Article 12 of India-USA DTAA; Explanation 2 to section 9(1)(vi), payment made towards web hosting charges not taxable as royalty under the Act as well as the DTAA
Geeta Jani / Dhishat B. Mehta Chartered Accountants
14.TS-623-ITAT-2018 (Pune) EPRSS Prepaid
Recharge Services India P. Ltd. vs. ITO Date of Order: 24th
October, 2018 A.Y.: 2010-11
12 of India-USA DTAA; Explanation 2 to section 9(1)(vi), payment made towards
web hosting charges not taxable as royalty under the Act as well as the DTAA
The Taxpayer is a private Indian
company engaged in distribution and sale of recharge pens of various DTH
providers via online network. In order to run its business, the Taxpayer required
access to servers. Instead of purchasing servers and incurring expenditure on
its maintenance, Taxpayer hired server space under a web hosting agreement from
a foreign company (“FCo”).
The Taxpayer did not withhold
taxes while making payment to FCo for such services on the contention that
payment for web hosting services did not qualify as royalty or FTS.
AO, however, held that the
payments were made for the use of servers which amounted to use of commercial
equipment. Hence, they qualified as royalty u/s.9(1)(vi) of the Act. Aggrieved,
the Taxpayer appealed before CIT(A), who upheld the order of AO.