2015 (5) TMI 708 - AT - Income Tax

Tribunal dismisses 'Royalty' classification but allows relocation expenses appeal for re-examination

M/s. Intel Services, LLC (formerly known as Intel Services Inc), C/o Intel Technology India Pvt. Ltd. Versus Deputy Director of Income-tax

The Tribunal dismissed the grounds related to the classification of receipts as 'Royalty' under section 9(1)(vi) of the Income-tax Act and Article 12 of ... Royalty u/s 9(1)(vi) - Nature of amount received towards supply of software by the Parent company to (non-resident) to Intel Technology India Private Limited on account of software expenses - DTAA between India and the USA - Held that:- In the absence of any evidence to the effect that the assessee has supplied software license to the Indian company and the Indian company was obliged under the agreement to reimburse the expenses of such software license, we are not inclined to accept the contention of the assessee that it is only reimbursement of expenses and not chargeable to tax in India. As regards the alternative contention that the said receipt is not chargeable to tax as royalty, we find that the issue is squarely covered against the assessee by the decision of the Hon’ble Karnataka High Court in the case of Samsung Electronics Co. Ltd ( 2011 (10) TMI 195 - KARNATAKA HIGH COURT) wherein held that payments to non-resident software supplies for purchase of shrink-wrapped software was in the nature of royalty - Decided against assesse. Re-imbursements of relocation expenses - Held that:- As find that the assessee has filed sample evidence relating to April and May 2004 in support of its claim of relocation and related expenses. From these details, it is clear that the Indian company has incurred expenses on account of employees who are deputed to Indian company. Whether these reimbursements are cost to cost basis and whether these also form part of the fees for technical services needs to be examined by the AO in the light of the evidence produced by the assessee. As the additional evidence filed before us goes to the root of the matter, we are inclined to admit the same and remand the same to the file of the assessing authority with a direction to reconsider the issue de novo. The assessee may file all the required details before the assessing authority. - Decided in favour of assesse for statistical purposes. Issues Involved:1. Treatment of Rs. 26,80,32,271 received from ITIPL as 'Royalty' under section 9(1)(vi) of the Act read with Article 12 of the DTAA.2. Treatment of Rs. 1,59,68,374 received from ITIPL as 'Royalty' under section 9(1)(vi) of the Act read with Article 12 of the DTAA.3. Treatment of Rs. 7,31,91,290 received from ITIPL as part of Fee for Technical Services (FTS)/Fees for Included Services (FIS).4. Whether the reimbursement of relocation expenses of Rs. 7,31,91,290 qualifies as FIS under Article 12 of the Treaty.Detailed Analysis:1. Treatment of Rs. 26,80,32,271 as 'Royalty':The assessee contested the classification of Rs. 26,80,32,271 received from ITIPL as 'Royalty' under section 9(1)(vi) of the Income-tax Act, 1961, and Article 12 of the DTAA between India and the USA. The assessee argued that this amount was merely a reimbursement of expenses incurred on behalf of ITIPL. However, the Tribunal referred to its previous decision in the assessee's own case for the assessment year 2006-07, where it was held that the absence of agreements substantiating the reimbursement claim led to the classification of the receipts as 'Royalty'. The Tribunal followed the jurisdictional High Court's decision in Samsung Electronics Co. Ltd. vs. CIT (345 ITR 494), which held similar receipts as 'Royalty'. Thus, the Tribunal dismissed the assessee's grounds 1(a) and 1(b).2. Treatment of Rs. 1,59,68,374 as 'Royalty':Similar to the first issue, the assessee argued that Rs. 1,59,68,374 received from ITIPL for IT programs was a reimbursement and not 'Royalty'. The Tribunal again referred to its prior decision and the High Court's ruling in Samsung Electronics Co. Ltd. vs. CIT, concluding that the receipts were indeed 'Royalty'. Consequently, grounds 2(a) and 2(b) were dismissed.3. Treatment of Rs. 7,31,91,290 as Fee for Technical Services (FTS)/Fees for Included Services (FIS):The assessee contended that Rs. 7,31,91,290 received for relocation expenses should not be classified as FTS/FIS. The Tribunal noted that in the earlier assessment year 2005-06, it had remitted the issue back to the AO for fresh consideration and verification of whether the receipts were mere reimbursements. The Tribunal allowed the assessee to present evidence to substantiate its claim. The Tribunal directed the AO to reconsider the issue de novo, allowing the assessee to file all required details. Grounds 3(a) and 3(b) were allowed for statistical purposes.4. Reimbursement of Relocation Expenses as FIS:The assessee argued that even if the reimbursement of Rs. 7,31,91,290 was connected with services rendered in India, it should not qualify as FIS under Article 12 of the Treaty. The Tribunal, referring to its previous directions, instructed the AO to determine the nature of the receipts and whether they constituted FIS as per the Agreement between the assessee and ITIPL. Ground 4 was also allowed for statistical purposes.Conclusion:The Tribunal dismissed the grounds related to the classification of receipts as 'Royalty' but allowed the grounds concerning the reimbursement of relocation expenses for statistical purposes, directing the AO to re-examine the evidence. Ground 5 was deemed general and required no adjudication. The appeal was partly allowed for statistical purposes.