Bombay High Court declares tax residency status of Alibaba.Com under India-Singapore DTAA

Bombay High Court declares tax residency status of Alibaba.Com under India-Singapore DTAA

Held that the entire matter of the appeal was fact-based, with no substantial question of law arising

The Bombay High Court has upheld the tax residency status of Alibaba.Com Singapore E-Commerce Private Ltd. (assessee) as a resident of Singapore under the India-Singapore Double Tax Avoidance Agreement (DTAA).

While dismissing the appeal filed by the Commissioner of Income International Taxation, the Court affirmed the findings of the Income Tax Appellate Tribunal (ITAT), Mumbai, that the assessee was entitled to the treaty’s benefits.

The assessee is a non-resident company, incorporated in Singapore. The assessing officer (AO) considered the company as a mere intermediary between Indian subscribers and Alibaba.com Hong Kong Limited. The AO asserted that the company had a 'business connection' in India through its agreement and transactions with an Indian company, Infomedia 18 Pvt. Ltd. Thus, he deemed the company's income taxable in India under Section 9(1)(i) of the Income Tax Act, 1961.

The Dispute Resolution Panel (DRP) upheld the AO's decision to deny the treaty benefit. It concluded that Infomedia was a dependent agent permanent establishment (DAPE).

DRP maintained the company had a permanent business connection in India, and its income was taxable as business profit/income. However, the DRP rejected the AO's argument that the payments received by the company were not taxable in India as Fees for Technical Services (FTS).

Thereafter, the assessee and the revenue department filed appeals and cross-appeals before the ITAT, which dismissed all appeals filed by the department and allowed the assesses’ appeals.

The Division Bench of Justice K.R. Shriram and Justice Firdosh P. Pooniwalla observed that the ITAT had correctly observed that the AO primarily focused on the registration of the website www.alibaba.com in Hong Kong. It treated Alibaba Hong Kong as the sole entity, disregarding the existence of the assessee as an independent entity.

The Bench further stated that the ITAT had examined various documentary evidence, including the Tax Residency Certificate (TRC) of the assessee. It reached a factual conclusion that the assessee could not be considered a non-existent entity or a conduit of Alibaba Hong Kong. The tribunal had concluded that the assessee was the sole economic owner of the subscriptions received from Indian subscribers and that it did not receive revenue on behalf of Alibaba Hong Kong.

The Court noted that ITAT had held the valid TRC issued by the government authority of Singapore as sufficient proof of residency, and it could not be disregarded by the IT authorities.

The Judges stated that the tribunal had considered the Co-operation Agreement between the assessee and Infomedia. The latter, a listed company, specializing in directories, magazine publishing, and direct marketing, provided various services to the assessee. This included permitting the use of the assessee's website, providing customer support and after-sales support, and collecting payments from subscribers in India. In return, Infomedia received remuneration, plus a cash bonus, based on the achieved targets, as per the terms of the Agreement.

The Bench added that with those observations, the ITAT had concluded that the assessee could not be considered as having any form of business connection in India through Infomedia.

Justice Shriram and Justice Pooniwalla also took note of the tribunal’s factual finding that the arrangement between the assessee and the subscribers was for the provision of standard facility services and not for the rendering of technical, managerial, or consultancy services as defined in Section 9(1)(vii) read with Explanation 2 of the IT Act.

The ITAT relied on the judgment of the Supreme Court in the Commissioner of Income Tax-4, Mumbai vs Kotak Securities Ltd case, wherein it was held that for services considered ‘technical’, constant human endeavor or intervention was required. If a technology or process operated automatically without significant human involvement, it could not be classified as the rendering of technical services.

The Bench thus held that the entire matter of the appeal was fact-based, with no substantial question of law. Consequently, the Division Bench held that the entire subject matter of the appeal was fact-based, with no substantial question of law emerging.