Deduction for TDS under Section 194J when paying roaming fees to other telecom companies

Fact and issue of the case

This appeal is filed by the assessee against order of the Learned Disputes Resolution Panel – 1, Mumbai [hereinafter in short “Ld.DRP’”] dated 22.08.2017 for the A.Y.2014-15, passed u/s. 144C(5) of the Income-tax Act, 1961 (in short “Act”).

Brief facts of the case are, assessee is a company incorporated in USA, providing support services to its group companies in India namely, Atos India Private Limited (Atos India). During the year, assessee has received an amount of ₹.7,55,89,549 from the services rendered to Atos India as under:- (i) Cost recharge of Microsoft license fees (ii) Co-ordination services relating to Tower Watson project. The above services are provided by the assessee in pursuance of the agreements entered with Atos India.

The return of income filed by the assessee and however, it has not reported the above receipts and offered to tax. The Assessing Officer observed that taxes are deducted at source at the time of payments. He also observed that as per the 26AS statement, the taxes were deducted on a total receipt of ₹.5,55,75,255 /- @10.55% on an average and the TDS of ₹.58,67,358 was claimed in the return of income as refund. The Assessing Officer observed that since no income was offered to tax, during the assessment proceedings, assessee was asked to explain why the same should not be taxed as royalty and / or Fee for Technical Service (FTS).

In reply, assessee submitted that it has received payments from Atos India towards (a) Recharge of costs pertaining to Microsoft licence fees, in this regard, it was informed that Atos group has entered into a central agreement with Microsoft to obtain licenses for the use of Microsoft products. As per this agreement assessee being USA based entity, invoices various Atos entities for their use of the Microsoft products. Accordingly, assessee has recovered payments from Atos India for the Microsoft products used by them. Further, it was informed that assessee has remunerated for its services (of purchasing delivery and administrative support for the benefit of Atos India) with handling fees based on the cost of the Microsoft licenses. (b) Co-ordination services relating to Tower Watson project, with regard to this, it was informed that Atos India has entered into a contract with Tower Watson India to provide Information Technology services to Tower Watson India. For this purpose, Atos India has engaged the assessee to provide certain support services. Under this arrangement, provides ‘service desk’ for authorized users of Atos India. The service desk deals with all incidents, problems and service requests (including requests for data, system or application access) in the course of provision of services by Atos India to Tower Watson India.

It was submitted that Assessee has received payment from Atos India for the above transactions did not constitute either “Royalties” or “Fees for Technical Services (‘FTS’) or Fees for Included Services (FIS). The above services are in the nature of “Business Profits” and was thus, taxable in terms of the provisions of Article 7 of the Double Taxation Avoidance Agreement between India and USA (‘India-USA DTAA’). As per Article 7 of the India-USA DTAA, “Business Profits” is taxable in India only if the non-resident has a Permanent Establishment (PE) in India. Since the assessee did not have a PE in India, the amount received from Atos India was not taxable in India. Further, assessee has submitted legal submissions defending its arguments relying on various explanations and judicial precedents.

Observation of the court

We observe that the assessee has given sub contract to Atos India of the services to be provided to Tower Watson India, the same is placed in record at Page No.160 of the Paper Book. The revenue has heavily relying on this sub-contract agreement to bring to tax the payment made by Atos India to the assessee relating to the Service Desk facility provided to the Tower Watson group. According to us, this activity is completely different to the sub-contracting agreement. As per the terms of agreement, the engagement clause clearly indicate that the assessee engages the services of Atos India to perform the services in accordance with the scope, delivery schedule, services levels and other essential factors as detailed in the services schedule (schedule no 2) of the sub contract agreement. The services provided by the assessee to the group entity are separate and nothing to do with the separate sub contract awarded to the Atos India, which is independent contract. The service desk services are provided to all the group entities to enable the common services provided to the Watson Group employees and there is nothing on record to indicate any independent service provided to Atos India or IT enabled services which gives knowledge made available to Atos India. Therefore, in our considered view, the services provided by the assessee is separate and it only collected the related cost to maintain the service desk. Therefore, it is a receipt which will fall under the Article 7 of the treaty. Hence, the addition proposed and sustained by the Ld.DRP are beyond the scope and accordingly Assessing Officer is directed to delete the same. Accordingly, the ground raised by the assessee is allowed.

In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 01st March, 2023.