia) The service provided by the Stock Exchange for which
must be held to be not transaction charges are paid fails to satisfy the aforesaid test of
correct. specialized, exclusive and individual requirement of the user or
consumer who may approach the service provider for such
assistance/service. It is only service of the above kind that,
according to us, should come within the ambit of the expression
"technical services" appearing in Explanation 2 of Section
9(1)(vii) of the Act. In the absence of the above distinguishing
feature, service, though rendered, would be mere in the nature
of a facility offered or available which would not be covered by
the aforesaid provision of the Act.
9. There is yet another aspect of the matter which, in our
considered view, would require a specific notice. The service
made available by the Bombay Stock Exchange [BSE Online
Trading (BOLT) System] for which the charges in question had
been paid by the appellant-assessee are common services that
every member of the Stock Exchange is necessarily required to
avail of to carry out trading in securities in the Stock Exchange.
The view taken by the High Court that a member of the Stock
Exchange has an option of trading through an alternative mode
is not correct. A member who wants to conduct his daily
business in the Stock Exchange has no option but to avail of
such services. Each and every transaction by a member
involves the use of the services provided by the Stock Exchange
for which a member is compulsorily required to pay an additional
charge (based on the transaction value) over and above the
charges for the membership in the Stock Exchange. The above
features of the services provided by the Stock Exchange would
make the same a kind of a facility provided by the Stock
Exchange for transacting business rather than a technical
service provided to one or a section of the members of the Stock
Exchange to deal with special situations faced by such a
member(s) or the special needs of such member(s) in the
conduct of business in the Stock Exchange. In other words,
there is no exclusivity to the services rendered by the Stock
Exchange and each and every member has to necessarily avail
of such services in the normal course of trading in securities in
the Stock Exchange. Such services, therefore, would
undoubtedly be appropriate to be termed as facilities provided
by the Stock Exchange on payment and does not amount to
"technical services" provided by the Stock Exchange, not being
services specifically sought for by the user or the consumer. It
is the aforesaid latter feature of a service rendered which is the
essential hallmark of the expression "technical services" as
appearing in Explanation 2 to Section 9(1)(vii) of the Act.
10. For the aforesaid reasons, we hold that the view taken by
the Bombay High Court that the transaction charges paid to the
Bombay Stock Exchange by its members are for 'technical
services' rendered is not an appropriate view. Such charges,
really, are in the nature of payments made for facilities provided
 by the Stock Exchange. No TDS on such payments would,
therefore, be deductible under Section 194J of the Act.”

10. Supreme CIT v. Bharti • Respondent No. 1 is a “7. The problem which arises in these cases is that there is no 1. CIT v. Kotak
Court of Cellular Ltd. [2011] cellular service expert evidence from the side of the Department to show how Securities Ltd.
India 330 ITR 239/[2010] provider. It has human intervention takes place, particularly, during the process [2016] 67
193 Taxman 97 Interconnect when calls take place, let us say, from Delhi to Nainital and vice taxmann.com 356
Agreement with versa. If, let us say, BSNL has no network in Nainital whereas it (SC)
BSNL/MTNL. Under has a network in Delhi, the Interconnect Agreement enables
such agreement, M/s. Bharti Cellular Limited to access the network of BSNL in 2. Akamai
respondent No. 1 pays Nainital and the same situation can arise vice versa in a given Technologies Inc
interconnect/access/p case. During the traffic of such calls whether there is any manual [2018] 93
ort charges to intervention, is one of the points which requires expert evidence. taxmann.com 471
BSNL/MTNL. Bharti Similarly, on what basis is the "capacity" of each service (AAR)
Cellular, BSNL, MTNL, provider fixed when Interconnect Agreements are arrived at?
Hutchison are all For example, we are informed that each service provider is
service providers. All allotted a certain "capacity". On what basis such "capacity" is
are governed by allotted and what happens if a situation arises where a service
National Standards of provider's "allotted capacity" gets exhausted and it wants, on an
CCS No. 7 issued by urgent basis, "additional capacity"? Whether at that stage, any
Telecom Engineering human intervention is involved is required to be examined,
Centre. Under the which again needs a technical data. We are only highlighting
National Standards these facts to emphasise that these types of matters cannot be
M/s. Bharti Cellular decided without any technical assistance available on record.
Limited is required to
connect its network 8. There is one more aspect that requires to be gone into. It is
with the network of the contention of respondent No. 1 herein that Interconnect
BSNL (the service Agreement between, let us say, M/s. Bharti Cellular Limited and
provider) and similar BSNL in these cases is based on obligations and counter
concomitant obligations, which is called a "revenue sharing contract".
agreement is provided According to respondent No. 1, section 194J of the Act is not
for under which BSNL attracted in the case of "revenue sharing contract". According to
is required to respondent No. 1, in such contracts there is only sharing of
interconnect its revenue and, therefore, payments by revenue sharing cannot
network with M/s. constitute "fees" under section 194J of the Act. This submission
Bharti Cellular Limited. is not accepted by the Department. We leave it there because
• The question basically this submission has not been examined by the Tribunal.
involved in the lead 9. In short, the above aspects need reconsideration by the
case is : whether TDS Assessing Officer. We make it clear that the assessee(s) is not
was deductible by M/s. at fault in these cases for the simple reason that the question of
Bharti Cellular Limited human intervention was never raised by the Department before
when it paid the CIT. It was not raised even before the Tribunal; it is not
interconnect raised even in these civil appeals. However, keeping in mind the
charges/access/port larger interest and the ramification of the issues, which is likely
charges to BSNL? For to recur, particularly, in matters of contracts between Indian
 that purpose, we are Companies and Multinational Corporations, we are of the view
required to examine that the cases herein are required to be remitted to the
the meaning of the Assessing Officer (TDS).
words "fees for 10. Accordingly, we are directing the Assessing Officer (TDS) in
technical services" each of these cases to examine a technical expert from the side
under section 194J of the Department and to decide the matter within a period of
read with clause (b) of four months. Such expert(s) will be examined (including cross-
the Explanation to examined) within a period of four weeks from the date of receipt
section 194J of the of the order of this Court. Liberty is also given to respondent No.
Income-tax Act, 1961, 1 to examine its expert and to adduce any other evidence.
('Act', for short) which,
inter alia, states that 11. Before concluding, we are directing CBDT to issue
"fees for technical directions to all its officers, that in such cases, the Department
services" shall have need not proceed only by the contracts placed before the
the same meaning as officers. With the emergence of our country as one of the BRIC
contained in countries and with the technological advancement matters such
Explanation 2 clause ( as present one will keep on recurring and hence time has come
vii) of section 9(1) of when Department should examine technical experts so that the
the Act. Right from matters could be disposed of expeditiously and further it would
1979 various enable the Appellate Forums, including this Court, to decide
judgments of the High legal issues based on the factual foundation. We do not know
Courts and Tribunals the constraints of the Department but time has come when the
have taken the view Department should understand that when the case involves
that the words revenue running into crores, technical evidence would help the
"technical services" Tribunals and Courts to decide matters expeditiously based on
have got to be read in factual foundation. The learned Attorney General, who is
the narrower sense by present in Court, has assured us that our directions to CBDT
applying the rule of would be carried out at the earliest.”
Noscitur a sociis,
particularly, because
the words "technical
services" in section
9(1)(vii) read with
Explanation 2 comes
in between the words
"managerial and
consultancy services".
11. ITAT Siemens Limited vs. - Brief facts of the case are “12. We have given our anxious consideration to the rival 1.Atos Information
Mumbai CIT ITA [2013] that the assessee was contention, orders passed by the CIT (A) as well as AO and the Technology HK Ltd.
No.4356/Mum/2010 required to decisions relied upon by the parties. One of the main issue for v. DCIT [2017] 79
make payment to “Pehla our adjudication which also goes to the core of the issue is, taxmann.com 26
Testing Laboratory” whether the payment made to Pehla Testing Laboratories in (ITAT Mumbai)
(hereinafter referred to Germany, for carrying out certain tests on circuit breakers
as PTL) located at Berlin manufactured by assessee for the purpose of certification, so as
Siemensstadt 13623 Berlin,
Germany for carrying out
type tests of the circuit
breakers manufactured by
assessee in order to
establish that the design
and the product meets the
requirement of the
International Standards –
IEC 62271-100. Pehala Lab
is accredited by National
Accreditation Board for
Testing & Calibration
Laboratories (NABL)
Germany, which carries out
various kinds of tests for
circuit breakers and other
electronic devices to prove
that the designs of the
equipment meets the
requirements of the
international standards.
This is a standard service
provided by the Laboratory,
which is done automatically
by machines. For the
purpose of the payment for
making remittance to PTL,
assessee moved an
application under section
195 (2) before theAsstt.
Director (I.T.). Along with
the said application
assessee has
given a detailed submission
and reasons justifying as to
why the remittance made to
the PTL is not liable to tax in
India under the provisions
of the Income Tax Act.
It was further submitted that
even as per the provisions
of
Explanation 2 to section
9(1)(vii), the payment do
to meet the international standard, falls within the meaning of
fees for technical services and is taxable within the meaning of
section 9(1)(vii). Assessee in pursuance of its tender formalities
with the Gujarat Energy Transmission Corporation Ltd and
Maharashtra State Electricity Transmission Company Ltd. was
required to obtain type testing certificate of the circuit breakers
manufactured by it. For this purpose it has sent the circuit
breakers to be tested in the Laboratory of PTL, wherein the
circuit breakers undergo destructive tests in the Laboratories.
Once it passes through the test in the Laboratories, certificate is
given by the PTL for the quality of the product manufactured by
assessee. Whether such a payment for this kind of testing falls
within the realm of fees for “technical services”…..
13. From the above, it is seen that the expression “fees for
technical services” has been given as consideration for
rendering managerial, technical or consultancy services. No
other definition as such of the term technical services in the Act
has been given. The word “technical” as appearing in
Explanation 2 is preceded by the word “managerial” and
succeeded by the word “consultancy”. It cannot be read in
isolation as it takes colour from the word “managerial and
consultancy” between which it is sandwiched. The Courts have
held that in such a case principle of noscitur a sociis gets
attracted, which means that the meaning of the word or
expression is to be gathered from the surrounding word i.e. from
the context. Coupling of the words together shows that they are
to be understood in the same sense. The word “managerial and
consultancy” is a definite indicative of the involvement of a
human element. Managerial services and consultancy services
has to be given by human only and not by any means or
equipment. Therefore, the word “technical” has to be construed
in the same sense involving direct human involvement without
that, technical services cannot be held to be made available.
Where simply an equipment or sophisticated machine or
standard facility is provided albeit developed or manufactured
with the usage of technology, such a user cannot be
characterized as providing technical services. The Hon'ble Delhi
High Court in the case of CIT vs. Bharati
Cellular Ltd (supra) held similar view.
14. Now coming to the facts of the present case, whether
standard service provided at the Laboratory of PTL for the
purpose of testing the equipments is done automatically by the
not fall in the nature and
category of fees for
technical services (FTS).
The main contention in this
regard was that it is not a
FTS but the payment
was purely for standard
facility provided by the
Laboratory which is done
automatically by the
machines without any
human
intervention. In support of
this contention, flyer
received from PTL,
describing the nature and
procedure of the testing
was filed before the AO.
Reliance was also placed
on the judgment of the
Hon'ble Delhi High Court in
the case of CIT vs. Bharati
Cellular Ltd reported in
2009, 319 ITR 258 and
Madras High Court
judgment in the case of
Skycell Communications
Ltd vs. DCIT reported in
2001, 251 ITR 53 (Mad.) to
support that the expression
“Technical
Services” involves a human
element, whereas in the
case of assessee there is
no involvement of human
interface. 4. AO, however,
rejected the assessee’s
contentions on the ground
that firstly, type of the
services provided by the
Pehla Lab is of highly
technical in nature and the
payment is definitely
covered
machines or purely by human intervention. Assessee before the
AO after drawing his attention to the flyer received from the PTL
had categorically pointed out that the standard service provided
by the PTL is without any human intervention. This factor has
not been disputed by him………..
15. The Hon'ble Judge in the case of Skycells Communications
Ltd. (Supra) while interpreting the word "fees for technical
services" as defined in Explanation 2 to section 9(1)(vii) has
made a very important observation:
"5. In the modern day world, almost every facet of one's life is
linked to science and technology in as much as numerous things
used or relied upon in every day life is the result of scientific and
technological development. Every instrument or gadget that is
used to make life easier is the result of scientific invention or
development and involves the use of technology. On that score,
every provider of every instrument or facility used by a person
cannot be regarded as providing technical service.
When a person hires a taxi to move from one place to another,
he uses a product of science and technology, viz., an
automobile. It cannot on that ground be said that the taxi driver
who controls the vehicle, and monitors its movement is
rendering a technical service to the person who uses the
automobile. Similarly, when a person travels by train or in an
aeroplane, it cannot be said that the railways or airlines is
rendering a technical service to the passenger and, therefore,
the passenger is under an obligation to deduct tax at source on
the payments made to the railway or the airline for having used
it for travelling from one destination to another. When a person
travels by bus, it cannot be said that the undertaking which owns
the bus service is rendering technical service to the passenger
and, therefore, the passenger must deduct tax at source on the
payment made to the bus service provider, for having used the
bus. The electricity supplied to a consumer cannot, on the
ground that generators are used to generate electricity,
transmission lines to carry the power, transformers to regulate
the flow of current, meters to measure the consumption, be
regarded as amounting to provision of technical services to the
consumer resulting in the consumer having to deduct tax at
source on the payment made for the power consumed and remit
the same to the Revenue.
Satellite television has become ubiquitous, and is spreading its
area and coverage, and covers millions of homes. When a
person receives such transmission of television signals through
by section 9(1)(vii) and
secondly, the Explanation 2
to section 9
which was inserted by the
Finance Act, 2007 with
retrospective effect
1.6.1976 provides that,
where the income is
deemed or accrued or arise
in India, such income shall
be included in the total
income of the non resident,
whether or not the non
resident has a residence or
place of business or
business connection in
India. Reference was also
made to CBDT Circular
No.03 of 2008 dated
12.03.2008. AO further held
that the decision of the
Hon'ble Supreme Court in
the case of Ishikawajima
Harima Heavy Industries
Ltd Vs DIT [2007] 288 ITR
408 relied upon by
assessee will not be
applicable as the same was
rendered upon the
provision,
prior to the amendment.
Accordingly he held that
payment made by
assessee would qualify as
fees for technical services
as per the
DTAA between India and
Germany, as well as per
section 9(1)(vii) of the
Income Tax Act. Thus, he
directed assessee to
deduct the tax @
the cable provided by the cable operator, it cannot be said that
the home owner who has such a cable connection is receiving
a technical service for which he is required to deduct tax at
source on the payments made to the cable operator.
Installation and operation of sophisticated equipments with a
view to earn income by allowing customers to avail of the benefit
of the user of such equipment does not result in the provision of
technical service to the customer for a fee.
6. When a person decides to subscribe to a cellular telephone
service in order to have the facility of being able to communicate
with others, he does not contract to receive a technical service.
What he does agree to is to pay for the use of the airtime for
which he pays a charge. The fact that the telephone service
provider has installed sophisticated technical equipment in the
exchange to ensure connectivity to its subscriber, does not on
that score, make it provision of a technical service to the
subscriber. The subscriber is not concerned with the complexity
of the equipment installed in the exchange, or the location of the
base station. All that he wants is the facility of using the
telephone when he wishes to, and being able to get connected
to the person at the number to which he desires to be
connected. What applies to cellular mobile telephone is also
applicable in fixed telephone service. Neither service can be
regarded as "technical service" for the purpose of section 194J
of the Act.
7. The use of the internet and the world wide web is increasing
by leaps and bounds, and there are hundreds of thousands, if
not millions, of subscribers to that facility. The internet is very
much a product of technology, and without the sophisticated
equipment installed by the internet service providers and the
use of the telephone fixed or mobile through which the
connection is established, the service cannot be provided.
However, on that score, every subscriber of the internet service
provider cannot be regarded as having entered into a contract
for availing of technical ser- vices from the provider of the
internet service, and such subscriber regarded as being obliged
to deduct tax at source on the payment made to the internet
service provider.
Thus if a standard facility is provided through a usage of
machine or technology, it cannot be termed as rendering of
technical services. Once in this case it has not been disputed
that there is not much of the human involvement for carrying out
the tests of circuit breakers in the Laboratory and it is mostly
10% on the gross amount of done by machines and is a standard facility, it cannot be held
payment to be made to that Pehla Testing Laboratory is rendering any kind of technical
PTL. services to assessee. In our conclusion, we thus hold that
payment made by assessee to the PTL in Germany is not in
Aggrieved by this, consideration for rendering of any kind of "technical services"
assessee preferred an either in the nature of managerial or technical or consultancy
appeal before the CIT (A), services. Therefore, it does not fall within the ambit of section
wherein it was submitted 9(1)(vii).”
that this kind of testing
certificate is required by
assessee for completing
the tender formalities in
India
and for this purpose it had
to send circuit breakers,
one of the product
manufactured by assessee
to Pehla in Germany for
quality tests.

The learned CIT (A) first of

all noted the nature of the
services for which the
payment was made to PTL
in the following manner:
“3.7 The nature of services
has been described in detail
in the preceding Paras.
However, to reiterate, the
payments are to Pehla
Testing Laboratory, located
at Berlin, Germany for
carrying out type tests. The
type tests were required to
be carried out on the circuit
breakers manufactured by
the appellants to prove that
the design of the equipment
meets the requirements
stipulated by International
Standards and were for the
purpose of fulfillment of one
of the Tender formalities
laid down by the
purchasers. For this
purpose, the appellants had
to send the circuit breakers
(the product manufactured
by the appellants) to Pehla
Germany to obtain the type
testing certificate. The
circuit breakers undergo a
destructive test in the
laboratories. The breakers
are not received back in
India and are destroyed.
Pehla carried out only type
testing by using their
sophisticated test
equipments to impose both
high voltage and high
currents on the circuit
breakers without human
intervention and issued
reports of the tests
conducted”.

Thereafter CIT(A) come to

the conclusion that PTL is
carrying out technical kind
of services