In a recent judgment, the panel composed of Justice K.R. Shriram and Justice Firdosh P. Pooniwalla provided relief to the assessee, Alibaba.com, Singapore E-Commerce Private Limited. The panel emphasized that the assessee, acting as an intermediary between Indian subscribers and Alibaba.com Hong Kong Company, is eligible for the benefit of Double Taxation Avoidance Agreement (DTAA).
The Respondent- Assessee, Alibaba.Com Singapore E-Commerce Private Ltd. is a non-resident company incorporated in Singapore. The Assessee filed its Return of Income for the Assessment Year 2011-12 on September 27, 2011 showing a total income of NIL. Thus, the case was selected for scrutiny. The document indicated that the entire control and management of the assessee is from Singapore.
The AO denied the benefit of the India-Singapore Double Tax Avoidance Agreement (DTAA) to the assessee by holding that the assessee is merely an intermediary between the Indian subscribers and one Alibaba.com Hong Kong Limited.
Furthermore, the Assessing Officer (AO) declined to acknowledge the certificate of incorporation and the Tax Residency Certificate (TRC) provided to the assessee by the authorities in Singapore.
The AO also stated that the assessee had established a “business connection” in India through its agreement and transactions with M/s.Infomedia 18 Pvt. Ltd., an Indian company. Consequently, the income of the assessee was deemed taxable in India under the provisions of section 9(1)(i) of the Income Tax Act.
Additionally, the Assessing Officer (AO) determined that, as an alternative, the payments made by Indian subscribers to the assessee were subject to taxation in India as Fees for Technical Services (FTS) under the provisions of the Income Tax Act and the Double Taxation Avoidance Agreement (DTAA).
The Dispute Resolution Panel (DRP) confirmed the order of the AO in respect of denial of treaty benefit. However, rejected the argument of the AO that the payments received by the assessee was not taxable in India as FTS. The assessee and the department filed Appeals and Cross-Appeals before the ITAT, Mumbai against the directions of the DRP.
As a result, the case was presented before the Income Tax Appellate Tribunal (ITAT). The tribunal carefully examined several pieces of documentary evidence, 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 mere conduit of Alibaba Hong Kong, which is not even the parent company.
The tribunal has even reproduced a group structure of Alibaba.com and has come to a conclusion that Alibaba.com Hong Kong is a separate entity than the assessee. Also came to a finding that only the alibaba.com logo is registered in Hong Kong and assessee only uses the website of the alibaba.com.
The revenue submission states that the assessee does not have a permanent establishment in terms of Article 5(8a) and 5(8c) in the form of Infomedia, that is, it would constitute a dependent agent of permanent establishment of assessee in India.
Furthermore, it was established that the assessee had no physical presence in Singapore, and all management activities and services provided to Indian subscribers were conducted by Alibaba Hong Kong, located in Hong Kong, and not by the assessee, Alibaba Singapore.
The bench observed the statement of the ITAT that the tax residency certificate is sufficient to determine the proof of residency and the income-tax authorities cannot ignore the valid tax residency certificate issued by the Government authority of the other contracting state, that is, Singapore.
The High Court has observed that “AO has completely denied the existence of the assessee as an independent entity as if the assessee was only a front or a shadow entity of Alibaba Hong Kong. If the AO was so convinced that the entire activity in India to various subscribers was actually carried out by Alibaba Hong Kong and not by assessee, then we would have expected him to do something to Alibaba Hong Kong and not the assessee.”
Therefore, the Bombay High Court rejected the appeals filed by the revenue, as it concluded that no significant legal issue was raised in the case.
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