Appeal details
Counselvise Citation
[2014] 120 COUNSELVISE.COM (IT) 8018 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 4 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-08-2014
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
L
Next Hearing Date
25-06-2014
Assessment Year
2005-2006
Appeal Filed On
10-03-2010
Judgement Text
, IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) .. , , ./I.T.A. NO.1901 TO 1903/MUM/2010 ( !' #$! / ASSESSMENT YEARS : 2004-05 TO & 2006-07) ACNIELSEN CORPORATION, ORG MARG PVT. LTD., VOLTAS HOUSE A, 2 ND FLOOR, DR.B AMBEDKAR ROAD, CHINCHPOKALI, MUMBAI-400033. / VS. ASSISTANT COMMISSIONER OF INCOME TAX, (INTERNATIONAL TAXATION)-1(1), SCINDIA HOUSE, BALLARD PIER, MUMBAI-400038 ( %& / APPELLANT) .. ( '(%& / RESPONDENT) % ./ )* ./PAN/GIR NO. : AAECA8632R %& + / APPELLANT BY : SHRI MADHUR AGARW AL '(%& , + /RESPONDENT BY : S MT. NEERAJA PRADHAN #- , . / DATE OF HEARING : 25.6.2014 /0$' , . /DATE OF PRONOUNCEMENT : 8.8.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: ALL THE THREE APPEALS FILED BY THE ASSESSEE ARE DI RECTED AGAINST THE THREE SEPARATE ORDERS DATED 11.1.2010 PASSED BY LD CIT(A )-10, MUMBAI FOR THE ASSESSMENT YEARS 2004-05, 2005-06 AND 2007-08. SIN CE THE ISSUES URGED IN THESE APPEALS ARE IDENTICAL IN NATURE, THESE APPEAL S WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAK E OF CONVENIENCE. 2. IN ALL THE THREE YEARS, THE ASSESSEE IS CHALLENG ING THE DECISION OF LD CIT(A) IN HOLDING THAT THE CONSIDERATION RECEIVED B Y THE ASSESSEE, WHICH ARE IN THE NATURE OF REIMBURSEMENT OF EXPENSES ALONG WITH A MARK UP OF 10%, IS I.T.A. NO.1901 TO 1903/MUM/2010 2 TAXABLE IN INDIA BOTH AS ROYALTY AND FEE FOR INC LUDED SERVICES IN EQUAL PROPORTION. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE HEREIN IS A TAX RESIDENT OF USA. IT BELONGS TO AC NIELSON GROU P, WHICH IS ONE OF THE WORLDS LEADING BUSINESS, MANAGEMENT & MARKET RESEARCH COMP ANIES. THE AC NEILSON GROUP ALSO OFFERS OTHER MARKETING INFORMATION SERVI CES TAILORED TO THE NEEDS OF INDUSTRIES LIKE PHARMACEUTICALS, FINANCIAL SERVICES , TELECOMMUNICATIONS ETC. THE AC NEILSON GROUP IS REPRESENTED IN INDIA THROUGH IT S TWO LEGAL ENTITIES VIZ., M/S ACNIELSON ORG-MARG PRIVATE LTD (ACNOM) FOR CUSTOM IZED RESEARCH SERVICES & RETAIL MEASUREMENT SERVICES AND M/S ACNIELSON RESEA RCH SERVICES PVT LTD (ACNRS) FOR CUSTOMIZED MARKET RESEARCH SERVICES. THE ASSESSEE HEREIN ENTERED INTO A GENERAL SERVICE AGREEMENT (GSA) IN T HE YEAR 2003 WITH BOTH THE INDIAN ENTITIES CITED ABOVE. THE NATURE OF SERVICE S TO BE PROVIDED ARE DESCRIBED AS UNDER IN THE AGREEMENT:- GROUP SERVICES AND REGIONAL GROUP SERVICES, AS T HEY MAY BE AMENDED FROM TIME TO TIME , INCLUDE BUT ARE NOT LIMITED TO : A. DEVELOPMENT AND DETERMINATION OF SHORT AND LONG TER M BUSINESS STRATEGIES; B. OVERALL MANAGEMENT AND COORDINATION IN RELATION TO GENERAL POLICIES AND STRATEGIES PER COUNTRY AND PER DIVISION ; C. MAINTENANCES OF EXTERNAL RELATIONSHIPS, TO THE EX TENT THAT THESE SERVICES DO NOT COMPRISE SHAREHOLDER SERVICES; D. HUMAN RESOURCES SERVICES REGARDING GROUP POLICIES; E. LEGAL SERVICES; F. INSURANCE SERVICES; G. DEVELOPMENT, CONTROL AND MAINTENANCE OF MANAGEMENT INFORMATION SYSTEMS; H. ADMINISTRATIVE SUPPORT TO GROUP COMPANIES, INCLUDIN G ANALYSIS OF MANAGEMENT INFORMATION; I. DEVELOPMENT SHORT AND LONG TERM IT POLICIES AND ST RATEGIES; J. MANAGEMENT AND CO-ORDINATION OF IT POLICIES BETWEEN GROUP COMPANIES; I.T.A. NO.1901 TO 1903/MUM/2010 3 K. TAX SERVICES; L. FINANCIAL RISK MANAGEMENT SERVICES, TO THE EXTENT T HESE SERVICES DO NOT COMPRISE FINANCING SERVICES. M. SUPPORT IN THE AREA OF INTERNATIONAL STAFFING, CARE ER DEVELOPMENT AND INTERNATIONAL JOB ROTATION AND N. MARKET RESEARCH, TARGET RESEARCH AND COMPETITOR RES EARCH FOR PROVIDING THE SERVICES ENUMERATED ABOVE, THE AS SESSEE HEREIN IS COMPENSATED BY THE INDIAN ENTITIES CITED ABOVE. AC CORDING TO THE ASSESSEE, IT RECEIVED AMOUNTS FROM THE ABOVE SAID INDIAN ENTITIE S AT THE RATES COMPUTED AT COST PLUS 10% MARK UP. ACCORDING TO GSA AGREEMENT, THERE WILL NOT BE ANY MARK UP IN RESPECT OF THIRD PARTY EXPENSES. THUS, THE MARK UP OF 10% IS CHARGED IN RESPECT OF COSTS INCURRED BY THE ASSESSE E COMPANY ONLY. 3.1 THE ASSESSEE COMPANY CLAIMED THAT THE AMOUN TS RECEIVED BY IT FROM THE INDIAN ENTITIES CITED ABOVE ARE NOT TAXABLE UNDER T HE INDIAN INCOME TAX ACT. IN THIS CONNECTION, IT APPENDED FOLLOWING NOTES IN TH E RETURN OF INCOME FILED BY IT : NOTES 1) THE ASSESSEE HAS ENTERED INTO A GENERAL SERVICE AGREEMENT WITH ACNEILSEN RESEARCH SERVICES PVT. LTD. AND ACNEILSEN ORG.-MARG PVT. LTD. FOR RENDERING OF SERVICES PRESCRIBED IN SUCH A GREEMENT. THE ASSESSEE HAS RECEIVED A SUM OF RS.77,679,163/- TOWA RDS REIMBURSEMENT OF EXPENSES WHICH IS INCLUSIVE OF A M ARK-UP OF 10%. THE ASSESSEE IS A TAX RESIDENT OF USA AND THEREBY THE P ROVISIONS OF INDO- USA TAX TREATY WOULD BE APPLICABLE. THE ASSESSEE AL SO HOLDS TAX RESIDENCY CERTIFICATE ISSUED BY THE TAX AUTHORITIES OF USA. THE REIMBURSEMENT OF EXPENSES RECEIVED BY THE ASSES SEE CANNOT BE TERMED AS 'ROYALTIES OR FEES FOR INCLUDED SERVICES' UNDER ARTICLE 12 OF THE INDO USA. THE REIMBURSEMENT OF EXPENSES RECEIVED BY THE ASSE SSEE CANNOT BE TERMED AS ROYALTIES OR FEES FOR INCLUDED SERVIC ES UNDER ARTICLE 12 OF THE INDO-USA TAX TREATY. SINCE REIMBURSEMENT OF EX PENSES IS NOT COVERED BY ARTICLE 12 OF THE INDO USA TAX TREATY, ARTICLE 7 DEALING WITH BUSINESS INCOME MERITS EXAMINATION. HOWEVER, THE ASSESSEE IS NOT HAVING A PERMANENT EST ABLISHMENT IN INDIA AS DEFINED IN ARTICLE 5 OF THE INDO-USA TAX T REATY AND THEREFORE ITS INCOME IS NOT TAXABLE IN INDIA BY VIRTUE OF ARTICLE 7 OF THE INDO-USA TAX I.T.A. NO.1901 TO 1903/MUM/2010 4 TREATY. IN VIEW OF THE ABOVE, THE MARK-UP OF 10% ON THE REI MBURSEMENT OF EXPENSE WOULD ALSO BE NOT TAXABLE. 3.2 HOWEVER, THE AO DID NOT AGREE WITH THE CONTE NTIONS OF THE ASSESSEE. THE VIEW EXPRESSED BY THE AO IN AY 2004-05 ARE DISCUSSE D HEREUNDER. THE AO NOTICED THAT THE ASSESSEE COMPANY CALLS FOR CERTAIN COPYRIGHTED PRODUCTS FROM THE US COMPANY, VIZ., QUESTIONNAIRES ETC TO DO THE JOB FOR THE CLIENT. FURTHER THE ASSESSEE COMPANY ALSO GETS THE BENEFIT OF ON-GO ING RESEARCH CONDUCTED AND ALSO THE RESEARCH PRODUCTS OF US COMPANY IN THE FIE LD OF FINANCIAL MANAGEMENT, HR MANAGEMENT ETC. HE FURTHER OBSERVED THAT THE PR ODUCTS SUPPLIED BY US COMPANY ARE COPYRIGHT PROTECTED AND THEY ARE PROVID ED FOR NON-EXCLUSIVE USAGE BY THE ASSESSEE HEREIN FOR THE PURPOSES FOR WHICH T HEY ARE PROVIDED. IN THIS CONNECTION, THE AO REFERRED TO CERTAIN DEFINITIONS GIVEN UNDER COPYRIGHT ACT, 1957. THE AO FURTHER REFERRED TO THE DECISION REN DERED IN THE CASE OF E.P.W.DA COSTA VS. UNION OF INDIA (1980)(121 ITR 751)(DELHI) AND ACCORDINGLY CAME TO THE CONCLUSION THAT THE INFORMATION SO PROVIDED IS NOT MERE DATA BUT A SCIENTIFIC KNOWLEDGE. THE AO, BY PLACING RELIANCE ON THE FOLL OWING DECISIONS, CAME TO THE CONCLUSION THAT THE PAYMENTS RECEIVED BY THE ASSESS EE COMPANY WOULD FALL IN THE CATEGORY OF ROYALTY. (A) CIT VS. TRAVEL CORPORATION OF INDIA LTD (1994)(209 ITR 555)(BOM) (B) P.NO.30 OF 1999, IN RE (1999) 238 ITR 296)(AA R) ACCORDINGLY, THE AO HELD THAT THE IMPUGNED RECEIPTS ARE TAXABLE AS ROYALTY WITHIN THE MEANING OF SEC. 9(1)(VI) OF THE INCOME T AX ACT, 1961 AND ALSO UNDER I.T.A. NO.1901 TO 1903/MUM/2010 5 ARTICLE 12 OF THE DTAA ENTERED BETWEEN INDIA AND US A. THE CONCLUSION REACHED BY THE AO IS EXTRACTED BELOW:- THE NON-RESIDENT COMPANY IS GETTING CONSIDERATION FOR PARTING WITH COPYRIGHT PROTECTED INFORMATION MEANT FOR COMMERCIA L, SCIENTIFIC AND INDUSTRIAL USE. THE ESSENCE OF THE MATTER IS THAT THE US COMPANY CONDUCTS MARKET RESEARCH IN THESE AREAS AND PREPARE S QUESTIONNAIRES, DIAGRAMS, CHARTS, TABLES ETC. THESE PRODUCTS ARE THEN FLASHED TO GROUP COMPANIES INCLUDING THE ASSESSEE COMPANY. AS AND W HEN THERE IS A CLIENT WITH THE ASSESSEE COMPANY, ASSESSEE COMPANY CAN ORD ER FOR SUCH PRODUCT FROM US COMPANY. US COMPANY WILL PROVIDE HARD COPY OR SOFT COPY FOR A CONSIDERATION ACCORDINGLY, THE AO ASSESSED THE IMPUGNED RECEIPTS AS ROYALTY IN ASSESSMENT YEAR 2004-05. 3.3 HOWEVER, IN ASSESSMENT YEARS 2005-06 AND 20 06-07, THE AO TOOK THE VIEW THAT THE CONSIDERATION RECEIVED BY THE ASSESSE E IS BOTH IN THE NATURE OF ROYALTY AND FEES FOR INCLUDED SERVICES WITHIN T HE MEANING OF ARTICLE 12 OF THE DTAA ENTERED BETWEEN INDIA AND USA. ACCORDINGLY, H E APPORTIONED THE CONSIDERATION IN EQUAL PROPORTION BETWEEN ROYALTY AND FEE FOR INCLUDED SERVICES AND ACCORDINGLY ASSESSED THE SAME IN THE HANDS OF THE ASSESSEE HEREIN. 4. IN THE APPEAL FILED, THE LD CIT(A) AFFIRMED THE VIEW TAKEN BY THE AO IN AY 2005-06 AND 2006-07 THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE IS BOTH IN THE NATURE OF ROYALTY AND FEES FOR INCLUDED SERV ICES. ACCORDINGLY, THE LD CIT(A) MODIFIED THE ORDER PASSED BY AO FOR AY 2004- 05 AND DIRECTED HIM TO ASSESS THE CONSIDERATION BOTH AS ROYALTY AND FEE S FOR INCLUDED SERVICES IN EQUAL PROPORTION. 5. AGGRIEVED, THE ASSESSEE HAS FILED THESE THRE E APPEALS BEFORE US. I.T.A. NO.1901 TO 1903/MUM/2010 6 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. FROM THE ARGUMENTS ADVANCED BY BOTH THE PARTIES, WE NOTICE T HAT THERE IS NO DISPUTE BETWEEN THE PARTIES WITH REGARD TO THE FACT THAT TH E QUESTION TAXABILITY OF THE CONSIDERATION RECEIVED BY THE ASSESSEE NEEDS TO BE EXAMINED IN TERMS OF DTAA ENTERED BETWEEN INDIA AND USA. HOWEVER, FROM THE D ISCUSSIONS MADE SUPRA, IT MAY BE NOTICED THAT THE ASSESSING OFFICER HAS PROCE EDED TO EXAMINE THE TAXABILITY OF THE IMPUGNED CONSIDERATION BY REFERRI NG TO THE PROVISIONS OF SEC. 9(1)(VI) OF THE INCOME TAX ACT, COPYRIGHT ACT AND C ERTAIN DECISIONS RENDERED IN SOME OTHER CONTEXT. IN FACT, THE AO TOOK THE VIEW THAT THE ENTIRE CONSIDERATION IS TAXABLE AS ROYALTY IN AY 2004-05, BUT CHANGED HIS VIEW IN THE SUBSEQUENT TWO YEARS. IN RESPECT OF THE ASSESSMENT YEAR 2004- 05 ALSO, THE ASSESSING OFFICER HAS FURNISHED A REMAND REPORT BEFORE THE LD CIT(A), WHEREIN HE HAD SUGGESTED THAT THE IMPUGNED RECEIPT IS REQUIRED TO BE TREATED AS BOTH ROYALTY AND FEES FOR INCLUDED SERVICES. 6.1 THE LD CIT(A) HAS, HOWEVER, TRIED TO EXAMIN E THE NATURE OF RECEIPT IN TERMS OF INDO-US TREATY, BUT HE AGAIN ENDED WITH CO NFUSION BY EXPRESSING DIFFERENT VIEWS. FOR THE SAKE OF CONVENIENCE, WE E XTRACT BELOW THE OBSERVATIONS MADE BY THE LD CIT(A) IN HIS ORDER PASSED FOR ASSES SMENT YEAR 2004-05:- 1.3.3. WHETHER THE NATURE OF GSA SERVICES AS MENT IONED IN PARA 1.2.0. ABOVE, RENDERED BY THE APPELLANT WOULD FALL UNDER THE ROYALTY'/ FEES FOR INCLUDED SERVICES' THE DEFINITION ROYALTY NEEDS TO BE EXAMINED. THE ROYALTY IS DEFINED UNDER ARTICLE 12(3) OF INDIA -US DTAA AS FOLLOWS: '3. THE TERM 'ROYALTY' AS USED IN THIS ARTICLE MEAN S: A) PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FO R THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERAR Y, ARTISTIC, OR SCIENTIFIC INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILM, TAPE OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADEMARK, DE SIGN OR MODE!, I.T.A. NO.1901 TO 1903/MUM/2010 7 PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE, IN CLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PR OPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE, OR DISPOSITION THEREOF, AND B) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL, OR SC IENTIFIC EQUIPMENT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE DESCRI BED IN PARAGRAPH 1 OF ARTICLE 8 (SHIPPING AND AIR TRANSPO RT) FROM ACTIVITIES DESCRIBED IN PARAGRAPH 2( C ) OR 3 OF ARTICLE 3 1.3.4 IT IS SEEN THAT THE DEFINITION OF ROYALTY I NCLUDES LITERARY WORK. THIS WORD IS DEFINED UNDER SECTION 2(O) OF COPY RIGHT ACT AS LITERARY WORK INCLUDES COMPUTER PROGRAMMES, TABLES AND COMPILATIO NS INCLUDING COMPUTER DATABASES ........'COPYRIGHT' MEANS THE EX CLUSIVE RIGHT SUBJECT TO THE PROVISIONS OF THIS ACT, TO DO OR AUTHORIZE THE DOING OF ANY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBSTANT IAL PART THEREOF.......' THE ABOVE RECEIPTS BY THE APPELLANT FROM THE INDIAN COMPANIES ARE TOWARDS RENDERING OF SERVICES CAN BE TERMED TOWARDS USE OF COPYRIGHT OF A LITERARY, ARTISTIC, OR A SCIENTIFIC WORK. THE AP PELLANT COMPANY HAS PROVIDED INFORMATION OF A COPYRIGHT PROTECTED WORK TO THE INDIAN COMPANIES TO ISSUE COPIES OF THE WORK NOT BEING COP IES ALREADY IN CIRCULATION, AND COMPUTER PROGRAMME. IT CANNOT THER EFORE RULED OUT THAT THE APPELLANT COMPANY IS PROVIDING SECRET INFORMATI ON IN MARKET RESEARCH DATA WHICH ARE BEING USED BY THE INDIAN THEREFORE T HE PAYMENT RECEIVED IS TOWARDS INFORMATION CONCERNING INDUSTRIAL, COMME RCIAL OR SCIENTIFIC EXPERIENCE, WHICH WOULD FALL UNDER ARTICLE 12(3) (A ) OF THE INDIA-USA DTAA. RELIANCE IS PLACED ON RECENT DECISION OF DELH I HIGH COURT IN DR HUTAREW & PARTNER (I) PVT LTD. VS. ITO WARD-10(4), NEW DELHI (ITA NO. 2797/DE1/2004) (AY-2001-02) (DTD 5.9.2008) WHEREIN HELD, SINCE THE NON-RESIDENT WAS PROVIDING A CLIENT-ORIENTED SPECIF IC TECHNICAL SOLUTION AFTER ANALYZING DATA WITH THE AID OF HIGH-END SOFTW ARE, IT CANNOT BE EQUATED WITH ANY OTHER GENERAL SERVICES PROVIDED BY ANY SERVICE PROVIDER. THEN AN EXPLANATION HAS BEEN APPENDED TO CLAUSE (VI I) OF SECTION 9(1) OF THE ACT WITH RETROSPECTIVE EFFECT THAT IF SERVICES HAVE BEEN USED BY THE ASSESSEE WITHIN INDIA, THEN IT IS IMMATERIAL WHETHE R THE NONRESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTI ON IN INDIA AS THE SUM PAID TO NON-RESIDENT WOULD BE INCLUDED IN THE INCOM E, WHICH WILL BE DEEMED TO HAVE ACCRUED TO THE NON-RESIDENT. AND IT WILL BE SUBJECT TO TDS PROVISIONS - ASSESSEE'S APPEAL DISMISSED. THIS RATI O OF THIS DECISION IS SQUARELY APPLICABLE IN THE CASE OF ASSESSEE AS THE APPELLANT. 1.3.5. DURING THE ASSESSMENT YEAR UNDER CONSIDERATI ON, THE GSA EXPENSES CHARGED TO INDIAN COMPANIES COMPRISED OF THE FOLLOW ING BROAD EXPENSE- HEADS, WHICH HAS BEEN RECOVERED FROM THE INDIAN COM PANIES: MARKET RESEARCH GSA REGIONAL AREA CHARGES; VNU SERVICES BV CHARGES; AND I.T.A. NO.1901 TO 1903/MUM/2010 8 MMI CHARGES 1.3.6. THE PERUSAL OF INVOICES RAISED BY THE APPELL ANT SHOWED THAT THESE ARE RAISED ON ACCOUNT OF SERVICES RENDERED IN MARKET RE SEARCH, REGIONAL EXPENSES, ALLOCATION, VNU SERVICES BV CHARGES AND MMI CHARGES . THIS MANIFEST THAT SUCH ACTIVITY AND NATURE OF SERVICES AS ENUMERATED IN ARTICLE 2(2) OF GSA WOULD BE CLEARLY IN THE NATURE OF INFORMATION CONCE RNING SCIENTIFIC, COMMERCIAL AND MARKETING. THEREFORE, THESE WOULD BE COVERED UNDER THE DEFINITION OF ROYALTY/FEES FOR INCLUDED SERVICES UN DER ARTICLE 12 OF INDIA-US DTAAT 7. BEFORE US, THE LD A.R VEHEMENTLY ARGUED TH AT THE CONSIDERATION RECEIVED BY THE ASSESSEE WILL NOT FALL WITHIN THE MEANING OF EITHER ROYALTY OR FEES FOR INCLUDED SERVICES. THE CONTENTIONS OF LD A.R ARE SUMMARIZED BELOW:- THE APPELLANTS ARGUMENTS AGAINST THE IMPUGNED ORDER PASSED BY THE CIT(A) ARE AS UNDER: ARGUMENTS ON PAYMENTS NOT BEING IN THE NATURE OF R OYALTY: O THE RECEIPTS CANNOT BE TERMED AS 'ROYALTIES' AS T HE APPELLANT DID NOT HOLD ANY PROPERTY, PATENTED PRODUCT; ETC. AND TO SU PPORT THIS CONTENTION HE INVITED OUR ATTENTION TO PAGES 31 TO 35 OF TH E COMPILATION AND ALSO RELIED ON THE PAGES 7 TO 12 OF CIT(A) ORDER. O THE RECEIPTS CANNOT BE CONSIDERED AS A PAYMENT F OR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXP ERIENCES' SO AS TO COME WITHIN THE AMBIT OF THE TERM ROYALTY. A PAYMENT CAN BE REGARDED AS FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SC IENTIFIC EXPERIENCES' IF IT INTER ALIA FULFILLS THE FOLLOWING CONDITIONS: THE INFORMATION MUST BE IN THE NATURE OF KNOW HOW . THE INFORMATION MUST BE EXISTING INFORMATION AND SHOULD NOT BE NEW INFORMATION OBTAINED AS A RESULT OF PERFORMING SERV ICES. THE CONTRACT SHOULD NOT BE IN THE NATURE OF RENDE RING OR PERFORMANCE OF SERVICES. VERY LITTLE IS REQUIRED TO BE DONE TO SUPPLY KNOW HOW. I.T.A. NO.1901 TO 1903/MUM/2010 9 O IN THE CASE OF THE APPELLANT AS NONE OF THE AFORE SAID CONDITIONS ARE SATISFIED, THERE IS NO QUESTION OF THE RECEIPTS BY THE APPELLANT BE REGARDED PAYMENT FOR INFORMATION CONCERNING INDUSTRIAL, COMM ERCIAL OR SCIENTIFIC EXPERIENCES.' THEREFORE, THE PAYMENTS RECEIVED BY T HE APPELLANT ARE NOT IN THE NATURE OF ROYALTY. O RELIANCE IS PLACED ON PARA 11 OF THE OECD COMMENT ARY ON ARTICLE 12. O RELIANCE IS PLACED ON THE FOLLOWING DECISIONS ON THE SUBJECT:- DDIT V/S. PREROY A.G. [(2010) 39 SOT 187 (MUM.)] WHEREIN IT WAS HELD THAT PROVISION OF STRATEGIC CONSULTANCY SERVICES WO ULD NOT AMOUNT TO PROVISION OF 'KNOW-HOW' SERVICES ACCORDINGLY THE RE CEIPT COULD NOT BE TERMED IN THE TERM OF ROYALTY. DCIT V/S. HYDERABAD INDUSTRIES LTD. [(2008) 24 SO T 98 (HYD.)] WHEREIN IT WAS HELD THAT OBTAINING OF MARKET INFORMATION WO ULD NOT AMOUNT TO ROYALTY AS THERE IS NOT EXCLUSIVE RIGHT OVER SUCH I NFORMATION. CUSHMAN & WAKEFIELD(S) PTE. LTD. [(2008) 305 ITR 17 9 (AAR- NEW DELHI)] WHEREIN IT WAS HELD THAT REFERRAL FEES RECE IVED FOR PROVISION OF INFORMATION OF POTENTIAL CUSTOMERS WOULD NOT BE TER M AS 'ROYALTY' OR 'FEES FOR TECHNICAL SERVICES'. KPMG V/S. JCIT 1(2013) 142 ITD 323 (MUM-TRIB.) WH EREIN IT WAS HELD THAT FEES PAID TO PROFESSIONALS WHO DID NOT HAVE AN Y PERMANENT ESTABLISHMENT IN INDIA AND WHOSE SERVICES WERE NOT IN THE NATURE OF MAKE AVAILABLE, TECHNICAL KNOWLEDGE, EXPERIENCE, KNOW-HO W OR PROCESS WOULD NOT BE TAXABLE IN INDIA. ARGUMENTS ON PAYMENTS NOT BEING IN THE NATURE OF 'F EES FOR INCLUDED SERVICES' O THE RECEIPTS CANNOT BE REGARDED AS 'FEES FOR INCL UDED SERVICES' AS DEFINED IN ARTICLE 12(4) OF THE DTAA AS THE APPELLA NT DOES NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKIL L, KNOW HOW OR PROCESS TO THE INDIAN COMPANIES. O THE APPELLANT SUBMITS THAT TO MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW HOW OR PROCESS WOULD MEAN T HAT THE INDIAN COMPANIES WOULD SUBSEQUENTLY BE ABLE TO RENDER THE SAME SERVICES. THEREFORE, THE RECEIPT IS NOT IN THE NATURE OF INCL UDED SERVICES'. O RELIANCE IS PLACED IN THE CASES OF CIT V DC BEERS INDIA MINERALS P. LTD. 346 ITR 467 AND DDIT V/S. PREROY A.G. [(2010)39 SOT 187 (MUM.)] I.T.A. NO.1901 TO 1903/MUM/2010 10 O THE LOWER AUTHORITIES HAVE NOT CLEARLY STATED AS TO ACCORDING TO THEN WHETHER THE PAYMENT IS IN THE NATURE OF ROYALTY OF FEES FOR INCLUDED SERVICES. FURTHER, NO LOGIC / RATIONALE WHATSOEVER HAS BEEN GIVEN BY EITHER OF THE LOWER AUTHORITIES TO REACH THE ABSURD CONCLU SION THAT 50% OF THE RECEIPT IS ROYALTIES AND THE BALANCE 50% IS FEES FO R INCLUDED SERVICES. THE CIT(A) HAS HIMSELF MADE CONTRARY STANDS, SINCE AT V ARIOUS PLACES IN HIS ORDER HE HAS STATED THE APPELLANT HAD RENDERED SERV ICES, BUT HAS CONCLUDED THAT THE CONSIDERATION RECEIVED FOR THE S AME IS TAXABLE AS ROYALTIES. 8. THE EXPRESSIONS ROYALTY AND FEES FOR IN CLUDED SERVICES HAVE BEEN GIVEN DISTINCT MEANING IN THE INDO US TREATY. WE HAVE ALREADY NOTICED THAT THE TAX AUTHORITIES WERE NOT ABLE TO COME TO A CONCLUSI ON AS TO WHETHER THE CONSIDERATION RECEIVED BY THE ASSESSEE COMPANY WOUL D FALL WITHIN THE MEANING OF ROYALTY OR FEES FOR INCLUDED SERVICES, EVEN THO UGH THERE ARE PLETHORA OF CASE LAWS EXPLAINING BOTH THE TERMS. HENCE, FROM THE FO REGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE TAX AUTHORITIES HAVE NOT EXAMI NED THE IMPUGNED ISSUE IN PROPER PERSPECTIVE, I.E., THE MATTER HAS NOT BEEN E XAMINED IN THE CONTEXT OF INDO-US TREATY BY CONSIDERING THE MEANING OF VARIOU S TERMS USED THEREIN. AS STATED EARLIER, THE MEANING TO BE ASCRIBED TO VARIO US TERMS USED IN THE TREATY HAS BEEN THE BONE OF CONTENTION IN VARIOUS CASE LAWS AN D WE NOTICE THAT THE TAX AUTHORITIES HAVE NOT CONSIDERED THE APPLICABLE CASE LAWS. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE IMPUGNED MATTER REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER. W HEN WE EXPRESSED OUR VIEW TO BOTH THE PARTIES, THEY ALSO ACCEPTED THE FACT THAT THE MATTER HAS NOT BEEN EXAMINED BY THE TAX AUTHORITIES IN PROPER PERSPECTI VE AND ACCORDINGLY AGREED THAT THE MATTER REQUIRES FRESH CONSIDERATION AT THE END OF THE ASSESSING OFFICER. I.T.A. NO.1901 TO 1903/MUM/2010 11 9. ACCORDINGLY, WE SET ASIDE THE ORDERS PASSED BY LD CIT(A) IN ALL THE THREE YEARS AND RESTORE THE MATTER TO THE FILE OF THE ASS ESSING OFFICER WITH THE DIRECTION TO EXAMINE THE ISSUE AFRESH BY DULY CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, RELEVANT CASE LAWS AND TAKE APPROPRIATE D ECISION IN ACCORDANCE WITH THE LAW. 10. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 8TH AUGUST, 2014. /0$' 1 2 3 8TH AUGUST, 2014 0 , 4- 5 SD SD ( / AMIT SHUKLA ) ( .. / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER - MUMBAI: 8TH AUGUST, 2014. # . . ./ SRL , SR. PS ! '#$%& '&($ / COPY OF THE ORDER FORWARDED TO : 1. %& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. ( ) / THE CIT(A)- CONCERNED 4. / CIT CONCERNED 5. 7#84 ' 9 , . 9 ' , - / DR, ITAT, MUMBAI CONCERNED 6. 4:! ;- / GUARD FILE. / BY ORDER, TRUE COPY < ) (ASSTT. REGISTRAR) . 9 ' , - /ITAT, MUMBAI I.T.A. NO.1901 TO 1903/MUM/2010 12
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