ATOS INFORMATION TECHNOLOGIES HK LIMITED ,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX (INT TAX)-1(1)(2), MUMBAI

During the year under consideration, the receipts from India for\nwhich the assessee company is through its group entity Atos India.\nDuring the past years, the assessee used to get receipts from its client,\nStandard Chartered Bank, India, directly. In the year under\nconsideration, the receipts are received from its Indian entities i.e., Atos\nIndia. Though the services have been rendered by the assessee to\nStandard Chartered Bank through the Indian entity. The assessee\nrendered its services to Standard Chartered Bank directly and collected\nreceipts directly from Standard Chartered Bank, according to the\narrangement entered by Atos Group and SCB, through the global\narrangement dated 12/02/2004. Since the agreement dates back to\n12/02/2004 and since we are in AY 2021-22, this arrangement is coming\nfrom past many years except for the change that Atos India has been\nmade collecting agent for the services of assessee without there being\nany change in the nature of services. During the year, the assessee has\nreceived Rs.85,63,75,446/- as sub-contracting charges from Atos India\nand has not offered the receipts of tax.\n5. The impugned quarrel is no more res integra as the same has\nalready been decided by the Co-ordinate Bench in IT A No. 237, 238, 230,\n240/Mum/2016, vide order dated 09/02/2017. The relevant findings read as\nunder:-\n“18. We have carefully considered the entire gamut of facts as discussed above,\nrelevant findings given in the impugned order as well as the rival submissions made\nbefore us. The main issue involved, which has been raised vide ground no. 1.1 is,\nwhether the payments made by Standard Chartered Bank India (SCB) to the assessee\nis in the nature of „royalty“ u/s 9(1)(vi) or „fees for technical services". Since the\nassessee-company is incorporated in Hong Kong and is providing services/facilities\nfor processing data to SCB from Hong Kong, therefore, the payment made by SCB\nIndia to assessee has to be seen from the perspective of domestic law, i.e. Income-tax\nAct and not under any treaty. The assessee-company is mainly engaged in the\nbusiness of providing services/facilities for data processing through computer\nhardware and software to banking entities. It had entered into an agreement which\nhas been termed as \"Cocteau agreement\" with SCB for provision of data processing\nsupport, which is for 68 countries with various branches. Under the said „Cocteau\nagreement", the role and responsibilities of assessee in respect of providing data\nprocessing services has already been discussed in detail in the earlier part of the order\nincluding the manner in which the entire processing activity is carried out. The\nRevenue's case is that first of all, it is in the nature of royalty and for coming to this\nconclusion, the main contention of Assessing Officer is that, firstly, the assessee is\nnot merely providing data processing services, but also providing technology in the\nform of data centre, infrastructure, connectivity and application technology for its\nbanking operations; and secondly, it has created and provided facility in the form of\ndedicated centres for exclusive use of SCB with disaster recovery facility and storage\nfacility. These infrastructure facilities in the form of data centre, storage area\nnetwork, disaster recovery facility and dedicated network connectivity is translated\ninto functional process by defined service flow for the various geographic locations\nfor various business application which would constitute process. The assessee in this\nprocess has also made available SCB use of its equipment, model, design, invention\nand process. After coming to the conclusion that the payment is in the nature of\n\"royalty\" within the scope of section 9(1)(vi), the revenue went further to hold that,\nsince assessee has provided technical, managerial and consultancy services to SCB,\ntherefore, it also falls in the nature of „FTS\" and for coming to this conclusion,\ncertain clauses in the Cocteau agreement has been referred to.\n19. First of all, we will deal with the issue whether the said payment falls within the\nrealm of „royalty or not. From the perusal of the various clauses of the agreement\nwhich has been referred to extensively by both the parties at the time of hearing and\ndiscussed herein above, we find that the main objective of the „Cocteau agreement\"\nis to provide SCB group all across the world, processing of data through a network\nof computer systems in Hong Kong. In the entire agreement there is no whisper of\nany technology transfer or application of technology per se to SCB. This is a kind of\noutsourcing activity which has been given by SCB to Atos to process its data from\nvarious branches across the country. We agree with the contention of the ld. Counsel\nthat the reference to the various details in the agreement is merely to ensure quality,\nstandard and various safeguards which are to be adopted in the course of processing\ndata especially looking the volume of data required to be processed from all around\nthe Globe. The provisions mainly contains assessee\"s responsibility to ensure\nadequate facility, systems and software which are located in Hong Kong and to\nensure that all the hardware which is used in Hong Kong is maintained and housed\nin secured building space and infrastructure, manage proper performance of the\nhardware and operating systems, ensure adequate technical support of operating\nsystems, to ensure system performance, maintain adequate security measures and\neffective internal control environment and also put in place appropriate disaster\nrecovery plan. All these are to be maintained by the assessee to conduct the processing\nof data through computers. There is no providing or giving any use or right to use of\nany process to SCB. The technology, infrastructure, data centre, connectivity, etc. is\nsolely used by the assessee for its own purposes and not to make available any such\nthing to SCB as explained by the ld. Counsel. At the first stage, SCB transmits raw\ndata through operating software owned by it to the hardware facility of assessee in\nHong Kong. The assessee in Hong Kong mainly receives the data so transmitted and\nat this stage there is absolutely no use or right to use of any process of assessee in\nHong Kong by SCB. At the second stage, the raw data transmitted by SCB is\nprocessed by the assessee in its computer system/hardware as per the requirement of\nSCB and at times may be using the application software owned by SCB. At this stage\nalso, SCB does not use or have any right to use any process. At the third stage, the\nprocessed data is transmitted electronically to SCB in India and at this stage also\nthere is no use or right to use of any process which is given or made available to SCB.\nHere, in this case there is absolutely no use of equipment also as alleged by the\nDepartment within the definition given in clause (iv a) of Explanation 2 to Sec.\n9(1)(vi) of the Act. The said clause deals mainly with the „use\" or „right to use“ any\nindustrial, commercial or scientific equipment and applies only to income from\nleasing of such industrial, commercial or scientific equipment. This is borne out from\nthe Memorandum to the Finance Bill, 2001 through which the said clause was\ninserted w.e.f. 1.4.2002, the relevant extract of the Memorandum has already been\nincorporated in the earlier part of our order and same proposition is also held by\nMumbai Bench in Yahoo India P, Ltd. Vs DCIT (supra). Here, in the case of assessee,\nthere is no income from leasing of any equipment. The legislature thus, has clearly\nenvisaged that clause (iva) is to cover lease rent of industrial, commercial and\nscientific equipment in the definition of royalty and the said definition has been\nwidened to that extent only. Thus, there is no concept of right to use of equipment\nhere in this case. So far as applicability of Explanation 5 & 6 are concerned, we agree\nwith the contentions of ld. Counsel, as reproduced above, that same would not be\napplicable at all in the case of assessee because, firstly, Explanation 6 enlarges the\nscope of process to include transmission by satellite cable, fibre optic, etc.; and\nsecondly, Explanation 5 is applicable where consideration is of any right, property\nor information as defined in clauses (i) to (v) of Explanation 2 only and not in clause\n(iva) for the reason that Explanation 5 has been inserted with retrospective effect\nfrom June 1, 1976. In other words, Explanation 5 has been inserted retrospectively\nfrom the birth of Section 9(1)(vi) to clarify the intention behind the legislation.\nHence, Explanation 5 is to be read with the Section 9(1)(vi) which was there on the\nstatute as on April 1, 1976. Whereas clause (iva) to Explanation 2 was inserted from\nApril 1, 2002. Thus, retrospective effect of clause (iva) cannot be deemed from\n1.06.1976 and hence it cannot be held that Explanation 5 also applies to the said\nclause as this clause never existed as on April 1, 1976 and accordingly, the legislation\ncannot clarify the intention of the clause which never existed on the said date. Hence\nExplanation 5 & 6 would not be applicable in the case of assessee.\n20. Further, for any payment to fall within the term of \"royalty\" it is sine qua non\nthat there should be some kind of a transfer of any right in respect of various items\nas given in Explanation - 2 or any imparting of any information or use of any patent,\ninvention, model, design, secret formula, process, etc. Here, in this case, there is\nneither transfer of any of right in respect of any patent, invention, model, design,\nsecret formula or process or trademark or any similar property by the assessee to\nSCB, nor there is any imparting of any information or use of any of similar nature\nof things. Here, the entire equipment and technology which are used for processing\nthe data is solely for performing the activity of assessee for itself while rendering data\nprocessing services to SCB. There is absolutely no transfer of any technology,\ninformation, knowhow or any of the terms used in Explanation 2 or any kind of\nproviding of technology in the form of data centre, infrastructure, connectivity and\napplication technology by the assessee to SCB for SCB's banking operations. Thus,\nwe are of the opinion that the payment made by SCB to assessee-company does not\nfall within the realm of \"royalty\" and hence cannot be taxed in India as royalty u/s\n9(1)(vi) of the Act.\n21. As regards whether the payment is in the nature of FTS or not, we find that the\nprovision regarding services provided by assessee to SCB is mainly a standard\nfacility and there is no constant human endeavour or human intervention which is\nrequired to provide the data servicing service. As stated earlier, raw data fed into by\nSCB India are transmitted to assessee and the data so transmitted stands captured\nby the mainframe computers owned by assessee wherein such data are processed\nautomatically and the final result is then transmitted to SCB India. All these\ntransmission and processing of data is done automatically by computers and there is\nnot much human involvement or intervention. There is no application of mind by\nthe employees of assessee on said data because, they are processed through\nprogrammed software and neither any verification nor any analysis is carried out by\nthe assessee on such data. The employees of the assessee-company are only required\nto oversee as to whether the computer systems are functioning properly and\nperforming well and if there is any breakdown or fault, then same needs to be taken\ncare of. The human intervention if at all is mainly for repairing and monitoring the\nhardware and software of the assessee which are processing the raw data of SCB and\nthere is no human involvement or endeavour for rendering any kind of technical or\nconsultancy services in data processing. It has been stated that before us that even\nthe faults are corrected automatically. Further, looking to the number of volume of\ntransactions transmitted by SCB to assessee, it would be impossible for any number\nof humans to apply their mind and generate reports. This has been demonstrated by\nthe ld. Counsel before us by way of an example which has been already incorporated\nabove. Thus, the magnitude of transactions undertaken by assessee itself goes to show\nthat the computer systems installed by the assessee in Hong Kong is standard facility\nthrough which data is processed. In this regard, strong reliance was placed on the\ndecision of ITAT, Mumbai Bench in the case of Siemens Limited (supra), wherein\nthe Tribunal has emphasised upon the element of human intervention for rendering\nof technical services. The relevant observation in this regard reads as under:-\n--------In our opinion, this cannot be the criteria for understanding the\nterm \"technical services\" as contemplated in Explanation 2 to section 9 (1)(vii). If\nany person delivers any technical skills or services or make available any such\nservices through aid of any machine, equipment or any kind of technology, then such\na rendering of services can be inferred as \"technical services\". In such a situation\nthere is a constant human endeavour and the involvement of the human interface.\nOn the contrary, if any technology or machine developed by human and put to\noperation automatically, wherein it operates without any much of human interface\nor intervention, then usage of such technology cannot per se be held as rendering of\n\"technical services\" by human skills. It is obvious that in such a situation some\nhuman involvement could be there but it is not a constant endeavour of the human\nin the process. Merely because certificates have been provided by the humans after a\ntest is carried out in a Laboratory automatically by the machines, it cannot be held\nthat services have been provided through the human skills.\nEven in the latest decision of Hon'ble Supreme Court in the case of M/s. Kotak\nSecurities Ltd. (supra), (the relevant portion of which has already been reproduced\nabove), the Hon'ble Court opined that, if services are provided through fully\nautomated standard facility, the same cannot be reckoned as rendering of technical\nservices as contemplated u/s 9(1)(vii) of the Act. The relevant observation reads as\nunder:\n\"8. All such services, fully automated, are available to all members of the stock\nexchange in respect of every transaction that is entered into. There is nothing special,\nexclusive or customized service that is rendered by the Stock Exchange. \"Technical\nservices\" like \"Managerial and Consultancy service\" would denote seeking of\nservices to cater to the special needs of the consumer/ user as may be felt necessary\nand the making of the same available by the service provider. It is the above feature\nthat would distinguish / identify a service provided from a facility offered. While the\nformer is special and exclusive to the seeker of the service, the latter, even if termed\nas a service, is available to all and would therefore stand out in distinction to the\nformer. The service provided by the Stock Exchange for which transaction charges\nare paid fails to satisfy the aforesaid test of specialized, exclusive and individual\nrequirement of the user of consumer who may approach the service provider for such\nassistance/service.\nIt is only service of the above kind that according to us, should come within the ambit\nof the expression \"technical services\" appearing in Explanation 2 of Section 9(1)(vii)\nof the Act. In the absence of the above distinguishing feature, service, though\nrendered, would be mere in the nature of a facility offered or available which would\nnot be covered by the aforesaid provision of the Act.\"\nBefore us, the ld. Counsel has also pointed out that assessee is also providing similar\nservices to other clients like Hong Kong Government and other big MNEs and there\nis nothing special or exclusive about the services which are being rendered to SCB.\nIn view of the entire gamut of facts as discussed above, we are of the opinion that the\npayment made by SCB to assessee- company does not fall within the realm of „fees\nfor technical services\" as contained in Sec. 9(1)(vii), albeit the assessee has only\nprovided a standard facility for data processing without any human intervention.\nAccordingly, we hold that the said payment is not taxable in India as „fees for\ntechnical services\" in terms of Sec. 9(1)(vii) of the Act. Thus, the issue raised in\nground no. 1.1 is decided in favour of the assessee.\"\n6. As no distinguishing decision has been brought to our notice,\nrespectfully following the decision of the Co-ordinate Bench (supra), we\nhold accordingly. Since we have decided the appeal on the merits of the\ncase, the legal issues raised by the assessee are left open.\n7. In the result, appeal of the assessee is allowed.\nOrder pronounced in the Court on 6th October, 2025 at Mumbai.\nSd/-\n(SAKTIJIT DEY)\nVICE PRESIDENT\nSd/-\n(NARENDRA KUMAR BILLAIYA)\nACCOUNTANT MEMBER\nMumbai, Dated 06/10/2025\n9\nआदेश की प्रतिलिपि अग्रेषित/