Income Tax Appellate Tribunal - Mumbai
Atos Information Technology Hk Ltd., ... vs Dcit (Intl. Tax) Range 1(1)(2), Mumbai on 29 March, 2017
आयकर अपीलीय अिधकरण, मुंबई "एल" खंडपीठ म Income-tax Appellate Tribunal -"L"Bench Mumbai सव ी राजे ,लेखा सद य एवं सी. एन. साद, याियक सद य Before S/Sh.Rajendra,Accountant Member and C. N. Prasad,Judicial Member आयकर अपील सं./ITA/6436/Mum/2016,िनधा रण वष /Assessment Year:2009-10 आयकर अपील सं./ITA/6437/Mum/2016,िनधा रण वष /Assessment Year:2010-11 आयकर अपील सं./ITA/6438/Mum/2016,िनधा रण वष /Assessment Year:2013-14 Atos Information Technology HK DCIT(Intl. taxation)-1(1)(2) Limited Scindia House C/o. Atos India Pvt. Ltd. Vs. Mumbai.
Plant No.5, Godrej & Boyce Mfg.
Co.Ltd.,Pirojshanagar, LBS Marg,
Vikhroli (W),Mumbai-400 097
PAN: AAKCS 8720 L
(अपीलाथ /Appellant) ( यथ / Respondent)
अपीलाथ ओर से / Appellant by :Shri Dhanesh Bafna
यथ क ओर से/Respondent by : Ms.Jasbir Chouhan
सुनवाई क तारीख / Date of Hearing : 29.03.2017
घोषणा क तारीख / Date of Pronouncement :29.03.2017
आयकर अिधिनयम,1961
अिधिनयम क धारा 254(1)के के अ
तग
त आदे श
Order u/s.254(1)of the Income-tax Act,1961(Act)
लेखा सद य राजे
के अनुसार/
ार PER RAJENDRA, AM-
Challenging the orders of the Assessing Officers(AO.s),passed, u/s. 143 (3) r.w.s.144C (13) of the Act,in pursuance of the directions of the Dispute Resolution Panel (DRP-I),Mumbai, dated 22/07/2016, the assessee has filed the appeals for the above-mentioned three AY.s (AY.s) raising various grounds of appeal. As the issues involved in all the appeals are almost similar,so we are adjudicating them by way of this consolidated order. Assessee-company is engaged in the business of providing services/facilities for processing the data through computer software and is incorporated in Hong Kong. The details of dates of filing of the returns of income, returned incomes, assessed incomes etc. can be summarised as under:
A.Y. ROI filed on Returned income Assessment Date Assessed income 2009-10 24.03.2011 Nil 01/09/2016 Rs.21,39,71,104/-
2010-11 30.09.2011 Nil 01/09/2016 Rs.42,28,05,363/- 2013-14 30.09.2011 Nil .. .. .. Rs.59,93,15,781/- ITA/6436/Mum/2016-AY.2009-10:
First effective ground of appeal is about holding the sum of Rs. 21.93 crores as royalty/fees for technical services u/s. 9 (1) (vi)/9 (1)(vii) of the Act. It was brought our notice that in the earlier years, the identical issue was deliberated upon and was decided in favour of the assessee by the Tribunal(ITA.s/237-240/Mumbai/2016-AY.s2006-07to2008-09 and 2012- 6436-38/M/16(09-10;10-11 &13-14) Atos Information Technology HK Ltd.
13,dated 09/02/ 2017). We would like to reproduce the relevant portion of the order and it reads as under:
"18. We have carefully considered the entire gamut of facts as discussed above, relevant findings given in the impugned order as well as the rival submissions made before us. The main issue involved, which has been raised vide ground no. 1.1 is, whether the payments made by Standard Chartered Bank India (SCB) to the assessee is in the nature of „royalty‟ u/s 9(1)(vi) or "fees for technical services‟. Since the assessee-company is incorporated in Hong Kong and is providing services/facilities for processing data to SCB from Hong Kong, therefore, the payment made by SCB India to assessee has to be seen from the perspective of domestic law, i.e. Income-tax Act and not under any treaty. The assessee-company is mainly engaged in the business of providing services/facilities for data processing through computer hardware and software to banking entities. It had entered into an agreement which has been termed as "Cocteau agreement" with SCB for provision of data processing support, which is for 68 countries with various branches. Under the said „Cocteau agreement‟, the role and responsibilities of assessee in 39 ITA Nos. 237 to 240/MUM/2016 Atos Information Technology HK Ltd. respect of providing data processing services has already been discussed in detail in the earlier part of the order including the manner in which the entire processing activity is carried out. The Revenue‟s case is that first of all, it is in the nature of royalty and for coming to this conclusion, the main contention of Assessing Officer is that, firstly, the assessee is not merely providing data processing services, but also providing technology in the form of data centre, infrastructure, connectivity and application technology for its banking operations; and secondly, it has created and provided facility in the form of dedicated centres for exclusive use of SCB with disaster recovery facility and storage facility. These infrastructure facilities in the form of data centre, storage area network, disaster recovery facility and dedicated network connectivity is translated into functional process by defined service flow for the various geographic locations for various business application which would constitute process. The assessee in this process has also made available SCB use of its equipment, model, design, invention and process. After coming to the conclusion that the payment is in the nature of "royalty" within the scope of section 9(1)(vi), the revenue went further to hold that, since assessee has provided technical, managerial and consultancy services to SCB, therefore, it also falls in the nature of „FTS‟ and for coming to this conclusion, certain clauses in the Cocteau agreement has been referred to.
19. First of all, we will deal with the issue whether the said payment falls within the realm of „royalty‟ or not. From the perusal of the various clauses of the agreement which has been referred to extensively by both the parties at the time of hearing and discussed herein above, we find that the main objective of the „Cocteau agreement‟ is to provide SCB group all across the world, processing of data through a network of computer systems in Hong Kong. In the entire agreement there is no whisper of any technology transfer or application of technology per se to SCB. This is a kind of outsourcing activity which has been given by SCB to Atos to process its data from various branches across the country. We agree with the contention of the ld. Counsel that the reference to the various details in the agreement is merely to ensure quality, standard and various safeguards which are to be adopted in the course of processing data especially looking the volume of data required to be processed from all around the Globe. The provisions mainly contains assessee‟s responsibility to ensure adequate facility, systems and software which are located in Hong Kong and to ensure that all the hardware which is used in Hong Kong is maintained and housed in secured building space and infrastructure, manage proper performance of the hardware and operating systems, ensure adequate technical support of operating systems, to ensure system performance, maintain adequate security measures and effective internal control environment and also put in place appropriate disaster recovery plan. All these are to be maintained by the assessee to conduct the processing of data through computers. There is no providing or giving any use or right to use of any process to SCB. The technology, infrastructure, data centre, connectivity, etc. is solely used by the assessee for its own purposes and not to make 2 6436-38/M/16(09-10;10-11 &13-14) Atos Information Technology HK Ltd.
available any such thing to SCB as explained by the ld. Counsel. At the first stage, SCB transmits raw data through operating software owned by it to the hardware facility of assessee in Hong Kong. The assessee in Hong Kong mainly receives the data so transmitted and at this stage there is absolutely no use or right to use of any process of assessee in Hong Kong by SCB. At the second stage, the raw data transmitted by SCB is processed by the assessee in its computer system/hardware as per the requirement of SCB and at times may be using the application software owned by SCB. At this stage also, SCB does not use or have any right to use any process. At the third stage, the processed data is transmitted electronically to SCB in India and at this stage also there is no use or right to use of any process which is given or made available to SCB. Here, in this case there is absolutely no use of equipment also as alleged by the Department within the definition given in clause (iv a) of Explanation 2 to Sec. 9(1)(vi) of the Act. The said clause deals mainly with the "use‟ or "right to use‟ any industrial, commercial or scientific equipment and applies only to income from leasing of such industrial, commercial or scientific equipment. This is borne out from the Memorandum to the Finance Bill, 2001 through which the said clause was inserted w.e.f. 1.4.2002, the relevant extract of the Memorandum has already been incorporated in the earlier part of our order and same proposition is also held by Mumbai Bench in Yahoo India P, Ltd. Vs DCIT (supra). Here, in the case of assessee, there is no income from leasing of any equipment. The legislature thus, has clearly envisaged that clause (iva) is to cover lease rent of industrial, commercial and scientific equipment in the definition of royalty and the said definition has been widened to that extent only. Thus, there is no concept of right to use of equipment here in this case. So far as applicability of Explanation 5 & 6 are concerned, we agree with the contentions of ld. Counsel, as reproduced above, that same would not be applicable at all in the case of assessee because, firstly, Explanation 6 enlarges the scope of process to include transmission by satellite cable, fibre optic, etc.; and secondly, Explanation 5 is applicable where consideration is of any right, property or information as defined in clauses (i) to (v) of Explanation 2 only and not in clause (iva) for the reason that Explanation 5 has been inserted with retrospective effect from June 1, 1976. In other words, Explanation 5 has been inserted retrospectively from the birth of Section 9(1)(vi) to clarify the intention behind the legislation. Hence, Explanation 5 is to be read with the Section 9(1)(vi) which was there on the statute as on April 1, 1976. Whereas clause (iva) to Explanation 2 was inserted from April 1, 2002. Thus, retrospective effect of clause (iva) cannot be deemed from 1.06.1976 and hence it cannot be held that Explanation 5 also applies to the said clause as this clause never existed as on April 1, 1976 and accordingly, the legislation cannot clarify the intention of the clause which never existed on the said date. Hence Explanation 5 & 6 would not be applicable in the case of assessee.
20. Further, for any payment to fall within the term of "royalty" it is sine qua non that there should be some kind of a transfer of any right in respect of various items as given in Explanation - 2 or any imparting of any information or use of any patent, invention, model, design, secret formula, process, etc. Here, in this case, there is neither transfer of any of right in respect of any patent, invention, model, design, secret formula or process or trademark or any similar property by the assessee to SCB, nor there is any imparting of any information or use of any of similar nature of things. Here, the entire equipment and technology which are used for processing the data is solely for performing the activity of assessee for itself while rendering data processing services to SCB. There is absolutely no transfer of any technology, information, knowhow or any of the terms used in Explanation 2 or any kind of providing of technology in the form of data centre, infrastructure, connectivity and application technology by the assessee to SCB for SCB‟s banking operations. Thus, we are of the opinion that the payment made by SCB to assessee-company does not fall within the realm of "royalty" and hence cannot be taxed in India as royalty u/s 9(1)(vi) of the Act.
21. As regards whether the payment is in the nature of FTS or not, we find that the provision regarding services provided by assessee to SCB is mainly a standard facility and there is no constant human endeavour or human intervention which is required to provide the data servicing service. As stated earlier, raw data fed into by SCB India are transmitted to assessee and the data so transmitted stands captured by the mainframe computers owned by 3 6436-38/M/16(09-10;10-11 &13-14) Atos Information Technology HK Ltd.
assessee wherein such data are processed automatically and the final result is then transmitted to SCB India. All these transmission and processing of data is done automatically by computers and there is not much human involvement or intervention. There is no application of mind by the employees of assessee on said data because, they are processed through programmed software and neither any verification nor any analysis is carried out by the assessee on such data. The employees of the assessee-company are only required to oversee as to whether the computer systems are 44 ITA Nos. 237 to 240/MUM/2016 Atos Information Technology HK Ltd. functioning properly and performing well and if there is any breakdown or fault, then same needs to be taken care of. The human intervention if at all is mainly for repairing and monitoring the hardware and software of the assessee which are processing the raw data of SCB and there is no human involvement or endeavour for rendering any kind of technical or consultancy services in data processing. It has been stated that before us that even the faults are corrected automatically. Further, looking to the number of volume of transactions transmitted by SCB to assessee, it would be impossible for any number of humans to apply their mind and generate reports. This has been demonstrated by the ld. Counsel before us by way of an example which has been already incorporated above. Thus, the magnitude of transactions undertaken by assessee itself goes to show that the computer systems installed by the assessee in Hong Kong is standard facility through which data is processed. In this regard, strong reliance was placed on the decision of ITAT, Mumbai Bench in the case of Siemens Limited (supra), wherein the Tribunal has emphasised upon the element of human intervention for rendering of technical services. The relevant observation in this regard reads as under:- "
------------------------In our opinion, this cannot be the criteria for understanding the term "technical services" as contemplated in Explanation 2 to section 9 (1)(vii). If any person delivers any technical skills or services or make available any such services through aid of any machine, equipment or any kind of technology, then such a rendering of services can be inferred as "technical services". In such a situation there is a constant human endeavour and the involvement of the human interface. On the contrary, if any technology or machine developed by human and put to operation automatically, wherein it operates without any much of human interface or intervention, then usage of such technology cannot per se be held as rendering of "technical services" by human skills. It is obvious that in such a situation some human involvement could be there but it is not a constant endeavour of the human in the process. Merely because certificates have been provided by the humans after a test is carried out in a Laboratory automatically by the machines, it cannot be held that services have been provided through the human skills. Even in the latest decision of Hon'ble Supreme Court in the case of M/s. Kotak Securities Ltd. (supra), (the relevant portion of which has already been reproduced above), the Hon‟ble Court opined that, if services are provided through fully automated standard facility, the same cannot be reckoned as rendering of technical services as contemplated u/s 9(1)(vii) of the Act. The relevant observation reads as under:-
"8. ..... All such services, fully automated, are available to all members of the stock exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customized service that is rendered by the Stock Exchange. "Technical services" like "Managerial and Consultancy service" would denote seeking of services to cater to the special needs of the consumer/ user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish / identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would therefore stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialized, exclusive and individual requirement of the user of consumer who may approach the service provider for such assistance/service.It is only service of the above kind that according to us, should come within the ambit of the expression "technical services" appearing in 4 6436-38/M/16(09-10;10-11 &13-14) Atos Information Technology HK Ltd.
Explanation 2 of Section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act."
Before us, the ld. Counsel has also pointed out that assessee is also providing similar services to other clients like Hong Kong Government and other big MNEs and there is nothing special or exclusive about the services which are being rendered to SCB. In view of the entire gamut of facts as discussed above, we are of the opinion that the payment made by SCB to assessee company does not fall within the realm of "fees for technical services‟ as contained in Sec. 9(1)(vii), albeit the assessee has only provided a standard facility for data processing without any human intervention. Accordingly, we hold that the said payment is not taxable in India as „fees for technical services‟ in terms of Sec. 9(1)(vii) of the Act. Thus, the issue raised in ground no. 1.1 is decided in favour of the assessee."
Respectfully following the order of the Tribunal for the earlier years, we decide first effective ground of appeal(GOA-1&2) in favour of the assessee.
3.Next two grounds deal with denying the benefit of the rate prescribed u/s. 115A of the Act. Representatives of both the sides agreed that identical issue was decided by the Tribunal in the earlier years also.We are reproducing the relevant portion of the order of the Tribunal, dated 09/ 02/2017 (supra). It reads as follow:
22. So far as the issue raised in ground no. 1.2 with regard to rate of tax u/s 115A of the Act, it has been submitted that the Assessing Officer has taken 40% of the gross amount on the ground that SCB India has no role in "Cocteau agreement‟. The ld. Counsel pointed out that the rate applicable should be reckoned from the cut-off date of the agreement, which for the purpose of Sec. 115A of the Act is before 1.6.2005 then it is 20% and if agreement is post 1.6.2005 then it is 10%. Even, though we agree with the ld. Counsel, however this issue will become purely academic because we have already held that the amount of payment received by assessee from SCB is not taxable in India. Likewise, the issue raised in ground no. 1.3 is also being rendered infructuous.
Respectfully,following the same,we hold that both the grounds of appeal have become infructuous.
4.Fifth ground of appeal is about granting short credit of TDS, amounting to Rs.9.54 lakhs. We find that the Tribunal and its order dated 09/02/2017 (supra) has dealt the issue as under:.
23. Regarding ground no. 2 it has been pointed out that Assessing Officer may be directed to give credit of tax paid amounting to Rs. 2 crores. Accordingly, we direct the Assessing Officer to look into this issue and allow credit of tax paid as per the directions given by Tribunal in the stay petition."
The AO is directed to verify the claim made by the assessee and allow the credit,if due.Ground of appeal (GOA) 5 is partly allowed.
5.Next effective ground of appeal is about charging of interest u/s. 234A/B of the Act.It is found that identical issue was decided by the Tribunal in the earlier years,as under:
24. Regarding chargeability of interest u/s 234B of the Act, it is admitted that this issue is covered in favour of assessee in view of the decision of Hon'ble Bombay High Court in the 5 6436-38/M/16(09-10;10-11 &13-14) Atos Information Technology HK Ltd.
case of NGC Network Asia LLC, 313 ITR 187 (Bom.). Accordingly, respectfully following the same we direct to delete the interest u/s 234B.
Respectfully following the above, we direct the AO to delete interests levied under both the sections.Grounds no.6-7are allowed.
6.Ground no. 8 is admitted to be premature and accordingly, same is dismissed.
ITA/6437/Mumbai/2016-AY. 2010-11:
7.Following our order for the earlier year,we decide Grounds no.1-2 in favour of the assessee. Ground no.3-4 are treated infructuous.AO is directed to verify the payment of TDS and give due credit to the assessee.Fifth ground is allowed in favour of the assessee,in part.Next three grounds of appeal deal with the interest levied u/s.234 A,B and C.Following our order for earlier year we direct the AO to delete the interest u/s.234B and 234C and to recomputed the interest u/s.234A as per the provisions of law.Ground No.6 is partly allowed and Grounds No.7-8 stand allowed. Last ground of appeal is about initiating penalty u/s.271(1)(c)of the Act.We dismiss the ground treating the same as premature.
ITA/6437/Mumbai/2016-AY. 2011-12:
8.Following our orders for the earlier year we decide first two grounds in favour of the assessee. Next two grounds are treated infructuous.Fifth ground of appeal is about rate of surcharge. AO is directed to verify the rates and levy the surcharge accordingly.Sixth ground deals with living of interest u/s. 234B of the Act. Following the earlier years orders,we decide the issue in favour of the assessee.Last ground of appeal is about initiation of penalty proceedings. As the issues premature and is stands dismissed.
A result, appeals filed by the assessee for all the three AY.s stand partly allowed.
फलतः िनधा रती ारा दािखल क ग तीन िन.व.क अपील अंशतः मंजूर क जाती ह .
Order pronounced in the open court on 29th March,2017.
आदेश क घोषणा खुले यायालय म दनांक 29 माच ,2017 को क गई ।
Sd/- Sd/-
(सी. एन. साद / C.N.Prasad ) (राजे
/ Rajendra)
याियक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai, दनांक Date:29.03.2017
Jv.Sr.PS.
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1. Assessee /अपीलाथ 2. Respondent / यथ
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6436-38/M/16(09-10;10-11 &13-14)
Atos Information Technology HK Ltd.
3.The concerned CIT(A)/संब अपीलीय आयकर आयु#, 4.The concerned CIT /संब आयकर आयु#
5. DR "K" Bench, ITAT, Mumbai /िवभागीय ितिनिध खंडपीठ,आ.अ.$याया.मुंबई
6. Guard File/गाड फाईल स यािपत ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.
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