Income Tax Appellate Tribunal - Delhi
Sabre Decision Technologies ... vs Acit, International Taxation, Circle ... on 3 January, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'D', NEW DELHI
Before Sh. Saktijit Dey, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
ITA No. 7354/Del/2017: Asstt. Year: 2013-14
ACIT, Vs Sabre Decision Technologies
International Taxation, International LLC, 3150, Sabre
Circle-3(1)(2),New Delhi Drive, South Lake, Texas, USA
(APPELLANT) (RESPONDENT)
PAN No. AAOCS8327B
CO. No. 54/Del/2021
(In ITA No. 7354/Del/2017: Asstt. Year: 2013-14)
Sabre Decision Technologies Vs ACIT,
International LLC, 3150, Sabre International Taxation,
Drive, South Lake, Texas, USA Circle-3(1)(2), New Delhi
(APPELLANT) (RESPONDENT)
PAN No. AAOCS8327B
ITA No. 5782/Del/2017: Asstt. Year: 2014-15
Sabre Decision Technologies International Vs ACIT,
LLC, Tarandeep Singh, Advocate, International Taxation,
C/o. M.S. Associates, F-99, Circle-3(1)(2),
Lajpat Nagar-II, New Delhi New Delhi
(APPELLANT) (RESPONDENT)
PAN No. AAOCS8327B
Assessee by : Sh. Tarandeep Singh, Adv.
Revenue by : Sh. Gangadhar Panda, CIT-DR
Date of Hearing: 07.11.2022 Date of Pronouncement: 03.01.2023
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeals and cross objection filed by the assessee and revenue against the order of the ld CIT(A)- 43, New Delhi dated 21.09.2017.
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2. The revenue has raised the following ground s of appeal in ITA No. 7354/Del/2017 for Assessment Year 2013-14:-
"1. Whether in facts and circumstances of the case, the CIT(A) erred in holding that the assessee does not have a business PE in India, whereas in similar cases and also in case of its group company, it has b een judicially held that the said non-resident entities have fixed place business PE in India."
3. The assessee has raised the following grounds of appeal in ITA NO. 5782/Del/2017 for Ay 2014-15:-
"1. That on facts and in law the AO has erred in assessing the total income of the appellant at Rs 121,09,51,819/- as against a returned total income of Rs 1,60,78,620/-.
2. That on facts and in law the AO / DRP have erred in holding / upholding that the appellant has a Permanent Establishment (PE) in I ndia.
2.1 That on facts and in law the AO erred in presuming that appellant has ad mitted existence of PE in India.
3. That on facts and in law the AO / DRP erred in not appreciating that business model of appellant was materially different from the erstwhile business model of M/s Sabre GLBL I nc.
3.1 That on facts and in law the DRP erred in relying upon extraneous material not relevant to the appellant.
4. That on the facts and in law AO has erred in holding and the DRP has erred in upholding that the amounts received by the appellant from its customers in India (i.e. various airlines) are chargeable to tax as income from "Royalty" as defined u/s 9 of the Act.
4.1 That on facts and in law the AO/DRP have erred in holding that receipts of the ap pellant fall under the definition of "Royalty" for alleged use of system / software license and process.
4.2 That on facts and in law the lower authorities have erred in not appreciating that the amounts received by the appellant from its customers in India Page | 2 are for the use of a standardized facility and not for the use of any software / process.
5. That on the facts and in law the AO / DRP have erred in holding / upholding that:
(a) provisions of Section 44DA of the Income-tax Act, 1961 are applicable
(b) gross receipts of the appellant (from customers in India) are chargeable to tax
(c) Income chargeab le to tax cannot be determined under Rule 10(ii) of Income Tax Rules.
6. Without prejudice, that on facts and in law the AO has erred in levying tax on gross receipts of Rs 121,09,51,819/- as against the actual total gross receipts of Rs 117,05,95,299/- declared by the appellant in its return of income.
7. That on facts and in law the AO erred in levying interest u/s 234A, 234B, and 234C of the Income Tax Act.
8. That on facts and in law the order passed by Assessing Officer {hereinabove referred to as the "AO"} and Dispute Resolution Panel {hereinabove referred to as the "DRP"} are bad in law and void ab- initio."
4. The revenue has raised the following grounds in Cross Objection No. 54/Del/2019 for Assessment Year 2013-14:-
"1. That on facts and in law, the Commissioner of Income-
tax (Appeals)-43 New Delhi ['Ld. CIT(A)] erred in assessing the total income of the respondent at INR 88,33,78,910/- as against a returned total income of INR 1,28,28,565/-.
2. That on facts and in law, Ld . CIT(A) erred in holding that receipts amounting to INR 88,33,78,910/- earned by the respondent from its Indian customers constitute "Royalty" under Section 9(1)(vi) of the Income-tax Act, 1961, ('the Act') and is eligible to be taxed as such.
2.1 That on facts and in law, Ld. CIT(A) erred in holding that receipts of the respondent fall under the definition of "Royalty" for alleged use of a process or the imparting of any information concerning commercial knowledge, experience or skill."
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5. The revenue's main contention was that the assessee, a non-resident has a fixed place PE in Ind ia for the A.Y. 2013-14. For the A.Y. 2013-14, the assessee filed CO against the order of the ld. CIT(A) hold ing that the receipts of the assessee from Indian customers constitute royalty u/s 9(1)(iv) of the Income Tax Act, 1961.
6. The assessee's objection for the A.Y. 2014-15 against the decision of the ld . DRP holding that the assessee has a PE in Ind ia and also for hold ing that the amounts received by the assessee from his customers are chargeab le to tax as income from royalty as defined u/s 9 of the Income Tax Act, 1961.
7. The pertinent facts relevant to the adjudication of the issue are as under:
8. The assessee is a Delaware registered Limited Liability Company . It is directly held by Sabre International B.V. and indirectly held by Sabre GLBL Inc. The assessee markets and provides travel related products and services to airlines such as Airline decision support applications, passenger solutions, consulting services etc. These services are rendered using servers located in USA.
9. For the year under consideration, the assessee derived revenues from its airline customers in Ind ia for the above mentioned services. The assessee has also submitted that the services rendered by it are similar to the ones rendered by its group enterprise - Sabre GLBL Inc. It has been further sub mitted by the assessee that the services are rendered to the airline customers in India using the similar mod us operandi as Sabre GLBL Inc i.e. services are rendered using computer systems located in USA.
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10. It is submitted b y the assessee that in case of Sabre GLBL Inc., it has been held by Hon'ble ITAT and Hon'ble Delhi Hig h Court (ITA 295 of 2010) that it constitutes both a business connection in India within the meaning of Section 9 of the I.T Act, 1961 and also a Permanent Estab lishment ('PE') in Ind ia within the meaning of Article 5 of the DTAA between India and USA.
11. The assessee in its notes to comp utation of income for the subject assessment year stated that it does not have any office/ place of business in India nor does it have any employees based out of Ind ia. However, applying the ratio of order of Hon'ble High Court in case of Sabre GLBL Inc., it has filed its return of income for the year under consideration on the assumption (without ad mitting) that it constitutes a business connection in India within the meaning of Section 9 of the I.T. Act, 1961.
12. It was stated that the assessee does not hold a valid Tax Residency Certificate ('TRC') issued by tax authorities in United States of America ('USA') and hence the benefit of the India-USA Double Taxation Avoidance Agreement ('DTAA') has not been claimed by the assessee and the income has been offered under the provisions of the I.T. Act, 1961.
13. The assessee has offered 15% of net profits from revenues derived from its customers in Ind ia to the business connection in India. The net profits are stated to have been calculated by applying global profitability ratio as prescribed by Rule 10(ii) of the Income-tax Rules ('the Rules') and in support the assessee has also filed audited profit and loss account. It claimed that g lobal expenses Page | 5 have been apportioned to India b usiness in the same ratio which the Ind ian revenues bear to the Global revenues. The said expenses have been claimed as a deduction by the assessee in its return of income for the sub ject AY.
14. After going through the Explanation 2 to Section 9(1) of the I.T. Act, the Assessing Officer treated the entire receipts of Rs.8.33 crores without giving any expenses as taxable income to be taxed @ 40%.
Existence of PE in India:
15. The ld . CIT(A) examined the issue primarily whether there is any PE of the assessee in India or not. The order of the ld. C IT(A) Sh. Raman Chopra is as under:
It is h ow ev er s e en t ha t t he c o nc ep t o f P E is na rro we r t h a n t he c once pt o f b us in es s c on nec t io n. A b us i nes s c onn ec t ion re f err ed t o in Sec . 9 of t h e I nc om e t a x A c t is a n inc lus iv e d e f init ion g iv e n in Ex p la na t io n 2 o nly for t h e p urp os e of d ef ini ng a s it uat ion w he re a no n res id e nt op er at ing t hr ou gh an a ge nt is de em ed to ha v e a bus i ness c on nect io n in I nd ia . T ha t m a y not b e r eleva nt t o t he p r es e nt c as e . T her ef ore t he fa c ts of t h e c as e a re p e r s e req u ired t o be ex am in ed as t o w h at is t h e b us in es s of t he as s es s e e a nd how it op era t es . On t he ot he r ha nd , t he t e rm 'P erm a nent Esta blis hm e nt ' (P E) is not d ef ine d f or t he p u rp os es of Sec . 9 of t he I nc o m e-t a x Ac t or f or t he Ac t as a w h ole i n s ec t i on 2. How e v e r a n inc lus iv e d e f init ion is giv en in S ec .92 F . Sa m e is a ls o r ep rod uc ed he re und e r:
In Sec t ions 92 , 92 A , 92 B, 92 C, 9 2D an d 9 2 E, un les s t he c ont ex t ot he rw is e req ui res , -
.... . [(iii ) "p erm a ne nt est ab lis hm ent" , re fe rr ed to in c la us e (ii i), inc lu d es a f ix ed p la c e of b us i ness t hr oug h w hic h t h e b us ines s of t he ent e rp ris e is w h olly or p a rt ly c a rr ied o n;] T h is d ef ini t io n is f or Sec . 92 , 92 A , 92 B, 92 C, 92D & 92 E. A reas o na b le gu ida nc e how ev er , ma y be d r aw n f rom t his d ef in it i on fo r ot h er s ec t ions in t he Ac t in r es p ec t of a fix e d p lac e P E. T he a b ov e Page | 6 de fi nit ion s ug ges ts tha t a f ix ed p l ac e of b us in es s is r eq uired f or a pe rm a n ent es t a b lis hm en t t o ex is t . T he A O in h is o rd er d oes not ind ic at e a s t o ho w a fix ed p la c e P E e x is t s in th e c as e o f t he a s s es s ee . It is f urt he r m e nt ion ed t ha t t h e as s e ss ee is a D e law ar e ba s ed L L C w h ic h op e ra t es its bus in es s f rom U S. I t ha s ho w ev e r b ee n s ub m itt ed by t h e a ss es s ee t h a t t he Ta x R es id e nc y Ce rt if ic a t e of t he U S is n ot av a i lab le w it h t he c omp a ny a nd t h er ef or e t r ea ty b e nef it s und er t he D T A A a r e n ot a v a ila b le to t he as s es s e e. T h e int erp r et a t ion of P E in th e c as e of t he a s s es s ee , t her ef o re, has t o b e d et erm i ned o nly in ac c o rda nc e w it h t he d om es t ic la w . I n t he pres ent cas e, t he as s es s e e do es not ha v e a fix ed p lac e o f b us i nes s , a s no eq u ipm ent is inst a l led by the a s ses s ee w it h it s c l ients . T he re is no a g ent wh o is a dep e nda nt a ge nt a nd t h er ef or e, D A P E is a ls o not p r es e nt . T he ref ore , th e c as e f or e x is t en ce of a P E in I nd ia is not m ad e out . T he a ss es s ee a lso d oes not ha v e a ny ot h er p res enc e in I nd ia .
H ow e v er, t he t erm ' bus in es s c o nnec t io n' b ei ng a f a r b road e r c o nc ept ev en th oug h not a d m itt ed b y the as s e ss ee, is c lea rl y es t ab lis hed in his c a s e. T h e c li ent s of t he as s es s ee a r e loc at ed in I nd ia, wh ic h a re th e A irlin es . T hes e c lie nt s / a re t he en tit ies to w h ic h c e rt a in s pec if ic s erv ic es a re b e ing r end e red b y t h e as s e ss ee. T he m od e of de liv e ry of s uc h ad v ic e a nd s e rv ic es is t hro ug h a log in p o rt a l a v a il a bl e t o t he c lie nt in I n d ia . T his is t he b as ic t o uc h poi nt in t h e I nd ia n j ur is d ic t ion w h ic h is t he po int of d eliv ery of t he se rv ic es . F urt he r, t he na t ur e of th os e s erv ic es d et erm in es re v e nu e c ha rg ea b le b y t he as s e ss ee f rom th e c lie nt s. R ev en ue is a ls o c ha rged by the as s ess e e f or p ro v id ing t he po int o f d eliv ery of th e s er v ic es in I nd ia, t ha t is , t he logi n p ort a l. T h us , t he b us iness of d el iv e ry o f s pec ia li z ed s er v ic es r ela t ed to dec is ion m a k in g in th e A ir line i nd us t ry of t h is f orei gn c om pa ny i.e. th e as s es s e e c o nc lus iv e ly has a b us ines s c on nect ion in th e I nd ia n Jur is d ic t ion. T her ef or e, as a b us ines s c o nnec t io n of t h e a ss es s ee is c lea rly m a d e o ut , t h er e is a pp ar ent ly s o me inc om e wh ic h is a ris in g to th e as s es s e e fr om s uc h op era t i ons . T he Sec .9 of t he I nc om e T a x Ac t 19 61 , c lea r ly s ta t e s t ha t a ny inc om e ar is ing t h ro ugh o r f r om a bus i ness c o nnec t i on is lia b le t o t a x in I nd ia . H ow ev er no P E in I nd ia is ma d e o ut i n t h e a s s es se e' s c a s e."
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16. Against the decision of the ld. CIT(A), before us, the ld. DR, Sh. Gangadhar Panda filed his arguments in writing which are as under:
"Sub: Written Submission in the above case-reg.
During the course of hearings on 07-11-2022, the Hon'ble Bench directed the undersigned to give a short written submission on the issues under consideration i.e. Issue 1: Receipts earned by the appellant from its Indian customers fall under the definition of "Royalty" for use of a process or the imparting of any information concerning commercial knowledge, experience or skill.
Issue 2: Whether the assessee has a business PE in India?
2. Submission of the Revenue:
On the issue of receipts earned by the appellant being in the nature of Royalty, it is submitted that the Revenue has relied on the findings of the CIT (Appeals) in addition to the oral arguments made during the course of the hearing. On the issue of whether the assessee has a PE in India, following submission is made for consideration in addition to the oral arguments made during the hearing:
2.1. In this case, the appellant (Sabre Decision Technologies, hereafter referred as SDT) markets and provides travel related products and services to airlines including applications like Passenger Solutions, such as hosted reservations and departure control systems and Airline decision support applications etc. These services are rendered by the appellant using its servers located in USA. The services rendered by SDT are similar in nature to those rendered by its own group company, Sabre GLBL Inc. in the sense that both are hosted software services provided from computer servers located outside India. Accordingly, while computing the taxable income, the appellant followed the order of the Hon'ble Delhi High Court (ITA no. 295 of 2010) in case Sabre GLBL Inc. and suo-moto offered 15% of its business profits from India to tax on the assumption that there is a business connection of SDT in India.
2.2. In this connection, AO has given a finding in beginning of para 10 of final assessment order that assessee itself claimed to have a PE in India and has offered the receipts to tax as business income. However, appellant countered this finding during the appeal proceedings stating that its assumption of forming a business Page | 8 connection in India was merely to buy peace and to avoid litigation, and should not be equated with appellant having a PE in India under the Act. In this regard, reference was drawn to the various judgments by appellant and submitted that even where a business connection in India existed under Section 9(1) of the Act, the same could not be equaled with the appellant constituting a PE in India so as to apply Section 44DA of the Act. The assessee has strongly contested this issue and has stated that it has never admitted to have a PE in India since it had no office nor any place of business or any server installed in India by the assessee.
2.3. Ld. CIT(A) in his order observed that the clients of the assessee i.e. various airlines /travel agents are located in India to whom specific services were rendered by the assessee. The mode of delivery of such specialized advice and services is through a login portal in India by the airline industry which led to existence of business connection in the India as per sec 9(1) of the IT act and thus the income arising from business connection is liable to tax in India. However, the CIT gave a ruling that no PE in India is made out in the assessee's case as assessee did not have a fixed place of business nor any dependent agent PE (DAPE).
2.4. In regard to existence of PE in India, the AO has brought out in the assessment order (para -2) that in order to provide these specialized resources/services, the applicant facilitates access for the ticket agents/passengers to flight reservation information, On-Real Time basis, through the Main Sabre Ticket booking System, by pulling out customers' ticket booking data and provides further supporting services as mentioned above. Therefore, the Revenue is of the view that going by the nature of supporting services i.e. advance seat purchases, food and beverages booking, extra baggage booking etc. by the clients already booked the air tickets from Sabre Main Ticket booking systems, such real time data access and accelerated data exchange not possible unless dedicated Sabre interface system is activated in the clients' computer terminals, and certainly not possible through remote access to the server located in USA. Therefore, contrary to the claims of the applicant that there is no PE as its server is outside India, the computer terminals of the clients of the applicant are enabled to be an integral part of the Main Ticket booking system of Sabre group , which has been accessed and exploited by the applicant in an integrated manner in a seamless environment to provide uninterrupted supporting services to its clients. No supporting services relating to a specific booked ticket be made available without accessing to the main Booking System to pull out booking data .Thus the Booking system operated by Sabre parent group entity and supporting services by Sabre Decision are seamlessly integrated for providing the necessary supporting services. It means Page | 9 that the Sabre Booking Interface enabled in the clients' computer terminals are functioning in Indian territory through log-in access rights provided by the applicant and the agents use such services on real-time basis through the servers nodes installed in their work stations located in India. Thus, even though the server may not be inside India, but the Interface System hooked to the Agents' computers would amount to an existence of PE for the applicant in respect of the utilization of resources which are in the nature of royalty.
2.4. Thus, in view of the applicant having a PE in India would give rise to business income , and as per Art 12 of DTAA , the income has to be assessed under ART 7 or Sec 44DA of the IT Act, as discussed by AO at para-10.1 of the final assessment order .
2.5. Revenue relies on the following judicial rulings in regard to existence of PE in the case of the applicant i.e. the ruling of the Hon'ble AAR in the case of 'Mastercard Asia Pacific Pte Ltd' (MasterCard) and the decisions of Hon'ble ITAT, Delhi Bench in the cases of Amadeus Global Travel Distribution SA vs DCIT [2008] 113 TTJ (ITAT Delhi) 767 &GaIileo International Inc. [2008] 19 SOT 257 (Delhi).
The legal positions discussed in aforesaid cases are as under-
(A) The Hon'ble ITAT Delhi Bench in these two cases held that CRS systems installed in the premises of Indian agents constituted a PE in India, and 15% of income from Indian operations was chargeable to tax in India.
(B) In case of Galileo, facts of the case were that the non-resident enterprise was running a fully automatic computer reservation and distribution system with the ability to perform comprehensive information, communication, reservations, ticketing, distribution, and related functions on a worldwide basis for travel industry, particularly participating airlines, hotels etc. (referred as CRS). In India CRS was installed on the computer of travel agents. Customers approached the travel agent who used this CRS to transfer the requests to main server outside India which did processing to throw up the best possible results for hotels and airlines, matching the customers' preferences. On these facts, it was held that CRS constituted PE of the non-resident in India.
(C) In the case of Mater Card before the Hon'ble AAR, [2018] 94 taxmann.com 195 (AAR - New Delhi) (copy annexed), Revenue relied upon the above decisions to establish that Mastercard Interface Processor (MIPs) along with the master card network consisting of transmission towers, leased lines, fiber optic cables, nodes, Page | 10 internet etc., though provided by third party service provider but at disposal of MAPL, constituted PE in India.
(a) After considering submissions of the assessee and the Revenue, the Hon'ble AAR at para 16.2.2 of its order held that MIPs placed at the site of customer banks in India, can create a PE provided other tests are satisfied. Hon'ble AAR held that MIPs passed test of permanency as they were placed at the site of customer banks throughout the year.
(b) At para 17.5.2 of its order, Hon'ble AAR has discussed the above two case laws relied upon by the Revenue. Hon'ble AAR held that what was CRS in Amadeus and Galileo cases was MIP and application software (master connect and Mastercard file) in case of MAPL. It was held that MIP was the instrument and software which conducted the business of the MAPL in India and it was installed in India. Relevant part of the order is reproduced below:
In the case of Amadeus and Galileo, it is installed inside the computers of travel agents (which could be computers of travel agent modified after including CRS or computer itself provided by assessee or its agent). In our case, the software and process technology (which is part of MIPs and is owned by the Applicant or licensed to it by the owner) is installed in the premises of the Customers of Banks/FIs etc.) in India. The application software (Master Connect and Master Card file, owned by the Applicant) is installed at the computers of Banks/FIs. The connectivity to MIP and Banks computers is provided by various service providers through cables as well as internet. Similar was the position in the cases of Amadeus and Galileo as well.
(D) Further, the Hon'ble AAR held that functions of MIP and Mastercard network in India were significantly more than what were performed in India in the cases of Amadeus and Galileo.
(E) Para 17.5.5.3 of the order further elaborately discusses applicability of decisions of Amadeus and Galileo to the facts of case of MAPL wherein the Hon'ble AAR held that CRS system installed in the premises of Indian agents was capable of booking of tickets and therefore generation of revenue for the assessee even though the main processing was done outside India. It was held that computers and CRS system installed in India constituted PE in India and therefore, income was attributable to the same.
(F) Further, drawing similarity with the above cases, the Hon'ble AAR held that what CRS was doing in Galileo case was the same what was being done by the Page | 11 application software (Master Connect and Mastercard File) in case of MAPL i.e. sending the request and receiving the result. Furthermore, the Hon'ble AAR held that case of MAPL was stronger than the case of Galileo for creation of PE. The Hon'ble AAR vide para 17.5.6, 17.5.7and 17.6 concluded that MIPs and Mastercard network constituted fixed place PE in India. The relevant part of the order is reproduced below:
17.5.6 The Applicant has stated that use of MasterCard Connect and MasterCard File express is incidental to the main activity of transaction processing service and they perform preparatory and auxiliary services. We have already discussed how the role of these two application software is similar to what CRS was doing in Amadeus and Galileo cases in India. Thus, the objection of the Applicant is not valid. In addition, when we talk about MasterCard network, we have to see as a whole whether all the constituents of MasterCard network, i.e. MIP, transmission tower, leased lines, fiber optic cable, nodes, internet, Master Connect and Master Card File express, together, perform activities which can be considered as preparatory or auxiliary. We have already demonstrated that MIP alone does activities which are not preparatory or auxiliary. When combined with transmission tower, leased lines, fiber optic cable, nodes, internet, application software, the scope of activity gets even bigger and cannot be called preparatory or auxiliary.
17.5.7 The Applicant has also claimed that net debit/credit balance calculation of millions of transactions by GCMS and SAM involve high power computers and analysis. We have already discussed that settlement position of two banks for various transactions are already known to them. What Applicant is doing outside India is simple calculation to add all these transactions and deduct the fee charged to arrive at net position. Even otherwise, there is no case that once significant activities are happening outside India; there cannot be a PE in India, even though significant activities are also happening in India. For deciding whether there is PE in India, we need to see what are the functions performed in India in the context of overall functions performed by the Applicant and whether the tests of PE are passed or not.
17.6 In view of above discussion, we hold that MasterCard Network also creates fixed place PE of the Applicant in India.
(G) Further, it is to state that the above two decisions still hold good and issue of PE and attribution of 15% of income to such PE has been upheld by higher courts in case of Galileo and Amadeus. Therefore, the ratio of the above cases is applicable to case of MAPL and similarly placed cases; however, attribution of Page | 12 income is a fact-based exercise wherein functions performed, assets deployed and risk assumed determine the quantum of income attribution.
2.5. Conclusion: In view of above, the assessee company's protected software or portal offers facility to the clients to login, to furnish some data and then access reports generated after the data is analyzed. Further, the assessee which allows its travel agents /clients to have access to the main Booking Interface System /Processor owned/ at the disposal of the Sabre group entity , in order to execute / process the requests of the Sabre Clients ( already having a Ticket through its networks ) which is placed at customers' locations in India for processing of Seat Booking, Food booking transactions using Sabre global network and infrastructure. Thus the part of fees received/to be received by applicant from Indian Customers are in the nature of royalty for the use of system/software license and since it is effectively connected to PE, as discussed in preceding paragraphs, it would be taxed under article 7 of India-US DTAA as well as under Sec. 44DA of the IT Act."
17. For the A.Y. 2014-15, the ld . DRP held that the assessee had PE in India the services provided by the assessee are software services covered under Explanation 2 to Section 9(1)(vi) of the Act.
18. Having heard the arguments of both the parties who reiterated the similar arguments taken up before the authorities below, we decline to interfere with the reasoned order of the ld. CIT(A) resulting in dismissal of the appeal of the Revenue on the issue of PE in India.
Royalty:
19. While the AO taxed the entire receipts as income of the assessee to be taxed @ 40%, the ld. C IT(A) held that the gross income has to be taxed @ 10% in accordance with the provisions of Section 9(1)(vi) and Section 115A of the Income Tax Act, 1961.
20. The ratio of the of ld. CIT(A) while reducing tax rate of 40% to 10% is as under:
Page | 13 "4 .3 N ow t he t w o f u nda me nt a l q uest ions r em a i n t o b e a dd r es s ed .
1. W h et he r t he inc o m e o f t h e a s s es s e e is in t he na tu re of r oy a lty und er s ec t io n 9 ( l)(v i) of t h e Ac t?
2. W h et he r t he i nc om e of t he as s es s e e is o f th e nat ur e of " fe e f or tec hnic a l s e rv ic es " und er t he s ec t ion 9 (1 )(v ii) of t he I nc o me T a x Ac t 19 61?
T h is is r eq uired t o be d et e rm ine d in v i e w of t h e fac t t hat , w h ere a s pec ific p rov is io n in t he Ac t is la id d ow n f or d et erm in ing t he ta x a b il ity of a ny i nc om e, t he g ene ra l p ro v is io n is ov errid den . T h is im p lies t h at if t he inc om e is c l as s if ia b le und er t h e h ea d ' roy a lty ' , th en is m a nd at or il y req u ired t o b e ta x ed as roy a lt y a nd n ot a s bus i ness inco m e und er 9( 1 )( i) of th e I nc om e- ta x Ac t. Befo re dec id in g o n t his as p ec t , t he s ub m is s io n of t he as s es s ee ind ic at ing th at t he rev e nues o f t h e as s es s e e ( SDT ) a re n ot in t h e nat ur e o f R oy a l ty o r F T S, it is not ed t hat t h e s ub m is s io ns a r e re q u ired t o b e ex am in ed w it h t he f o llow ing f a c ts in m i nd :
• th e a ss es s ee d oes n ot ha v e a T R C of t he U S A
• the d e f init ions a n d t he s co p e of t he t e rm s F T S a nd r oy a l t y
wo uld n ot b e imp ort ed fr om the D T A A o r t h e tr ea ty wit h U SA an d w o uld b e s t r ic t ly in ac c o rda nc e w it h th e d om es t ic pr ov is ions o nly .
4.4 Nat ure of Bus ines s of t he as s es se e: T he as s es s ee c om pa ny is off er ing s p ec if ic s o lut ions on a da y to da y b as is t o t he a ir lines . T he m ec ha nis m f or o ff e ring t hes e s o lut ions is t hroug h f u nc t io na lit y w hic h ha s b e en m en t io ned cl ea rly in t he W o rk O rd er w it h on e of t he c lie nt s i. e. M /s Je t A irw ay s . T he ext ra c t of t h e f unc t iona lit y is as u nd e r:
1. D es c ript io n of F u nc tio na lit y a nd Ser v ic e a. Fu nc t io na lit y . Sa br e w ill p rov id e Cus to me r w it h ac c es s a nd us e of t he f unc t io na lit y d es c rib ed in the a tt ac hed A p p e nd ix A (t he 'F unc t ion a lit y " ). O nc e im p lem ent ed , t he F unc t ion a lit y s ha ll be c ons id er ed t o b e a p a rt of t h e Sys t em c ov er ed und e r W ork O rd er N um b e r 1 t o t h e A g re em en t e nt er ed int o b y t he pa rt ies w it h a W o rk Ord e r Ef f ec t iv e D a t e of 3 1s t M a rc h, 2 0 0 8 (t he " CSS W o rk O rd er" ).
Page | 14 b. Im p lem e nt at ion of F unc t iona lit y . Sa br e w ill im p lem en t t he Fu nc t ion a lit y f or Cus to m e r as s oo n as rea s o na b ly p ra c t ic a b le f ollow in g t he W ork O rd er Ef fec t iv e D a t e set f ort h ab ov e, in p ra c t ic e th is m ea ns the f irs t a v a i lab le im ple m enta t io n s lot f or t h is f unc t iona lit y a t t he t im e of s i gnin g of t h is W o rk O rd er.
c. Cus t o me r R es po ns ib ilit ies . In c o nnec t io n w it h t he im p le me nt at ion of th e F unct io na l ity to be p ro v id ed by Sa b re he re und er . Cus t o me r s ha ll he res p o ns ib l e fo r t he a ct iv it ies d es c rib ed in t he a t t ac hed Ap p e nd ix B.
2. Us a ge R i ght s G ra nt ed U s e R ig ht s , Eff ec t iv e up on t h e d at e o n w hic h t he F unc t ion a lit y is m ad e av a i la b le t o Cus t om s f or p ro d uc t iv e us e, a nd p ro v id ed t hat Cus t om er is a nd rem a ins in co m p lia nc e w it h the t er ms of t he A gr ee m e nt a nd t his W o rk O rd er, t h e Sys t em lic ens e s et o ut in t he CSS W o rk O rd er s ha ll a pp l y w it h res p ec t t o t he F u nc t io na lit y .
T h e f e es b ein g c ha rg ed for s uc h f unc t io na l it y is a ls o g iv en in P ar a 4 of t h e W o rk Or d er. T his is a ls o r ep rod uc ed as und er :
a. Cus t om er s ha ll pa y Sab re the f ollo w in g f e es fo r Sa b re 's pr ov is ion of a c c es s a nd us e of t he Fu nc t io na lit y and Ser v ic es des c rib ed he re in:
i. Fu nc t io na lit y I m p le me nt at ion F ee. Cus t om er s h a ll pa y Sa bre , up on ex ec ut io n of t his W ork Ord er, a n im p le m e nt a t ion f ee o f U SD $4 0 ,00 0.
ii. F u nc t io na lit y U s a ge F e e.
Fo r ac c es s a nd us e of t he Sy s t e m (s ) d es c rib ed A p p e nd ix A of t h is W o rk Or d er. Cus t o me r w ill pa y Sab r e a m o nt hly fe e e qu a l t o (i) U S$3 4 ,0 00 p er m o nt h up on t h e Co m m enc em ent D at e a nd c ont inu ing f or t he f irs t tw el v e (1 2 ) m ont hs f ro m t ha t da t e (t he "F irs t Y e ar Sy st em U s a ge F e e" ); a nd (ii) U S$0 .0 4 pe r P a ss e ng er Boa rd ed d ur ing s uc h m ont h f rom t h e s ec ond y e a r o nw a rds , f or a ll s ubs e q ue nt m ont hs f or the rem a ind e r of t he T erm (t h e " Sys t em U s a ge F e e " ). Com m enc e m e nt Da t e m ea ns t h e da t e o n w h ic h t he F u nc tio na lit y or an y pa rt of t he F unc t io na lit y is c ut ov er a nd ma d e a v a ila b le f or Cus t om er's us e.
Page | 15 iii. Tra v e l a nd I nc id e nt a ls F ee . T ra v e l a nd ot h er out of p oc k et Ex p e ns es a re pa i d as t he y a re i nc urr ed a nd inv oic ed in a c c or da nc e- w it h t he A g re em ent .
4.4 .1 T h e m ec ha nis m to p ro v id e t h es e s e rv ic es , in p la in t er ms , is th at t he as s es se e w o uld pr ov id e t he lo g in a nd p as s word t o t he c lie nt th ro ugh w h ic h the c li ent w ou ld b e ab le to int e ra c t w it h t he a s ses s ee .
In s uc h int e ra c t io n, t he f unc t io na l it y . I n ot h er w ords , t he c lie nt wo uld f urn is h s om e d at a o r w rit e up aft er lo ggin g in o n h is lo gin po rt a l. T h is da t a w o uld b e ut i liz ed a nd a na ly z ed b y t h e a s s es s ee on it 's of f s ho re loc a tio n in the U S. The as s es s e e c o mp an y , af t er ap p lic a t io n o f its I nt ell ec t u a l P rop e rt y a nd a ls o it s ex p e rie nc e in t he f ield o f a irlin es , w ou ld ge ne ra t e s om e s o lut ion f or t he cus t om e r or th e c lien t. T his im p lies t hat t h e d a ta a na ly z ed a nd out p uts of t he da ta c ollec t ed at t he c us t om e r p ort a l hav e w or k ed on t h ro ugh ex c lus iv e I P . T he a dv ic e or t he so lut io ns p rov id ed a re b as ed on pr inc ip a lly p r ot ec t ed sof tw are a nd t he ex p e rie nc e and d a t a a na ly z ed by e xp erts , w hic h ha s b ee n d ev e lop ed b y t h e as s es s e e c om pa ny . T h is pr ot ec t ed s oftw a r e o r p orta l of f ers f ac ilit y to t h e c l ien ts t o l ogi n, f urn is h s om e da t a a nd t he n a cc es s r ep orts ge nerat ed a ft e r th e d a ta is an a ly z ed . T he e nt ire rev e nues o f t he as s ess e e i. e . Rs . 883 3 78 9 06 ha v e b ee n he ld b y t h e A O t o b e in t h e na t u re o f R o ya lt i es .
4.4 .2 T h e s ub m is s io ns of t he a s s es s ee a ga inst the cons id erat ion be ing i n t he na t ur e of R oy a lty a re as und er :
Re ven u e s e arn ed b y SD T a re n ot i n th e n a tu r e of R oy a l ty W e s ub m it t hat f or t he r ea s o ns giv en b elo w, r ev en ues ea rned b y SD T c an not b e c ons t ru ed t o b e r oy a lt ies und e r Sec t ion 9 (1 ) (id ) o f t he Ac t .
T ra nsf e r or us e of p at ent, i nv e nt ion , m od el, d esi gn, sec ret f orm u la or pr oc ess or t ra d em a rk or s i m ila r p r op ert y or imp a rt ing of a ny inf o rm at ion c o nc er nin g t h eir w or k in g At t he outs e t, it is s ub m itt ed t ha t in th e p r es ent c as e t he re is no tra ns f e r of a ny of p a t e nt , inv e nt i on, m od e l, d es ign , s ec ret f orm u la or pr oc ess o r t ra d em a rk or s im ila r p rop er ty (c oll ec t ive ly r efe rred t o a s int el lec t ua l p ro p e rt y ri ght s ) a s t he ap pe lla nt ha s on ly m a rk et e d a nd dis t rib ut ed t ra v e l-r ela t ed p rod uc t s a n d s en de es t o it s c us t om ers i.e .
Page | 16 a irline s i n I nd ia . T he a pp ell a nt has n ot t ra nsf e rred a n y int el lec t ua l pr op e rt y rig ht s b ut ha s o nly p ro v id ed s t and a rd iz e d p ro duct s a nd a ll ied s e rv ic es us in g its c om p ut e r s ys t em s l oc a t ed in U SA .
R ef e re nc e in t h is r ega rd m a y a ls o b e d ra w n t o t he a pp e lla nt 's m as t er s erv ic e a g re em ent w it h J et A irw a y s , s ub m itt ed w it h t he Ld . A O v id e s ub m is s io ns d a t ed F eb ru a ry 12 , 2 0 16 w he re in it ha s b e en c lea rly s pec ifi ed t h at no int e llec t ua l p rop ert y r ight s of SD T s h a ll be tra ns f e rred t o Je t A irw a y s (c opy of a gr eem e nt w i t h Jet A i rwa ys is enc los ed as It em I V of t h e P a p e rb ook ).
It is f ur t h er s ub m it t ed t ha t s a le of t he Sa b re A ir line So lut ions pr od uc ts a nd re nd er ing of a f or es a i d s erv ic es by SD T s ha ll n ot c onst it ut e gra nt o r tra ns f e r or us e o f a ny of t h e af o res a id int el lec t ua l pr op e rt y r ight s in v ie w o f t he f ol low i ng:
I n ven ti on , P a t en t , m od el , d e s i g n or s e c re t f or m ul a It is f urt he r s ubm it t ed t ha t if a ny p at ent s e x is t whic h m ay ha v e b e en re gis t er ed b y SD T , SD T d o es n ot giv e its I nd ia n c us t om e rs t he rig ht to us e suc h p at ents an d SDT o nly us es s uc h p at ent s , if t he y ex is t , t o pr ov id e p rod uc t s a nd s e rv ic es t o its I n d ia n c us t om e rs .
Fu rt he r, B lac k 's La w D ic t io na ry has d ef ined a " m od e l" as a "p r eli m ina r y pa tt ern or rep res enta t io n of s o m et h ing t o b e m a d e or s om et hin g a lr ea dy m ad e. A f ac s im ile o f s om et hin g inv ent e d, m ad e on a r ed uc ed s c a le, i n c om p l ia nc e w it h p at ent la ws . A rep lic a t i on of s om et hin g m a d e t o s c al e st y l e o r des i gn of p ro d uc t or it em . O nly w h en a p a y m ent is m a d e t o wa rds us e of s uc h m od el or d es ig n, it c ou ld giv e r is e t o roy a lt y ."
It c a n b e o bs er v ed t ha t a m od el r ef er s mo re t o a ta ng ib le p rod uct , w h ic h h as b ee n d ev elop e d f o r in d us t ria l p urp os es. T he s am e a n a lo gy ap p lies t o d es ig n as w e ll.
In t he p r es e nt c a s e, as s pec if ied a b ov e, SD T is on ly in v o lv e d in re nd i t io n of s t a nd a rd iz ed t ra w l rel at ed p rod uc t s a nd s erv ic es a nd th er e is no t r a ns fe r of any ' ta ngi b le p r od uc t ' . A c cord in gly , c ons id erat ion rec e iv ed b y SD T fr om its Ind ia n c us to m e rs c an not b e s aid t o b e f or us e of a d es ign o r m od e l Page | 17 P r oc e s s It is s ub m itt ed t ha t n o p r oc ess ha s b e en us ed b y c us t om ers of t he ap p e lla nt in I nd ia . T he a uto m at ed p r oc es s t ak ing p lac e in SD T 's s erv e rs c a n a t m os t b e s a id t o b e us ed by SD T it s e lf w hile its c us to m e rs i n I nd ia a r e onl y in rec e ipt of a s ta nd a rd fa c ilit y / e nd p r od uc t in t he f o rm o f d at a .
4.4 .3 In t his r eg a rd , t h e as s es s e e s ubm it t ed t he f ol low ing j ud g m e nt s w h ic h a re st at ed t o b e in h is fa v o r o n t he is s ue of w ha t co ns t it ut es roy a lt y . Eac h o f t he j ud gm e nt s is d is t in guis h ed fr om t h e as s es s ee 's c as e , on t he ba s is o f th e na t ur e of b us ines s o f th e as s ess e e a nd h ow it op e ra t es.
• I n As ia Sa t e llit e T elec om m unic a t io n (3 32 I T R 3 40 ), t he D elh i H igh Cou rt la id d o w n t he p rinc ip le t ha t pa ym ent w a s n ot fo r t h e us e o f a ny pr oc ess or eq u ipm ent , s i nc e c on tr ol ov er t he p roces s o r eq uip m e nt wa s w it h As ia Sa te llit e T elec om m u nic a t io ns and n ot w it h t he Cus t om ers / A rg um en t wa s a dd ress ed on the m ea ning whic h is as s ig ne d to t he t e rm "r oy a lt y " oc c urr ing in s ub -c lau s e (v i) of Ex p la na t io n 2 . T h e lea rne d c ouns el fo r the a pp ella nt ha d a r gued t ha t th e d oc t rine o f nos c it ur a s oc i is w o uld app ly a nd t h e p roc es s s ho uld be t reat ed a s it e m of int ellec t ua l p r op ert y . On t his it w as a rg ued t h at th e p roc es s em p lo y ed in t h e t ra ns p ond er o f a s at el lit e , i. e., c ha ng ing of freq ue nc y a nd a mp lif y in g t h e s ig na l, is not at all a n it em of int el lec t ua l p rop e rt y. T h ou gh t he re ap pe a rs t o b e so m e f orc e in t h is ar gum e nt , it is no t nec es s a ry t o a ns w er it c o nc lus iv ely . T he fac t rem a ins t hat t he re is n o us e o f ' p roc es s ' by t he T V c ha nne ls ."
T h e a bov e r ulin g of As ia Sa t ell it e T e lec om m un ic at ion (33 2 I T R 3 40 ) in fa c t c lea rly s t at es t ha t t he p roc es s o f c onv ers ion of fr eq uenc ies is not a n it em o f int e llec t ua l p r op e rt y. T h e a ss es s ee 's p res ent c as e is tot a lly d iff er ent a n d d is t in guis ha b le o n t he g ro und t h at t he c lie nt is ba s ic a lly us ing s er v ic es p rov id ed by t he a ss es s ee w hic h a r e b a s ed on th e dat a fu rn is hed by t he c lie nt . T he re is n o c o nc ep t of a s im p lic it or us e of e lec t ron ic eq uip m e nt s uc h a s a t ra ns p ond er or a t ra ns m itt ing c ha nne l f or w h ic h a pa y m e nt is req u ire d t o b e ma d e b y t he c lient t o th e s e rv ic e p rov id e r. I n t h e a s s es s ee's c as e t h e d at a t ra ns m itt ed to th e as s ess e e b y t he c lie nt is a na ly z ed a nd a s olut io n prov i d ed .
Page | 18 T h eref or e, t his d ec is io n is not ap p lic a b le t o t he as s es s e e's c as e . Fu rt he r the H igh Cour t has he ld t h at the p r oc es s a p p lied i.e . c ha ngin g of f req u en cy a nd a mp lify i ng t h e s igna l, is no t a t a ll a n it e m of int elle c t ua l p rop e rt y ; t h er eb y im p ly i n g t hat if t he p roc es s inv ol v es an in t e llect ua l p ro pert y , t hen t he c o ns id e ra t io n w o uld qu a lify as roy a lt y . T he as s es s ee f urt he r s ub m it t e d t h e fo llow ing d ec is io ns w hic h w ere a ls o p r im a ril y o f t h e s a m e f orm a t a s t h e d ec is io n d is c us s ed ab ov e.
• In P a n A nx s at I nt er na t io na l Sys t em s I nc . (9 SO T 1 0 0), of t he H on' b le D e lhi I nc om e- ta x A pp ell at e T r ib u na l ( ' IT A T ') h eld t hat th e s e rv ic e f ee rec e iv ed f r om non -res ide nt t e lev is ion c ha n ne ls f or us e of its t ra ns p ond er t o t ra ns m it s igna ls t o Ind ia n v iew ers is ne it h er R oy a lt y n or F e es f o r inc lud e d s e rv ic es , as no s ec r et f orm ul a or p roces s w as in v ol v ed t h er ein • Sk yc el l Com m unica ti ons Lim it ed (2 5 1 ITR 5 3 ), t he H on' b le Ma d ra s H igh Cou rt he ld t ha t w he n a p ers on s ub s cr ib es to a c ell ula r t ele p ho ne s erv ic e f or c om m u nic a t in g w it h ot he rs , he do es not rec eiv e a t ec h nic a l s e rv ic e.
• In I SR O Sa t e llit e Ce nt re (2 20 CT R 13 ), t he A u t hori t y of Ad v a nc e R ulin gs (' A A R ' ) h eld t ha t t h e tra nsp on d er ca p a c it y a t a pa rt ic ula r f req ue nc y is rec eiv ed b y I SR O Sa t e llit e Ce nt er a t a gr ound s t at ion s et up a nd op era t ed by it. T h e r ulin g t he re fore he ld t ha t p a y m e nt f or lea s e of t he n av iga t io n t ra nsp ond er wo uld n ot c o ns t it u t e roy a lt y .
• D IT v . S hin Sat el lit e P ub lic Co . (I T A 5 0 0/ 201 2 ) a nd D IT v . N ew Sk i es Sa t e llit e B.V . (I T A 473 /20 1 2 ), t he H on' b le I T A T h as h eld th at w hil e p r ov id in g t ra ns m is s io n s erv ic es to c ust om e rs , pa y m ent f rom t he c us t om e rs c a nn ot b e t erm ed a s R o y alt y f or th e us e of a p r oc ess or eq uip m e nt und er t he res p ect iv e d oub le ta x a t i on a vo ida nc e a gre em e nt .
• In Bha rt i A irt el Li m it ed ( IT A 35 93 t o 3 596 D el/ 20 1 2 ), t he H on' b le D elh i I T A T h eld t ha t pa ym ent of I nt er -c on nect U s a ge Cha rges b y Bha rt i A i rt e l t o F or eig n T el ec om Op er at ors (' F T O ' )in c on nec t ion w it h its t elec om s e rv ic e b us ines s do es not Page | 19 c onst it ut e FTS or roy a lt y (in c l ud i ng p roc es s roy a lt y und er Sect ion 9 (l) (v i) /(v ii ) of t h e Ac t .
• In AD DI T v . Ta j T V Lt d . t he H on' b le M umb a i I T A T he ld th at tra ns p on d e r c ha rg es a nd up lin k in g c ha rg es p a id to a USA c om p a ny f o r p ro v id ing t ra ns p o nd er fac il ity ( fo r t elec as t i ng it s c ha nne l in v a r ious c o unt ri es inc lud in g In d ia ) is not t a x ab l e a s roy a lt y u nd e r I n d ia -U S D oub le T a x a t ion A v oid a nc e A gr ee me nt ('t a x t rea t y ' ).
• In t he c as e of A t os I nf o rm at ion T ec h nol ogy H K Lt d. (I T A N os .
23 7 - 2 4 0 /M U M /20 1 6),t he H o n'b le I T A T held t h at t h e p a y me nt s rec eiv ed by the a s s es s ee on ac c o unt of r end er ing data pr oc ess in g s e rv ic es , us ing s er ve rs loc a t ed o ut s id e I nd ia d oes not q u a lify e it her as ' R oy a lty ' o r 'F T S' .
4.4 .4 A ll t he a b ov e d ec is i ons a re no t ev en rem ot e ly link ed t o t he as s es se e 's b us ines s per s e. It is s e en t ha t t h e a s ses s ee pro v id es a s pec ia liz ed log in p orta l t o it s c lie nt s w h ic h a re t he A ir line s a nd t h es e c lie nts us e t he p or ta l f or ta k in g b us in es s d ec is io ns . T he a dv ic e f or s uc h b us in es s d ec is io ns is p rov id ed by th e a s s es s ee t hro ug h t he us e of it s ex p eri enc e , d at a ba s e a nd ot he r int ell ec t u a l p rop er ties w hic h ar e loc a t e d at its H ea d O ffic e in t he U S A . Com pa ris on t o a s im p lic it or re nt p ay m e nt o r l ea s e c ha r ges f or us e of eq uip m e nt s uc h a s a tra ns p on d e r is o ut o f p la c e a nd inc or rec t.
4.4 .5 T o und ers t a nd th e bus i ness of th e as s es se e , t he pu b lic w eb s it e of th e a s s es s ee a ls o p rov id e d some inp ut s . T he bus i ness ac t iv i t ies a re t o p rov id e f unct io na l it ies t o t h e c lie nt a i rlin es . T h e Ap p e nd ix A w hic h s t at es t he f unc tio na lit y is pa rt ly rep r od uc ed he re u nd e r. On ly a pa rt of t he Ap p e nd ix is rep rod uced t o hig hlig ht th e ac t iv it ies a nd w ha t is a c t ua lly b ein g d eli v e red b y t h e a s s es s e e t o it s c lien ts . T he ac t iv it y of p rod uct m er c ha n d is in g is s t u d ie d a nd t h en an a ly z ed :
Page | 20 Ap p e n d ix . A : Fu n c ti on al it y D e s c ri p ti on Pr od uc t M erc ha n d is ing is a n end t o end s olu t io n a llow ing fo r t he dis t rib ut ion, p ric in g, res erv at io ns a nd f ulf ill m e nt v ia Elec t r on ic M is c e lla n eo us D oc um en ts (EM D -A ) o f a nc ill a ry p rod uc t a n d s erv ic es.
T h e s y s t em i nt e gr a t es ind us t ry s ta nd a rd s s uc h a s A TP CO Op t io na l Ser v ic es a nd EMD f ulf illm ent t oget her w it h, p ric in g a nd rep o rt ing to ols , to c reat e, s e ll, d e liv er a nd ac c ou nt f or a va ri et y of n ew anc illa r y p rod uc t s a nd s erv ic es .
A nc ill a ry Ser v ic es - p r ov id es t he c ap a b il it y of ge nera t ing non a ir rev e nu e v ia a dd - on o r a nc illa ry s a les . I nc lud es s up p ort of A T P CO Op t io na l Ser v ic es ( OC) o r M erc ha nd is in g Ma na g er fi lings f o r disp la y a nd p r ic ing of a nc i lla r ies a nd i nt e gr at ing th em int o t h e r es e rv at ion / c hec k - in w ork f low in a w a y t ha t a n a ge nt c an s e e w ha t s erv i ces a r e o ff e red , u n de rs t a n d w hat t hey r ep res ent , an d is a b le t o f ul fil l t h e a nc illa ry t o t he pa s s e ng er . Sim ila rly in t he w eb w ork f low t he c ons um er of t he a irli n e w eb s it e w ill b e a ble t o s e e w hat s e rv ic es a re o ff ere d, p urc has e i n-p a t h w it h the (li ght or pu rc ha s e/ m od ify p o st hook ing a nd f ulf ill t he a nc illa ry .
o A T P CO Op t iona l Se rv ic es (O C) - Su pp o rt fo r in d us t ry s t a nda rd da ta f iling s t r uc t u res re la t ed t o a nc illa ry or op t io na l s erv ic e f ees f ile d by a ir li nes v ia A TP CO. Sup p or t in g the in d us t ry s ta nd a rd p rov id es c o ns is t e nt f ilin g f o rm at s f or a i rlin es a nd no rm a liz es t he s erv ic es b ein g of f ered as we ll as re d uc es m a nua l up dat es . Sup p or t in g t hes e ne w fi ling s t ruc t ures h elp s a irline s a ut h oriz e t he s a le of o pt i ona l p rod uc t s a nd s erv ic es us in g a s ta nd a rd iz ed d is t r ib ut io n p r oc es s .
o M erc ha nd is i ng M a na ge r - a n o nlin e GUI ba s ed a pp lic at ion th at a ll ow s t h e C us to m e r t o d e f ine A nc il la ry f ees a nd ot he r op t io na l s ermc es it em s . A nc ill a ries f ile d t h rou gh M e rc ha nd is i ng M a n a g er c an b e d isp la y ed direc t l y a lo ngs id e A nc illa ries f ile d t h ro ugh A T P CO, a n d s o ld / fil l f ille d t h ro ugh t he s a m e E MD p roc es s in t he a irline 's d ir ec t c ha nn el T h e A nc illa ry Se rv ic es s o lut ion c ur rent l y s up p ort s t he fo llo w in g f lig ht re la t ed a nc il la ry of f er ings ;
Page | 21 o A nc ill a ry Sea ts (i. e. t he c ap a b il ity t o c ha rg e fo r p r e-r es e rv ing a s pec ific s eat ). T his req ui res P re- res e rv ed Sea ts (PR S).
o L oun ge Ac c es s o I n- f lig ht E nt ert a i nm ent o M ea ls /B ev er a ges .
o P et T ra ns p o rt a t i on (e .g. P et in c a b in, P et in H old , etc . ) o U na cc o mp a n ied T ra v e l o M ed ic a l Ser v ic es (e .g. M ed ic a l a s s is t a nc e, o xy ge n, s t r et c he r, w h ee lc ha i r, e tc . ) o Gr ou nd T ra ns p orta t i o n o Pa y f or b a g ga g e (e . g. P re -s a le of b a g ga ge , pa y f or e xc es s ba gga ge , p a y fo r ov ers iz ed b a g ga g e) Fr om t he a bo v e it is s e en t hat P ro duc t M erc ha nd is in g has b e en re ferr ed t o i n t he Ap p end ix A w hic h s t at es t he f unct io na lit y t o b e ena b led fo r t he c lie nt M /s Jet A ir wa ys in t he M a st er A gr e em e nt . A n ex t rac t f rom t he w ebs it e ( Sab re A ir So lut ions ) of t he as s es s ee re la t ed t o o ne of t h e p rim a r y s er v ic es p rov id ed b y t h e a s s e s s ee w hic h is of " P r od uc t M e rc ha nd is ing" is g iv e n h e re und er : -
P r od u c t M e r c h an d i si n g th e C omp r eh e n s i ve S ol u ti on Mo re t ha n j us t s elli ng ad d it i ona l p rod uc t s and s e rv ic es , p rod uc t m erc h a nd is ing is a bus iness s t ra t e gy t ha t t ouc h es al l p ha s es o f t he c us t om er ex p er ienc e .
W e p ro v id e a n en d -t o-e nd p r od uc t m erc ha n d is ing s o lut ion th at a lign s w it h y o ur ne ed s . Creat e, s e ll, d e liv er a nd ac c o unt f or a ll p rod uc t s an d s er v ic es t ha t in c r ea s e re v e nue us ing our s o lut ion .
Y o ur t ea m w ill b e em p ow er ed t o of f er c us t om ers t he rig ht p rod uc t an d s erv ic es a t t he right p r ic e a nd t he right t i m e w hile b ein g as s ur ed of c o mp ly i ng w it h i nd us t ry s t a nd a rds a nd re gu lat ions w h en us in g o ur s olut io n.
Ou r p r od uc t m erc ha nd is ing s o lut io n w ill e na b le y ou t o:
I n cre a s e R ev en u e Page | 22 • Pro v id es op p ort un it y t o g en erat e inc re me nt a l r ev en ue t h rou gh th e s a l e of a nc i lla r y p r od uc ts a nd s er v ic es • Pro v id es c onn ec t ion t o t he la rges t glob a l t ra v e l m a r ke t p lac e w it h a c ces s to m or e t ha n 5 5, 00 0 ag enc y loc a t io ns , 3 ,0 00 c orp orat ions a nd 2 5 0,0 0 0 p o int s o f s a l e in 11 3 c ount r ies Del i v e r a Un iq u e C u s t ome r Exp e ri e nc e • A llow s an a irli ne to d iffe re nt iat e, br a nd , m a rk et a nd m erc h a nd is e it s p rod uc t s a nd s er v ic es w it h in it s d i rec t c ha n nels w h ile op t io na lly s up p o rt ing ind ir ec t c ha nn els • Ena b les t h e d el iv e ry of a c o ns is t e nt c us t om er e xp e rie nc e -- ac r os s off line a nd o nlin e c ha nne ls Re d u c e C os ts • By ut iliz in g A T P Co 's " Op t io na l Ser v ic es " , a nc ill ari es m a y b e dis t rib ut ed t hr ou gh m ult ip le c ha nn els i n t he s a m e w a y as fa res , a nd m od ific a t io ns c a n b e m a d e t o r es p ond t o m a r ke t op p o rt unit ies T h e rep lies a nd a rg um en ts of t h e as s e s see a re c o ns id e red w it h t he ab ov e b us ines s m o de l b e ing p roj ec t ed a nd t h e s e rv ic es d e liv er ed by th e a ss es s ee .
4.4 .6 Fo r m a k ing ou t a c as e t ha t rev en ues a re not ro ya lty , t he as s es se e f urt he r a rg ues on t h e b a s is of t he d ef init ion o f p roc es s a nd re fers t o t he e xp la na t ion 6 in a r riv ing a t t he i nt e rp reta tio n of t he te rm . At t he ou ts e t, it is s ee n t ha t t he ex p la na t io n is rela t ed t o tra ns m is s io n of s ig na ls . T h e a s ses s ee is a g a in t ry in g t o d ig res s a nd div ert at t e nt ion f ro m th e ac t u a l is s ue a t ha nd . T he c ons id e ra t io n a nd f ees r ec ei v ed by t he a s s es s ee is not f or t ra ns m is s i on of s ign a ls or tra ns m is s io n o f inf o rm at ion . T h e c o ns id era t i on is f or t he v a lu e of t he ad v ic e w h ic h is t ra ns m i tt ed in t he fo rm of info rm at ion t o th e c li ent .
T h is a d v ic e, it is re pea t ed , is b as ed on int e lle ct ua l p rop e rt y ow ne d by th e as s es s ee . T h e re fe re nc e t o ex p l a na t io n 6 is t he ref ore , u nc a l led f or. Notw it hs ta nd i n g t h is , it is m e nt i oned in pa ra 4.4 .2 ab ov e, t ha t if th e p roc es s us es i nte llec t ua l p rop e rt y , t hen t he c ons id e ra t io n f or t he s am e m ay q ua l ify a s R oy a lt y . T he A O has no w he re he ld t h at t he SD T i. e. the a s s es s e e is p rov id ing a data link or le as e li ne to it s c us t om ers f or t he c ons id era t ion p a id t o SD T . T h e a r gu m e nt s of t he Page | 23 as s es se e t o co ns id er t he pa ym e nts as p a ym en ts fo r us e of eq uip m e nt ar e t her ef or e, inc o rrec t.
4.4 .7 T h e a s s es s ee f urt he r s ub m it s t h e int e rp ret at io n of t he te rm 'U s e or r ight ' to us e any ind ust ria l, c om m erc i a l or s c ie nt if ic eq uip m e nt . T h e s ub m is s io n o f t he a s s e s s ee q uot es t he c a se of A A R in D ell I nt e rnat ion a l Se rv ic es I nd ia ( P ) Ltd . I n R e (2 008 ) [3 0 5 I T R 37 ( A A R )]. T h e r ele v a nt pa ra gra p hs of t ha t ju d gm e nt a re rep r od uc ed be low -
13 .1 t he e xp res s io n ' us e ' oc c urr ing in t he re le va nt p r ov is ion d oes n ot s im p ly m e a n ta k in g a d va nt a g e of s o me t h ing or ut i liz ing a f ac ilit y pr ov id ed b y a not he r t hro ug h it s ow n net w ork . W h at is c ont e mp lat ed by t h e wor d ' us e' in c la us e (iv a ) is t h at t h e c ust om e r c o mes fac e t o fac e w it h t he eq u ipm ent , o p erat es it or c on tro ls it s f unc t io ning in s om e m a n ner, b ut , if it do es not h ing t o or w it h t he eq uip m e nt (i n t h is c as e , it is c irc uit , a cc o rd i ng t o t h e re v e nu e) a nd d o es not e x e rc is e an y p os s es s or y rig ht s in r ela t i on t h er et o, it on ly m ak es us e o f t he fac ilit y c reat ed b y th e s e rv ic e pr ov id e r w ho is t he ow ne r of e nt ire net w ork a nd re lat ed eq u ip m ent . T h ere is no s c op e t o inv ok e c la us e (iv .a ) in s uc h a ca s e b ec a us e t h e e lem ent of s erv ic e p red o m inat es ".
T h e a f or es a id d ec is ion r ela t es t o a c as e w he re t her e is pa s s iv e us e o f a f ac ilit y c re at ed b y a net w o rk op e ra t o r a nd t he equip m e nt p ut in pla c e by s uc h netw ork op e ra to r is us ed b y t he c lie nt a s s uc h. T his is not t he ca s e of t he as s es s e e. A g a in , t he us e b y t he c l ien t is not of an y eq u ipm ent a nd t he p a y m ent ma d e t o t he a ss es s ee is n ot f or us e of eq uip m e nt . T he p ay m e nt is fo r ad v ic e re nd e red t hro ugh an el ec t r on ic p la t f orm . I t is inc o rrec t t o c om pa r e it t o a p as s iv e us e a s dec id e d in t he c a se of D el l b y t h e A A R . H ow ev er, e ve n h er e t he c once pt of int e ra c t iv e us e w he re " t he cus t om e r c om es fa c e t o fac e w it h t h e eq uip m e nt , o per at es it o r c ont ro ls its fu nc t i oni n g in s om e m a nn er" , ha s b een he ld t o q ua lif y un d e r t he m e a n ing of M s e' und er th e c la us e of R oy a lt y. On a n el ec t r on ic p lat f orm , a uniq ue lo gin w hic h ena b les up loa d of da ta is c e rt a in ly a n int er ac t iv e us e w here t he outp uts of t he int ell ec t ua l pro p ert y eq uip m e nt a r e c ont r olled b y t he inp ut s o f t he c lie nt .
4.4 .9 T h e as s es s e e ha s f urt he r c om pa red t o t he c ons id erat ion p a id f or w eb h os t i ng s er v ic es and q uot ed t h e c as e of Sa wis Com m un ic at ion Page | 24 Cor p orat io n ( IT A 73 4 0 /2 0 12 ), T h e H o n' b le M um b a i I T AT a nd t he c as e of I T O v s P eop le I nt erac t iv e (I ) P . L im it ed (I T A No .2 1 79 -21 82 /2 0 12 ). T h e a f o resa id c a s es an d c ita t io n q u ot ed c le a r ly ind ic a t e t ha t t he pe rs on m a k in g pa y m en t d id n ot ha v e an y ind ep e nd ent rig ht t o us e th e eq uipm e nt. H e re a ls o t he f oc us is p ay m ent fo r us e of eq ui pm ent . In t he a ss es s ee 's c as e , t he pa ym en ts rec eiv e d a r e f o r p r ov id in g t he c lie nt a l ogi n p orta l w it h a d is t inc t pa ss w ord , t he reb y f a c ilita t i ng a un iq ue ac c es s fo r t h e c lien t. Suc h ac c es s res ult s in d eliv er y of ex p e rt ad v ic e a nd s o lut ions t o t he c lie nt . T h e us a ge of t he p ort a l t ho ugh a nd th e p ay m e nt t her eo f is not f or s im p ly us i ng a ny eq uip m e nt . It is f or rec eiv ing c ons u lt a nc y in d ec is ion ma k in g i n t he A irli ne Se c t or. T he re is no co m p ar is on t o the ac t iv i ty of w e b hos t in g w h ic h is ba s ic a ll y a dif f er ent s e rv ic e a l t oget h er . I n w eb hos t in g o nly a sp ec if ic s e rv er s pa c e is a lloca t ed t o t he c lien t f or w h ic h re nt a ls a re pa id. T he re is no c once pt of re nd eri ng a ny a d v ic e. M o re ov er t he ab ov e c as es ha v e be en d ec id ed o n t he b as is of int erp r et at ions o f t he I nd o-U S T ax T r ea t y n ot t he d om e st ic law . T he t rea t y be ne fit is n ot a v a ila ble t o t he as s es se e .
4.4 .1 0 F urt h er, t he a s s es s e e q u ot ed the c as e of Qualc o mm I nd ia Pr iv a t e L im it ed v . AD IT (I T A No . 1 6 6 4 t o 1 66 77 20 1 1/H y d ), w he re th e H on 'b le Hy d e ra ba d IT A T ru led t ha t pa y m e nt m a d e b y an I nd ia n c om p a ny to V er iz on U SA fo r p rov idin g int ern et a nd b a nd w id t h s erv ic es a nd a ls o f o r p rov id ing c us t om er p rem is es e q uip m e nt ( ' CP E' ), do es n ot am ount t o r oy a lt y . . ... T h e H o n'b l e I T A T a ls o obs e rv ed t ha t CP E is n ot p e rs o na l iz ed /s op h is t ic a t ed eq u ip m ent fo r sp ec if ic a nd ex c lus iv e us e of t he as s es s e e. T he a fo res a id c ita t i on of Q u a lc om m is in fac t go ing a ga ins t t he as s ess e e. T h e H on 'b le IT AT ha s c lea rly s ta te d t hat t h e CP E is n ot p ers ona liz ed /s op his t ic at ed eq u ip m ent f or s pec ific a nd ex c lus iv e us e of t he a s s es s ee. A s imp le d ed uc ti on f rom th is f ind ing of t he IT A T is th at , if th e a s s es s e e is p rov i d ed a pe rs ona li z ed a nd s pec i fic and ex c lus iv e us e of a s op his t ic at ed pr op e rt y , t h e p a y m e nt f or t he sa m e c a n b e s a id t o b e in t h e na t u re of roy a lt y u nd er t he Ac t . T he as s es s e e is c lea r ly p r ov id e d w it h a n ex c lus iv e us e f ro m an el ec t ron ic p orta l and t his us e is of an int el lec t ua l p r op er ty . Bot h ind ic at ors of ex c lus iv e us e a nd int el lec t ua l pr op e rt y ma k e t he pa y m ents r ec e iv e d to b e in t h e nat ur e o f roy a lt y . T h e as s es s e e f urt h er s ub m it t ed :
Page | 25 It is s ubm itt ed t ha t SD T has o nly p rov id ed s ta nda rd iz ed p rod uc t a nd s erv ic es w hic h d id not im pa rt a ny t ec hnica l k n ow -ho w re lat ed t o int el lec t ua l p rop ert y r igh ts or eq uip m e nt t o it s c us t om er s in I nd ia . H enc e, p r ov is ion of s erv ic es b y SD T t o it s c us t om ers d oes not q ua lif y as im pa rt ing a ny in form a t io n c onc e rn ing int e llec t ua l p ro p e rt y rig ht s or i nd us t ria l, c om m e rc ia l o r s c ient if ic eq uip m e nt .
Fu rt he r, it is a ls o r ele va nt t o not e he re t ha t Ex p la nat ion 5 t o Sec t ion 9(l )(v i) of t he Ac t w oul d not g et at t ra c t ed t o t h e pr es e nt c as e as it c ov ers c ons id era t ion rec eiv ed in r es p ec t of a ny r ight , p r op ert y or inf o rm at ion. I n t he pr es e nt c as e, t h ere is n o right or prop e rt y w hic h is g ra nt ed by SD T t o it s c us t om ers in I nd ia . F urt he r, a s d is c us s ed ab ov e, t he w o rd inf orm at ion w ould a llud e t o k n ow -ho w a nd t ha t in th e p res ent c a s e t he re is no k n ow -ho w w hic h is be ing t ra ns fe rred t o c us t om ers in I nd i a.
4.4 .1 1 T he as s ess e e's a rg um e nt t hat SD T ha s o nly p rov id e d on ly s ta nd a rd iz ed pro d uc t to th e c lie nt s a nd th ere f ore, no t ec h nic a l kn ow how is im p a rt e d to i ts cus t o m e rs , is not on a s ou nd f oot in g. T he as s es se e p r ov id es a d at a ent r y p o rt a l a t t he lo gin p lat f orm . T his d a ta c ollec t ed is a na ly z e d by t he as s es s e e an d a d ec is ion a nd ad v ice is pa s s ed on t o t he c li e nt . I f t his d o es n ot c o ns t it ut e inf orm a t ion ba s ed on in t e llect ua l p ro p ert y , t hen it c a nn ot ha v e a ny o t h er m ea nin g. I t is not a q uest ion o f t ra ns f er rin g of p rop e rt y or righ t t he re in. T he is s ue is t ha t t h e c l ient h as be en a ut h oriz e d an a cc es s t o a n int el lec t ua l pr op e rt y a n d s uch a c ces s res ult s in d e li v er y o f c ons ult a nc y a dv ic e t o th e c li ent . Suc h se rv ic es w ou ld n ec es sa ril y q ua l ify und e r t he de fi nit ion of roy a l ty re f err ed t o i n Sec t io n 9 (l) (vi ) o f t h e I nc om e T ax Ac t . T h es e w ill a ls o fa ll und er t he h ea d 'F ee f o r tec hnic a l s erv ic es' w h ic h is d is c us s ed her e un d e r.
4.4 .1 2 T he a ss es s ee has fu rt her g iv e n deta ile d a rg um ent s that t he c ons id erat ion f or s a le o f s oft w a re o r c o mp ut er p ro gra m d o es n ot fa ll in t he d ef ini t io n of R oy a lt y u nd e r t h e s ect ion 9 (l) (v i) o f t he Ac t . A nu mb er of j ud gm ents ha v e a ls o b ee n gi v e n in s up p ort of t he ar gum e nt s of t h e as s es se e. T h e A O ha s g iv e n d et a iled r ea s ons f or h is dec is ion in t he a s s es s m ent ord er . T h e s am e a r e not re pr od uc ed a s th e b us in es s o f t he a s ses s ee is n ot t o s el l s oft w a r e. T he b us in es s of th e a s s es s ee is p r ov id in g a dv ic e on dec is ions t o b e t a k en in t he Page | 26 a irline in d us t ry . A n e lec t ro nic p lat f orm h as b e e n ma d e t o ena b le t he int er ac t ion of t h e a s s es s e e a n d h is c lie nt s . T h e p la t f orm a ls o e na b les pa s s a ge of a dv ic e t o t he c lient . It w o uld b e c h ild is h t o as s um e t hat th e c ons i d er at ion b ein g p a id is for t he p ro v is io n of c om p ut er s oft wa r e. T he c o ns ide ra t io n is not h ing ot he r t h a n Roy a lt y a nd t h is ha s b ee n f urt he r ela bo ra t ed lat er in t h is ord er.
4.5 .1 T h e as s ess e e a ls o s ub m itt ed t hat t he c o ns id e ra t io n fo r s er v ic es re nd e red d o es not fa l l i n t he am b it of fee f or t ec hnic a l s erv ic es a s pr ov id ed in s ec t i on 9 (l )(v ii) of t he I nc om e -t a x Ac t . T ho ug h roy a l ty be ing a m or e s p ec if ic c la us e, a nd a s t h e s e rv ic es b ein g r end er ed b y th e as s ess ee, a s d is c us s ed a b ov e c lea rly f a ll in t he am b i t of R oy a lt y , th er e is no req uir em en t to s ep a ra t e ly d ea l w it h t his a rg um ent .
H ow e v er, the re as o ning g iv e n by t he as s es s e e is nev er t h eles s c ont rov e rt ed her eu nde r.
4.5 .2 T h e as s es s e e has st at e d t hat F T S m ea ns a ny c o ns id er at ion (inc l ud in g a ny lum p s um c ons i der at ion ) fo r t he r end er ing o f a ny m a na ge ria l, t ec hn ic a l or c o ns ult a nc y s erv ic es (inc lud ing t h e p r ov is ion of s erv ic es of t ec hnic a l o r ot he r pe rs o nne l) b ut d oes not inc lud e c ons id erat ion fo r a ny c o ns t r uc t i on, as s emb ly , m inin g or l ik e p roj ec t und ert a k e n by t h e r ec ip ien t c ha r ge ab l e u nd e r t he h ea d Sa lar ies . T he as s es se e h as p ic k ed u p t he d efi nit i on of Co ns ult a nc y Serv ic es f rom Bla ck 's la w d ic t io na ry as " T he ac t of a s kin g t he ad v ic e or op inio n of s om eo ne (s uc h a s law y e r) " or W ebs t e r's E nc yc lop ed ia s ta t es t ha t t o c ons u lt is to "s ee k fr om a p r es um a bly q ua lif ie d p e rs ona l or an im p e rs on a l s o urc e ad v ic e , op inio n, et c ." T ho ug h t he as s es s e e c la im s th at ha s n ot p r ov i ded a ny a d v ic e or op inio n t o its cus t om e rs , t he s ta te m e nt is w it h out a ny b a s is. T h e as s es se e is c erta inl y p ro v id ing s olut io ns t o a id d ec is ions to a ir line c lie nt s . T h e na m e o f t he a ss es s ee is it s elf, Sa b r e Dec is ion T ec hn olo gies w hic h reflec ts t h e b us in es s a nd th e w eb s it e is S ab r ea irs o lut ions. If s ol ut i ons w hic h a id d e c is io ns d o not c onst it ut e ad v ic e, t h en not h ing c a n. T he p a y m e nt s r ec eiv e d b y th e a ss es s ee a re t h eref or e, fo r s er v ic e s abs o lut ely of t h e na t u re of c ons u lta nc y . T he m od e of d eliv er y o f s erv ic es w hic h is a n elec t ron ic pla t f orm i n t h is ca s e, or t he ba s is o f p roc es s ing the d a ta w hic h res ult s in t h e inf or ma t io n t o b e d eli v e red , c a n in no w a y , c ha nge t he s ub st a nc e of the in fo rm at io n w h ic h is in t he na t ur e of a d v ic e . T h eref or e, the s er v ic es a ls o ca n be c at eg or iz ed as c ons u lt a nc y Page | 27 s erv ic es a n d t he c ons id e rat io n t her eo f fa ll w it hin t he m ea nin g o f fe e f or t ec hn ic a l s e rv ic es .
4.5 .3 As s es s e e a lso q uo te d t he case of CI T v Bh a rt i Cellu la r L im it ed ( 17 5 T a x m a n 5 73 ), t he H on 'b le D el hi Court t o m a k e o ut a c as e t h at t h e r ec e ipt s w e re not f e e f o r t ec hn ic a l se rv ic es . T her ein it wa s h eld The f a c i lit y p r ov id ed , by M T NL/ ot her c om pa nies f or int erc onn ec t ion /p ort a cc es s is on e w hic h is p ro v i ded a ut om at ic a ll y by m ac hin es . It is i nd e pe nd e nt ly p rov id e d b y t he us e o f t ec h no log y a nd th at t oo, s op h is t ic a t ed t ec h nol ogy b ut t h at d oes not mean t ha t MT NL /ot h er c omp a nies w hic h p ro v id e s uc h f ac ilit ies a re r end er ing a ny tec hnic a l se rv ic es as c ont em p lat ed in th e Ex p la na t io n 2 t o Sec t ion 9(l )(v ii). T h is is s o bec a us e t h e ex p res s ion 't ec hn ic a l s e rv i c es ' ta kes c olo ur f rom t he e xp ress io n 'm a na ge ria l s er v ices a nd c ons u lt a nc y s erv ic es ' w hic h nec es s a rily i nv o lv es a hum a n e le me nt or, w ha t is n ow a da ys f a s hio nab ly c alle d, h um a n ' in t e rfac e' . I n t h e ins t a nt c a s e, t he s end e es re nd e red q ua int erc o nnec t i on/ port a cc es s d id not inv olv e a ny hu ma n int er fac e a nd , t her ef o re, t he s a m e c oul d not b e re ga rd ed a s tec hnic a l s erv ic es a s co nt em p la t ed und e r s a id Sec t i on."
• In t he ca s e o f M /s . K ot a k Sec u rit ies L td . (Civ il Ap p ea l No .
31 41 of 2 01 6 ), t h e H on' b le Su p r em e Cou rt r ev ers ed t he dec is ion of t he H on 'b le H ig h Co urt a nd he ld t ha t s er v ic es w h ic h d o n ot s a t is fy t es t of c a t e rin g t o s p ec ia liz ed , e xc lus iv e an d ind iv id ua l r eq uir em en t of t h e us e r wo uld b e m e re ly in th e nat ur e of a f a c i lity off e red a nd co ns eq ue nt ly , w ou ld n ot fa ll w it hi n Ex p la nat io n 2 t o S ec t i on 9 ( l)(v ii)o f t he A c t .
T h e a fo res a id c ita t io ns a re a ls o a ga ins t t h e a s s es s ee a s t he H on' b le Sup rem e Cou rt hel d t hat s er v ic es w h ic h do not sa t is f y tes t of c at er ing t o s p ec ia liz ed , e x c l us iv e a nd i nd imd ua l req u ire m e nt o f t he us e r w o uld he m ere ly in the na t ur e of a f a c ilit y off er ed a nd c onse q u ent ly , w o uld not f a l l w it hin Ex pla na t io n 2 t o Sec t i o n 9 (l)( v ii) of t he Ac t. In t he as s es se e' s c as e , t he s erv ic es or t he a d v ic e re nd e red is s p ec ia liz ed , exc lus i v e a nd ba s ed on the ind i v id ua l req ui rem e nt of t h e us er a nd a ls o ha s a h um a n inp u t o r a na lys is . So th es e c le a r ly fa ll w it hin e xp la nat ion 2 of S ec . 9 (1 )( v ii) . T he ref ore , th ey ca n a ls o b e c la s sifi ed a s t ec hn ic a l s e rv ic es and t he c ons id er at ion Page | 28 rec eiv ed f or t hes e s erv ic es f a ll und er t he hea d 'F ee fo r t ec h nic a l s erv ic es '.
4.5 .4 T h e as s ess e e a ls o r efe rre d t o t he c a s e of Es cot el M ob ile a nd H ut c h is on Es s a r T e lec om , t he Ho n' b le D e lhi H ig h Cou rt w h ere it w a s he ld ". ..I t is ob v ious t ha t t he se rv ic e of c ons u lt a nc y a ls o nec es s a r ily ent a ils hum a n int erv e nt ion :. Co ns eq ue nt ly , a pp ly ing the ru le of nos c it ur a s oc iis , t he w ord -- " t ec hn ic a l" a s ap p ea ri ng in E xp la nat ion 2 t o Sect ion 9 (1 ) (v ii) w ou ld a ls o ha v e t o b e c onst ru ed as inv olv ing a h um a n e lem e nt. In t he fa c ts o f t he p res ent ap p e a ls , t he s er v ic es re nd e red q ua int e rc o nnec t io n/P ort a cc e s s do n ot inv olv e a ny h um a n int er fac e a n d, t h er ef or e, t he s a m e c a n not b e r ega r ded a s --t ec h nic a l s erv ic es . .. a s c o nt e m p la t e d un d er Sec t i on 1 9 4 J o f t he s a id Ac t ."
The f ind i ng of the D elh i HC in the a fo res a id case c an not be int er pr et ed t o s a y t hat w he re s e rv ic es a re d eli v e re d t hr oug h a n el ec t r on ic p lat f orm , t he re is n o hum a n int erfa c e. T he d at ab as e a nd int el lec t ua l p rop ert y , o n w h ic h t h e s ol ut ions p rov id e d t o th e c lie nt s ar e b as ed , c a nn ot be c rea t ed b y a m a c hi ne. I n t h e as s es s ee's c a s e , s pec ia liz ed s eq ue nc es b as ed on ex p e rie nc e, d at a a nd I P ri ght s ha v e be en c r ea t ed t o p rov i d e s ol ut ions . T h es e s p ec ia liz ed s eq ue nc es a nd IP r ights nec es s ar il y re q u ire a h um a n b a c k gro und . Th e c lient m ay n ot int er ac t w it h a hum an b e ing w hile lo gg in g in t o a n e lect ro nic p ort a l bu t t he ad v ic e a nd co ns ulta nc y rece iv ed by him o n t he elec t r on ic pla t f orm is c er ta inly a res ult of h um a n eff ort . T h at b e ing a s in e q ua no n of c la s s ifica t i o n in t h e a f or es a id c it a t io n w o uld c ert a inly m a k e th e c it at io n a g a ins t t he as s ess e e. T h e o t h er c as es q uot ed b y t he as s es se e a re a ls o b as ed on t h e s a m e log ic o f hum a n int er v e nt ion. On th is a c c ount , t he c o ns id era t i on rec eiv ed b y t h e as s es se e is a ls o c las s if ied as F T S. 4.6 Go ing f urt he r fr om t he ab ov e d is c us s io n o n G ro und N o. 3 , it is req ui red t o b e s ee n as t o w ha t is t he nat ur e of inc o me of t he as s es se e f or t he p urp os e of t ax at ion . It has b e en he ld in a n um b er of j ud g m e nt s t hat w h er e inc om e is of a s pec ific nat ur e, it wo uld be as s es se d und e r t he sp ec if ic p r ov is ions a nd it w oul d not b e c ha rg ea b le to ta x u nd e r t he g en era l p r ov is io n s . In the p res e nt c as e, t he as s es se e has of fe red b us ines s inc om e to tax a ris in g t hro ug h a Page | 29 bus i ness c o nnec t io n in I nd ia . T he A O in his or d er ha s ma de out t he c as e f or c ha r gin g t he inc om e t o ta x a s roy a lt y . T h e A O is pri nc ipa lly re lie d o n t h e c as e of Ca rg o Com m unic a t io n Net w ork Pv t . Lt d. d ec id ed by t h e A ut h or it y f or Ad v a nc ed R u ling in App l ic at ion No .6 88 /2 00 6 . I n th e s a id c a s e, h ow ev er t he li a is on of fic e w as s et up f or t he p urp os e of ac t ing as a c o nnec t io n c ha nne l b et w ee n t he h ea d off ic e a nd p a rt ies loca t e d in I n d ia . T h e L O a ls o p rov id ed t ec hn ic a l s up p ort in t he na t u re of t ra inin g t o t he c lie nt s , p ers onn el a nd p r ov id e d a y to da y s upp ort . In t his c o nt ex t , a ft er a na ly z ing t he a c t iv it ies of t he a f or es ai d ent i ty th e A A R he ld a s u nd e r:
T h e a p p lic a nt is e nga ged in t h e b us ines s of pr ov id in g ac c es s t o a n In t e rnet b as ed A i r Ca rgo P o rt a l k n ow n as Ez yc a rgo at Sin ga p or e. A n a g ent w ho b ooks c a rg o t hr oug h v a rio us a irli nes c a n s ub s c r ibe for t he po rt a l - Ez yc a r go - w h ic h e na b les h im t o a c ces s t he da ta b an k of t he a irline s lik e f ligh t s c hed ules , a va ila b il it y o f c a rg o s pa c e et c . T he po rt a l ena b les a n a ge nt t o c h ec k t h e co nn ec t f light d et a ils t o t he des ired p la c e a nd ena b les h im to ar riv e at t he ec on om ic s of tra ns p or t in g t h e c ar go t o t he d es ire d d es ti nat io n A ft e r c a refu lly go ing t hro ugh t he a b ov e p ro v is io ns we fi nd t hat m ea n ing of t he t e rm ' R oy a lt y ' a s us e d in Ex p la na t i on (2 ) t o c la us e (v i) of s ub -s ec t io n (1) o f s ec t io n 9 , is a t pa r w it h t h e t e rm ' R oy a lt ies ' as us ed i n a rt ic le 1 2 (3 )(b ) of t he D T A A . T he t erm 'F ees f or t ec h nic a l s erv ic es ' a s us ed in E xp la nat ion (2 ) o f c la us e ( v ii ) of s ub -s ec t i on (1 ) of s ec t io n 9, is a na lo gous t o t he t erm ' F ees f or t ec hn ic a l s erv ic es ' a s us ed in a rt ic l e 12 ( 4)(a ) of t h e D T A A . I n v ie w of th is p os it ion , t he pa y m ents b e ing m a d e b y t h e a g ents /s ubs c rib ers (r es id ent s ), t o t he C. C.N P v t. L td . (a no n-r es id ent ), a r e c ha rg ea b le t o t ax in I nd ia , und er a rt ic le 1 2 of t he D T A A as a ls o u nd er s ec t ion 9 of t he Ac t . I n a s m uc h as we ha v e c onc lud ed t h at t he p ay m e nt s m ad e by t he s ub sc r ib e rs t o t he ap p lic a nt ar e in t h e nat ure o f "R oy a lt ie s a nd f ees f or t ec hnica l s erv ic es " a nd t a x a b l e u nd e r a rt ic le 12 of t he D T A A , t he s aid p ay m ent s ca nn ot , t her ef o re, b e t re at ed as b us in es s inc om e .
4.6 .2 In th e a b ov e case the p ay m e nt s m ad e f or t he us e of as s es se e c a r go p o rt a l by t h e I nd ia n c lie nt s wa s he ld to b e i n t he na t u re of r oy a lt ies . Sec ond ly , t h e p ay me nt s f or tr ain ing et c . w e re he ld t o b e in t he na t ur e o f f e e for t ec hnica l s er v ic es as t hes e w e re Page | 30 anc illa r y a nd s ub s id ia ry t o t h e a pp l ic at ion a nd e nj oy m e nt of t he us e of s c ient if ic eq uip m e nt f or c om m e rc ia l p urp os es .
Fr om t h e a b ov e d isc us s io ns in P a ra 4 .1 to P a ra 4 .5 , it is s ee n t hat • T h e as s ess e e ha s a bus ines s c on nect io n b ut no p erm a ne nt es t a b lis hm ent • T h e inc o m e or r ec ei pt s c a n b e c la s s ifi ed a s r oy a lt y • T h e rec eip ts c a n a ls o b e c las s if ie d as f ee f o r t ec hnic a l s e rv ic e.
In s uc h a c a s e w he re t he i nc om e c a n fa l l int o a g en era l c las s i.e . 'b us ines s inc om e ' a nd a ls o a s p ec if ic c la s s or s ub c la s s t h e ta xa b ili t y wo uld b e of t he m ost s p ec if ic c las s i n w hic h t he inco m e fa lls . T he ta x a b il ity of t he a s s es s ee 's i nc om e t her ef ore ha s t o b e as roy a lt y a nd not b us in es s inc om e. T his is f ur t he r s upp ort ed by t he f o llow ing dec is ion of t he Guj a ra t H i gh C ourt in M et e or Sa t e lli t e Ltd. Vs . Inc o m e-t a x Of f ic er 1 21 I T R 31 1 12 . On e of t he c o nt e nt i ons ur ged b y M r. D es a i wa s on t he q u es t ion of int er p reta t io n of s. 9(1 ), c la us e (v i) and h e c ont e nd ed t ha t e v e n if th e p ro v is o t o c la us e (v i) of s . 9 (1 ) ap plie d , t he onl y t hin g t ha t t he pr ov is ion w o uld h el p t h e p e t it ion er in do ing w ould b e t o t ak e t h is pa rt ic ula r inc om e b y w a y o f r oy a lt y out of t h e p r ov is ion s of c la us e (v i) b ut t ha t wo uld s t ill lea v e t he m a t t er op e n t o b e b r oug ht und er c la us e (i) o r c la us e (m i) o f s . 9 (1 ) . I n our op i nio n, t his c ont e nt ion m us t fa il. Cla us e (v i) o f s . 9 (1 ) d ea ls w it h a s p ec if ic t y p e of inc om e , na m e ly , i nc om e by wa y of ro ya lt y , w h er ea s c la us e ( i) o f s . 9 (1 ) is a m ore ge ne ra l p rov is io n, w h ic h d e a ls w it h a ll inc om es a cc ruin g or ar is ing , w het h er d ir ec t ly or ind irec t ly , t h ro ugh o r f rom , a ny b us ines s c on nec t ion in I nd ia . I nc om e b y wa y of roy a lt y is a s p ec ies or on e o f th e c at eg ori es of a la rge r c las s m e nt ion ed in c la us e (i) of s . 9 (1 ) an d, h enc e, t he s p ec if ic ins t a nc e ha v in g be en p rov id ed b y c laus e (v i), onc e w e c om e a c ros s th e q ues t io n of roy a lt y , w e ha v e on ly to l ook at th at c la us e (v i) a nd not t o t he m or e ge ne ra l p rov is io n of c la us e (i ) of s . 9 (1 ). Sim ila rly , inc om e b y wa y of f ees f or t ec hn ic a l as s is t a nc e , w h ic h is c o v ere d by c l a us e (v ii ), is a m or e ge ne ra l c a t e gory a s c om p a red to the r oy a lt y w h ic h is re fe rr ed to in c la us e (v i), pa rt ic ula rly i n t h e ligh t o f t he d ef ini t io n of " ro ya lt y " in E xp ln. 2 to Page | 31 c la us e (v i) of s. 9(1 ). A ga in , t he s am e p r inc ip le of p ar t ic u la r ex c lud ing t he g en er a l ha s t o b e ap p lied .
T h eref or e as t h e pa ym e nt s rec eiv ed by t he a s s es s ee a r e in t he na t u re of r oy a lt y, t hes e a nd a re m a nd at or ily req uir ed t o b e a ss es s ed und er th e c la us e (v i) of s ec t ion 9 r ela t i ng t o roy a lt y .
5. T he t a x ab i lit y of th e inc om e of t he a s s es s e e is now d is c us s ed in a c onso lid a t ed m a n ne r, i nt e gr at ing t he a f or es a id a r gum ent s . I n t he pr es e nt c as e as d is c us s ed , w hile d ea ling w it h t he s p ec if ic j ud gm e nt s ab ov e, t h e a s s es s ee c om pa ny is off eri ng s p ec if ic s olut io ns on a d a y to day ba s is to t he a ir lines . T he m ec ha nis m f or of f er ing t h es e s olut io ns is t hr oug h func t ion a lit y w hic h ha s b ee n m e nt ion ed c le a r ly in th e W ork Ord er w it h o ne of t he c lients i .e . M /s Je t A irw ay s . T he ex t rac t o f t he f unc tio na lit y is a lre ad y gi v e n ab ov e in pa ra 4 .4 .5 of th e ord e r.
5.2 T h e f ees b ein g c ha rged f or s uch fu nc t i ona lit y is a ls o g iv e n in Pa ra 4 of t he W o rk O rd er. T h is is a ls o rep r od uc ed a ga in as und e r:
4. F e es a. Cus t om er s ha ll pa y Sab re the f ollo w in g f e es fo r Sa b re 's pr ov is ion of a c c es s a nd us e of t he Fu nc t io na lit y and Ser v ic es des c rib ed he re in:
i. Fu nc t io na lit y I m p le me nt at ion F ee. Cus t om er s h a ll pa y Sa bre , up on ex ec ut io n of t his W ork Ord er, a n im p le m e nt a t ion f ee o f U SD $4 0 ,00 0.
ii. F u nc t io na lit y U s a ge F e e.
Fo r ac c es s a nd us e of t he Sy s t e m (s ) d es c rib ed A p p e nd ix A of t h is W o rk Or d er. Cus t o me r w ill pa y Sab r e a m o nt hly fe e e qu a l t o (i) U S$3 4 ,0 00 p er m o nt h up on t h e Co m m enc em ent D at e a nd c ont inu ing f or t he f irs t tw el v e (1 2 ) m ont hs f ro m t ha t da t e (t he "F irs t Y e ar Sy st em U s a ge F e e" ); a nd (ii) U S$0 .0 4 pe r P a ss e ng er Boa rd ed d ur ing s uc h m ont h f rom t h e s ec ond y e a r o nw a rds , f or a ll s ubs e q ue nt m ont hs f or the rem a ind e r of t he T e rm (t h e " Sys t em Usage F e e" ). Com m enc e m e nt Da t e m ea ns t h e da t e o n w h ic h t he F u nc tio na lit y or an y pa rt of t he F unc t io na lit y is c ut ov er a nd ma d e a v a ila b le f or Cus t om er's us e.
Page | 32 iii. T ra v el a nd I nc id e n t a ls Fe e . T r av el a nd ot h er o ut o f p oc k et Ex p e ns es a re pa i d as t he y a re i nc urr ed a nd inv oic ed in a c c or da nc e- w it h t he A g re em ent .
5.3 T h e m ec ha nis m is lis t e d o ut a ga in t ha t t he a s s es s ee w o uld pr ov id e t he l ogi n a n d p as s w o rd t o t h e c lie nt , t h rou gh w hic h t he c lie nt wo uld b e a b le t o int e rac t w it h t h e a s s es s ee . I n s uc h int era c tio n, t he c lie nt w ould b e a b le t o a va il t o t he s p ec if ic s e rv ic es w h ic h a r e of f er ed in t h e fu nc t ion a lit y . I n ot he r w ords , t he c lie nt w oul d f ur nis h s om e da ta o r w rit e up a ft e r l ogg ing in on his l ogi n p orta l . T his d a ta w o uld be ut iliz ed a nd a n a ly z ed b y t he a ss es s ee o n it 's o ff s h or e loc at ion in th e U S. T he as s es s e e c om pa ny a ft er ap p lic a t io n o f it s I nt el lec t ua l Pr op ert y a nd ex p e rt adv ic e w ou ld g ene ra te s om e s o lut ion fo r t he c us t om er o r t he c l ient . It has b ee n c lea rly m ent io ned in t he Mas t er A gr ee m e nt t hat t h e da t a a na l yz ed a nd o utp ut s of t h e d at a c ol lec t ed at t he c us t om er p orta l h a v e b e en w ork ed o n t h rou gh e x c lus iv e IP .
The ad v ic e or the s ol ut i ons p rov id ed are ba s ed on pri nc ip a lly pr ot ec t ed s oft wa r e an d t he ex p er ienc e and d at a a na ly z e d b y e xp erts , w h ic h ha s b ee n d ev elop e d by t h e a s s es s ee c om pa ny . T his pr ot ec t ed s oft wa r e of fers fa c ilit y t o t h e c l ien ts t o l ogi n, f urn is h s om e d at a a nd th en a c c es s r ep orts ge nera t ed o n t h e d a ta . N ow i t is im p ort an t t o se e th e d efi nit ion of R oy a lt y und e r t he A ct . A g a in it is re it e ra t ed t h at t he as s es se e d o es n ot ha v e a T R C of t he U S a n d t he re fo re t h e ta xa b ili t y is t o b e d et erm i ne d o nly i n a c c or da n c e w it h t h e d omes t ic t a x la w . T h e d e f init ion ' roy a lt y ' und er s ec t io n 9 o f t he I nc om e- ta x Ac t is a s und er :
Ex p la na t io n 2. --F or t he p u rp os es of th is c la us e, " ro ya lt y " m e a ns c ons id erat ion (inc lud ing a ny lu mp s um c o ns id e ra t io n b ut ex c lud ing an y c ons id e ra t io n w hic h w ou ld be the inc o m e of t he rec ip ie nt c ha rge ab le und e r t h e head " Ca p ita l ga i ns " ) f or--
(i) the t ra ns f er of a ll or a ny r igh ts (inc l ud in g the gra nt ing o f a lic e nc e) in r es p ec t of a pa t e nt , inv ent io n, m od e l, d es ign , s ec ret f orm ul a or p roces s o r t rad e m a rk or s im ila r p r op erty ;
(ii) the imp a rt ing of a ny inf o rm at ion c onc er ning t he w ork ing o f, or th e us e o f, a pa t e nt , in v e nt ion , m od el , d es ig n, s ec ret form ula or pr oc ess or tr ad e m a rk o r s im ila r p rop e rt y ;
Page | 33 (iii ) the us e of any pa t e nt , inv en t io n, m od e l, d es ign , s ec ret f orm ul a or p roces s o r t rad e m a rk or s im ila r p r op erty ;
(iv ) the im pa rt ing of a ny info rm at ion c onc e rni ng tec hnic a l, ind us tr ia l , c om m erc i a l or sc ie nt if ic k no w led g e, ex p er ie nc e or s k ill;
(iv a ) t he us e or rig ht t o us e a ny ind us tr ia l, c o mm erc ia l o r s c ie nt if ic eq uip m e nt b ut not inc lud i ng the a m ounts ref e rred to in s ec t ion 44 B B;] (v ) the t ra ns f er of a ll or a ny r igh ts (inc l ud in g the gra nt ing o f a lic e nc e) in res p ec t of a ny c op y r ight , lit e ra ry , a rt is t ic o r s c ie nt if ic wo rk inc lud ing f ilm s or v id eo t a p es for us e in c on ne c tio n w it h te le v is io n o r ta p es f or us e in c on nec t io n w it h rad i o b road c a s t in g, b ut not inc lud i ng c o ns id e ra t i on f o r t he sa le , d is t r ib ut io n or ex hib it i on o f c inem a t o gra p h ic fil ms 5.4 As s ee n ab ov e the na t u re of s e rv ices rend e red by t he as s es se e q ua l ify und er t hr ee c la us es o f t he d ef in itio n of ro ya lt y : -
(ii) the im p a rt in g of an y inf orm at ion c o nc er nin g t h e us e o f, a pr oc ess (iii ) t he us e of a ny p roc es s ;
(iv ) the im p a rt i ng of any in fo rm at ion c onc e rn ing c om m e rc ia l kn ow led ge , ex pe rie nc e o r s k i ll ;
Sub -c la us e (iii) c lea rl y m e nt ions t hat roy a lt y m ea ns co ns id erat ion f or th e us e of a ny p roc es s . Su b c la us e (i i) r efe rs t o th e imp a rt in g of a ny inf o rm at ion c o nc e rnin g t he us e of a p roc es s a nd t h e s u b -c la us e ( iv ) is a ls o s q ua re ly ap plic a b le as it c ov er s im p a rt in g o f a ny inf o rm at ion c once rn ing c om m erc ia l k n ow l ed g e. P roc es s i n t he c o nt e x t of t he as s es se e ha s a lr ea d y b e en d is c us s ed a bo v e. It is th e s e ries of s t ep s inv olv ed in c r ea t i on of a n e lec t ro nic pla t f or m , fo llow e d by in p ut o f da ta b y t he c li ent a nd t his da t a is a na lyz e d a nd a n out p ut ad v ic e ge ne ra t ed . I n t he p res ent ca s e, t he so urc e c od e of t he p roc es s de v e lop ed b y t he a s s es s e e is t he b a s is o f s up p lied inf or ma t io n t o t he c lie nts . It is ac t ua l ly a s et of s t ep s or a c om b inat i on of proc es s es w h ic h a re f o llow ed for t he a na ly s is of da ta . T he c ons id er a t ion b e ing pa id b y t h e c lient is m e nt ion ed a b ov e is b ot h f or Page | 34 • Ex ec u t io n a nd im p lem ent at io n o f t he s oft wa r e on t he c lie nt 's end .
• P er m o nt h c ha rg es pay a b le by t he c lie nt to t he p are nt c om p a ny , a nd • Pa ym e nt a ls o m ad e on a p as s e nge r ba s ed us a g e f ee T h e pa ym ent b e ing m ad e is p ri ma f a c ie f or t he p u rp os e o f s pec if ic s erv ic es b e ing re nd e red t o t he c lie nt . T hes e s erv ic es t ak e t he s ha p e of roy a lt y s inc e t he c ons id erat ion f or t h es e s erv ic es is fo r the us e o f a p roc es s . It is a ls o n ot ew ort hy t ha t t his p r oc ess [ a d ed ic at ed s oft wa r e] is ac t ua l ly I n t e llect ua l P ro pe rt y of t he c l ien t . O n b ot h ac c o unt s , t h e us e of s uc h p r oc ess or pr op ert y is in t h e nat ur e o f roy a lt y . T h e a s s es s e e i n his s ub m is s ion ha s t ried ex p la i ni ng t hat t he c ons id erat ion r ec e iv ed is fo r us e of a s t and a rd iz e d prod uc t . T he det a iled s ub m is s io n by t he as s es s e e ha s a lre ad y b ee n d is c us s e d on va rio us lim bs of t he d ef in it io n of roy a l t y . A num b e r of c as e la ws ha v e be en a ls o q u ot ed b y t h e a ss es s ee t o be in it s f av or . I t i s h ow ev er s ee n t hat a lm os t a ll t he j ud gm en ts a re d is t i ngu is hab le on f a ct s w hic h ha v e b e en d is c us s ed a b ov e . T he a ss es s ee is no t p ro vid ing s ta nd a rd iz ed s e rv ic es . In its s ubm is s ion d at ed 2 4 .7. 2 017 it is s ub m it t ed t ha t SD T is r es p ons ib le for co nf ig ura t io n of it s s er v ic es ac c o rd in g to c us t om er s p ec if ic a t io ns . T he nat ur e of s erv ic es is dep e nd e nt o n t he c lie nt i np uts .
5.5 In t he p res e nt c a s e, t he b as ic s t r uc t u re o f t h e b us i nes s ac t iv it y of t h e as s es se e is t ha t t he p o rt a l ha s b ee n p ro v id ed t o t he c lie nt . T he c lie nt e nt e rs s p ec ifi c da ta a nd s e ek s a so lut ion fr om t he a s ses s ee . T h e a s s es s ee o n t he ba s is of it s ow n k now led ge ba s e a nd de v e lop ed In t e llec t ua l P rop e rt y p r ov id es a s olu t io n t o t h e c lie nt . T h e c lie nt ac c es ses t his s o lut i on t hr ou gh t he lo gi n p o rt a l a v aila b le a nd us es it . T h is us e of t he s olut io n is w ho lly for c om m e rc ia l p u rp os es i n t he c lie nt ' s c as e. S o m uc h s o, ev en s p ec if i c pa s s eng er b a s ed pa y m ent is a lso b e ing m ad e t o t he a s s es s ee c om pa ny b y t he c li ent a ir lines . T h eref or e t he s e rv ic es b ein g r en d er ed a re in t he nat ure o f roy a lt y in th e as s ess e e' s c as e . T h e p ri nc ip a l r el ia nc e o f t he a ss es s ee o n D I T V S N ok ia N e tw ork s s t a tes t h at t h e p urp os e of p ay m e nt or c ons id er at ion s ho uld be f or ob t a inin g of c opy r igh t s of lit era r y wor k be ing on s oft wa r e is m is p l a c ed . T he a ss es s ee as e xp la in ed ab ov e is n ot Page | 35 rec eiv ing c ons id e ra t io n f o r s up p ly o f s oft w a r e a nd t he re fo re t he c as e is d is t ing uis he d. H er e t he co ns id era t ion is fo r s o lut ions . F urt he r t he as s es se e q u ot es t he M et ap a t h So ft w a re w hic h s ta t es t ha t c om m e rc ia l ex p lo it at ion o f t he ac q uir ed r ight t o us e is t he un d er ly in g n ec es s ity to q ua li fy a s roy a lt y . A ga in t he j ud g m e nt is in t h e co nt ex t of s up p ly of com p ut er s oft wa re w h ic h is not t h e a s s es s e e's c as e. T he re fo re t he pa y m ent rec eiv ed b y t he a ss es s ee f o r o ffe rin g s olu tio ns on a lo gin pla t f orm b y us in g t h e I P p ro t ect ed so ftw ar e a t a n of fs ho re loc at ion a s in t he nat ure of r oy a lt y c ov e red b y E xp l an at ion 2 u /s 9 (l)( v i) .
6.1 Onc e it has b ee n h eld t ha t t he p a y m e nt is in t h e nat ur e of roy a lt y o r fe e fo r tec hnica l s e rv ic es , t he t a x ab i lit y of t h e s a m e is req ui red to be ex am in ed . It ha s a lr ea dy b ee n d ec id ed th at t he as s es se e d o es not hav e a P E i n I nd ia . T he p r ov is ions o f s ec t ion 4 4 D A us e t he d e fi nit ion of p e rm a ne nt es t ab lis hm en t as m ent io ne d in s ec t ion 92 F. T he de f init ion inc l ud es a f ix ed p la c e PE whic h t he as s es se e d o es n ot ha v e . As a res ult , t h e p rov is io ns o f Se c tio n 4 4 D $ . ar e not a p p lic ab l e t o t he as s ess e e.
6.2 I n t he a bs e nc e of a v a ila b ilit y of S ec .44D A , t he ro ya lt y c a nnot b e ta x ed on a n et b as is . T his im p lies t ha t th er e c a nn ot b e a n y a llow a nc e f or a n y e x p ens es a s p rov id ed in s ec t io n 44 AD . T h er ef or e t he o nl y m ec ha nis m a v a ila b le fo r t ax at ion of t he rev e nue ra is e d fro m t he In d ia n c lients is on a g ros s b as is .
T h e t ax ab ilit y of F T S o r R oy a lt y b e ing at a lo w e r ra t e of 10 % is on th e gros s a m o unt is a ls o t he r ea s on t ha t n o ex pens es ca n b e a llow ed w h en it is t a x ed as s uc h.
6.3 Fu rt he r, s inc e t he t ax r at e ha s a l rea dy b ee n red uc ed , t he qu es t ion of a t t rib ut io n w h ile t a x ing it on a g ros s ba s is d oes not a ris e . Or in ot he r w ord s w he n a ta x is c ha rged a t t he rat e of 1 0 % o f t he gr os s a m o unt it fa c to rs i n a tt rib ut ion a ls o s inc e norm a l rat e of ta x is 40 % to a f ore ign com p a ny . T he as s es s ee t he re fo re a ls o do es n ot ha v e a ny rec ours e t o R ule 10 a s t he s aid r ule is a pp lic a b le o nly to bus i ness inc om e re f err ed t o in 9 ( 1 )(i) a nd t he inc om e f rom I nd ia n rev e nu es , is c ha rg ea b le as r oy a lt y in t he as s es s ee 's ha nd s . T he ra t e of ta xa t i on o n t he c urr en t inc o m e has t o b e i n ac c or da nc e w it h s bc ,115 A o f t he I T A . T h e d es igna t e d ra t e is a t 10 % . T her ef o re t he ent ir e r ev en ue r ec e iv ed d eem e d t o b e inc om e ac c ru ing or a ris in g in Page | 36 In d ia in ac c o rd a nc e w it h t h e p rov is io ns of s ect ion 9 (1 )( v i) of t he Ac t an d Rs . 8 8 ,3 3, 78 ,90 6/- is c ha rg ea b le t o t a x a t 10 % . "
21. We have gone through the entire arguments given by the assessee and the judgments quoted by the assessee which have been duly incorporated in the order of the ld. CIT(A). We have also been made aware that the receipts of the assessee for the subsequent A.Ys. 2015-16, 2016,-17, 2017-18 have also been taxed @ 10% which has been the ratio followed by the ld . CIT(A) for the A.Y. 2013-14. In view of the settled position, we hereby affirm the decision of the ld. CIT(A).
22. In the result, the appeal of the revenue is dismissed. For the very same reasons assessee's appeal as well as Cross Objection are dismissed.
Order Pronounced in the Open Court on 03/01/2023.
Sd/- Sd/-
(Saktijit Dey) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 03/01/2023
*Subodh Kumar, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
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