Zynga Game Network India Pvt Ltd , Bangalore V. Assistant Commissioner of Income Tax Circle-7(1)(2), Bangalore

ITA 2139/BANG/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5046 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 07-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DAS JT BENGALURU
• Keywords: Business income; Double taxation relief; Permanent establishment
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER I TA NO. 2139/BANG/2017 ASSESSMENT YEAR : 2012 - 13 ZYNGA GAME NETWORKS INDIA PVT. LTD., NO.206, LOGOS BUILDING, M.G. ROAD, BANGALORE 560 001. PAN: AAACZ 3937G VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI SHARATH RAO, CA RE SPONDENT BY : SMT. SWAPNA DAS , JT.CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 26 .06 .201 8 DATE OF PRONOUNCEMENT : 03.08. 2018 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER DATED 01.09.2017 OF THE CIT(APPEALS)-7, BENGALURU RELATIN G TO ASSESSMENT YEAR 2012-13. 2. GROUND NO.1 RAISED BY THE ASSESSEE READS AS FOL LOWS:- GROUND NO. 1: DISALLOWANCE UNDER SECTION 40(A)(I) ON ACCOUNT OF NON-DEDUCTION OF TDS IN RELATION TO PAYMENTS MADE F OR PROFESSIONAL SERVICES OBTAINED FROM NON-RESIDENT AM OUNTING TO RS. 5,660,370 ITA NO. 2139/BANG/2017 PAGE 2 OF 17 THE LEARNED AO HAS ERRED IN MAKING AND THE LEARNE D CIT (APPEALS) HAS ERRED IN UPHOLDING A DISALLOWANCE FOR NON- DEDUCTION OF TDS ON PAYMENT FOR GAMING MODERATION SERVICES, TO STRATPOINT TECHNOLOGIES INC. ['STRATPO INT'/ 'SERVICE PROVIDER']. THE LEARNED AO HAS ERRED IN MAKING AND THE LEARNE D CIT (APPEALS) HAS ERRED IN UPHOLDING THE SAID DISALLOWA NCE BY INVOKING THE PROVISIONS OF THE ACT NOTWITHSTANDING THE FAVOURABLE PROVISIONS OF THE INDIA-PHILIPPINES DOUB LE TAXATION AVOIDANCE AGREEMENT ('DTAA'). WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A ) HAS ERRONEOUSLY INTERPRETED THE MASTER SERVICE AGREEMEN T BETWEEN THE APPELLANT AND THE SERVICE PROVIDER AND HAS ERRE D IN HOLDING THAT THE PAYMENT MADE TO THE SERVICE PROVID ER IS IN THE NATURE OF ROYALTY AND THEREBY LIABLE TO TAX IN INDI A AS PER ARTICLE 13 OF INDIA PHILIPPINES DTAA. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A ) HAS INCORRECTLY PLACED RELIANCE UPON THE DECISION OF TH E HON'BLE TRIBUNAL REPORTED IN ABB FZ-LLC [2017] 83 TAXMANN.COM 86 TO HOLD THAT THE SERVICE PROVIDER HAS A PERMANENT ESTABLISHMENT IN INDIA. THE LEARNED CIT(A) HAS FAIL ED TO APPRECIATING THAT THE FACT PATTERN AND THE APPLICAB LE TAX TREATY OF THE APPELLANT'S CASE IS NOT SIMILAR TO TH AT OF JUDICIAL PRECEDENT RELIED UPON. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF DEVELOPMENT OF COMPUTER SOFTWARE. DURING THE PREVI OUS YEAR, THE ASSESSEE MADE A PAYMENT OF RS.56,60,370 TO M/S. STA RTPOINT TECHNOLOGIES INC. [STARTPOINT], WHICH IS A COMPANY INCORPORATE D AS PER LAWS OF PHILIPPINES AND HAVING PLACE OF BUSINESS AT PHILIPP INES. IT IS NOT IN DISPUTE THAT STARTPOINT DID NOT HAVE ANY PLACE OF BUSINESS IN INDIA. ACCORDING TO THE AO, THE PAYMENT MADE BY THE ASSESSEE TO STARTPOINT WAS IN THE NATURE OF FEES FOR TECHNICAL SERVICES RENDERED WITHIN THE MEA NING OF SECTION 9(1)(VII), EXPLANATION 2 OF INCOME-TAX ACT, 1961 [THE ACT] A ND THEREFORE THE ITA NO. 2139/BANG/2017 PAGE 3 OF 17 ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE WHILE MAKING PAYMENT TO STARTPOINT. SINCE THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE, THE AO DISALLOWED THE CLAIM OF ASSESSEE FOR DEDUCTION OF T HE AFORESAID SUM WHILE COMPUTING INCOME FROM BUSINESS AND INVOKING THE PRO VISIONS OF SECTION 40(A)(IA) OF THE ACT. 4. EVEN BEFORE THE AO, THE ASSESSEE SUBMITTED THAT THE PAYMENT IN QUESTION WAS IN THE NATURE OF FEES FOR TECHNICAL SE RVICES AND THEREFORE THE ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE U/S. 1 95 OF THE ACT. THE ASSESSEE, HOWEVER, POINTED OUT THAT THERE WAS DOUBL E TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND PHILIPPINES AND AS PER SECTION 90(1) OF THE ACT, THE TAXATION IN THE HANDS OF STARTPOINT WHICH A TAX RESIDENT OF PHILIPPINES SHOULD BE JUDGED IN TERMS OF THE AFORES AID DTAA. THE ASSESSEE FURTHER POINTED OUT THAT AS PER THE AFORES AID DTAA, THERE IS NO ARTICLE DEALING WITH FEES FOR TECHNICAL SERVICES AN D THEREFORE THE PAYMENT BY THE ASSESSEE TO STARTPOINT WILL CONSTITUTE BUSINESS INCOME IN THE HANDS OF STARTPOINT. THE ASSESSEE POINTED OUT THAT AS PER A RTICLE 7 OF THE AFORESAID DTAA, BUSINESS INCOME OF TAX RESIDENT OF PHILIPPINE S WILL BE CHARGEABLE TO TAX IN INDIA ONLY IF STARTPOINT CARRIES ON BUSINESS THROUGH A PERMANENT ESTABLISHMENT (PE) IN INDIA. SINCE STARTPOINT DID NOT HAVE A PE IN INDIA, THE SUM IN QUESTION IS NOT CHARGEABLE TO TAX IN IND IA AND THEREFORE THE ASSESSEE WAS NOT OBLIGED TO DEDUCT TAX AT SOURCE AT THE TIME OF MAKING PAYMENT IN TERMS OF SECTION 195 OF THE ACT. THIS A RGUMENT HAS NOT BEEN DEALT WITH OR REFERRED TO BY THE AO IN THE ORDER OF ASSESSMENT. 5. IN SUPPORT OF THE ASSESSEES CONTENTION THAT SIN CE THERE IS NO ARTICLE FOR TAXATION OF FEES FOR TECHNICAL SERVICES (FTS) I N THE DTAA AND IN THE ABSENCE OF ANY PE OF NON-RESIDENT IN INDIA, THE PAY MENT CANNOT BE TAXED IN THE HANDS OF PHILIPPINES COMPANY, THE ASSESSEE PLAC ED RELIANCE ON THE FOLLOWING DECISIONS: - ITA NO. 2139/BANG/2017 PAGE 4 OF 17 1. BANGALORE ITAT IN THE CASE OR ABB FZ LLC [ IT(IT)A 188/BANG/2016 ) WHEREIN IT WAS HELD THAT IN THE ABSENCE OF PROVISION IN THE DTAA TO TAX FEES FOR TECHNICAL SER VICES, THE SAME WOULD BE TAXED AS PER THE ARTICLE 7 OF THE DTA A APPLICABLE FOR BUSINESS PROFIT AND IN THE ABSENCE O F PE IN INDIA, THE SAID INCOME IS NOT CHARGEABLE TO TAX IN INDIA. 2. BANGALORE ITAT IN THE CASE OF IBM INDIA PRIVATE LIM ITED [I.T.(IT)A NOS. 489 TO 498/BANG/2013 ] WHEREIN SIMILAR DECISION WAS RENDERED IN THE CONTEXT OF PAYMENTS TO IBM PHILIPPINES, FOR PROVIDING SERVICES IN THE COURSE O F ITS BUSINESS AND IT WAS HELD THAT ARTICLE 7 OF INDIA-PH ILIPPINES DTAA IN THE ABSENCE OF A SPECIFIC ARTICLE DEALING W ITH FTS WOULD APPLY AND FURTHER, IN THE ABSENCE OF A PE OF IBM- PHILIPPINES IN INDIA, THE SAID PAYMENTS WOULD NOT B E CHARGEABLE TO TAX IN INDIA AND CONSEQUENTLY NOT LIA BLE FOR TDS U/S 195 OF THE ACT. THE ASSESSEE FURTHER PLACED RELIANCE ON WE FURTHER PLACE RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS IN WHICH IT HAS B EEN HELD THAT IN THE ABSENCE OF ANY ARTICLE ON FTS, ANY SUCH FEE RECEIVE D WILL BE GOVERNED BY THE ARTICLE ON 'BUSINESS PROFITS' AND IN THE ABS ENCE OF A PE IN INDIA, SUCH INCOME WILL NOT BE LIABLE TO TAX IN INDIA: BANGKOK GLASS INDUSTRY CO. LTD V. ACTT [215 TAXMAN 116] [MADRAS HC] CHANNEL GUIDE INDIA LIMITED V. ACIT [25 TAXMANN.COM 25] [MUMBAI ITAT] GOLF IN DUBAI [174 TAXMAN 480] [AAR]. 6. THE ASSESSEE ALSO CONTENDED THAT EVEN IF THE IN COME IS CONSIDERED AS FALLING WITH ARTICLE 23 OF DTAA WHICH DEALS WITH ITEMS OF INCOME NOT FALLING WITH IN ANY OF THE OTHER ARTICLE OF DTAA, T AX SHALL BE PAYABLE ONLY IN PHILIPPINES, WHERE THE INCOME ARISES IN THE HANDS O F RESIDENT OF PHILIPPINES. EVEN IN THAT EVENT OF THE INCOME BEING CONSIDER AS OTHER INCOME, THE SAME ITA NO. 2139/BANG/2017 PAGE 5 OF 17 IS NOT CHARGEABLE TO TAX IN INDIA. AS ALREADY STAT ED, THIS ARGUMENT WAS ALSO NOT CONSIDERED BY THE AO. 7. BEFORE THE CIT(APPEALS), THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE AO AND REFERRED TO IN THE E ARLIER PART OF THIS ORDER. THE CIT(APPEALS), HOWEVER, WAS OF THE VIEW THAT THE AMOUNT IS CHARGEABLE TO TAX UNDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT AND THEREFORE THE ACTION OF THE AO IN INVOKING THE PROVISIONS OF SECT ION 40(A)(IA) OF THE ACT WAS CORRECT. 8. WITHOUT PREJUDICE TO THE AFORESAID CONCLUSION, T HE CIT(APPEALS) ALSO CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY TH E SUM IN QUESTION SHOULD NOT BE TAXED AS ROYALTY. THE ASSESSEE, IN R EPLY TO THE AFORESAID QUERY, SUBMITTED THAT THE FEES IN QUESTION WERE PAI D FOR GAME MODERATION SERVICES TO STRATPOINT TECHNOLOGIES INC. ['STARTPOI NT']. THE ASSESSEE POINTED OUT THAT AS PER THE AGREEMENT AND SCOPE OF WORK BETWEEN THE ASSESSEE AND STARTPOINT, THE MAIN SCOPE OF WORK TO BE PERFORMED BY STARTPOINT WOULD BE TO MAINTAIN THE DECORUM OF COMM ENTING COMMUNITY FOR A GIVEN GAME DEVELOPED BY THE APPELLANT WHEREIN CER TAIN LANGUAGE OR BEHAVIOR OF THE PLAYERS CAN BE CONSIDERED HARMFUL T O THE OTHER PLAYERS. THESE MODERATORS CAN HELP BY KEEPING TRACK OF THE U NRULY USERS WHEN THEY ARE OUT-OF-LINE IN THEIR COMMENTS OR PLAYERS THAT P ERFORM FRAUDULENT SCHEMES. THEIR WORK USUALLY INVOLVES IDENTIFYING AN D TERMINATING PLAYERS WITH DISHONEST SCHEMES, OBTAINING GAME COINS THROUG H UNLAWFUL MEANS, DELETING RACIST/ABUSIVE COMMENTS, BLOCKING/UNBLOCKI NG PLAYERS. FURTHER THE SOW ALSO HIGHLIGHTS THE TYPE OF COMMENTS REQUIRING MODERATION. THESE REFER TO A. 'SCAM - EVENTS THAT ARE RELATED TO A DISHONEST SCHEME OR - DOUBLE ITEMS/ DUPLICATE COINS RELATED EVENTS. ITA NO. 2139/BANG/2017 PAGE 6 OF 17 - SELLING/TRADING IN-GAME COINS FOR REAL MONEY. PA YPAL TRADING MONEY. - EVENTS CREATED BY A PLAYER THAT OFFERS HACK OR I TEM CHEAT IN THE GAME B. SEXUALLY EXPLICIT EVENTS - AN EVENT THAT CONTAINS SEXUALLY EXPLICIT WORDS/WO RDINGS. C. RACISM / INSULTS - EVENTS THAT CONTAIN ABUSIVE BEHAVIOR TOWARDS MEMB ERS OF ANOTHER RACE. - ANY KIND OF INSULT (TO PERSON, PLACE, AND RELIGIO N) CAN BE CONSIDERED AS INVALID EVENTS. D. OTHERS - EVENTS THAT ARE RELATED TO WEBCAM VIEWING. - UNDERAGE USER (12 BELOW). - MSM, YAHOO AND OTHER INSTANT MESSENGER CHAT FACIL ITIES OTHER THAN YOVILLE. 9. IN THE LIGHT OF THE ABOVE NATURE OF WORK TO BE P ERFORMED BY STARTPOINT AS PER THE AGREEMENT, THE ASSESSEE SUBMITTED THAT ' ROYALTY' IS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VI) OF THE INCOME-TAX ACT, 1961 (ACT) AS FOLLOWS:- I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENSE) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERT Y; II) THE IMPARTING OF ANY INFORMATION CONCERNING THE WORKING OF OR THE USE OF, A PATENT, INVENTION, MODEL, DESIG N, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; III) THE USE OF ANY PATENT, INVENTION, MODEL, DESIG N, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERT Y; ITA NO. 2139/BANG/2017 PAGE 7 OF 17 IV) THE IMPARTING OF ANY INFORMATION CONCERNING TEC HNICAL, INDUSTRIAL, COMMERCIAL SCIENTIFIC KNOWLEDGE, EXPERI ENCE OR SKILL; IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMMER CIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 4488; V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENSE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ART ISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONN ECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADI O BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTR IBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS; OR VI) THE RENDERING OF ANY SERVICES IN CONNECTION WIT H THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO (IV), (IVA) AND (V). 10. THE ASSESSEE ALSO POINTED OUT THAT 'ROYALTY' A S PER AS PER ARTICLE 13 OF INDIA-PHILIPPINES DTAA HAS BEEN DEFINED AS FO LLOWS: THE TERM 'ROYALTIES' MEANS PAYMENTS OF ANY KIND RE CEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK, INCLUDING CI NEMATOGRAPH FILMS, OR FILMS OR TAPES USED FOR RADIO OR TELEVISI ON BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECR ET FORMULA OR PROCESS, OR FOR THE USE OF, OR THE RIGHT TO USE, IN DUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OR FOR INFORMAT ION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXP ERIENCE. 11. THE ASSESSEE POINTED OUT THAT THE PAYMENT MADE TO STARTPOINT IS TOWARDS GAME MODERATION SERVICES I.E. MAINTAINING T HE DECORUM OF THE COMMENT SECTION BY ADDRESS THE TYPE OF COMMENTS AS HIGHLIGHTED ABOVE. THE SERVICE IS NOT TOWARDS CONSIDERATION ANY RIGHTS REFERRED TO IN ARTICLE 13 OF THE DTAA (MENTIONED ABOVE). THE ASSESSEE POINTE D OUT THAT AS PER THE AGREEMENT WITH STARTPOINT, THE ASSESSEE WAS CONSUME R OR CUSTOMER OF THE SERVICES AND WAS TO HAVE EXCLUSIVE OWNER OVER THE D ELIVERABLES THAT IS ITA NO. 2139/BANG/2017 PAGE 8 OF 17 RECEIVED FROM THE STARTPOINT IN COURSE OF RENDERING OF SUCH SERVICES. THEREFORE THE SERVICES RENDERED BY STARTPOINT CANNO T BE TERMED AS ROYALTY. IN OTHER WORDS, THE PROVISION OF SUCH SERVICES SHOU LD BE TAXABLE AS FEES FOR TECHNICAL SERVICES. THE CONSIDERATION PAID IS TOWAR DS SERVICES RECEIVED AND NOT RIGHTS IN ANY DELIVERABLES. ALL SUCH RIGHTS OVER DELIVERABLES ARE ANCILLARY TO THE UNDERLYING RECEIPT OF GAME MODERAT ION SERVICES. 12. THE CIT(APPEALS), HOWEVER, DID NOT AGREE WITH THE AFORESAID SUBMISSIONS OF THE ASSESSEE. HE REFERRED TO CERTAI N CLAUSES IN THE AGREEMENT FOR RENDERING THE SERVICES BETWEEN THE AS SESSEE AND STARTPOINT AND CAME TO THE CONCLUSION THAT PAYMENT BY THE ASSE SSEE TO STARTPOINT WAS IN THE NATURE OF ROYALTIES. THE FOLLOWING WERE THE CONCLUSIONS OF THE CIT(APPEALS) IN THIS REGARD:- 10.1 PERUSAL OF THE MASTER SERVICE AGREEMENT SHOW S THAT CLAUSE 3 OF THE AGREEMENT IS ON OWNERSHIP AND INTEL LECTUAL PROPERTY RIGHTS AND SOME OF THE RELEVANT CLAUSES RE AD AS UNDER: 3.1 DELIVERABLES. SERVICE PROVIDER AGREES TO DEL IVER IN WRITING ALL WORK (INCLUDING ANY CREATIVE ARTWORK. W HICH INCLUDES WITHOUT LIMITATION. ART. MATERIALS COMPRIS ING SUCH ART, PHOTOGRAPHS. AND GRAPHIC DESIGNS), IDEAS, PRESENTATIONS, DESIGNS, DRAWINGS, REPORTS. NOTES, W ORKS OF AUTHORSHIP, METHODOLOGIES. CHARTS, KNOWLEDGE HOSES. SURVEYS, SOFTWARE OR OTHER ITEMS MADE, ANALYSES, TE ST RESULTS. MANUALS. DEVELOPED OR REDUCED TO PRACTICE, IN ALL FORMATS, IN PERFORMANCE OF THE SERVICES (COLLECTIVE LY, 'DELIVERABLES') PROVIDED ALL UNDISPUTED PAYMENTS DU E AND OWNING TO THE SERVICE PROVIDER HAVE BEEN MADE IN FI LL. SERVICE PROVIDER ACKNOWLEDGES AND AGREES IT WILL NO T USE THE DELIVERABLES EXCEPT AC NECESSARY TO PERFORM THE SERVICES OR AS OTHERWISE AGREED TO IN WRITING BY ZY NGA. 3.2 OWNERSHIP OF DELIVERABLES. SERVICE PROVIDER AND ZYNGA AGREE THAT, TO THE FULLEST EXTENT LEGALLY POS SIBLE, ALL DELIVERABLES WILL BE THE SOLE AND EXCLUSIVE PROPERT Y OF ZUNGA, INCLUDING WITHOUT LIMITATION ALL DELIVERABLE S ITA NO. 2139/BANG/2017 PAGE 9 OF 17 RESULTING FROM SERVICES PERFORMED BY SERVICE PROVID ER ON AND AFTER THE COMMENCEMENT DATE BUT BEFORE THE EFFE CTIVE DATE, IF ANY, PROVIDED ALL UNDISPUTED PAYMENTS DUE AND OWNING TO THE SERVICE PROVIDER HAVE BEEN MADE IN FI LL. SERVICE PROVIDER HEREBY IRREVOCABLY TRANSFERS AND A SSIGNS TO ZYNGA. AND AGREES TO IRREVOCABLY TRANSFER AND AS SIGN TO ZYNGA, ALL RIGHT, TITLE AND INTEREST IN AND TO THE DELIVERABLES INCLUDING WITHOUT LIMITATION ALL DELIV ERABLES RESULTING FROM SERVICES PERFORMED BY SERVICE PROVID ER ON AND AFTER THE COMMENCEMENT DATE BUT BEFORE THE EFFECTIVE DATE, INCLUDING ALL WORLDWIDE PATENT RIGH TS (INCLUDING PATENT APPLICATIONS AND DISCLOSURES), CO PYRIGHT RIGHTS, RIGHTS TO SECURE COPYRIGHTS, MASK WORK RIGH TS, TRADE SECRET RIGHTS, KNOW-HOW, AND ANY AND ALL OTHER INTE LLECTUAL PROPERTY OR PROPRIETARY RIGHTS (COLLECTIVELY, 'INTE LLECTUAL PROPERTY RIGHTS') THEREIN, PROVIDED ALL UNDISPUTED PAYMENTS DUE AND OWNING TO THE SERVICE PROVIDER HAV E BEEN MADE IN FULL. AT ZYNGA'S REQUEST AND EXPENSE, D URING AND AFTER THE TERM OF THIS AGREEMENT, SERVICE PROVID ER AGREES TO EXECUTE DOCUMENTS OR TAKE OTHER REASONABL E STEPS IN ORDER THAT ZYNGA MAY ACQUIRE, TRANSFER, MA INTAIN PERFECT AND ENFORCE ITS INTELLECTUAL PROPERTY RIGHT S AND OTHER LEGAL PROTECTION FOR THE DELIVERABLES. 3.3 SERVICE PROVIDER MATERIALS. ZYNGA ACKNOWLEDGE AND AGREES THAT THE DELIVERABLES MAY INCORPORATE CE RTAIN PRE-EXITING TOOLS AND PROCESS OF GENERAL APPLICABIL ITY TO THE SERVICES. SERVICE PROVIDER PROVIDES ACROSS ITS ENTI RE CLIENT BASE (COLLECTIVELY, THE 'SERVICE PROVIDER MATERIALS ') AND THAT OWNERSHIP OF THE SERVICE PROVIDER MATERIALS SH ALL AT ALL TIMED REMAIN WITH SERVICE PROVIDER. HOWEVER, SE RVICE PROVIDER HEREBY GRANTS TO ZYNGA A 'WORLDWIDE, PERPE TUAL, ROYALTY-FREE, SUBLICENSEABLE AND NON-EXCLUSIVE LICE NSE TO COPY, DISTRIBUTE USE AND MODIFY THE SERVICE PROVIDE R MATERIALS TO THE EXTENT INCLUDED OR EMBODIED IN THE DELIVERABLES IN ORDER TO MAKE FULL USE OF SUCH DELI VERABLES. SERVICE PROVIDER WILL NOT INCORPORATE ANY THIRD PAR TY INTELLECTUAL PROPERTY RIGHTS IN ANY DELIVERABLES EX CEPT AS SPECIFICALLY AUTHORIZED BY ZYNGA AND IDENTIFIED IN THE APPLICABLE STATEMENT OF WORK. 3.4 THIRD PARTY MATERIALS. TO THE EXTENT THAT ANY MATERIALS LICENSED FROM THIRD PARTIES ARE INCLUDED IN THE DELIVERABLES AND WHICH MUST BE IDENTIFIED IN WRITIN G IN ITA NO. 2139/BANG/2017 PAGE 10 OF 17 THE STATEMENT OF WORK (THIRD PARTY MATERIALS), ZYNG A SHALL NOT OWN SUCH THIRD PARTY MATERIALS AND SERVICE PROV IDER SHALL OBTAIN AT NO COST TO ZYNGA (OR AS OTHERWISE E XPRESSLY AGREED IN WRITING), A LICENSE TO USE SUCH THIRD PAR TY MATERIALS AS INCORPORATED IN THE DELIVERABLES. ZYNG A AGREES TO COMPLY WITH ALL LICENSE RESTRICTIONS AND OTHER APPLICABLE TERMS OF ANY THIRD PARTY AGREEMENT APPLI CABLE TO THE THIRD PARTY MATERIALS THAT ARE DISCLOSED BY SERVICE PROVIDER TO ZYNGA IN THE STATEMENT OF WORK. 3. 5 MORAL RIGHTS. SERVICE PROVIDER ALSO HEREBY IRR EVOCABLE TRANSFERS AND ASSIGNS TO ZYNGA, AND AGREES TO IRREV OCABLY TRANSFER AND ASSIGN TO ZYNGA, AND WAIVES AND AGREES NEVER TO ASSERT, ANY AND ALL MORAL RIGHTS (AS DEFINED BEL OW) THAT SERVICE PROVIDER NARY HAVE IN OR WITH RESPECT TO AN Y DELIVERABLE, DURING AND AFTER THE TERM OF THIS AGREE MENT. 'MORAL RIGHTS' MEANS ANY RIGHTS TO CLAIM AUTHORSHIP OF ANY DELIVERABLE, TO OBJECT TO OR PREVENT THE MODIFI CATION OR DESTRUCTION OF ANY DELIVERABLE, TO WITHDRAW FROM CIRCULATION OR CONTROL THE PUBLICATION OR DISTRIBUT ION OF ANY DELIVERABLE. AND ANY SIMILAR RIGHT, EXISTING UN DER JUDICIAL OR STATUTORY LAW OF ANY COUNTRY ON THE WOR LD, OR UNDER ANY TREATY, REGARDLESS OF WHETHER OR NOT SUCH RIGHT IS CALLED OR GENERALLY REFERRED TO AS A 'MORAL RIGH T,' IN ALL CASES INCLUDING WITHOUT LIMITATION ALL DELIVERABLES RESULTING FRONT SERVICES PERFORMED BY SERVICE PROVI DER ON AND AFTER THE COMMENCEMENT DATE BUT BEFORE THE EFFECTIVE DATE, IF ANY. 3.6 RELATED RIGHTS. TO THE EXTENT THAT SERVICE PRO VIDER OWNS OR CONTROLS (PRESENTLY OR IN THE FUTURE ) ANY PATENT RIGHTS, COPYRIGHT RIGHTS, MASK WORK RIGHT, TRADE SE CRET RIGHTS, OR ANY OTHER INTELLECTUAL PROPERTY OR PROPR IETARY RIGHTS THAT BLOCK OR INTERFERE WITH THE RIGHTS ASSI GNED TO SERVICE PROVIDER UNDER THIS AGREEMENT (COLLECTIVELY, 'RELATED RIGHTS'), SERVICE PROVIDER HEREBY GRANTS O R WILL CAUSE TO BE GRANTED TO ZYNGA A NON-EXCLUSIVE, ROYAL TY-FREE, IRREVOCABLE, PERPETUAL, TRANSFERABLE, WORLDWIDE LIC ENSE (WITH THE RIGHT TO SUBLICENSE) TO MAKE, HAVE MADE, USE, OFFER TO SELL, SELL, IMPORT, COPY, MODIFY, CREATE D ERIVATIVE WORKS BASED UPON, DISTRIBUTE, SUBLICENSE, DISPLAY, PERFORM AND TRANSMIT ANY PRODUCTS, SOFTWARE, HARDWARE, METH ODS OR MATERIALS OF ANY KIND THAT ARE COVERED BY SUCH R ELATED ITA NO. 2139/BANG/2017 PAGE 11 OF 17 RIGHTS, TO THE EXTENT NECESSARY TO ENABLE ZYNGA TO EXERCISE ALL OF THE RIGHTS ASSIGNED TO ZYNGA UNDER THIS AGREE MENT. 4. CONFIDENTIAL INFORMATION . FOR PURPOSE OF THIS AGREEMENT 'CONFIDENTIAL INFORMATION' MEANS AND WILL INCLUDE: (I) ANY INFORMATION, MATERIALS OR KNOWLEDG E REGARDING THE ONE PARTY (DISCLOSING PARTY) AND ITS BUSINESS, FINANCIAL CONDITION, PRODUCTS, PROGRAMMIN G TECHNIQUES, CUSTOMERS, SUPPLIERS, TECHNOLOGY OR RES EARCH AND DEVELOPMENT THAT IS DISCLOSED TO THE OTHER PART Y (RECEIVING PARTY) OR TO WHICH THE RECEIVING PARTY H AS ACCESS TO IN CONNECTION WITH PERFORMING SERVICES OR UNDER THE CIRCUMSTANCES, A PERSON EXERCISING REASONABLE BUSINESS JUDGMENT WOULD UNDERSTAND TO BE CONFIDENTI AL OR PROPRIETARY (INCLUDING WITHOUT LIMITATION ALL SUCH INFORMATION, MATERIALS OR KNOWLEDGE DISCLOSED TO TH E RECEIVING PARTY OR TO WHICH THE RECEIVING PARTY HAD ON AND AFTER THE COMMENCEMENT DATE BUT BEFORE THE EFFECTIVE DATE, IF ANY); AND (II) THE EXISTENCE AND TERMS AND CONDITIONS OF THIS AGREEMENT. CONFIDENTIAL INFORMATION WILL NOT INCLUDE, HOWEVER, ANY INFORMAT ION THAT IS OR BECOMES PART OF THE PUBLIC DOMAIN THROUG H NO FAULT OF THE RECEIVING PARTY OR THAT THE DISCLOSURE . THE RECEIVING PARTY AGREES TO HOLD ALL CONFIDENTIAL INFORMATION IN STRICT CONFIDENCE, 170T 10 USE IT IN ANY WAY, COMMERCIALLY OR OTHERWISE, EXCEPT IN PERFORMING THE SERVICES, AND NOT TO DISCLOSE IT TO OTHERS. 10.2 FROM THE ABOVE IT IS VERY CLEAR THAT THE SERVI CE PROVIDER M/S. STRATPOINT TECHNOLOGIES INC TRANSFERS AND ASSIGNS T O THE APPELLANT ALL RIGHT, TITLE AND INTEREST IN DELIVERABLES RESUL TING FROM SERVICES PROVIDED BY STRATPOINT INCLUDING WORLDWIDE PATENT R IGHTS, COPYRIGHT RIGHTS, TRADE SECRET RIGHTS, KNOW-HOW AND ALL OTHER INTELLECTUAL PROPERTY RIGHTS. AS PER CLAUSE 3.3, ST RATPOINT GRANTS A LICENSE TO COPY, DISTRIBUTE, USE AND MODIFY THE SER VICE PROVIDER MATERIALS. CLAUSE 3.5 FOR TRANSFER OF ALL MORAL RIG HTS WITH RESPECT TO ANY DELIVERABLE. MORAL RIGHT HAS BEEN DEFINED AS ANY RIGHT TO CLAIM AUTHORSHIP OF ANY DELIVERABLE, TO OBJECT TO O R PREVENT THE MODIFICATION OR DESTRUCTION OF ANY DELIVERABLE, TO WITHDRAW FROM CIRCULATION OR CONTROL THE PUBLICATION OR DISTRIBUT ION OF ANY DELIVERABLE AND ANY SIMILAR RIGHT. ALL THE RELATED RIGHTS AS DEFINED IN CLAUSE 3.6 HAVE ALSO BEEN GRANTED AND ASSIGNED T O THE APPELLANT ITA NO. 2139/BANG/2017 PAGE 12 OF 17 COMPANY. THE APPELLANT HAS ALSO BEEN GRANTED THE RI GHT TO HOLD AND USE ALL CONFIDENTIAL INFORMATION VIDE CLAUSE 4 OF THE AGREEMENT. 10.3 THUS, IT IS EVIDENT FROM EXTENSIVE PROVISIONS IN THE MASTER SERVICE AGREEMENT AS MENTIONED ABOVE THAT THE PAYME NT BY THE ASSESSEE TO STRATPOINT TECHNOLOGIES INC IS ACTUALLY IN THE NATURE OF ROYALTY. AS PER ARTICLE 13 OF THE INDIA-PHILIPPINES DTAA, PAYMENT OF ROYALTY TO A COMPANY IN PHILIPPINES IS T AXABLE IN INDIA. THEREFORE, THE APPELLANT WAS LIABLE TO MAKE TDS U/S.195 OF THE I.T ACT ON PAYMENT OF RS. 5,660,370/- TO STRATP OINT TECHNOLOGIES INC. AS NO TAX HAS BEEN DEDUCTED BY TH E APPELLANT THE MISCHIEF OF PROVISION OF SECTION 40 (A)(I) WILL CERTAINLY GET ATTRACTED. 13. THE CIT(APPEALS) ALSO PLACED RELIANCE ON THE D ECISION OF THE ITAT BANGALORE IN THE CASE OF ABB LTD. 83 TAXMANN.COM 865 TO SUPPORT HIS CONCLUSION THAT THE PAYMENT IN QUESTION WAS IN THE NATURE OF ROYALTY. 14. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE AS SESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE LD. CO UNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE CIT(APPEALS). THE LD. DR RELIED ON THE ORDER OF CIT(APPEALS). 15. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE FIRST ASPECT WHICH WE NOTICE IS THAT THE CIT(AP PEALS) HAVING COME TO THE CONCLUSION THAT THE PAYMENT IN QUESTION WAS IN THE NATURE OF FTS WITHIN THE MEANING OF EXPLANATION 2 TO SECTION 9(1)(VII) O F THE ACT, CANNOT COME TO DIAGONALLY OPPOSITE CONCLUSION THAT THE PAYMENT IN QUESTION IS A ROYALTY. AS FAR AS THE CASE OF THE ASSESSEE THAT THE PAYMENT IN QUESTION IS IN THE NATURE OF FTS AND SINCE THE RECIPIENT OF PAYMENT WAS A TAX RESIDENT OF PHILIPPINES AND SINCE THERE IS NO FTS CLAUSE IN THE SAID DTAA, THE SUM IN QUESTION CAN BE CHARGED TO TAX ONLY UNDER ARTICLE 7 OF DTAA AS BUSINESS ITA NO. 2139/BANG/2017 PAGE 13 OF 17 PROFITS AND SINCE STARTPOINT DOES NOT HAVE A PE IN INDIA, EVEN UNDER ARTICLE 7, THE SUM IN QUESTION CANNOT BE BROUGHT TO TAX, IS A CORRECT ARGUMENT AND OUGHT NOT TO HAVE BEEN REJECTED BY THE CIT(APPEALS) . WE FIND SUPPORT FOR THE ABOVE SAID CONCLUSION FROM THE DECISION OF THE TRIBUNAL RENDERED IN THE CASE OF ABB FZ LLC (SUPRA) AND THE DECISION IN THE CASE OF IBM INDIA PVT. LTD. (SUPRA) . THE FACTS OF THE ASSESSEES CASE AND THE FACTS I N THE DECISIONS REFERRED TO ABOVE ARE IDENTICAL. THE RAT IO LAID DOWN IN THE AFORESAID CASES THAT A PAYMENT IN THE NATURE OF FTS MADE TO PHILIPPINES TAX RESIDENT IN THE ABSENCE OF A PE OF SUCH TAX RES IDENT OF PHILIPPINES IN INDIA, INCOME IS NOT CHARGEABLE TO TAX IN INDIA SUP PORTS THE PLEA OF THE ASSESSEE IN THIS REGARD. WE THEREFORE HOLD THAT TH E SUM IN QUESTION CANNOT BE TAXED AS FTS IN INDIA. CONSEQUENTLY, THERE WAS NO OBLIGATION IN THE PART OF ASSESSEE TO DEDUCT TAX AT SOURCE U/S. 195 OF THE ACT. CONSEQUENTLY, THERE CANNOT BE ANY DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. 16. AS FAR AS THE QUESTION WHETHER THE SUM IN QUES TION CAN BE CLASSIFIED AS ROYALTY WITHIN THE MEANING OF ARTICLE 13 OF DT AA, WE FIND THAT THE DEFINITION OF THE TERM OF ROYALTY UNDER ARTICLE 1 3(3) OF THE DTAA IS AS FOLLOWS:- THE TERM 'ROYALTIES' MEANS PAYMENTS OF ANY KIND R ECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK, INCLUDING CI NEMATOGRAPH FILMS, OR FILMS OR TAPES USED FOR RADIO OR TELEVISI ON BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECR ET FORMULA OR PROCESS, OR FOR THE USE OF, OR THE RIGHT TO USE, IN DUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OR FOR INFORMAT ION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXP ERIENCE. ITA NO. 2139/BANG/2017 PAGE 14 OF 17 17. THE CIT(APPEALS) HAS NOT SPELT OUT AS TO WHICH CATEGORY THE PAYMENT BY THE ASSESSEE TO STARTPOINT WOULD FALL. IN OUR VIEW, IT CANNOT BE FOR THE USE OF OR RIGHT TO USE ANY COPYRIGHT OF LIT ERARY, ARTISTIC OR SCIENTIFIC WORK, ETC. IT CANNOT ALSO BE FOR THE USE OF ANY PA TENT, TRADEMARK, ETC. IT CANNOT ALSO BE FOR THE USE OF OR RIGHT TO USE, INDU STRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT. IF AT ALL, IT CAN BE ANALYSE D AS TO WHETHER IT CAN BE FOR THE USE OF OR RIGHT TO USE INFORMATION CONCERNING I NDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERTISE. WE HAVE ALREADY SEEN THE NAT URE OF SERVICES RENDERED BY STARTPOINT. THE SERVICES RENDERED BY STARTPOINT WAS IN THE NATURE OF MODERATOR FOR AN ONLINE GAME DEVELOPED BY THE ASSES SEE. AS A MODERATOR, CERTAIN SERVICES ARE EXPECTED TO BE PERF ORMED BY STARTPOINT. THE RESULTS OF MODERATION ARE GIVEN IN THE FORM OF A REPORT. BY GIVING THE RESULTS OF MODERATION IN THE FORM OF A REPORT, ASSE SSEE DOES NOT MAKE PAYMENT TO STARTPOINT BY THE ASSESSEE AS A PAYMENT FOR USE OF OR RIGHT TO USE INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL O R SCIENTIFIC EXPERTISE. THEREFORE, EVEN UNDER THIS CLAUSE OF THE DEFINITION OF ROYALTY, THE PAYMENT IN QUESTION CANNOT BE SAID TO BE ROYALTY AND CHARGE ABLE TO TAX UNDER ARTICLE 13 OF THE DTAA. THE LD. COUNSEL FOR THE ASSESSEE HAS IN THIS REGARD DRAWN OUR ATTENTION TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DIAMOND SERVICES INTERNATIONAL PVT. LTD. V. UOI, 30 4 ITR 207 (BOM). IN THAT CASE, THE QUESTION WAS APPLICABILITY OF ARTICL E 12 OF DTAA BETWEEN INDIA & SINGAPORE WHICH DEALT WITH PAYMENT IN THE N ATURE OF ROYALTY. THE NON-RESIDENT IN THAT CASE CARRIED OUT EXAMINATION O F DIAMONDS AND GAVE DIAMOND GRADING REPORT. THE QUESTION WAS WHETHER T HE PAYMENT FOR THE SERVICES RENDERED IN THE FORM OF GRADING DIAMONDS W AS IN THE NATURE OF ROYALTY? THE HONBLE BOMBAY HIGH COURT HELD AS FOL LOWS:- 8. THE GRADING REPORT BY GIA IS A STATEMENT OF FAC T AS TO THE CHARACTERISTICS OF THE DIAMOND. DOES THIS REPORT AM OUNT TO TRANSFER OF ANY INDUSTRIAL OR COMMERCIAL EXPERIENCE OF GIA TO THE ITA NO. 2139/BANG/2017 PAGE 15 OF 17 PETITIONER OR TO AN AGENT OF THE PETITIONER. THE RE PORT GIVES THE ATTRIBUTES OF THE DIAMOND AND INCLUDES AN ANALYSIS OF THE DIAMONDS DIMENSIONS, CLARITY, COLOUR, POLISH, SYMM ETRY AND OTHER CHARACTERISTICS. THERE IS NOTHING ON RECORD BEFORE US TO SHOW THAT GIA THROUGH ITS GRADE REPORT ASSIGNS OR T RANSFERS ANY INDUSTRIAL OR COMMERCIAL EXPERIENCE TO ITS CUSTOMER S. THEREFORE, THE QUESTION WOULD BE WHETHER THE GRADING REPORT WO ULD AMOUNT TO ANY TRANSFER OF ANY EXPERIENCE BY GIA TO THE CLI ENTS. THE TERM 'EXPERIENCE' IS NOT DEFINED EITHER UNDER THE ACT OR UNDER THE DTAA AND CONSEQUENTLY WE SHALL HAVE TO CONSIDER THE NORMAL DICTIONARY MEANING. THE EXPRESSION 'EXPERIENCE' IN 'THE OXFORD ENGLISH REFERENCE DICTIONARY HAS BEEN EXPLAINED AS 'KNOWELDGE OR SKILL RESULTING FROM ACTUAL OBSERVATION OF OR PR ACTICAL ACQUAINTANCE WITH FACTS OR EVENTS.' IN 'THE CHAMBER S DICTIONARY THE EXPRESSION 'EXPERIENCE' HAS BEEN EXPLAINED AS ' KNOWLEDGE OR PRACTICAL WISDOM GAINED FROM WHAT ONE HAS OBSERVED, ENCOUNTERED OR UNDERGONE '. IN WEBSTERS ENCYCLOPEDIC UNABRIDGED DICTIONARY 'EXPERIENCE' IS EXPLAINED AS ' THE PROCESS OR FACT OF PERSONALLY OBSERVING, ENCOUNTERING OR UN DERGOING SOMETHING. ' AS PER THE DICTIONARY MEANING OF THE TERM 'EXPERIENCE' IT IS CLEAR THAT 'EXPERIENCE' IS A CUM ULATION OF KNOWLEDGE AND OBSERVATION GATHERED OVER A PERIOD OF TIME. TERM 'EXPERIENCE' HAS ALSO BEEN JUDICIALLY INTERPRETED B Y THE SUPREME COURT IN SHESHARAO BAGDE VS. BHAIYYA REPORTED IN (1 991) SUPP. 1 SCC 367 AS UNDER:- ..NORMALLY WHEN WE TALK OF AN EXPERIENCE UNLESS T HE CONTEXT OTHERWISE DEMANDS, IT SHOULD BE TAKEN AS EXPERIENCE AFTER ACQUIRING MINIMUM QUALIFICATIONS REQUIRED AND WILL, THEREFORE, NECESSARILY HAVE TO B E POSTERIOR TO THE ACQUISITION OF THE QUALIFICATION . (P. 371)' THE GRADING CERTIFICATE WHICH IS ISSUED DOES NOT IN VOLVE ANY TRANSFER OF COMMERCIAL INTEREST TO THE PARTY PAYING OR GETTING THE RIGHT TO USE THE EXPERIENCE OF G.I.A. THERE IS ALSO NO TRANSFER OF ANY SKILL OR KNOWLEDGE OF GIA TO THE CUSTOMERS IN T HE ISSUANCE OF GRADING REPORTS. THE PAYMENTS RECEIVED IS NOT THE O NE FOR THE USE OR THE RIGHT TO USE EXPERIENCE, BUT IS INSTEAD ONE FOR THE APPLICATION OF EXPERIENCE TO A CERTAIN FACTUAL SITU ATION I.E. GIA ITA NO. 2139/BANG/2017 PAGE 16 OF 17 SHALL APPLY ITS EXPERTISE TO THE DIAMONDS SUBMITTED BY THE CLIENTS AND DETERMINE ITS TRUE FEATURE. FOR THAT PURPOSE WE MAY CONSIDER THE EXPRESSION 'US E' AS DEFINED IN VARIOUS DICTIONARIES. IN THE OXFORD ENGLISH REFE RENCE DICTIONARY IT IS DEFINED AS 'EXPLOIT FOR ONES OWN ENDS, EMPLOY, APPLY. IN CHAMBERS DICTIONARY IT IS DEFINED TO MEAN 'USE TO EMPLOY FOR SOME PURPOSE. APPLY TO ONES OWN PURPOSE . THE ACT SO EMPLOYING, USING OR PUTTING INTO SERVICE. THE NA TURE OF THE TRANSACTION BETWEEN GIA AND ITS CLIENT DOES NOT INV EST THE PARTY MAKING PAYMENT WITH ANY RIGHT AS REGARDS THE USE OF THE CUMULATED EXPERIENCE OF GIA. THE PAYMENT IN QUESTIO N DOES NOT INVOLVE A PAYMENT FOR THE USE OR THE RIGHT TO USE T HE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE OF GIA. THE ACT IVITY OF GRADING OR CERTIFICATION IS MERELY THE APPLICATION OF THIS KNOWLEDGE/EXPERIENCE IN A PROFESSIONAL STREAM AS AP PLICABLE TO A PARTICULAR DIAMOND OR SET OF DIAMONDS WHICH ARE OFF ERED FOR CERTIFICATION OR GRADING. THE DEFINITION OF ROYALTY UNDER THE DTAA UNDER ARTICLE 12(3) AS DEFINED THEREIN, THAT U SES THE EXPRESSION ' OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIA L OR SCIENTIFIC EXPERIENCE '. THERE IS NO PARTING OF INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXP ERIENCE BY GIA WHEN IT ISSUES THE GRADING CERTIFICATE. UNDER S UB-CLAUSE (4) THE PAYMENTS RECEIVED MUST BE IN CONSIDERATION FOR SERVICES OF MANAGERIAL, TECHNICAL OR CONSULTANCY NATURE. THAT C OULD INCLUDE TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPE RTY OR INFORMATION. THIS IS NOT THE CASE HERE. NEITHER IS IT MAKING AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, E TC., TO ENABLE THE PERSON ACQUIRING THE SERVICE TO APPLY THE TECHN OLOGY CONTAINED THEREIN. 18. THE AFORESAID DECISION SUPPORTS THE PLEA OF TH E ASSESSEE BEFORE US. IN VIEW OF THE ABOVE, WE HOLD THAT THE PAYMENT IN Q UESTION CANNOT CONSTITUTE ROYALTY UNDER ARTICLE 13 OF THE DTAA. CONSEQUENTLY, THE PAYMENT IN QUESTION CANNOT BE BROUGHT TO TAX. SINC E THE SUM IN QUESTION IS NOT TAXABLE IN INDIA, THE PROVISIONS OF SECTION 40( A)(IA) OF THE ACT ARE NOT ITA NO. 2139/BANG/2017 PAGE 17 OF 17 APPLICABLE AND THEREFORE DISALLOWANCE MADE BY THE R EVENUE AUTHORITIES CANNOT BE SUSTAINED. THE SAME IS DIRECTED TO BE DE LETED. GROUND NO.1 IS ALLOWED. 19. GROUND NO.2 WITH REGARD TO INTEREST U/S. 234B OF THE ACT IS PURELY CONSEQUENTIAL AND THE AO IS DIRECTED TO GIVE CONSEQ UENTIAL RELIEF. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF AUGUST, 2018. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 3 RD AUGUST, 2018. / D ESAI S MURTHY / COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6 . GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.