Payments at Singapore to access portal hosted from Singapore taxable in India

AIT News Network

NEW DELHI. Authority for Advance Rulings vide a recent ruling  AIT-2007-73-AAR  has ruled that the payments made by the Indian subscriber to a Company at Singapore, for providing a password to access and use the portal hosted from Singapore, are taxable in India and subject to deduction of tax at source. 

T H E   F A C T S:

This application was filed by a tax resident of Singapore.  The applicant was a company incorporated under the Companies Act, Singapore having its registered office in Singapore. 

The applicant is engaged in the business of providing access to an Internet based Air Cargo Portal known as Ezycargo at Singapore.  An agent who books cargo through various airlines can subscribe for the portal – Ezycargo – which enables him to access the data bank of the airlines like fight schedules, availability of cargo space etc.  The portal enables an agent to check the connect flight details to the desired place and enables him to arrive at the economics of transporting the cargo to the desired destination.  The cargo space availability for booking cargo can be checked only for a specified aircraft of specified airlines.  The agent can book the cargo by choosing a specified airline and submitting the details asked for in the booking sheet like airway bill number etc., as provided by the airlines, dimension and weight of the cargo.  In addition the portal performs other functions like furnishing the status of booking to the agent, creating database for various bookings by furnishing the status of the shipment etc.  The portal transmits date from the agent to the airlines by transmitting from simple English language to Cargo IMP data and on receiving the reply of the airlines converts the Cargo IMP into simple English language and transmits the same to the agent.  For this services the applicant charges subscription fee, system connects fee and helpdesk support fee etc.  The applicant opened a liaison office in Chennai with the permission of Reserve Bank of India to act as a communication channel between the Head Office and parties in India.  It is, however, mentioned that the liaison office does not take up any activity of a trading or commercial nature nor does it provide any consultancy or other services with or without consideration.  The expenses of the liaison office are met exclusively out of funds remitted from Singapore through normal banking channel.  It maintains account with Deutsche bank at Chennai.  There are two employees in the liaison office who receive messages from subscribers in India for the purpose of communicating with the Head Office and supplying information to the intending agents.  Agents make subscription directly to the Head Office at Singapore and the agreement for the use of the portal is also signed at the Head Office at Singapore.  No software or programme is installed in the computer system of agent who is given an exclusive password to access the portal.  The applicant also imparts training to agents to use the portal in its entirety.  The training, it is stated, consists of only demonstration and no technical knowledge is imparted to the subscribers.  The Head Office at Singapore maintains the portal.  The applicant also imparts training to agents to use the portal in its entirety.  The training, it is stated, consists of only demonstration and no technical knowledge is imparted to the subscribers.  The Head Office at Singapore maintains the portal.  The applicant has helpdesk support in India through which the agents may clarify their doubts like using the portal.  The agents propose to deduct Income-tax at source under Section 195 of the Act from the subscription amount which necessitates the applicant to approach the Authority. 

On the basis of these facts applicant has sought advance ruling from the Authority on the following question:- 

“Whether the payment made by the Indian subscriber to the Cargo Community Network Private Limited at Singapore, for providing a password to access and use the portal hosted from Singapore, is taxable in India and is subject to deduction of tax at source?” 

T H E   R U L I N G :

Admittedly the applicant is having income from subscriptions received from various cargo agents in India towards the use of portal for cargo booking and cargo tracking of various airlines.  The subscription consists of one time receipt of Systems connect fee that includes training fee, monthly subscription fees and Help desk Charges as they arise (hereinafter collectively referred to as the payments).  The counsel have agreed that the payments are in the nature of business income of the non-resident

If the ‘payments’ fall under any other article of the DTAA, they will have to be dealt with under that particular article.  The plea of the Revenue is that they are covered by article 12 of the DTAA, which deals with “Royalties and fees for Technical services”.  If the payments fall article 12 then article 7 is ipso facto excluded.  It is, therefore, necessary to ascertain the nature of the ‘payments’. 

The systems connect fee that includes training charges (for 2 persons), monthly subscription fee for concurrent access, fee for additional access and help desk charges are all payments essentially being made by a cargo agent in India for use of the Ezycargo portal developed by the applicant and hosted on his server in Singapore.  Portal is displayed on the computer screen of the Cargo agent through which he can access various airlines for booking of cargo, and the acceptance of the concerned airline is conveyed in India.  Therefore, it would be correct to say that the use of the commercial equipment is made in India and the ‘payments’ also arise in India.  The complex portal designed by the applicant is the result of long standing commercial experience and research in the line of cargo booking.  It offers a sophisticated platform for a complete range of services that enable the clients (forwarders) to manage their  time-critical transactions with major carriers.  It offers global online-access convenience to a comprehensive range of functions and complete management solution for cargo booking and subsequent multi-carrier track and trace facility.  The portal designed by the applicant is hosted on its server in Singapore with Internet accessibility on one side to cargo agents and on the other side to different airways.  The portal which is a complex, commercial, Internet site provides a gateway for processing requests for cargo booking to different airlines, and obtaining their acceptance. 

The use of portal is not possible without the use of server that provides Internet access to the cargo agents/subscribers on the one hand and to different airlines on the other hand for to and fro communication.  Therefore, the portal and the server together constitute integrated commercial-cum-scientific equipment and for obtaining Internet access to airlines the use of portal without server is unthinkable.  Whereas the portal performs complex functions of providing access to different airlines and translation of messages from English to IMP language, the server provides connectivity and Internet access for processing requests for booking of cargo and subsequent multi-carrier trace and track facility etc.  The factual position is the cargo booking agent/subscriber depending on his business needs, can use the portal at will on the server platform of the applicant, at any time according to his needs for processing his request for booking cargo with various airlines, and obtaining benefits of other sophisticated services offered by Ezycargo.   

The term ‘Royalties’ as used in sub-clause (b) of Para (3) of Article 12 means payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment.  As already stated, Ezycargo portal on the C.C.N. Server Platform is scientific equipment, authorized to be used for commercial purposes.  Therefore, payments made for concurrent access to utilize the sophisticated services offered by the portal, would be covered by the expression ‘royalties’ as used in article 12 of the DTAA.  Further, the technical and consultancy services being rendered by the employees of the applicant in training the subscribers and providing help desk support, in India is covered by the description of ‘Fees for technical services’.  These are ancillary and subsidiary to the application and enjoyment of the use of, or the right to use, the scientific equipment for commercial purposes. 

Meaning of the term ‘Royalty’ as used in Explanation (2) to clause 9vi) of sub-section (1) of section 9, is at par with the term ‘Royalties’ as used in article 12 (3)(b) of the DTAA.  The term ‘Fees for technical services’ as used in Explanation (2) of clause (vii) of sub-section (1) of section 9, is at par with the term ‘Royalties’ as used in article 12 (3)(b) of the DTAA.  The term ‘Fees for technical services’ as used in Explanation (2) of clause (vii) of sub-section (1) of section 9, is analogous to the term ‘Fees for technical services’ as used in article 12 (4)(a) of the DTAA.  In view of this position, the payments being made by the agents/subscribers (residents), to the C.C.N Pvt. Ltd. (a non-resident), are chargeable to tax in India, under article 12 of the DTAA as also under section 9 of the Act. 

In as much as we have concluded that the payments made by the subscribers to the applicant are in the nature of “Royalties and fees for technical services” and taxable under article 12 of the DTAA, the said payments cannot, therefore, be treated as business income. 

The payments made by the Indian subscriber to at Singapore, for providing a password to access and use the portal hosted from Singapore, are taxable in India and subject to deduction of tax at source.

 ( Click here for full text of Ruling  AIT-2007-73-AAR  )