Recently, the ITAT Mumbai Bench in Reuters Transaction Services Ltd. Vs. Deputy Director of Income-tax (International Taxation ) stated that where, assessee, a UK based company, enters into a contract with Indian clients for providing its foreign exchange deal matching system services, in view of fact that in terms of contract and assessee allows its subscribers to use software and computer system to have access to its portal for finding relevant information and matching their request for purchase and sale of foreign exchange, then it will amount to imparting of information concerning technical, industrial, commercial or scientific equipment work and payment made in respect of same would constitute royalty in terms of article 13(3) of India-UK DTAA

Facts of the case:

The assessee, M/s Reuters Transaction Services Limited is a company incorporated under the laws of England and is a tax resident of United Kingdom. The assessee is engaged in the business of providing Reuters Dealing 2000-2 and Dealing 3000 which are electronic deal matching systems enabling authorized dealers in foreign exchange such as banks, etc to effect deals in spot foreign exchange with other foreign exchange dealers. The main server of the assessee 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 and as per Article -7 of the India-UK DTAA, business profits of the assessee are taxable in India only if it has a Permanent Establishment (PE) in India to the extent the profits are attributable to the PE in India. The assessee claimed that for the A.Ys under consideration, the assessee did not have PE in India as contemplated under Article-5 of the treaty. Thus the assessee claimed that its revenue from the Indian subscribers is not liable to tax in India in terms of provisions of DTAA. The assessee has also claimed that the revenue earned by the assessee are not in the nature of royalty or fee for technical services and accordingly not liable to tax under Article -13 of DTAA.

It was held that:

As per the terms and conditions stipulated in the agreement the Indian clients/subscribers accept the individual non-transferable and non exclusive license to use the licensed software programme for the purpose of carrying out the purchase and sale of foreign exchange. Thus, what is granted under the agreement is license to use the software for internal business of Indian clients. Further, the Assessee also permitted the Indian clients to sub-license the software with prior permission of assessee. It is pertinent to note that it is not the license to use the software alone but the Assessee has made available the computer system along with the software. The Indian clients are paying for use and right to use of equipment (scientific, commercial) along with software for which license was granted by assessee. It is clear from the terms and conditions of the agreement and arrangement between parties that the Indian clients are not permitted to access the portal of the Assessee from any other computer system other than the computer provided by the Assessee and by use of software provided in the said computer system. Indian clients make use of the copyright software along with computer system to have access to the requisite information and data on this portal hoisting on the server of the Assessee. Accordingly, by allowing the use of software and computer system to have access to the portal of the Assessee for finding relevant information and matching their request for purchase and sale of foreign exchange amount to imparting of information concerning technical, industrial, commercial or scientific equipment work and payment made in this respect would constitute royalty.

In the result, appeal of the assessee was dismissed.