TaxTMI 
TaxTMI 
2012 (12) TMI 665
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....stance in client coordination as Royalty under Article 12 of India-USA Treaty. 2. On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in directing to tax @10% instead of @15% as Fees for included service on the payment received for creative fees and data base cost on amount of Rs. 48,03,630/- as provided for in the Indo-USA DTAA". 2. Brief facts are that the Euro RSCG Worldwide Inc, New York is a company incorporated under the laws of USA. Assessee is a resident of USA. Accordingly as per section 90(2) of the Income Tax Act, 1961, assessee has opted to be taxed as per provisions of Double Taxation Avoidance Agreement (DTAA) between India and the USA. Euro RSCG Worldwide Inc acts as a com....
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....3. Assessee filed return of income on 10-12-1999 showing total income at Nil claiming that the payments received from ERAPL are taxable as business profit under Article 7 of India-US DTAA and since assessee has no PE in India, the said receipts are not taxable in India. AO however, did not agree and held that these amounts are in the nature of royalty and taxed @15%. 4. In appeal, the learned CIT (A) considered the nature of the services rendered and the fees paid and held that the amount received from EARPL towards client coordination fees is in the nature of business profits and since assessee does not have a permanent establishment in India, the question of taxability of impugned amount does not arise in the absence of PE as provided ....
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.... process by EARPL is not tenable. Therefore, the client coordination fees are not royalty. The AR further referred the Tribunal decision in the case of an associate company M/s Euro RSCG (s) Pte Ltd (one of the group companies of Euro RSCG Worldwide Inc [ITA No.7561/Mum/2004 (AY 99-00) dated 8-10-2009] the L Bench of Tribunal held that the amount of Rs. 5,155,840 representing as coordination fees was not taxable on the ground that the assessee company does not have PERMANENT ESTABLISHMENT (copy of the order is filed and placed on record). The AR also relied in the case of Cushman % Wakefield(s)Pte Ltd (218 CTR 238) (AAR) wherein it was held that referral fees received in Singapore by applicant, from Indian company is not royalty nor accrued....
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.... for in Article 7 of DTAA. In view of these facts, this ground of appeal is decided in favour of the appellant". Nothing was brought on record to counter the findings of the CIT (A). Considering the nature of the payment and the order in the group company by ITAT which was relied on by the CIT (A), we agree on his findings and dismiss Ground No.1. 7. Ground No.2 is with reference to the benefit of allowing lower rate of tax under Article 12 of Indo-US DTAA. As briefly stated AO taxed the entire amount at 15% as royalty whereas the CIT (A) held only two amounts are to be considered as fee for included services. However, assessee contested before the CIT(A) the application of rate of tax at 15% as an alternate ground stating that in cas....
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....laws of that State; but if the beneficial owner of the royalties or fees for included services is a resident of the other Contracting State, the tax so charged shall not exceed: (a) in the case of royalties referred to in sub-paragraph (a) of paragraph 3 and fees for included services as defined in this Article (other than services described in sub-paragraph (b) of this paragraph): (i) during the first five taxable years for which this Convention has effect, (A) 15 per cent of the gross amount of the royalties or fees for included services as defined in this Article, where the payer of the royalties or fees is the Government of that Contracting State, a political sub-division or a public sector company; and (B) 20 pe....
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....) from activities described in paragraph 2(c) or 3 or Article 8. 4. For purposes of this Article, 'fees for included services' means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know- how, or processes, or consist of the development and transfer of a technical plan or technical design. 5. Notwithstanding paragraph 4, 'fees for included ser....