Whether fees received for “foreign exchange deal matching system services” constitutes “royalty” under Article 13 of India-UK DTAA & Section. 9(1)(vi) of Income Tax Act, 1961?

Court :
ITAT Mumbai

Brief :
The assessee company is a tax resident of United Kingdom incorporated under the laws of England. The assessee is engaged in the business of providing “foreign exchange deal matching system” which enables foreign exchange authorized dealers to effect deals in spot foreign exchange with other foreign exchange dealers. The main server is located in Geneva and the assessee has executed a Dealing Services Marketing Agreement with M/s. Reuters India Pvt. Ltd (‘RIPL’) whereby RIPL will market the services of the assessee to the subscribers in India. The assessee claimed that the revenue earned by the assessee from its subscribers in India are in the nature of business profit which is taxable in India only if it has a PE in India as per Article -7 of the India-UK DTAA. The assesse claimed that for the A.Ys under consideration, it did not have PE in India as contemplated under Article-5 nor the services are in the nature of royalty or fee for technical services and accordingly not taxable under Article -13 of DTAA. The Cousel for the assessee submitted that the Revenue erred in law in holding that the consideration for services received by Appellant is taxable as “royalty” under Article 13 of the India-UK DTAA and even if the Indian Subsidiary of the assessee constitues PE, Para 6 of Article 13 of DTAA shall be invoked and the royalty shall be taxed under Article 7 or 15. The Court dismissed the Appeal and held that once the receipt in question has been decided as royalty in nature then there is no need to go into the question of assessee having PE in India. Para 6 of Article 13 can be pressed into service only in the case when the existence of PE of a non resident is not in dispute. In the case at hand, the assessee has not come up with the claim that the services rendered to the Indian banks are through its PE. Rather the assessee has vehemently contended that it has no PE in India. In these facts and circumstances, the provision of para 6 of Article 13 cannot be invoked in case when the receipt is found as royalty in terms of Article-13(3) of the DTAA and assessee has not admitted any PE in India.

Citation :
M/s Reuters Transaction Services Ltd. – Appellant – Versus – The Deputy Director of Income Tax (International Taxation) - Respondent