In Income Tax Appeal No. 212 of 2018 -BOM HC- Bombay High Court affirms tax residency status of Alibaba.Com under India-Singapore DTAA
Justice K.R. Shriram & Justice Firdosh P. Pooniwalla [16-06-2023]

Read Order: The Commissioner of Income International Taxation-1 v. Alibaba.Com Singapore E-Commerce Private Ltd.

Chahat Varma

New Delhi, July 10, 2023: 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). The High court has dismissed the appeal filed by the Commissioner of Income International Taxation, and has affirmed the findings of the Income Tax Appellate Tribunal (ITAT) that the assessee was entitled to the benefits of the treaty.

Brief background of the case was that the assessee was a non-resident company, incorporated in Singapore. The Assessing Officer (AO) had considered the company as a mere intermediary between Indian subscribers and Alibaba.com Hong Kong Limited. Additionally, the AO had asserted that the company had a 'business connection' in India through its agreement and transactions with an Indian company, Infomedia 18 Pvt. Ltd. As a result, the AO deemed the company's income taxable in India under Section 9(1)(i) of the Income Tax Act. The Dispute Resolution Panel (DRP) upheld the AO's decision to deny the treaty benefit and also concluded that Infomedia was a dependent agent permanent establishment (DAPE). Consequently, the DRP determined that the company had a permanent establishment/business connection in India, and its income was taxable in India as business profit/business 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, both the assessee and the department filed appeals and cross-appeals before the ITAT, Mumbai. However, the ITAT dismissed all appeals filed by the department and allowed the appeals filed by the assessee.

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 and treated Alibaba Hong Kong as the sole entity, disregarding the existence of the assessee as an independent entity.

The bench further observed that the ITAT had carefully examined various documentary evidences, including the Tax Residency Certificate of the assessee, and reached a factual conclusion that the assessee cannot be considered a non-existent entity or a conduit of Alibaba Hong Kong. The ITAT had concluded that the assessee was the sole economic owner of the subscriptions received from Indian subscribers and that it received revenue in its own right, not on behalf of Alibaba Hong Kong. The bench also noted that the ITAT had held that the valid tax residency certificate issued by the government authority of Singapore was sufficient proof of residency, and the income tax authorities cannot disregard it.

Furthermore, the bench observed that the ITAT had considered the Co-operation Agreement between the assessee and Infomedia and found that Infomedia, a listed company specialized 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 Co-operation Agreement. With the above observations, the ITAT had concluded that the assessee cannot be considered to have any form of business connection in India through Infomedia.

The bench also took note of the ITAT'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 Income Tax Act. The ITAT had relied on the judgment of the Supreme Court in the case of Commissioner of Income Tax-4, Mumbai vs. Kotak Securities Ltd. [LQ/SC/2016/458] and had held that for services to be considered ‘technical’, constant human endeavour or intervention was required. If a technology or process operates automatically without significant human involvement, it cannot be classified as the rendering of technical services.

Consequently, the division bench held that the entire subject matter of the appeal was fact-based, with no substantial question of law arising.