Case Number: ITA 702/DEL/2021
Appellant: Adore Technologies Pvt. Ltd., Singapore
Respondent: ACIT, Circle-1(1)(1), Int. Taxation, New Delhi
Assessment Year: 2017-18
Case Filed on: 2021-06-11
Order Type: Final Tribunal Order
Date of Order: 2022-12-19
Date of Pronouncement: 2022-12-19
The case involves Adore Technologies Pvt. Ltd., a Singapore-based company, which challenged the tax treatment of payments received from Indian customers for various satellite-based telecommunication services. The primary issues revolved around whether these payments should be taxed as ‘Royalty’ or ‘Fees for Technical Services’ (FTS) under Article 12 of the India-Singapore Double Taxation Avoidance Agreement (DTAA).
The appellant, Adore Technologies, argued that the payments for services such as disaster recovery uplinking, space segment capacity services, and downlinking services should not be classified as royalty under Article 12(3) of the DTAA. They contended that these payments were for services rendered, not for the use of any equipment or process, and thus, did not fall under the definition of royalty as per the DTAA.
Additionally, they argued that the Disaster Recovery Playout Services provided should not be classified as FTS under Article 12(4) of the DTAA, as these services did not involve managerial, technical, or consultancy services that made available any technical knowledge, experience, skill, know-how, or processes to the customers.
The Assessing Officer (AO) argued that the payments for uplinking and playout services should be taxed as royalty under Explanation 2 to section 9(1)(vi) of the Income-tax Act, 1961, and Article 12(3) of the DTAA. The AO also held that the Disaster Recovery Playout Services were taxable as FTS under Article 12(4) of the DTAA.
The Tribunal examined the facts of the case, relevant documentary evidence, and judicial decisions. They noted that the customers of Adore Technologies did not have possession or control over the equipment used for providing the uplinking and playout services. The Tribunal concluded that these services were standard telecommunications services that did not involve any transfer of know-how or intellectual property to the customers.
The Tribunal referenced judicial decisions, including the Delhi High Court’s rulings in the cases of New Skies Satellite BV and Asia Satellite Telecommunications Co. Ltd., which held that similar payments did not constitute royalty under the DTAA.
The Tribunal ruled that the payments received by Adore Technologies for uplinking and playout services could not be classified as royalty under Article 12(3) of the DTAA. They further concluded that the Disaster Recovery Playout Services did not qualify as FTS under Article 12(4) of the DTAA, as these services did not make available any technical knowledge, experience, skill, know-how, or processes to the customers.
The Tribunal directed the Assessing Officer to delete the additions made on account of these payments and ruled in favor of Adore Technologies Pvt. Ltd.
This ruling reinforces the interpretation of tax treaties in favor of taxpayers when it comes to the classification of payments for international services. It highlights the importance of understanding the nature of services and the exact terms of tax treaties to avoid misclassification of income for tax purposes.
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