On the facts and circumstances of the case and in law, the learned AO pursuant to the directions of the Hon’ble DRP erred in holding that the income earned by the appellant is for use of or right to use industrial I commercial / scientific equipment and constitutes royalty under Article 12(3)(b) of the India-US tax treaty.ġ.3.
On the facts and circumstances of the case and in law, the learned Deputy Commissioner of Income- tax (International tax) – 4(1)(1) (“AO”) pursuant to the directions of the Hon’ble Dispute Resolution Panel (DRP) erred in holding that cloud hosting system is combination of hardware, software and networking elements that constitutes industrial / commercial / scientific equipment and the income of Rs.29,49,01.258/- earned by the appellant from cloud hosting services is for use of or right to use industrial commercial scientific equipment which would constitute royalty under section 9(1)(vi) of the Act.ġ.2. 1961 (the Act) as well as Article 12(3)(b) of the India-US tax treaty.ġ.1. I: Income from cloud hosting services is erroneously held as royalty within the meaning of explanation 2 to section 9(I)(vi) of the Income Tax Act. For this assessee has raised the following grounds:. AY 2012-13 to 2014-15, we take up the issue from AY 2012-13 and will decide the issue for all the appeals. As the issue is exactly identical in all the assessment years i.e. The first common issue in these appeals of assessee is against the order of DRP holding income from cloud hosting services as royalty within the meaning of explanation 2 to section 9(1)(vi) of the Act. Tax)-Circle 4(1)(1), Mumbai (in short ‘DCIT/AO’) for the assessment years 2012-13, 2013-14 & 2014-15 vide order dated, , under section 144C(5) read with section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act).Ģ.
These three appeals by the assessee are arising out of the different orders of Dispute Resolution Panel-2, Mumbai, in objection No. Even otherwise, there was no PE of the assessee in India and hence, no income could be taxed in India in term of Indo-US DTAA. In view of these facts, income from cloud hosting services had erroneously held as royalty within the meaning of explanation (2) to section 9(1)(vi) of the Act as well as Article 12(3)(b) of the Indo-USA DTAA by the AO and DRP. The customer was not even aware of the specific location of the server in the Data Centre where the customer application, web mail, websites etc. The agreement was to provide hosting services simpliciter and was not for the purpose of giving the underlying equipment on higher or lease. The agreements entered into the service level agreements. The customers did not have physical control or possession over the servers and right to operate and manage this infrastructure / servers vest solely with assessee. The Data Centre and the Infrastructure therein was used to provide these services belong to the assessee. It was held that the agreement between assessee and its customer was for providing hosting and other ancillary services to the customer and not for the use of / leasing of any equipment. AO held that the receipt received by assessee in respect to royalty and fee for technical services on account of public cloud hosting and dedicated/ managed hosting of services to Indian customers were taxable in India. Assessee claimed that this income was in the nature of business income and not taxable in India in the absence of Permanent Establishment of the assessee in India i.e. Held: Assessee has filed its return of income disclosing the total income earned from provisions of public cloud hosting and dedicated/ managed hosting of services to Indian customers. The customer was not even aware of the specific location of server in Data Centre and even otherwise, there was no PE of the assessee in India and hence, no income could be taxed in India in term of Indo-US DTAA.
Conclusion: Income from cloud hosting services had erroneously held as royalty within the meaning of explanation (2) to section 9(1)(vi) as well as Article 12(3)(b) of the Indo-USA DTAA by AO and DRP as the Data Centre and Infrastructure therein was used to provide services belonged to assessee and customer did not have physical control or possession over the servers and right to operate and manage this infrastructure/servers vested solely with assessee.