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Tax Alert: Infrastructure and Data Centre Hosting fees, management service fees and referral fees not taxable under India-Singapore DTAA

07 September 2020


Taxation of foreign remittances (say towards database access fees, infrastructure and data centre hosting fees, referral fees, management fees, etc.) has been bone of litigation between the taxpayer and the tax officer. Even the judiciary is divided on this matter. With data being stored on cloud, a question arises on taxing the payment towards accessing cloud.

Recently, the Mumbai Tax Tribunal[1] had an occasion to analyse whether Infrastructure Data Centre (IDC) charges, management service fees and referral fees received by a Singaporean company can be taxed either as royalty or FTS. We, at BDO in India, have summarised the ruling of the Mumbai Tax Tribunal and provided our comments on the impact of this decision.

Facts of the case 

Taxpayer is a company incorporated and tax resident of Singapore engaged in the business of provision of services relating to developing, marketing and implementing incentive-based strategies and technologies to build loyalty and to reward long-term relationships through the utilisation of internet, wireless technology and offline solution to its clients. The taxpayer provided following services to its Indian group companies:

  • IDC services
  • Management consultancy services
  • Referral services for regional customers

In the tax return, the taxpayer treated revenue from afore-mentioned services as non-taxable under Article 12 of the India-Singapore DTAA. However, the Tax Officer and the Dispute Resolution Panel (DRP) treated them as taxable in India. The basis for taxation is tabulated hereunder:

Sr. No.

Nature of Transaction

Basis for taxation


IDC Charges

Royalty under the IT Act and India-Singapore DTAA


Management Service Fees

FTS under the IT Act and India-Singapore DTAA


Referral Fees

Royalty under the Act and India-Singapore DTAA

Also, taxable as FTS under the India-Singapore DTAA

Aggrieved, taxpayer filed an appeal before the Mumbai Tax Tribunal.

Tribunal Ruling

The Mumbai Tax Tribunal held that these payments are not taxable in India either as royalty and / or FTS. While coming to this conclusion, the Mumbai Tax Tribunal has made the following key observations:

  • Re. IDC Charges:
    • The taxpayer essentially provides IT infrastructure management and mailbox / website hosting services to its Indian group companies and these services were performed by the taxpayer’s personnel in Singapore.
    • The Indian group companies directly remit IDC service payments towards taxpayer’s bank account in Singapore.
    • IDC is owned by the taxpayer and is located in Singapore.
    • IDC services are provided using the IDC and IT/security team in Singapore. The services under the IDC agreement comprise of administration and supervision of central infrastructure, mailbox hosting services and website hosting services.
    • IDC services ensure 100% uptime for critical external facing applications which need a highly secured web environment and dedicated team of security experts to ensure 100% uptime of security systems (firewall, antivirus, access controls) which are also hosted on servers in Singapore.
    • The websites / applications/ software’s hosted by Indian companies on the data centre in Singapore are web ordering application, corporate websites, websites created for customers of Indian group entities while making a loyalty program for them.
    • The documents filed before the Tax Officer and DRP indicates that:
      • The taxpayer had an infrastructure data centre and not information centre at Singapore.
      • The Indian group companies neither access nor use the CPU of the taxpayer.
      • No Content Delivery Network (CDN) system was provided under the IDC agreement and no such use/access was allowed.
      • The taxpayer does not maintain any central data.
      • IDC was not capable of information analytics, data management.
      • The taxpayer provides IDC service by using its hardware / security devices / personnel. All that Indian companies received were standard IDC services and not use of any software.
      • Bandwidth and networking infrastructure is used by the taxpayer to render IDC services. Indian companies only get the output of usages of such bandwidth and network and not its use. 
      • The consideration was for IDC services and not for any specific program and no embedded/ secret software was developed by the taxpayer.
    • The decisions relied by the Revenue Authorities[2] were distinguished on facts. 
    • The Tax Tribunal referring to several decisions[3] observed that income earned  under IDC agreement will not be taxable as royalty under the IT Act as well as under India-Singapore DTAA.         
  • Management consultancy services:
    • The services provided under management agreement include consultancy services to support sales activities of one of its Indian group company, legal services, financial advisory services, human resource assistance.
    • As per India-Singapore DTAA, the managerial, technical or consultancy services are taxable as FTS only if such services are ‘make available’ to the service recipient.
    • The management services are provided only to support the taxpayer’s Indian company in carrying on its business efficiently and running the business in line with the business model, policies and best practices followed by the taxpayer group. These services do not make available any technical knowledge, skill, knowhow or processes to its Indian group company.
    • The Tax Tribunal also relied on various decisions[4] and held that the management consultancy services were not taxable as FTS under the DTAA.
  • Referral Services:
    • These services were provided to support Indian companies in carrying on its business. These services do not make available any technical knowledge, skill, knowhow or processes to Indian companies because there is not transmission of the technical knowledge, experience, skill etc. from the taxpayer to Indian companies or its clients.
    • Applying distillation of precedents[5] held that the income earned under referral services was not taxable in the hands of taxpayer as royalty under the Act / India-Singapore DTAA or FTS under the India-Singapore DTAA.                                       

BDO Comments:

Due to intricacy involved in accessing cloud database, the Revenue Authorities tend to treat the payment as taxable in India. This is a welcome ruling as it throws light that where the server is situated outside India and the transaction is that of only hosting the website, the same should not be taxable in India. It is imperative to note that the Mumbai Tax Tribunal has granted the benefit under the India-Singapore DTAA and hence one should take cognizance of the language used in the DTAA. With plethora of decisions on taxation of management fees on both sides, before deciding on the whether the payment is taxable or not, thorough analysis should be carried out by the taxpayer. With the BEPS Pillar 1 and Pillar 2 under discussion to tax income under digital economy based on market location, one needs to evaluate the impact of this decision in light of proposed BEPS Pillar 1 and Pillar 2.

[1] Edenred Pte. Ltd v. DCIT, ITA No. 1718/Mum/2014 (Mumbai Tribunal)

[2] IMT Labs India P. Ltd. 287 ITR 450 (AAR);

   Cargo Community Network (P.) Ltd. 289 ITR 355 (AAR)

   Thought Buzz (P.) Ltd. 346 ITR 345 (AAR)

[3] Bharati Axa General Insurance Co. Ltd [2010] 326 ITR 477 (AAR);

   Standard Chartered Bank v. DDIT [2011] 11 ITR(T) 721 (Mumbai Tribunal);

   ExxonMobil Company India (P.) Ltd v. ACIT [2018] 92 5 (Mumbai Tribunal);

   DCIT v. Reliance Jio Infocomm Ltd, ITA No. 936/Mum/2017, (Mumbai Tribunal)

[4] De Beers Minerals (P.) Ltd [2012] 346 ITR 467 (Karnataka High Court);

   Intertek Testing Services Indian P Ltd [2008] 307 ITR 418 (AAR);

   Bharati Axa General Insurance Co. Ltd [2010] 326 ITR 477 (AAR)

[5] Cushman and Wakefield (S) Pte Ltd (305 ITR 208) (AAR).

   Real Resourcing Ltd. (2010) (322 ITR 558),

   Knight Frank (India) (P.) Ltd. v. ACIT (2019) 107 363 (Mumbai-Trib.)