Ita/11/2022 Of The Commissioner Of Income Tax v. M/S Urban Ladder Home Decor Solutions Pvt Ltd

ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 7 DAY OF FEBRUARY, 2025 PRESENT THE HON'BLE MR JUSTICE V KAMESWAR RAO AND THE HON'BLE MR JUSTICE S RACHAIAH ITA NO. 11 OF 2022 C/WITA NO. 12 OF 2022,ITA NO. 14 OF 2022,ITA NO. 15 OF 2022 IN ITA NO. 11 OF 2022: BETWEEN: 1. THE COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, 4 FLOOR, BMTC BUILDING, INTERNATIONAL TAXATION, 4 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095. KORAMANGALA, BENGALURU - 560 095. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-2(2), 4 FLOOR, INTERNATIONAL TAXATION, CIRCLE-2(2), 4 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095. KORMANGALA, BENGALURU - 560 095. …APPELLANTS (BY SRI. RAVI RAJ Y V, ADVOCATE) AND: M/S URBAN LADDER HOME DÉCOR SOLUTIONS PVT. LTD., 1[ST,] 2 AND 3 FLOOR, ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 NO.259 AND 276, AMARJYOTHI HBCS LAYOUT, DOMLUR, BENGALURU - 560 071. (BY SRI. SANDEEP HUILGOL AND SMT. BHAVANA B, ADVOCATES) …RESPONDENT THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT, 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(IT)A NO. 617/BANG/2020 DATED 17/08/2021 FOR ASSESSMENT YEAR 2016-2017 (ANNEXURE-C), ETC. IN ITA NO. 12 OF 2022: BETWEEN: 1. THE COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, 4 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-2(2), 4 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095. …APPELLANTS (BY SRI. RAVI RAJ Y V, ADVOCATE) AND: M/S URBAN LADDER HOME DÉCOR SOLUTIONS PVT. LTD., 1[ST,] 2 AND 3 FLOOR, NO.259 AND 276, AMARJYOTHI HBCS LAYOUT, DOMLUR, BENGALURU - 560 071. (BY SRI. SANDEEP HUILGOL AND SMT. BHAVANA B, ADVOCATES) …RESPONDENT THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT, 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(IT)A NO. 615/BANG/2020 DATED 17/08/2021 FOR ASSESSMENT YEAR 2016-2017 (ANNEXURE-C), ETC. IN ITA NO. 14 OF 2022: BETWEEN: 1. THE COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, 4 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-2(2), 4 FLOOR, INTERNATIONAL TAXATION, CIRCLE-2(2), 4 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095. …APPELLANTS (BY SRI. RAVI RAJ Y V, ADVOCATE) AND: M/S URBAN LADDER HOME DÉCOR SOLUTIONS PVT. LTD., 1[ST,] 2 AND 3 FLOOR, NO.259 AND 276, AMARJYOTHI HBCS LAYOUT, DOMLUR, BENGALURU - 560 071. (BY SRI. SANDEEP HUILGOL AND SMT. BHAVANA B, ADVOCATES) …RESPONDENT ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT, 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(IT)A NO. 616/BANG/2020 DATED 17/08/2021 FOR ASSESSMENT YEAR 2016-2017 (ANNEXURE-C), ETC. IN ITA NO. 15 OF 2022: BETWEEN: 1. THE COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, 4 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-2(2), 4 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095. INTERNATIONAL TAXATION, CIRCLE-2(2), 4 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095. …APPELLANTS (BY SRI. RAVI RAJ Y V, ADVOCATE) THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT, 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(IT)A NO. 616/BANG/2020 DATED 17/08/2021 FOR ASSESSMENT YEAR 2016-2017 (ANNEXURE-C), ETC. IN ITA NO. 15 OF 2022: BETWEEN: 1. THE COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, 4 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-2(2), 4 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095. INTERNATIONAL TAXATION, CIRCLE-2(2), 4 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095. …APPELLANTS (BY SRI. RAVI RAJ Y V, ADVOCATE) AND: M/S URBAN LADDER HOME DÉCOR SOLUTIONS PVT. LTD., 1[ST,] 2 AND 3 FLOOR, NO.259 AND 276, AMARJYOTHI HBCS LAYOUT, DOMLUR, BENGALURU - 560 071. (BY SRI. SANDEEP HUILGOL AND SMT. BHAVANA B, ADVOCATES) …RESPONDENT THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT, 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(IT)A NO. 618/BANG/2020 ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 DATED 17/08/2021 FOR ASSESSMENT YEAR 2016-2017 (ANNEXURE-C), ETC. THESE APPEALS HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 21.10.2024, COMING ON FOR ‘PRONOUNCEMENT OF JUDGMENT’ THIS DAY, V KAMESWAR RAO J., DELIVERED THE FOLLOWING: CORAM: THE HON'BLE MR JUSTICE V KAMESWAR RAO AND THE HON'BLE MR JUSTICE S RACHAIAH COMMON CAV JUDGMENT (PER: THE HON'BLE MR JUSTICE V KAMESWAR RAO) These appeals raise common substantial questions of law pertaining to the same assessee; moreover, the appeals arise from a common order passed in a batch of appeals and hence, are being disposed of by this common judgment. 2. The challenge in these appeals is primarily to an order dated 17.08.2021 passed by the Income Tax Appellate Tribunal “B” Bench, Bengaluru (‘ITAT’ for short) disposing of six appeals. These appeals pertain to the appeals being IT(IT)As No.615/Bang/2020, 616/Bang/2020, 617/Bang/2020 and 618/Bang/2020. ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 3. The assessee-respondent claims to be a Company involved in business of dealing in home décor products. It has placed advertisements in several social medias such as Facebook, Amazon Web services and Rocket Science Group, LLC, US. Assessee has made payments to non-residents without deducting tax at source. Hence, Assessing Officer (‘AO’ in short) treated assessee in default and passed orders under Section 201(1) and 201(1A) of the Income Tax Act, 1961 (‘the Act’ for short) for the assessment years 2015-16, 2016-17 and 2017-18 vide orders dated 21.02.2018. Assessee preferred appeals before Commissioner of Income Tax (Appeals) [‘CIT(A)’ for short] against the said orders. The said Authority passed order on 17.03.2020 confirming the orders passed by the AO. The assessee preferred appeal before the ITAT. The ITAT, vide order dated 17.08.2021, has allowed the appeals for the aforesaid years. The relevant part of the order of the ITAT is reproduced as under: “24. In view of the foregoing discussions, we are of the view that the payments made by the assessee to ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 the three non-resident companies referred above cannot be considered ad "royalty payments" and hence they do not give rise any income chargeable in India under Indian Income tax Act in all the three years under consideration. In that view of the matter, there is no requirement to deduct tax at source from those payments u/s 195 of the Act. Hence the assessee herein cannot be considered as an assessee in default u/s 201(1) of the Act. “24. In view of the foregoing discussions, we are of the view that the payments made by the assessee to ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 the three non-resident companies referred above cannot be considered ad "royalty payments" and hence they do not give rise any income chargeable in India under Indian Income tax Act in all the three years under consideration. In that view of the matter, there is no requirement to deduct tax at source from those payments u/s 195 of the Act. Hence the assessee herein cannot be considered as an assessee in default u/s 201(1) of the Act. 25. Accordingly, we set aside the orders passed by Ld CIT(A) for the years under consideration and direct the AO to delete the demand raised u/s 201(1) of the Act and also the consequential interest charged u/s 201(1A) of the Act in all the three years under consideration. ” It may be stated here that, the ITAT has mainly relied upon the decision of the Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited -Vs.- Commissioner of Income Tax and Another [2021 SCC OnLine SC 159] [‘Engineering Analysis (supra)’ for short] to hold that assessee was not liable to deduct TDS on such payments made to non-residents. ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 4. These appeals have been admitted on the following substantial questions of law: i) Whether on the facts and in the circumstances of the case, the Tribunal Order can be said as perverse in nature holding that assessee is not liable to deduct TDS on payments made to non-residents by relying on the decision of Hon’ble Apex Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT, when facts of the Present case are entirely different and law laid down in said case cannot be applied to present case? case, the Tribunal Order can be said as perverse in nature holding that assessee is not liable to deduct TDS on payments made to non-residents by relying on the decision of Hon’ble Apex Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT, when facts of the Present case are entirely different and law laid down in said case cannot be applied to present case? ii) Whether on the facts and in the circumstances of the case, the Tribunal is right in law allowing appeal of the assessee by holding that there was no obligation on part of assessee to deduct TDS on payments made to Facebook Ireland, Ireland, Rocket Science Group, LLC, US and Amazon Web Services, Inc Non-resident companies on the ground that the payments cannot be regarded as ‘Royalty’ ignoring that nature of usage of technology, model or process and equipments are covered by Explanation 2(iii) to Section 9(1)(vi) of the Act and therefore assessee ought to have deducted TDS on such payments? case, the Tribunal is right in law allowing appeal of the assessee by holding that there was no obligation on part of assessee to deduct TDS on payments made to Facebook Ireland, Ireland, Rocket Science Group, LLC, US and Amazon Web Services, Inc Non-resident companies on the ground that the payments cannot be regarded as ‘Royalty’ ignoring that nature of usage of technology, model or process and equipments are covered by Explanation 2(iii) to Section 9(1)(vi) of the Act and therefore assessee ought to have deducted TDS on such payments? iii) Whether on the facts and in the circumstances of the case, the Tribunal is right in law allowing appeal of the assessee by holding that there was no obligation on part of assessee to deduct TDS on payments made to non-resident companies without analyzing case, the Tribunal is right in law allowing appeal of the assessee by holding that there was no obligation on part of assessee to deduct TDS on payments made to non-resident companies without analyzing ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 iii) Whether on the facts and in the circumstances of the case, the Tribunal is right in law allowing appeal of the assessee by holding that there was no obligation on part of assessee to deduct TDS on payments made to non-resident companies without analyzing case, the Tribunal is right in law allowing appeal of the assessee by holding that there was no obligation on part of assessee to deduct TDS on payments made to non-resident companies without analyzing ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 the facts and materials of the present case with provisions of respective DTAA’s? 5. The Assessing Officer has, in his order, stated as under: “Conclusion: As the Assessee company, has failed to deduct tax at source as stipulated u/s 195 on the payments made towards: (a) Advertisement charges paid (b) Cloud Computing Services(Web charges) and (c) purchase of Software for the F.Y. 2015-16 relevant to Assessment Year 2016-17, the assessee is held to be an assssee in default as per the provisions of Section 201(1) of the Income Tax Act, 1961, for non deduction of tax at source. The Assessee company, should have deducted tax at the rate of 10% on these payments. However, the assesse has failed to deduct tax at source. Hence, the default for non deduction of tax on the payments made and consequential interest leviable u/s 201(1A) for the above said assessment year, are computed as under: ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 Issue demand notice and challan accordingly.” 6. Before noting the submissions made by the learned counsel for the parties, it is necessary to state in brief the nature of payments made to the aforesaid three entities. (a) Payments made to Facebook, Ireland: The assessee-Company uses Facebook platform to display its products on the wall of Facebook users. Hence, the assessee makes payments to Facebook for the advertisements hosted on the web for seeking attention of Facebook users. (b) Payments made to Rocket Science Group, LLC, USA (Mail Chimp): (Mail Chimp): M/s Rocket Science Group LLC has got “Mail Chimp” platform, which allows its users to send bulk email advertisements/marketing content to their customers using its marketing automation tools. (c) Payments made to Amazon Web Services Inc., US: The assessee-Company has availed cloud computing services from Amazon Web Services Inc. (AWS) for its online business needs. Cloud computing is an arrangement in which the cloud provider hosts the shared computing resources such as hardware, software applications etc., and the cloud user accesses them for storage, data processing etc., via internet on a need basis. In view of Cloud computing technology, Enterprises need not make investment in IT infrastructure (hardware, storage space, application softwares, other IT resources etc.) and they can use the required IT resources on payment of charges. Submissions: 7. The submissions of Sri. Ravi Raj.Y.V, learned counsel for the appellants-Revenue are, the ITAT had erred in allowing the appeals of the assessee by holding that there was no obligation on the part of the assessee to ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 deduct TDS on payments made to non-resident Companies without analyzing the facts and materials of the present case with provisions of respective Double Taxation Avoidance Agreements (DTAA). According to him, ITAT has clearly erred to hold that, the payments cannot be regarded as ‘Royalty’ ignoring that nature of usage of technology, model or process and equipments are covered by Explanation 2(iii) to 9(1)(vi) of the Act and therefore, the assessee ought to have deducted TDS on such payments. He stated that, the reliance placed by the ITAT to hold that assessee is not liable to deduct TDS by relying on the decision of the Supreme Court in the case ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 deduct TDS on payments made to non-resident Companies without analyzing the facts and materials of the present case with provisions of respective Double Taxation Avoidance Agreements (DTAA). According to him, ITAT has clearly erred to hold that, the payments cannot be regarded as ‘Royalty’ ignoring that nature of usage of technology, model or process and equipments are covered by Explanation 2(iii) to 9(1)(vi) of the Act and therefore, the assessee ought to have deducted TDS on such payments. He stated that, the reliance placed by the ITAT to hold that assessee is not liable to deduct TDS by relying on the decision of the Supreme Court in the case of Engineering Analysis (supra) is clearly distinguishable on facts. In support of his submissions, he has heavily relied upon the assessment order and the order in appeal before the CIT(A). 8. On the other hand, Sri. Sandeep Huilgol, learned counsel appearing for the respondent-assessee, at the outset, would submit that, against the same impugned order, two more appeals were filed by the appellants- Revenue which were numbered as ITAs No.16/2022 and 17/2022 relevant for assessment year 2017-18, which came to be dismissed by this Court vide orders dated 23.09.2024 on the ground that, the tax effect of the issues arising in the said appeals were less than the monetary limits prescribed by the CBDT vide its Circular bearing No.9/2024 dated 17.09.2024 read with Circular No.5/2024 dated 15.03.2024. 9. According to him, even otherwise the aforesaid three non-resident entities admittedly do not have a permanent establishment in India. In the subject assessment years, the respondent made the following payments to Facebook, Mailchimp and Amazon respectively: ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 10. He stated that, the payments made to the Facebook are only for the limited purpose of hosting advertisement campaigns on the walls of Facebook users i.e., to display its products thereon. The payments made to Facebook are thus essentially towards online advertisements hosted on the web. 10.1. Insofar as payments made to Mailchimp are concerned, payee has designed a platform called Mailchimp which allows its users i.e., respondent in the instant case to send bulk e-mails for the purposes of advertisements/marketing content to its customers. 10.2. Insofar as payments made to Amazon Web services are concerned, the payments made were for cloud computing services from Amazon for its online business needs. Cloud computing is an arrangement in which provider i.e., Amazon hosts the shared computing resources such as hardware, software applications, etc., and the cloud user i.e., the respondent accesses them for storage, data processing, etc., via the internet on a need basis. Due to cloud computing technology, enterprises ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 such as the respondent need not make investment in IT infrastructure (hardware, storage space, application softwares, etc.), and it can instead use the required IT resources on payment of charges to the host i.e., Amazon. 11. It is his submission that, due to these payments, the non-resident payees did not grant the respondent any rights in respect of the respective software nor did the respondent make such payments in consideration for being granted with the right for use of or right to use the copyright embedded in the information on the software. Hence, it is wholly apparent that the above payments do not constitute royalty payments under the applicable DTAAs or, if applicable, under the Act. He stated, since none of the payees has a permanent establishment in India which is undisputed, no income is chargeable to tax under the Act in their hands necessitating the deduction of tax at source by the respondent when making such payments. Thus, it does not withhold tax under Section 195 in making these payments. 11. It is his submission that, due to these payments, the non-resident payees did not grant the respondent any rights in respect of the respective software nor did the respondent make such payments in consideration for being granted with the right for use of or right to use the copyright embedded in the information on the software. Hence, it is wholly apparent that the above payments do not constitute royalty payments under the applicable DTAAs or, if applicable, under the Act. He stated, since none of the payees has a permanent establishment in India which is undisputed, no income is chargeable to tax under the Act in their hands necessitating the deduction of tax at source by the respondent when making such payments. Thus, it does not withhold tax under Section 195 in making these payments. ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 12. He also stated, despite the above, vide separate orders, both dated 21.02.2018, the 2[nd] appellant held that, the respondent erred in not withholding tax under Section 195 while making the aforesaid payments to these payees. According to him, the 2[nd] appellant had held that these payments tantamount to payments of ‘royalty’ in terms of Section 9(1)(vi) of the Act and are thus, taxable in India under the Act, as a result of which, the respondent ought to have withheld tax at the rate of 10% at source while making these payments to them and thus, by doing so, the respondent has erred, thereby necessitating passing of the said orders dated 21.02.2018 deeming the respondent to be an assessee in default. 13. According to Sri. Huilgol, even the CIT(A) placed extensive reliance on the order dated 15.10.2011 passed by this Court in the case of The Commr. of Income Tax -Vs.- M/s Samsung Electronics Co. Ltd. [ITA No.2808/2005 and connected matters, decided on 15.10.2011], which according to him is totally untenable. He by drawing our attention to the impugned order of the ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 ITAT, would submit that, the ITAT, after examining in detail the agreements entered into by the respondent with each of the payees and by appreciating the nature of payments made by the respondents to them, categorically concluded that the payments made to the aforesaid three entities do not fall within the meaning of royalty as defined in the DTAA. Thus, the ITAT has rightly held that, there was no obligation in law for the respondent to withhold tax while making payments to them. 14. According to Sri. Huilgol, the ITAT has rightly held that, the judgment relied upon by CIT(A) in Samsung Electronics Co. Ltd. (supra) has been expressly over-ruled by the Supreme Court in the case of Engineering Analysis (supra). In this regard, he has relied upon paragraph No.23 of the impugned order. He also stated, the ITAT has followed the ratio laid down by the Supreme Court in Engineering Analysis (supra) to hold that, the payments made to the aforesaid three non-resident Companies do not fall within the meaning of ‘royalty’ as defined in applicable DTAAs. So, he stated ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 that, the reliance placed by the CIT(A) on the judgment in the case of Samsung Electronics Co. Ltd. (supra) is totally misconceived. 15. That apart, it is his submission that, the appellants-Revenue never challenged the CIT(A)’s order by contending that this Court’s judgment in Samsung Electronics Co. Ltd.’s case(supra) would not apply to the facts of the instant case. According to him, even during the course of hearing before the ITAT, such a contention was never urged by the appellants-Revenue. That being so, the Revenue cannot now be permitted to approbate and reprobate by contenting that the judgment in Engineering Analysis’ case(supra) would not apply. ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 that, the reliance placed by the CIT(A) on the judgment in the case of Samsung Electronics Co. Ltd. (supra) is totally misconceived. 15. That apart, it is his submission that, the appellants-Revenue never challenged the CIT(A)’s order by contending that this Court’s judgment in Samsung Electronics Co. Ltd.’s case(supra) would not apply to the facts of the instant case. According to him, even during the course of hearing before the ITAT, such a contention was never urged by the appellants-Revenue. That being so, the Revenue cannot now be permitted to approbate and reprobate by contenting that the judgment in Engineering Analysis’ case(supra) would not apply. 16. According to Sri. Huilgol, the arbitrary flip-flop on part of the appellants-Revenue by urging that Engineering Analysis’ case(supra) would not apply is ostensibly because the order which it was extensively relied upon i.e., Samsung Electronics Co. Ltd.’s case(supra) has now been held to be no more good in law in Engineering Analysis’ case(supra). Moreover according ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 to him, during the pendency of these appeals, the appellants have repeatedly sought adjournments by contending that as against the order of the Supreme Court in Engineering Analysis’ case(supra), a review petition bearing RP(C) No.1422-1497/2021 has been filed and vide order dated 27.01.2022, the Supreme Court is seized of the matter. A bare perusal of the order sheet maintained by this Court would demonstrate the above. According to him, at no point of time until the hearing of these appeals on 30.09.2024 did the Revenue seek to contend that the said order in Engineering Analysis’ case(supra) would not apply to the facts of the instant case. Per contra, by seeking repeated adjournments on the ground of pendency of the above review petition, it stands to reason that it accepted the applicability and binding nature of the said decision in Engineering Analysis’ case(supra). They had only sought that this Court exercises its discretion in a lenient manner by adjourning the appeals to await the outcome of the said review petition. Hence, on this ground also, the Revenue ought not to have ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 contended the decision in Engineering Analysis’ case(supra) does not apply to the instant case. 17. He also contested that, although the aforesaid review petition is pending consideration, numerous other appeals and SLPs have been disposed of by the Supreme Court by following its earlier order in Engineering Analysis’ case(supra). Such orders have been passed despite being specifically informed that the said review petition is pending, thereby demonstrating, the mere fact of pendency thereof would not and must not come in the way of cases being disposed of in the light of the clear ratio in Engineering Analysis’ case(supra). He also stated that, other review petitions filed by the Revenue as against the other cases disposed of by the Supreme Court in the batch of cases in which Engineering Analysis’case(supra) was the lead matter, have been dismissed by the Supreme Court and that too on merits. According to him, it stands to reason that, as and when the review petition filed as against the lead matter in the Engineering Analysis’ case(supra) batch is taken up for ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 hearing, that review petition is also bound to meet the same fate by being dismissed. He also stated that, the various fact patterns extensively analyzed by the Supreme Court in Engineering Analysis’ case(supra) do indeed cover the facts of the instant case insofar as it relates to the payments made by the respondent to Facebook, Mailchimp and Amazon given that these payments were made by an end-user resident in India i.e., the respondent herein to a foreign non-resident suppliers i.e., the said three payees. The said category of cases has been expressly dealt with by the Supreme Court. Lastly, without prejudice to his aforesaid contention that the present appeals of the Revenue ought to be dismissed in limine by this Court, a similar order was granted by this Court in M/s. Sasken Communication -Vs.- The Income Tax Officer [ITA No.267/2013, decided on 02.09.2024], disposing of the assessee’s appeal by answering the question of law formulated therein in its favour in the light of the decision in Engineering Analysis’ case(supra). This Court has granted liberty to the Revenue to seek review of the said order dated ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 02.09.2024 based on the outcome of the review petition filed before the Supreme Court as against the lead matter in Engineering Analysis’ case(supra). 18. In the end, it is his submission that, the appeals of the Revenue to be dismissed as they stand squarely covered by the decision in Engineering Analysis’ case(supra). Analysis: 19. Having heard the learned counsel for the parties and perused the record, before we deal with the rival contentions of the counsel for the parties, we at the outset reproduce the conclusion drawn by the ITAT in its order. The ITAT has analyzed the terms of the aforesaid agreements executed by the respondent with the three entities. The said agreements, as noted by the ITAT, are the following: “15. We shall now advert to the Agreements entered by the assessee with the three non-resident companies mentioned above, in order to understand the nature of services rendered by these companies and also to understand whether the payments made to the three non-residents are royalty or not in terms of the provisions of DTAA. The relevant clauses are extracted below for the sake of convenience:- (A) FACEBOOK 4. License Grant 4.1 In consideration of your compliance with this Agreement for the duration of your subscription to Facebook at Work (unless terminated earlier) we hereby grant you and your Users: (a) A non-exclusive, personal, non-transferrable, limited, revocable license to access and use Facebook at Work in accordance with this Agreement; and (b) a non-exclusive, personal, non-transferrable, limited, revocable license to use any tool we may make available to you to create and manage Your Contents. 4.2 This License is not sub-licensable and is subject always to this Agreement. 5. Our Content 5.1 We own or license all Intellectual Property rights in Facebook at Work and Our Content. Facebook at Work and Our Content is protected by copyright laws and other Intellectual Property Laws. All such rights are reserved to us. 5.2 You may, and you must ensure that your Users will; (a) only use Facebook at Work for its intended purpose within the scope of the License. ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 (b) not make alterations, copies, extractions, modifications or additions to Facebook at Work and Our Content or any part of it, or sell, copy, disclose, distribute, disseminate or license it or any part of it or misuse it or any part of it in any way or reverse engineer, decompile, disassemble or decipher it or evade technical limitations on the use of Facebook at Work; 5.2 You may, and you must ensure that your Users will; (a) only use Facebook at Work for its intended purpose within the scope of the License. ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 (b) not make alterations, copies, extractions, modifications or additions to Facebook at Work and Our Content or any part of it, or sell, copy, disclose, distribute, disseminate or license it or any part of it or misuse it or any part of it in any way or reverse engineer, decompile, disassemble or decipher it or evade technical limitations on the use of Facebook at Work; (c) not re-publish, sell, extract, reproduce, disseminate or otherwise use Facebook at Work and Our content, except as expressly permitted by this Agreement or with our prior written permission; and (d) not use our copyrights, trademarks, protected designs and trade dress (including but not limited to Facebook, Facebook at Work, or any of the trademarks listed here (currently available at www.facebookbrand.com/trademarks), or any confusingly similar marks, except with our prior written permission. 5.3 You acknowledge and agree that any breach of this Section 5 may cause us irreparable harm for which damages are not an adequate remedy and that we may seek interim, preliminary or protective relief from any competent court to restrain your or your Users anticipated or actual breach of this Section 5. 5.4 Our Content made available on Facebook at Work is provided for information purposes only, is subject to change and will be updated from time to time without notice to you. ……. 17 Definitions. In this Agreement, unless otherwise stated …… “Facebook at Work” means the features and services we make available, including but not limited to through the Facebook at Works websites, apps, and online services that we operate. ………… (B) Rocket Science Group (MailChimp) MailChimp (“MailChimp,””we,”or”us”) is an online marketing platform (the “Service”) offered through the URL www.mailchimp.com (we’ll refer to it as the “Website”) that allows you to, among other things, create, send, and manage certain marketing campaigns, including, without limitation, emails, advertisements, and mailings (each a “Campaign”, and collectively, “Campaigns”). ……………….. 13. Proprietary Rights Owned by Us You will respect our proprietary rights in the Website and the software used to provide the Service (Proprietary rights include, but aren’t limited to, patents, trademarks, service marks, trade secrets, copyrights, and other intellectual property). You may only use our brand assets according to our Brand Guidelines. …………….. 19. Bandwidth Abuse/Throttling You may only use our bandwidth for your MailChimp Campaigns. We provide image and data hosting only for your MailChimp Campaigns, so you may not host images on our servers for anything else (like a website). We may throttle your sending or connection through our API at our discretion. …………….. 30. Assignments You may not assign any of your rights under this agreement to anyone else. We may assign our rights to any other individual or entity at our discretion. (C) AMAZON WEB SERVICES:- 1. Use of the Service Offerings 1.1 Generally, you may access and use the Service Offerings in accordance with this Agreement. Service Level Agreements and Service Terms apply to certain Service Offerings. You will comply with the terms of this Agreement and all laws, rules and regulations applicable to your use of the Service Offerings. 1.2 Your account. To access the Services, you must have an AWS account associated with a valid email address and a valid form of payment. Unless explicitly permitted by the Service Terms, you will only create one account per email address. -1.3 ThirdParty content. Third-Party content may be used by you at your election. Third- ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 1. Use of the Service Offerings 1.1 Generally, you may access and use the Service Offerings in accordance with this Agreement. Service Level Agreements and Service Terms apply to certain Service Offerings. You will comply with the terms of this Agreement and all laws, rules and regulations applicable to your use of the Service Offerings. 1.2 Your account. To access the Services, you must have an AWS account associated with a valid email address and a valid form of payment. Unless explicitly permitted by the Service Terms, you will only create one account per email address. -1.3 ThirdParty content. Third-Party content may be used by you at your election. Third- ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 Party Content is governed by this Agreement and, if applicable, separate terms and conditions accompanying such Third-Party Content, which terms and conditions may include separate fees and charges. ……….. 8.3 Service offerings License. We or our licensors own all right, title and interest in and to the Service Offerings, and all related technology and intellectual property rights. Subject to the terms of this Agreement, we grant you a limited, revocable, non-exclusive, non-sublicenseable, non-transferrable license to do the following: (a) access and use the Services solely in accordance with this Agreement; and (b) copy and use the AWS Content solely in connection with your permitted use of the Services. Except as provided in this Section 8.3, you obtain no rights under this Agreement from us, our affiliates or our licensors to the Service Offerings, including any related intellectual property rights. Some AWS Content and Third-Party Content may be provided to you under a separate license, such as Apache License, Version 2.0, or other open source license. In the event of a conflict between this Agreement and any separate license, the separate license will prevail with respect to the AWS content or Third-Party Content that is the subject of such separate license. …………….. 14. Definitions. ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 “API” means an application programme interface. ………….. “AWS Content” means Content we or any of our affiliates make available in connection with the Services or on the AWS Site to allow access to and use of the Services, including APIs; WSDLs; Documentation; sample code; software libraries; command line tools; proofs of concept; templates; and other related technology (including any of the foregoing that are provided by our personnel). AWS Content does not include the Services or Third Party content. ……………….. “AWS Marks” means any trademark, service marks, service or trade names, logos and other designations of AWS and its affiliates that we may make available to you in connection with the Agreement. ………………….. “Service Offerings” means the Services (including associated APIs), the AWS Content, the AWS Marks, and any other product or service provided by us under this Agreement. Service Offerings do not include Third-Party Content.” ITAT has also noted the term ‘royalties’ as defined under Article 12(3) of India-USA DTAA in paragraph No.14 of the order, which reads as under: ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 “14. The term “royalties” is defined as under in Article 12(3) of India – USA DTAA:- 3. The term "royalties" as used in this Article means: ………………….. “Service Offerings” means the Services (including associated APIs), the AWS Content, the AWS Marks, and any other product or service provided by us under this Agreement. Service Offerings do not include Third-Party Content.” ITAT has also noted the term ‘royalties’ as defined under Article 12(3) of India-USA DTAA in paragraph No.14 of the order, which reads as under: ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 “14. The term “royalties” is defined as under in Article 12(3) of India – USA DTAA:- 3. The term "royalties" as used in this Article means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof ; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8.” 20. The conclusion drawn by the ITAT in the impugned order is at paragraphs No.16 to 26, which we reproduce as under: “16. A careful perusal of the relevant provisions of the agreement entered by the assessee with ITA No. 11 of 2022 c/w ITA No. 12 of 2022, ITA No. 14 of 2022 & ITA No. 15 of 2022 Facebook and Rocket Science Group (Mailchimp) would show that both these non-resident companies are allowing the assessee to use the facilities provided in their sites, which includes, inter alia, software facilities also. The purpose of compelling the assessee to use those facilities, as could be inferred by us, is to create an environment of ease in creating the “advertisement content” to suit the platforms of Facebook or Mailchimp. The environment of ease is beneficial and time saving to both the advertiser and the advertising platform. Thus the facilities have been created by the non-resident companies for mutual benefit. However, a person shall get the right to use those facilities only when he enters into an agreement with them for hosting his advertisement or for sending bulk mails, meaning thereby, the use of facilities is intertwined with the activity of placing advertisement in web portal of Facebook or sending bulk mails. In case of web hosting charges paid to AWS, the assessee is allowed to use the information technology infrastructure facilities. 17. We shall now refer to some of the decisions relied upon by Ld AR before us. The Kolkata bench of Tribunal, in the case of ITO vs. Right Florists (2013) (32 taxmann.com 99) (Kol-Trib.), has considered an issue – whether the payments made to foreign search engine portals for online advertising services resulted in accrual of income in India in their hands in terms of sec.9(1) of the Act. The co-ordinate bench referred to the following decisions rendered by other co-ordinate benches:- (a) Pinstorm Technologies (P) Ltd vs. ITO (24 taxmann.com 345)(Mum) taxmann.com 345)(Mum) (b) Yahoo India (P) Ltd vs. DCIT (2011)(11 taxmann.com 431)(Mum) taxmann.com 431)(Mum) In the above said two cases, the Tribunal held that the amount paid by the assessee to M/s Google Ireland Ltd for the services rendered for uploading and display of banner advertisement on its portal was in the nature of business profit on which no tax is deductible at source, since the same was not chargeable to tax in India in the absence of PE of Google Ireland Ltd in India. Finally, the coordinate bench held as under in the case of Right Florists:- in terms of sec.9(1) of the Act. The co-ordinate bench referred to the following decisions rendered by other co-ordinate benches:- (a) Pinstorm Technologies (P) Ltd vs. ITO (24 taxmann.com 345)(Mum) taxmann.com 345)(Mum) (b) Yahoo India (P) Ltd vs. DCIT (2011)(11 taxmann.com 431)(Mum) taxmann.com 431)(Mum) In the above said two cases, the Tribunal held that the amount paid by the assessee to M/s Google Ireland Ltd for the services rendered for uploading and display of banner advertisement on its portal was in the nature of business profit on which no tax is deductible at source, since the same was not chargeable to tax in India in the absence of PE of Google Ireland Ltd in India. Finally, the coordinate bench held as under in the case of Right Florists:- “28. In view of the above discussions, we are of the considered view, on the limited facts of the case as produced before us, the receipts in respect of online advertising on Google and Yahoo cannot be brought to tax in India under the provisions of the Income Tax Act, as also under the provisions of India US and India Ireland tax treaty. This observation is subject to the rider that so far as the PE issue is concerned, we have examined the existence of PE only on the basis of website simplicitor, and on no other additional basis, as no case was made out for the same. In any case, revenue has not brought anything on record, either at assessment stage or even before us, to suggest that Google or Yahoo had a PE in India, and as held by a Special Bench of this Tribunal in the case of Motorola Inc v. Dy. CIT[2005] 95 ITD 269/147 Taxman 39 (Mag.) (Delhi) "DTAA is only an alternate tax regime and not an exemption regime" and, therefore, "the burden is first on the Revenue to show that the assessee has a taxable income under the DTAA, and then the burden is on the assessee to show that that its income is exempt under DTAA". No such burden is discharged by the Revenue. Accordingly, there is no material before us to come to the conclusion that Google or Yahoo had a PE in India, which, in turn, could constitute the basis of their taxability in India.” 18. The taxability of Web hosting charges paid to Amazon Web Services LLC in its hands was examined by Pune bench of Tribunal in the case of EPRSS Prepaid Recharge Services India P Ltd (ITA No.828/Pun/2016 dated 24.10.2018) (2018) (100 taxmann.com 52) (Pune), which was relied upon by Ld A.R. The relevant discussions made and decision taken by Pune Tribunal are extracted below:- “11. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is in respect of charges paid by assessee to AWS. The assessee was engaged in sale of recharge pen