Web Hosting Services Availed By The Assessee Do Not Constitute Royalty Or FTS Under India-Mauritius DTAA: ITAT

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that web hosting services availed by the assessee do not constitute royalty or Fee for Technical Services (FTS) under the India-Mauritius Double Tax Avoidance Agreement (DTAA).

The bench of G.S. Pannu (President) and Astha Chandra (Judicial Member) has observed that the web hosting services availed by the assessee do not constitute royalty or FTS, and hence payments made by the assessee to OIT Managed Services Mauritius in consideration of such services are not chargeable to tax in India, consequent to which the assessee is not required to withhold any tax on the payments.

The respondent or assessee is in the business of computer software. The assessee filed its return of income, declaring income. The case of the assessee was selected for scrutiny through CASS. Statutory notices along with questionnaires under sections 143(2) and 142(1) of the Income Tax Act, 1961, were issued to the assessee on various dates online through ITBA, asking the assessee to submit the required information, which was duly submitted by the assessee online through ITBA and placed on record.

The Assessing Officer observed that the assessee has made various foreign remittances to multiple entities, and no TDS was deducted on payments to OIT Managed Services Mauritius.

The assessee entered into an agreement with OIT Managed Services Mauritius for the provision of Amazon Web Services, Hosting Services, Identity and Access Management, Virtual Private Cloud, and Virtual Machine Services to the assessee.

The department contended that the services being provided are not standalone hosting services; these are Amazon Web Services (AWS)-based services that run ultimately on a server of Amazon. The services include the creation and configuration of virtual machines, sending alerts, monitoring threshold settings, script configuration for rapid device restarts, assistance in the analysis of the generated reports, which are technical in nature, and manual intervention. The payment is not for a pail vanilla web hosting service. It is not merely the installation and operation of sophisticated equipment but a comprehensive IT solution along with the transfer of certain copyrights.

The CIT(A) has held that the payments cannot be classified as royalty or FTS.

The court, while dismissing the department’s appeal, held that payments are not taxable in India in the absence of any specific clause on FTS in the India-Mauritius DTAA.

Counsel For Appellant: Ajay Wadhwa

Counsel For Respondent: Sanjay Kumar

Case Title: DCIT Versus Campus Eai India Pvt. Ltd.

Case No.: ITA No. 355/Del/2021

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