Oncology Services India Pvt. Ltd., Ahmedabad V. The ADIT(Exemption), Ahmedabad

ITA 2990/AHD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5770 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 31-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 16-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Permanent establishment

Judgement Text

ITA NO. 2990/AHD/2013 ASSESSMENT YEARS: 2009 - 10 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND MAHAVIR PRASAD JM] ITA NO. 2990/AHD/2013 ASSESSMENT YEARS : 20 09 - 10 ONCOLOGY SERVICES INDIA PVT LTD ........................... APPELLANT 2 ND FLOOR, CHINU BHAI CENTRE NEAR NEHRU BRIDGE, ASHRAM ROAD AHMEDABAD 380 015 [PAN: AABC O 0765A] VS. ASSISTANT DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION - III, AHMEDABAD .. . ..... RESPONDENT APPEARANCES BY: TUSHAR HEMANI FOR THE APPELLANT UMA SHANKAR PRASAD F OR THE RESPONDENT DATE OF CONCLUDING THE HEARING : JUNE 01 , 201 7 DATE OF PRONOUNCING THE ORDER : JUN 01 , 2017 O R D E R PER PRAMOD KUMAR AM: 1. THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED AGAINST THE ORDER DATED 13 TH SEPTEMBER 2013 PASSED BY T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE MATTER OF TAX WITHHOLDING DEMAND RAISED ON THE ASSESSEE UNDER SECTION 201 R.W.S. 195 OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2009 - 10. 2. GRIEVANCE OF THE ASSESSEE, IN SUBSTANCE, IS THAT T HE LEARNED CIT(A) ERRED IN UPHOLDING THE TAX WITHHOLDING DEMAND OF RS 4,72,030 RAISED ON THE ASSESSEE UNDER SECTION 201 R.W.S 195 IN RESPECT OFF REMITTANCE OF EUROS 45,000 TO OSE ONCOLOGY SERVICES EUROPE S.A.R.L, GERMANY. 3. THE ISSUE IN APPEAL LIES IN A RATHER NARROW COMPASS OF MATERIAL FACTS. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD PAYMENTS, AGGREGATING TO EUROS ITA NO. 2990/AHD/2013 ASSESSMENT YEARS: 2009 - 10 PAGE 2 OF 5 45,000, TO ONE GERMANY BASED ENTITY BY THE NAME OF OSE ONCOLOGY SERVICES EUROPE S.A.R.L (OSE, IN SHORT) WITHOUT ANY TAX DEDUCTION A T SOURCE . THE ASSESSING OFFICER WAS OF THE VIEW THAT THESE PAYMENTS ARE MADE FOR USING THE NAME, GOODWILL AND MARKET REPUTATION OF OSE AND, THEREFORE, TAXABLE IN INDIA AS ROYALTIES UNDER SECTION 9(1)(VI) OF THE ACT. THE ASSESS ING OFFICER, ACCORDINGLY, RE QUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ASSESSEE NOT BE TREATED ASSESSEE IN DEFAULT FOR NOT HAVING DEDUCTED TAX AT SOURCE FROM THE PAYMENTS MADE TO OSE. IT WAS EXPLAINED BY THE ASSESSEE THAT OSE DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA, AN D THAT SINCE THE PAYMENTS MADE TO OSE WERE ONLY FOR THE PURPOSE OF SHARING SOPS, ACCESS TO DATABASE, EMAIL SERVER, HARDWARE AND SOFTWARE, THESE PAYMENTS, IN THE ABSENCE OF THE PE OF OSE IN INDIA, WERE NOT TAXABLE IN INDIA. THESE RECEIPTS BY THE OSE WERE RE QUIRED TO BE TREATED AS BUSINESS PROFITS IN THE HANDS OF THE OSE, AND, AS SUCH, TAXABILITY COULD ARISE ONLY IF THE OSE HAD A PE IN INDIA. IT WAS ALSO EXPLAINED BY THE ASSESSEE THAT AS FOR THE USE OF BRAND NAME, LOGO AND WEBSITE, THE SAME WAS PERMITTED BY THE OSE WITHOUT ANY COST OR FINANCIAL OBLIGATION . THESE ARGUMENTS WERE REJECTED BY THE ASSESSING OFFICER. HOLDING THAT THE ASSESSEE HAS MADE PAYMENTS FOR THE USE OF TECHNOLOGY, PATENT, TRADEMARK AND ACCORDINGLY THE SAME IS TREATED AS ROYALTY UNDER SECT ION 9(1)(VI) OF THE INCOME TAX ACT AND AS PER TAX TREATY BETWEEN INDIA AND GERMANY , THE ASSESSING OFFICER PROCEEDED TO RAISE THE IMPUGNED DEMAND UNDER SECTION 201 R.W.S 195. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT AN Y SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 4 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 5 . WE HAVE NOTED TH AT UNDER THE AGREEMENT DATED 8 TH SEPTEMBER 2008, BONAFIDES OF WHICH ARE NOT EVEN IN CHALLENGE BEFORE US, IT IS SPECIFICALLY STATED THAT OSE HEREBY AGREES TO PERMIT OSI TO USE ITS NAME, BRAND, LOGO AND WEBSITE WITHOUT ANY COSTS OR FINANCIAL LIABILITY . IT CANNOT, THEREFORE, BE SAID THAT ANY PART OF THE PAYMENT OF EUROS 45,000 IS FOR THE PURPOSES OF USE OF NAME, BRAND OR LOGO ETC. WHAT IS THE TRUE CONSIDERATION, AND IT IS SO STATED IN THE SAID AGREEMENT ITSELF, IS SOPS (STANDARD OPERATING PROCEDURES) AND AC CESS TO DATABASE, EMAIL SERVER AND HARDWARE OR SOFTWARE TO OSI FOR THIS PURPOSE . THE AFORESAID AGREEMENT SPECIFICALLY STATES THAT OSE AND OSI BOTH AGREE TO HAVE THE SAME SOPS AND AGREE TO HARMONISE ALL REQUIRED SOFTWARE SYSTEMS, POLICY AND PROCESSES AND THAT THE INCIDENTAL COST OF IMPLEMENTATION OF AND UPDATING OF SOFTWARE WILL BE BORNE BY OSI . THIS IS ALSO CLEAR FROM THE INVOICES RAISED BY THE OSE WHICH CATEGORICALLY STATE THAT THE INVOICE IS FOR TRANSFER OF KNOWHOW, I.E. SOPS. HOWEVER, FOR THE REASO NS THAT WE WILL SET OUT IN A WHILE NOW, EVEN THIS CONTENTION OF THE ASSESSEE DOES NOT REALLY HELP THE ASSESSEE MUCH. ITA NO. 2990/AHD/2013 ASSESSMENT YEARS: 2009 - 10 PAGE 3 OF 5 6. THE QUESTION THEN IS WHETHER THE PAYMENT FOR USE OF SOPS DEVELOPED BY THE GERMAN ENTITY, AND INCIDENTAL ACTIVITIES, IS TAXABLE IN THE HANDS OF THE ASSESSEE. WHILE DEALING THIS ASPECT OF THE MATTER, AND TO UNDERSTAND THE NATURE OF SOPS, IT MAY BE USEFUL TO REFER TO THE FOLLOWING EXTRACTS FROM THE SUBMISSIONS DATED 29 TH AUGUST 2013 MADE BEFORE THE CIT(A): ONCOLOGY SERVICE EUROPE HAD MAT URED VALIDATED STANDARD PROCEDURES, THIS MEANS SOP IS ACCEPTED BY REGULATORY BODY. IF WE TRY TO ESTABLISH OUR OWN SOP WHICH WOULD BE ACCEPTABLE TO THE REGULATORY AUTHORITY, COMPANY WOULD NEED 7 - 10 YEARS TO ESTABLISH VALIDATED CLINICAL TRIAL PROCEDURE. HENC E THE COMPANY HAS PURCHASED THE COPYRIGHTED SOP FROM THE ONCOLOGY SERVICE EUROPE (GERMANY). IN OTHER WORDS, IT CAN BE SAID THAT THE ASSESSEE IS ALLOWED TO VIEW ONLY SOP ESTABLISHED BY ONCOLOGY SERVICE EUROPE. THESE SOPS ARE NON TRANSFERABLE AND THE ASSESSE E IS NOT ALLOWED TO MAKE ANY CHANGES IN IT. ONCOLOGY SERVICE EUROPE HAS PROVIDED IN TOTAL 46 DIFFERENT SOPS. FOR YOUR READY REFERENCE PHOTOCOPY OF 4 SOPS, NAMELY MENTIONED BELOW, ARE ENCLOSED HEREWITH AND REST OF THE COPIES ARE IN CD ATTACHED HEREWITH. AL SO ATTACHED INDEX COPY OF ALL THE SOPS FOR YOUR READY REFERENCE. A) SOP PREPARATION, NUMBERING AND VERSION IDENTIFICATION B) DATA MANAGEMENT PLAN C) INVESTIGATOR SITE AUDITING D) CHANGE CONTROL FOR COMPUTER SYSTEMS 7 . THE QUESTION THAT REALLY REQUIRES T O BE ADDRESSED BY US IS WHETHER CONSIDERATION FOR THE SHARING OF THESE SOPS CAN BE BROUGHT TO TAX AS ROYALTIES UNDER THE INDIA GERMANY DOUBLE TAXATION AVOIDANCE AGREEMENT [(1990) 182 ITR (STAT) 357; INDO GERMAN TAX TREATY, IN SHORT]. 8. ARTICLE 13(3) OF INDO GERMAN TAX TREATY, WHICH DEFINES THE EXPRESSION ROYALTIES , PROVIDES THAT THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAPH FILMS OR TAPES USED FOR RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR ITA NO. 2990/AHD/2013 ASSESSMENT YEARS: 2009 - 10 PAGE 4 OF 5 THE USE OF, OR THE RIGHT TO USE, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQU IPMENT, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMM ERCIAL OR SCIENTIFIC EXPERIENCE . THE SHARING OF STANDARD OPERATING PROCEDURES, EVEN GOING BY THE CLAIM OF THE ASSESSEE, DOES AMOUNT TO SHARING INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIF IC EXPERIENCE . AS EVIDENT FROM THE EXTRACTS FROM THE WRITTEN SUBMISSIONS REPRODUCED ABOVE, THESE SOPS ARE MATURED VALIDATED STANDARD PROCEDURES WHICH HAVE BEEN DEVELOPED BY OSE OVER A PERIOD OF TIME AND APPROVED BY THE REGULATORY BODIES. AS THE ASSESSE E HIMSELF PUTS IT THESE SOPS ARE NON TRANSFERABLE AND THE ASSESSE IS NOT ALLOWED TO MAKE ANY CHANGES IN IT AND THAT IN OTHER WORDS, IT CAN BE SAID THAT THE ASSESSEE IS ALLOWED TO VIEW ONLY SOP ESTABLISHED BY OSE . IN EFFECT THUS, IT IS ONLY SHARING OF T HE INFORMATION ABOUT THE SCIENTIFIC EXPERIENCES BY THE OSE, BUT THEN IT IS CONSIDERATION FOR SUCH A SHARING OF SCIENTIFIC, OR FOR THAT PURPOSE INDUSTRIAL AND COMMERCIAL, EXPERIENCES THAT IS COVERED BY ARTICLE 13(3). THE ACCESS TO DATABASE, AND ALLIED ACTIV ITIES LIKE HARMONIZATION OF SOFTWARE SYSTEMS, POLICY AND PROCESS, ARE ONLY INCIDENTAL TO THIS MAIN OBJECT OF SHARING THE SOPS AND CANNOT THUS BE VIEWED IN ISOLATION. 9. THE ESSENCE OF THIS ARRANGEMENT, EVEN GOING BY THE MATERIAL ON RECORD AND ADMISSION OF THE ASSESSEE IN UNAMBIGUOUS WORDS, IS ON SHARING THE SOPS, WHICH, AS WE HAVE NOTED ABOVE, AMOUNTS TO SHARING OF SCIENTIFIC EXPERIENCES TAXABLE UNDER ARTICLE 13 OF INDO GERMAN TAX TREATY. AS FOR THE FACT THAT OSE DOES NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA, IT IS ONLY ELEMENTARY THAT EXISTENCE OF PE IS SINE QUA NON ONLY FOR TAXATION OF BUSINESS PROFITS BUT THAT THE FOREIGN ENTITY NOT HAVING A PE IN INDIA DOES NOT COME IN THE WAY OF TAXATION OF ROYALTIES - WHICH PRECISELY IS THE CASE OF THE REVENUE. I N THIS VIEW OF THE MATTER, THE PAYMENT FOR SHARING OF THE SOPS, AS IS THE CASE BEFORE US, INDEED TAXABLE AS ROYALTIES UNDER THE INDO GERMAN TAX TREATY. 10. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE SEE NO REA SONS TO INTERFERE IN THE CONCLUSIONS ARRIVED AT BY THE AUTHORITIES BELOW. ONCE WE COME TO THE CONCLUSION THAT THE CONSIDERATION RECEIVED BY THE OSE, FOR SHARING OF SOPS, WAS TAXABLE IN ITS HANDS IN TERMS OF THE PROVISIONS OF THE INDO GERMAN TAX TREATY, AND THERE IS NOTHING BEFORE US TO EVEN CHALLENGE ITS TAXABILITY UNDER THE PROVISIONS OF THE DOMESTIC LAW EITHER, IT IS ONLY A NATURAL COROLLARY OF THIS FINDING THAT THE ASSESSEE OUGHT TO HAVE DEDUCT TAX AT SOURCE FROM THE PAYMENT IN QUESTION . THERE IS NO, AND THERE CANNOT BE ANY, CHALLENGE TO THIS FUNDAMENTAL LEGAL POSITION. THERE IS ITA NO. 2990/AHD/2013 ASSESSMENT YEARS: 2009 - 10 PAGE 5 OF 5 THUS NO INFIRMITY IN THE IMPUGNED TAX WITHHOLDING DEMAND. WE CONFIRM THE SAME AND DECLINE TO INTERFERE IN THE MATTER. 7. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNCED IN T HE OPEN COURT TODAY ON THE 1 ST DAY OF JUNE 20 1 7. SD/ - SD/ - MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 1 ST DAY OF JUNE , 201 7 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD