GECF ASIA LTD, MUMBAI V. DDIT (IT) 3(1), MUMBAI

ITA 8922/MUM/2010

• Counselvise Citation: 892219914 RSA 2010
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 25-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 21-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJAY KUMAR SHRIVASTAVA
• Assessee Lawyers: RAJAN VORA
• Keywords: Business income; Double taxation relief; Permanent establishment; Initiation of penalty proceedings

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI . . , , , BEFORE SHRI B.R. BASKARAN , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER . / ITA NO. 8922 /MUM./ 2010 ( / ASSESSMENT YEAR : 2007 08 ) GECF ASIA LIMITED C/O KPMG, LODHA EXCELUS APOLLO MILLS COMPOUND N.M. JOSHI MARG, MAHALAXMI MUMBAI 400 011 .. / APPELLANT V/S DY. DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION 3(1) MUMBAI .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AACCG7103P / ASSESSEE BY : MR. RAJAN VORA / REVENUE BY : M R. AJAY KUMAR SHRIVASTAVA / DATE OF HEARING 25.06.2014 / DATE OF ORDE R 06.08.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HA S BEEN PREFERRED BY THE ASSESSEE , C HALLENGING THE IMPUGNED FINAL ASSESSMENT ORDER DATED 14 TH OCTOBER GECF ASIA LIMITED 2 2010 , PASSED BY THE LEARNED DY. DIRECTOR OF INCOME TAX ( INTERNATIONAL TAXATION) [FOR SHORT THE LEARNED D DIT( I.T ) ] , MUMBAI , IN PURSUANCE OF THE DIRECTION GIVEN BY THE DISPUTE RESOLUTION PAN EL I (DRP), MUMBAI, FOR THE ASSESSMENT YEAR 207 08. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THE ASSESSING OFFICER AND THE DRP ERRED IN DETERMINING THE INCOME OF THE ASSESSEE AT ` 3,83,62,648, AS AGAINST NIL INCOME RETURNED BY THE ASSESSE E AND THEREBY ERRED IN DETERMINING THE TAX LIABILITY AT ` 2,27,50,035. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ASSESSING OFFICER ERRED IN CONFIRMING THE PROPOSED ADDITION OF ` 3,83,62,648, BEING THE AMOUNT RECEIVED BY T HE APPELLANT FOR SERVICES RENDERED UNDER THE MASTER SERVICE AGREEMENT, 2005 TO GE MONEY FINANCIAL SERVICES LTD. AS BEING IN THE NATURE OF ROYALTY INCOME AND HENCE, TAXABLE IN INDIA. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ASSESSING OFFICER ERRED IN INITIATING AND THE DRP HAS ERRED IN UPHOLDING THE INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 274 R/W SECTION 271(1)(C) OF THE ACT. 2 . FACTS IN BRIEF : THE ASSESSEE IS A NON RESIDENT COMPANY INCORPORATED IN THAILAND AND IS A T AX RESIDENT OF THAILAND. ACCORDINGLY, IT HAS CLAIMED TREATY BENEFIT UNDER THE INDIA THAILAND DTAA. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES TO MEET THE NEEDS OF VARIOUS G.E. GROUP COMPANIES. IT HAS ENTERED INTO MASTER AGREEMENT , 2005 WITH THE G.E. COUNTRYWIDE CONSUMER FINANCIAL GECF ASIA LIMITED 3 SERVICES LTD. (GEMFSL), WHEREIN THE ASSESSEE IS REQUIRED TO PROVIDE FOLLOWING SERVICES: ACCOUNTING AND FINANCE SUPPORT SERVICES HUMAN RESOURCES SERVICES LEGAL AND COMPLIANCE SERVICES RISK MANAGEMENT SER VICES QUALITY CONSULTATION AND TRAINING SALES AND MARKETING INFORMATION TECHNOLOGY AND SYSTEM SUPPORT STRATEGIC MANAGEMENT ASSISTANCE 3 . DURING THE YEAR, THE ASSESSEE HAS RECEIVED AN AMOUNT OF ` 3.84 CRORES FROM GEMFSL UNDER THE MASTER SERVICE AGREEMENT FOR PROVIDING THE AFORESAID SERVICES. IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2007 08, THE ASSESSEE HAD SHOWN ITS INCOME AT NIL ON THE GROUND THAT THE INCOME ACCRUED TO THE ASSESSEE QUALIFIES AS BUSINESS INCOME AND THE SAME CANNOT BE TAXED UNDE R ARTICLE 7 AS THE ASSESSEE HAS NO PERMANENT ESTABLISHMENT ( P.E ) IN INDIA AS DEFINED IN ARTICLE 5 OF INDIA THAILAND DTAA. IN THE DRAFT ASSESSMENT ORDER, THE ASSESSING OFFICER HELD THAT CONSIDERATION RECEIVED BY THE ASSESSEE FROM THE PROVISIONS OF SERVICES FROM OUTSIDE INDIA TO GEMFSL IS ON ACCOUNT OF BUSINESS CONNECTION IN INDIA AND, HENCE, TAXABLE UNDER THE DOMESTIC LAW I.E., INDIAN INCOME TAX ACT. HE ALSO HELD THAT SERVICES RENDERED BY GECF ASIA LIMITED 4 THE ASSESSEE WOULD ALSO FALL WITHIN THE DEFINITION OF FEES FOR TECHNI CAL SERVICES AS ENVISAGED UNDER SECTION 9(1)(VII) OF THE ACT AND, HENCE, THE SAME IS TAXABLE IN INDIA. ALTERNATIVELY, HE HELD THAT THE SERVICES RENDERED BY THE ASSESSEE WOULD ALSO FALL WITHIN THE DEFINITION OF ROYALTY UNDER THE ARTICLE 12(3) OF THE TREA TY AND, HENCE, WOULD BE TAXABLE IN INDIA. AGAINST THE SAID DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED ITS OBJECTION BEFORE THE DRP AND ALSO THE COPY OF TAX RESIDENCY CERTIFICATE ISSUED BY THE THAILAND TAX AUTHORITIES. THE DRP DIRECTED THE ASSESSING OFFICER TO TAX THE RECEIPTS FROM THE SERVICES RENDERED BY THE ASSESSEE AS ROYALTY UNDER ARTICLE 12(3) OF THE DTAA, WITHOUT GIVING ANY OPINION OR DIRECTION ON NON TAXABILITY AS BUSINESS CO NNECTION IN INDIA OR F EE S F OR T ECHNICAL S ERVICES (FOR SHORT FTS ) . THE DR P QUOTED THE CONCLUSION OF THE ASSESSING OFFICER IN THE FOLLOWING MANNER: FROM THE ABOVE DEFINITION IT CAN BE SEEN THAT THE TERM ROYALTY INCLUDES NOT ONLY THE RIGHT TO USE ANY COPYRIGHT PAYMENTS, TRADEMARK, DESIGN OR ANY INDUSTRIAL, COMMERCIAL OR SCIENT IFIC EQUIPMENTS. THE DEFINITION SPECIFICALLY INCLUDES ANY PAYMENT FOR INFORMATION CONCERNING THE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. THE USE OF WORD EXPERIENCE INDICATES THAT THE INTENTION OF THE LEGISLATURE IS TO COVER ANY FEES PAID TO ANY CO NSULTANT FOR PROVIDING ANY ADVICE BASED ON HIS EXPERIENCE, I.E., THE KNOWLEDGE, KNOWHOW AND EXPERTISE THAT HE HAS GAINED OVER THE YEARS. IN THE ASSESSEES AS PER SCHEDULE 4 OF THE MASTER SERVICE AGREEMENT 2005, CLEARLY INDICATES THAT THE PAYMENTS MADE TO T HE ASSESSEE ARE FOR CONSULTANCY SERVICES PROVIDED BY THE CHIEF EXECUTIVE OFFICE R , CIO, LEGAL SERVICE TEAM, GROUP RISK TEAM, FINANCE TEAM, ETC. IN OTHER WORDS ONE CAN SAY THAT THE PAYMENTS MADE TO THE ASSESSEE COMPANY IS FOR THE INFORMATION / ADVICE GIVEN B Y THE AFORESAID PEOPLE/TEAM. THESE PEOPLE / TEAM ARE SPECIALISTS IN THEIR SUBJECT MATTER AND HAVE YEARS OF GECF ASIA LIMITED 5 EXPERIENCE IN THE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC FIELDS. THEREFORE, IT IS HELD THAT THE PAYMENTS MADE TO THE ASSESSEE COMPANY ARE FOR PROVIDING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE AND, HENCE, THE RECEIPTS ARE TAXED AS ROYALTY IN THE ASSESSEES HANDS. 4 . THE RE AFTER , THE DRP CONFIRMED THE AFORESAID CONCLUSION OF THE ASSESSING OFFICER AND DIRECTED THE ASSESSING OFFICER TO TAX SUCH PAYMENT A S ROYALTY AFTER GIVING FOLLOWING DIRECTIONS: THE ASSESSEE HAS ALSO CLAIMED THE BENEFIT OF INDO THAILAND DTAA AND HAS SUBMITTED A COPY OF TRC PLACED IN THE PAPER BOOK I, IS SEEN THAT THE ARGUMENTS OF THE A.O. SHALL BE APPLICABLE EVEN IN THE CASE OF THE D EFINITION AS GIVEN IN ARTICLE 12(3) OF INDO THAILAND DTAA. THE GROUND OF OBJECTION, THEREFORE, DESERVE TO BE DISMISSED. THE A.O. IS THEREFORE DIRECTED TO EXAMINE THE TAX RESIDENCE CERTIFICATE AND IN CASE THE ASSESSEE IS LIABLE TO TAX IN THAILAND THE BENE FICIAL RATE AS INDO THAILAND DTAA SHALL BE APPLICABLE. 5 . ACCORDINGLY, THE ASSESSING OFFICER, IN PURSUANCE OF SUCH DIRECTION HELD THAT THE PAYMENTS RECEIVED BY THE ASSESSEE ARE FOR PROVIDING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE AND, HENCE, THE RE CEIPTS ARE TAXABLE AS ROYALTY WITHIN THE MEANING OF ARTICLE 12(3) OF THE INDO THAILAND DTAA AND TAX THE SAID RECEIPTS @ 15%. 6 . BEFORE US, THE LEARNED COUNSEL, SHRI RAJAN VORA, ON BEHALF OF THE ASSESSEE, SUBMITTED THAT THE INDIA THAILAND TAX TREATY DOES N OT HAVE ANY SEPARATE ARTICLE FOR FTS AND, ACCORDINGLY, THE INCOME FROM THE SERVICES RENDERED BY THE ASSESSEE WOULD BE GOVERNED BY ARTICLE 7. GECF ASIA LIMITED 6 SINCE THE ASSESSEE DOES NOT HAVE ANY P.E . WITHIN THE MEANING OF ARTICLE 5, THEREFORE, THE SAID RECEIPTS CANNOT BE T AXED IN INDIA. THE FACT THAT THE ASSESSEE DOES NOT HAVE A P.E., HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER. HE ALSO POINTED OUT THAT IN THE ASSESSMENT YEAR 2006 07, THE ASSESSING OFFICER HAD TAXED THE SIMILAR RECEIPTS FROM GEMFSL AS BEING IN THE NATURE OF FTS UNDER THE ACT, HOWEVER, IN THE FIRST APPEAL, THE LEARNED COMMISSIONER (APPEALS) HELD THAT IN THE ABSENCE OF ANY FTS CLAUSE UNDER THE INDIA THAILAND TREATY AND IN THE ABSENCE OF P.E. OF THE ASSESSEE IN INDIA, THE SAID RECEIPTS COULD NOT BE TAXABLE I N INDIA. THEREAFTER, NO FURTHER APPEAL HAS BEEN PREFERRED BY THE DEPARTMENT. REGARDING TAXABILITY OF THE SAID RECEIPT AS ROYALTY UNDER THE ARTICLE 12, HE SUBMITTED THAT THE SERVICES RENDERED BY THE ASSESSEE ARE NOT IN RESPECT OF THE USE OF OR THE RIGHT TO USE OF ANY PATENT, INVENTION, MODEL, DESIGN, SECRET, FORMULA, PROCESS OR TRADEMARK, ETC., AS DEFINED IN PARA 3 OF ARTICLE 12. IT WILL ALSO NOT FALL UNDER IMPARTING OF ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE OR EXPERIENCE OR SKILL , BECAUSE THERE IS NO TRANSFER OF ANY KNOWLEDGE, SKILL, OR EXPERIENCE. HE FURTHER REFERRED AND RELIED UPON PARA 11 OF OECD COMMENTARY ON ARTICLE 12, WHEREIN THE TERM INDUSTRIAL, COMMERCIAL AND SCIENTIFIC EXPERIENCE HAS BEEN EXPLAINE D . HE SPECIFICALLY DREW OUR ATTENTION TO PARA 11.2 AND 11.3 OF THE COMMENTARY . HE SUBMITTED THAT THE CRUCIAL POINT TO SEE IS, GECF ASIA LIMITED 7 WHETHER SUCH SERVICES FALL WITHIN THE AMBIT OF ROYALTY OR WHETHER THERE IS ANY IMPARTING OF KNOWHOW. IF KNOWHOW HAS NOT BEEN TRA NSFERRED THEN THE SERVICES RENDERED ON ACCOUNT OF INDUSTRIAL, COMMERCIAL AND SCIENTIFIC CANNOT BE HELD AS ROYALTY. IN SUPPORT OF HIS CONTENTION, HE STRONGLY RELIED UPON THE FOLLOWING CASE LAWS: 1. M/S. MCKINSEY & CO. (THAILAND) V/S DDIT, ITA NO.7624/MUM. /2010, ORDER DATED 10 TH JULY 2013 2. DDIT V/S PREROY AG, [2010] 39 SOT 187 (MUM.) 3. DIAMOND SERVICES INTERNATIONAL PVT. LTD. V/S UOI & ORS., [2008] 304 ITR 201 (BOM.) 4. JDIT V/S HARVARD MEDICAL INTERNATIONAL, USA, [2012] 13 ITR (TRIB.) 623 (MUM.) 5. SPICE TELECOM V/S ITO, [2008] 113 TTJ 502 (BANG.) 6. KPMG INDIA PVT. LTD., V/S DCIT, [2012] 17 ITR (TRIB.) 569 (MUM.) 7. BHARATI AXA GENERAL INSURANCE CO. LTD. IN RE, [2010] 326 ITR 477 (AAR) 8. ANAPHARN INC., IN RE, [2008] 305 ITR 394 (AAR) 9. KOTAK MAHINDRA PRIMUS LTD. V/S DDIT, [2006] 105 TTJ 578 (MUM.) 10. DDIT(IT) V/S EURO RSCG WORLDWIDE INC. [2013] 153 TTJ 378 (MUM.). 7 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT , WHETHER THE SERVICES RENDERED BY THE ASSESSEE ARE IN THE NATURE OF ROYALTY DEPENDS UPON THE TERMS AND CONDITIONS OF THE AGREEMENT AND THE NATURE OF TRANSACTIONS. ALL THE SERVICES WHICH HAVE GECF ASIA LIMITED 8 BEEN ENUMERATED IN THE AGREEMENT CAN ONLY BE RENDERED BY A PERSON OF AN EXPERIENCE IN VARIOUS FIELDS. HE ALSO DREW OUR ATTENTION TO CERTAIN SERVICES LIKE ACCOUNTING AND FINAL SUPPORT SERVICES FOR WHICH LOT OF EXPERIENCE IS REQUIRED AND NOT ONLY THAT , WHILE RENDERING SUCH SERVICES, THERE IS PARTING OF KNOWHOW ALSO. THE SERVICES RENDERED BY THE ASSESSEE FALL WITHIN THE AMBIT OF GIVING INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE AS APPEARING IN PARA 3 OF ARTICLE 12. HE ALSO REFERRED TO PARA 11.6 OF OECD COMMENTARY, WHICH DEALS WITH THE PRACTICALLY OF THE SITUATIONS IN THE CONTRACTS WHICH COVER B OTH KNOWHOW AND THE PROVISIONS OF TECHNICAL ASSISTANCE. IF ONE PART OF THE SERVICES FALL WITHIN THE AMBIT OF IMPARTING OF KNOWHOW AND OTHER PART FALLS WITHIN THE SERVICES, THEN IT SHOULD BE CONSTRUED AS ROYALTY ONLY. IN THE CASE OF ASSESSEE ALSO, SOME OF T HE SERVICES CAN BE CLASSIFIED AS ROYALTY . 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE IMPUGNED ORDER AND THE MATERIAL PLACED ON RECORD. THE ASSESSEE HAS BEEN RENDERING VARIOUS SERVICES , AS HIGHLIGHTED ABOVE , TO FOREIGN G.E. GROUP COMPANIES AND IN INDIA TO GEMFSL. ADMITTEDLY, THE ASSESSEE DOES NOT HAVE A P.E. IN INDIA AND, THEREFORE, IF ANY RECEIPT WHICH IS TO BE TAXED , WOULD BE IN ACCORDANCE WITH ARTICLE 7 , ONLY AND IN THAT CASE, THE SAME WILL NOT BE TAXABLE IN INDIA. THE ONLY ISSUE OF DISPUTE W HICH REMAINS TO GECF ASIA LIMITED 9 BE ADJUDICATED AFTER THE DIRECTION OF THE DRP IS , WHETHER THE PAYMENT RECEIVED BY THE ASSESSEE IN LIEU OF SERVICES RENDERED TO GEMFSL IS TAXABLE AS ROYALTY UNDER ARTICLE 12(3) OR NOT. IF IT IS A ROYALTY , THE N THE SAME WOULD BE TAXABLE I N INDIA AS PER THE RATES PRESCRIBED UNDER THE TREATY. ARTICLE 12(3), UNDER INDIA THAILAND TAX DTAA READS AS UNDER: ARTICLE 12(3) THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE ALIENATION OR TH E USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK (INCLUDING CINEMATOGRAPH FILMS, PHONOGRAPHIC RECORDS AND FILMS OR TAPES FOR RADIO OR TELEVISION BROADCASTING), ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMU LA OR PROCESS, OR FOR THE USE OF, OR THE RIGHT TO USE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. 9 . THE REVENUES CASE IS THAT THE SERVICES RENDERED BY THE ASSESSEE ARE IN T HE NATURE OF INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE . THE OECD COMMENTARY ON MODEL CONVENTION ON ARTICLE 12, HAS EXPLAINED THE TERM INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE IN THE FOLLOWING MANNER: 11. IN CLASSIF YING AS ROYALTIES PAYMENTS RECEIVED AS CONSIDERATION FOR INFORMATION CONCERNING INDUSTRIAL , COMMERCIAL OR SCIENTIFIC EXPERIENCE , PARAGRAPH 2 ALLUDES TO THE CONCEPT OF 'KNOW - HOW'. VARIOUS SPECIALIST BODIES AND AUTHORS HAVE FORMULATED DEFINITIONS OF KNOW - HOW WHICH DO NOT DIFFER INTRINSICALLY . ONE SUCH DEFINITION , GECF ASIA LIMITED 10 GIVEN BY THE ''ASSOCIATION DES BUREAUX POUR LA PROTECTION DE LA PROPRIETE INDUSTRIELLE' (ANBPPI) , STATES THAT 'KNOW - HOW IS ALL THE UNDIVULGED TECHNICAL INFORMATION , WHETHER CAPABLE OF BEING PATENTED OR NOT , THAT IS NECESSARY FOR THE INDUSTRIAL REPRODUCTION OF A PRODUCT OR PROCESS , DIRECTLY AND UNDER THE SAME CONDITIONS ; INASMUCH AS IT IS DERIVED FROM EXPERIENCE , KNOWHOW REPRESENTS WHAT A MANUFACTURER CANNOT KNOW FROM MERE EXAMINATION OF THE PRODUCT AN D MERE KNOWLEDGE OF THE PROGRESS OF TECHNIQUE' . 11.1 IN THE KNOW - HOW CONTRACT , ONE OF THE PARTIES AGREES TO IMPART TO THE OTHER , SO THAT HE CAN USE THEM FOR HIS OWN ACCOUNT , HIS SPECIAL KNOWLEDGE AND EXPERIENCE WHICH REMAIN UNREVEALED TO THE PUBLIC . IT IS RECOGNISED THAT THE GRANTOR IS NOT REQUIRED TO PLAY ANY PART HIMSELF IN THE APPLICATION OF THE FORMULAS GRANTED TO THE LICENSEE AND THAT HE DOES NOT GUARANTEE THE RESULT THEREOF . 1 1.2 THIS TYPE OF CONTRACT THUS DIFFERS FROM CONTRACTS FOR THE PROVISI ON OF S ERVICES, IN WHICH ONE OF THE PARTIES UNDERTAKES TO USE THE CUSTOMARY SKILLS OF HIS CALLING TO EXECUTE WORK HIMSELF FOR THE OTHER PARTY. PAYMENTS MADE UNDER THE LATTER CONTRACTS GENERALLY FALL UNDER ARTICLE 7. 11 . 3 THE NEED TO DISTINGUISH THESE TW O TYPES OF PAYMENTS , I . E. PAYMENTS FOR THE SUPPLY OF KNOW - HOW AND PAYMENTS FOR THE PROVISION OF SERVICES , SOMETIMES GIVES RISE TO PRACTICAL DIFFICULTIES . THE FOLLOWING CRITERIA ARE RELEVANT FOR THE PURPOSE OF MAKING THAT DISTINCTION : CONTRACTS FOR THE SUP PLY OF KNOW - HOW CONCERN INFORMATION OF THE KIND DESCRIBED IN PARAGRAPH 11 THAT ALREADY EXISTS OR CONCERN THE SUPPLY OF THAT TYPE OF INFORMATION AFTER ITS DEVELOPMENT OR CREATION AND INCLUDE SPECIFIC PROVISIONS CONCERNING THE C ONFIDENTIALITY OF THAT INFORMA TION . IN THE CASE OF CONTRACTS FOR THE PROVISION OF SERVICES, THE SUPPLIER UNDERTAKES TO PERFORM SERVICES WHICH MAY REQUIRE THE USE, BY THAT SUPPLIER, OF SPECIAL KNOWLEDGE, SKILL AND EXPERTISE BUT NOT THE TRANSFER OF SUCH SPECIAL KNOWLEDGE SKILL OR EXPERT ISE TO THE OTHER PARTY. IN MOST CASES INVOLVING THE SUPPLY OF KNOW - HOW , THERE WOULD GENERALLY BE VERY LITTLE MORE WHICH NEEDS TO BE DONE BY THE SUPPLIER UNDER THE CONTRACT OTHER THAN TO SUPPLY EXISTING GECF ASIA LIMITED 11 INFORMATION OR REPRODUCE EXISTING MATERIAL . ON THE OT HER HAND , A CONTRACT FOR THE PERFORMANCE OF SERVICES WOULD , IN THE MAJORITY OF CASES , INVOLVE A VERY MUCH GREATER LEVEL OF EXPENDITURE BY THE SUPPLIER IN ORDER TO PERFORM HIS CONTRACTUAL OBLIGATIONS . FOR INSTANCE , THE SUPPLIER , DEPENDING ON THE NATURE OF T HE SERVICES TO BE RENDERED , MAY HAVE TO INCUR SALARIES AND WAGES FOR EMPLOYEES ENGAGED IN RESEARCHING , DESIGNING , TESTING , DRAWING AND OTHER ASSOCIATED ACTIVITIES OR PAYMENTS TO SUB - CONTRACTORS FOR THE PERFORMANCE OF SIMILAR SERVICES. 11.4 EXAMPLES OF PA YMENTS WHICH SHOULD THEREFORE NOT BE CONSIDERED TO BE RECEIVED AS CONSIDERATION FOR THE PROVISION OF KNOW - HOW BUT , RATHER, FOR THE PROVISION OF SERVICES, INCLUDE: PAYMENTS OBTAINED AS CONSIDERATION FOR AFTER - SALES SERVICE PAYMENTS FOR SERVICES RENDERED BY A SELLER TO THE PURCHASER UNDER A GUARANTEE , PAYMENTS FOR PURE TECHNICAL ASSISTANCE, PAYMENTS FOR AN OPINION GIVEN BY AN ENGINEER, AN ADVOCATE OR AN ACCOUNTANT , AND PAYMENTS FOR ADVICE PROVIDED ELECTRONICALLY, FOR ELECTRONIC COMMUNICATIONS WITH TECHNICIA NS OR FOR ACCESSING, THROUGH COMPUTER NETWORKS, A TROUBLE - SHOOTING DATABASE SUCH AS A DATABASE THAT PROVIDES USERS OF SOFTWARE WITH NON - CONFIDENTIAL INFORMATION IN RESPONSE T FREQUENTLY ASKED QUESTIONS OR COMMON PROBLEMS THAT ARISE FREQUENTLY . EMPHASIS SU PPLIED . 10 . FROM THE ABOVE, IT CAN BE GATHERED THAT THE ROYALTY PAYMENT RECEIVED AS CONSIDERATION FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL, SCIENTIFIC EXPERIENCE ALLUDES TO THE CONCEPT OF KNOWHOW. THERE IS AN ELEMENT OF IMPARTING OF KNOWHOW TO THE OTHER, SO THAT THE OTHER PERSON CAN USE OR HAS RIGHT TO USE SUCH KNOWHOW. IN CASE OF INDUSTRIAL, COMMERCIAL AND SCIENTIFIC EXPERIENCE, IF SERVICES ARE BEING RENDERED SIMPLY AS AN ADVISORY OR CONSULTAN CY , THEN IT CANNOT BE TERMED AS ROYALTY , BECAUSE THE A DVISOR OR CONSULTANT IS NOT IMPARTING GECF ASIA LIMITED 12 HIS SKILL OR EXPERIENCE TO OTHER , BUT RENDERING HIS SERVICES FROM HIS OWN KNOWHOW AND EXPERIENCE. ALL THAT HE IMPARTS IS A CONCLUSION OR SOLUTION THAT DRAWS FROM HIS OWN EXPERIENCE. THE EMINENT AUTHOR KLAUS VOG E L IN HI S BOOK KLAUS VOG E L ON DOUBLE TAX CONVENTION HAS REITERATED THIS VIEW ON DIFFERENCE BETWEEN ROYALTY AND RENDERING OF SERVICES IN THE FOLLOWING MANNER: IMPARTING OF EXPERIENCE: WHENEVER THE TERM ROYALTIES RELATES TO PAYMENTS IN RESPECT OF EXPERIENCE ( KNOWHOW) THE CONDITION FOR APPLYING ART.12 IS THAT THE REMUNERATION IS BEING PAID FOR IMPARTING SUCH KNOWHOW. IN CONTRAST, THE CRITERION USED TO DISTINGUISH THE PROVISIONS OF KNOW HOW FROM RENDERING ADVISORY SERVICES IS THE CONCEPT OF IMPARTING. AN ADVI SOR OR CONSULTANT, RATHER THAN IMPARTING THIS EXPERIENCE, USES IT HIMSELF (BFH BSTBI.II 235 (1971); MINISTER DES RELATIONS EXTERIEURES, REPONSES A M. BOCKEL, 36 DR. FISC. COMMN. 1956 (1984). ALL THAT HE IMPARTS IS A CONCLUSION THAT HE DRAWS INTER ALIA FROM HIS OWN EXPERIENCE. HIS OBLIGATION TO OBSERVE SECRETS, OR EVEN HIS OWN INTEREST IN RETAINING HIS MEANS OF PRODUCTION WILL ALREADY PREVENT A CONSULTANT FROM IMPARTING HIS EXPERIENCE. IN CONTRAST TO A PERSON USING HIS OWN KNOW= HOW IN PROVIDING ADVISORY S ERVICES, A GRANTOR OF KNOW HOW HAS NOTHING TO DO WITH THE USE, THE RECIPIENT MAKES OF IT. 11 . THE THIN LINE DISTINCTION WHICH IS TO BE TAKEN INTO CONSIDERATION WHILE RENDERING THE SERVICES ON ACCOUNT OF INFORMATION CONCERNING INDUSTRIAL , COMMERCIAL AND SCIE NTIFIC EXPERIENCE IS , WHETHER THERE IS ANY IMPARTING OF KNOWHOW OR NOT. IF T HERE IS NO ALIENATION OR THE USE OF OR THE RIGHT TO USE OF ANY KNOWHOW I.E., THERE IS NO IMPARTING OR TRANSFER OF ANY KNOWLEDGE , EXPERIENCE OR SKILL OR KNOWHOW , THEN IT CANNO T BE TERMED AS ROYALTY . THE SERVICES MAY HAVE BEEN RENDERED GECF ASIA LIMITED 13 BY A PERSON FROM OWN KNOWLEDGE AND EXPERIENCE BUT SUCH A KNOWLEDGE AND EXPERIENCE HAS NOT BEEN IMPARTED TO THE OTHER PERSON AS THE PERSON RETAINS THE EXPERIENCE AND KNOWLEDGE OR KNOWHOW WITH HIMSEL F, WHICH ARE REQUIRED TO PERFORM THE SERVICES TO ITS CLIENTS . HENCE, IN SUCH A CASE, IT CANNOT BE HELD THAT SUCH SERVICES ARE IN NATURE OF ROYALTY . THUS, IN PRINCIPLE WE HOLD THAT IF THE SERVICES HAVE BEEN RENDERED DE HORS THE IMPARTING OF KNOWHOW OR TRA NSFER OF ANY KNOWLEDGE, EXPERIENCE OR SKILL, THEN SUCH SERVICES WILL NOT FALL WITHIN THE AMBIT OF ARTICLE 12. SINCE NEITHER THE ASSESSING OFFICER NOR THE DRP HAS EXAMINED THE NATURE OF SERVICE RENDERED BY THE ASSESSEE FROM THIS ANGLE THEREFORE, WE ARE OF T HE OPINION THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE NATURE OF SERVICES IN LINE OF THE PRINCIPLES DISCUSSED ABOVE. IF SUCH SERVICES DO NOT INVOLVE IMPARTING OF KNOWHOW OR TRANSFER OF ANY KNOWLEDGE, EXPERIEN CE OR SKILL, THEN IT CANNOT BE HELD TO BE TAXABLE AS ROYALTY. SINCE THE ISSUE OF FTS IS NOT THE SUBJECT MATTER OF DISPUTE AFTER THE DIRECTION OF THE DRP, HENCE, WE ARE NOT EXPRESSING ANY OPINION ON FTS. THUS, GROUND NO.1 AND 2, ARE TREATED AS PARTLY ALLOWE D FOR STATISTICAL PURPOSES . 12 . GROUND NO.3, RELATES TO INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C), WHICH IS NOT ONLY PRE MATURE BUT HAS ALSO BECOME GECF ASIA LIMITED 14 INFRUCTUOUS IN VIEW OF OUR FINDINGS GIVEN ABOVE. CONSEQUENTLY, GROUND NO.3, IS DISMISSED AS INF RUCTUOUS. 13 . 1 3 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. 6 TH AUGUST 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 6 TH AUGUST 2014 SD/ - . . B.R. BASKARAN ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 6 TH AUGUST 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHU RY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI