DCIT (IT) 3(3)(2), MUMBAI V. PARTNERS MEDICAL INTERNATIONAL, INC, MUMBAI

ITA 412/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7301 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 28-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief
• Section: 143(3); 142(1)

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL -LBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM L AL NEGI,JUDICIAL MEMBER ./I.T.A./412/MUM/2016, /ASSESSMENT YEAR: 2012-13 DCIT-(INTL. TAXATION)-3(3)(2) ROOM NO.1727, 17 TH FLOOR,AIR INDIA BUILDING, NARIMAN POINT MUMBAI-400 021. VS. PARTNERS MEDICAL INTERNATIONAL, INC. (EARLIER KNOWN AS PARTNERS HARVARD MEDICAL INTERNA TIONAL INC.) C/O. PRICEWATERHOUSE COOPERS (P.) LTD. PWC HOUSE, PLOT 18/A GURU NANK ROAD (STATION ROAD) BANDRA (W),MUMBAI-400 050. PAN:AABCH 2171 F ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI SAMUEL DARSE-CIT-DR ASSESSEE BY: SHRI DHANESH BAFNA / DATE OF HEARING: 28.02.2018 / DATE OF PRONOUNCEMENT: 02.05.2018 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , - PER RAJENDRA, AM - CHALLENGING THE DIRECTIONS,DATED 23/11/2015, OF THE DISPUTE RESOLUTION PANEL(DRP)-2, MUMBAI THE ASSESSING OFFICER(AO)HAS FILED THE PRESE NT APPEAL.ASSESSEE- IS A NON-PROFIT EDUCATIONAL ENTITY SET UP IN THE UNITED STATES OF A MERICA(USA).IT FILED ITS RETURN OF INCOME ON 27/11/2012,DECLARING TOTAL INCOME AT RS.NIL.THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE WAS ISSUED ON 06/08/2013 U/S.143(2) OF THE ACT. SUB SEQUENTLY NOTICE U/S. 142(1) WAS ISSUED ON 19/02/2014 AND 24/12/2014 . THE ASSESSMENT WAS C OMPLETED ON 28/01/2016,DETERMINING ITS INCOME AT RS.3.94 CRORES ,U/S. 143(3) R.W.S. 14 4C(13) OF THE ACT. 2. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RECEIVED FEES OF USD 886,000 FOR P ROVIDING VARIOUS CONSULTING SERVICES UNDER AGREEMENTS WITH VARIOUS INDIAN ENTITIES, THE BREAK-UP OF WHICH IS AS FOLLOWS: SN. INDIAN ENTITY TO WHOM SERVICES RENDERED DETAILS OF AGREEMENTS NET FEES RECEIVED IN $ 1 VOCKHARDT HOSPITALS LTD CWHL') MASTER SERVICES AGREEMENT,31.1.11 1,71,000 2 FOUR SEASONS FOUNDATION('FSF') MASTER SERVICES AGREEMENT WITH FSF DATED NOVEMBER 23, 2010 ('MASTER SERVICES AGREEMENT WITH FSF') 3,75,000 3 AERMID - HEALTHCARE (INDIA) PVT. LTD. ('AERMID') SHORT TERM SERVICES AGREEMENT DATED APRIL 27, 2011 WITH AERMID 3,40,000 TOTAL 8,86,000 ITA NO.412/MUM/2016 PARTNERS MEDICAL INTERNATIONAL INC. 2 THE AO HAS PROPOSED TO TREAT 90% OF THE TOTAL RECEI PTS I.E. FEES FOR SERVICES RENDERED, AS TAXABLE AS ROYALTIES AS PER ARTICLE 12(3) OF DTAA A ND 10% OF THE TOTAL RECEIPTS AS FEES FOR INCLUDED SERVICES UNDER THE ARTICLE 12(4)(B) OF THE DTAA.HE COMPUTED THE TOTAL INCOME OF THE ASSESSEE AS UNDER :- NATURE OF INCOME AMOUNT (RS.) INCOME FROM ROYALTIES (90% OF TOTAL RECEIPTS) 3,55,15,332 INCOME FROM FEES FOR INCLUDED SERVICES ('FIS') (10% OF TOTAL RECEIPTS) 39,46,148 TOTAL INCOME 3,94,61,480 3. IT WAS BROUGHT TO OUR NOTICE THAT THE IDENTICAL ISS UE-I.E.TAXING 90% OF THE TOTAL RECEIPTS AS ROYALTIES AS PER ARTICLE 12(3) OF DTAA AND TAXING T HE REMAINING 10% OF THE RECEIPTS AS FEES FOR INCLUDED SERVICES UNDER THE ARTICLE 12(4)(B) OF THE DTAA-WAS DELIBERATED UPON BY THE TRIBUNAL,WHILE DECIDING THE APPEALS/CROSS OBJECTION S FOR THE EARLIER ASSESSMENT YEARS.WE FIND THAT WHILE DECIDING THE APPEAL FOR THE AY.2002-03,( ITA NO.1558/MUM/07 DATED 18/11/2011,THE TRIBUNAL HAS OBSERVED AS UNDER: '17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE ARE OF TH E VIEW THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE CAN NEITHER BE SAID TO BE ROYALTY NOT FIS. THE PAYMENT IN QUESTION WAS PURELY FOR THE PURPOSE OF ADVISING, RECOMMENDIN G AND ASSISTING IN RELATION TO HEALTHCARE PROJECTS. IT WAS ALSO FOR CONDUCTING EDUCATION AND TRAINING PROGRAMMES. IT WAS ALSO FOR THE PURPOSE OF REVIEW AND GIVING FEED BACK OF VARIOUS A SPECTS AND NEW CARDIAC HOSPITAL TO BE SET UP, RECOMMENDATION ON PLANNED PATIENT CARE DELIVERY SYSTEM. IN PAGE 15A TO 15D OF THE CIT(A)'S ORDER A SUMMARY OF THE ACTIVITIES UNDERTAK EN BY THE ASSESSEE FOR WHL. HAVE BEEN GIVEN. A PERUSAL OF THE SAME SHOWS THAT THE CONSIDE RATION RECEIVED BY THE ASSESSEE CANNOT BE SAID TO BE ROYALTY AS THEY WERE NOT A PAYMENT FOR U SE OF ORDER, THE RIGHT TO USE ANY COPY RIGHT, TRADEMARK OR INDUSTRIAL, COMMERCIAL OR SCIENTIFIC E XPERIENCE. SIMILARLY THE ASSESSEE DID NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL KNOWHOW OR PROCESS. THE DECISION OF THE DELHI BENCH OF THE ITAT IN THE CASE OF SHERA TON INTERNATIONAL INC. (SUPRA) SUPPORTS THE PLEA OF THE ASSESSEE THAT WHERE THE AGREEMENT BETWE EN THE PARTIES PROVIDES THAT THERE WAS NO ECONOMIC CONSIDERATION FOR RIGHT TO USE THE NAME IT CANNOT HE SAID THAT ANY PAYMENT CAN BE CALLED ROYALTY. SO ALSO THE CONSIDERATION PAID IN A LUMPSUM CANNOT BE SPLIT AS A PART BEING IN THE NATURE OF ROYALTY AND ANY PART BEING IN THE NAT URE OF FIS AS LAID DOWN IN THE CASE OF MOTOROLA INC. (SUPRA). THE PAYMENT CANNOT BE SAID T O BE FIS FOR THE REASON THAT NOTHING IS MADE AVAILABLE BY THE ASSESSEE TO WHL AND IN THIS R EGARD, THE OBSERVATIONS WHILE DECIDING PAYMENTS RECEIVED BY THE ASSESSEE FROM MAX WOULD BE EQUALLY APPLICABLE TO THE PAYMENTS RECEIVED FROM WHL ALSO. WE ARE OF THE VIEW THAT THE ENTIRE PAYMENT RECEIVED BY THE ASSESSEE FROM WHL IS IN THE NATURE OF BUSINESS PROFITS AND SINCE THE ASSESSEE DOES NOT HAVE A PE IN INDIA THE SAME CANNOT BE BROUGHT TO TAX IN INDIA. CONSEQUENTLY, GROUND NO.2 & 3 OF THE CROSS OBJECTION OF THE ASSESSEE ARE ALLOWED. 3.1. IN THE APPEAL FOR THE A.Y. 2003-04 (PARA 28, PAGE 4 1-42 OF THE PAPER BOOK),THE TRIBUNAL HAS HELD AS FOLLOWS: '28. ITA NO. 1559/M/07 IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 26/10/2006 OF CIT(A) 33, MUMBAI RELATING TO A. Y2003-04 AND C.O N O, 146/ML07 IS A CROSS OBJECTION BY THE ITA NO.412/MUM/2016 PARTNERS MEDICAL INTERNATIONAL INC. 3 ASSESSEE AGAINST THE VERY SAME ORDER OF THE CIT(A). THE GROUND RAISED BY THE REVENUE IN ITS APPEAL AND GROUND NO. 1 TO 3 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION ARE IDENTICAL TO THE GROUNDS 1 & 2 RAISED BY THE REVENUE IN ITS APPE AL ITA 1558/M/07 AND GROUND NO. 1 TO 3 IN THE CROSS OBJECTION NO. 145/M/07 RAISED BY THE A SSESSEE IN THIS CROSS OBJECTION FORA.Y2002-03. FOR THE REASONS GIVEN WHILE DECIDING IDENTICAL GROUNDS IN A. Y 2002-03, WE DISMISS THE GROUNDS RAISED BY THE REVENUE AND ALLOW GROUND N0.1 TO 3 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION. 'BOTH THE PARTIES AGREED TH AT THE FACTS AND CIRCUMSTANCES PREVAILING IN BOTH THE A.YS ARE IDENTICAL. GROUND NO.4 RAISED BY THE ASSESSEE IN CROSS OBJECTION NO. 146/A4/07 RELATING TO CHARGING OF INTEREST IS ACADE MIC AND DOES NOT REQUIRE ANY ADJUDICATION.' 3.2. IN THE APPEALS OF THE AY.S 2006-07 TO AY 2009-10,TH E TRIBUNAL HAD HELD AS UNDER: '9. WE NOTICE THAT THE CO-ORDINATE BENCH OF TRIBUNA L HAS PASSED THE ORDER DATED 22-02-2013 IN THE ASSESSEE'S OWN CASE RELATING TO AY 2004-05 I N ITA NO.791/MUM/2008 AND JTA NO. 1020/MUM/2008, WHEREIN IT HAS FOLLOWED THE ORDERS P ASSED BY THE CO-ORDINATE BENCHES FROM AY 2000-01 ONWARDS. IN ASSESSMENT YEAR 2004-05, THE ASSESSEE HAD RECEIVED FEES FROM M/S MAX INDIA LTD. FOR IDENTICAL SERVICES RENDERED BY T HE ASSESSEE FOR ADVISORY SERVICES RENDERED. IDENTICAL VIEW WAS TAKEN IN THE CASE OF RECEIPTS FR OM WOKHARDT HOSPITALS. THE TRIBUNAL IN PARAGRAPH 13 AND 14 OF ITS ORDER HAS HELD AS UNDER: - '13. CONSISTENT WITH THE AFORESAID VIEW TAKEN BY TH E TRIBUNAL IN ASSESSEE'S OWN CASE, WE HOLD THAT THE PAYMENTS RECEIVED FROM MAX DOES NOT CONSTI TUTE FIS (FEE FOR INCLUDED SERVICES) WITHIN THE MEANING OF ARTICLE 12(4), AS NOTHING IS MADE AVAILABLE BY THE ASSESSEE TO MAX AND ALSO THE ASSESSEE DOES NOT HAVE ANY P.E IN INDIA. T HEREFORE THE INCOME SO ARISING TO THE ASSESSEE IN INDIA CANNOT BE TAXED UNDER ARTICLE 7 A S 'BUSINESS PROFITS'. 14. IN CASE OF WHL, (WOKHARD HOSPITALS IJD) ALSO, W E HOLD THAT IT IS NEITHER TAXABLE AS FIS NOR AS ROYALTY AND ALSO THE ASSESSEE DOES NOT HAVE ANY P.E IN INDIA AND, THEREFORE, THE PAYMENT RECEIVED BY IT CANNOT BE TAXED IN INDIA. AC CORDINGLY,CONSISTENT WITH THE VIEW TAKEN IN EARLIER YEARS IN ASSESSEE'S OWN CASE, WE ALLOW GROU NDS NO. 1 AND 2, RAISED BY THE ASSESSEE.' THE ABOVE SAID DECISION OF THE TRIBUNAL SHALL BE AP PLICABLE TO THE FEES RECEIVED BY THE ASSESSEE IN THE CURRENT YEAR UNDER CONSULTING AGREEMENT (WOKHAR D HOSPITALS AND CAROL INFO SERVICES LTD) AND UNDER AWARD AGREEMENT OF VOKHARD HOSPITALS),' 3.3. WE FURTHER FIND THAT THE DEPARTMENT IS IN APPEAL BE FORE THE HON'BLE BOMBAY HIGH COURT FOR AY.S 2000-01 TO AY 2004-05 ,THAT THE DEPARTMENT HAD NOT FILED APPEAL YET FOR AY 2006- 07 TO AY 2009-10 WHERE DECISION WAS RECEIVED IN JUL Y,2015,THAT THE DRP HAD ADJUDICATED THE ISSUES IN FAVOUR OF THE ASSESSEE FOLLOWING THE ORDERS OF THE TRIBUNAL. 3.4. IN OUR OPINION,THERE IS NO NEED TO INTERFERE WITH T HE DIRECTIONS OF THE DRP,AS IT HAD FOLLOWED THE ORDERS OF THE TRIBUNAL FOR THE EARLIER AY.S.WHICH ARE YET TO REVERSED BY THE HONBLE BOMBAY HIGH COURT.FOLLOWING THE ORDERS OF E ARLIER AY.S.OF THE TRIBUNAL,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN C OURT ON 2 ND MAY,2018. ! ' 2 ,2018 SD/- SD/- ( / RAM LAL NEGI ) ( # $ / RAJENDRA ) %& / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 02 .05.2018. JV.SR.PS. ITA NO.412/MUM/2016 PARTNERS MEDICAL INTERNATIONAL INC. 4 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR L BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.