TaxTMI 
TaxTMI 
2014 (7) TMI 260
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.... to tax @ 15% on gross basis in India as per tax rates specified in the DTAA. Before proceeding further, it is relevant to mention that JC Bamford Excavators Ltd., UK (JCBE), another group company, was also incorporated under the laws of and is tax resident of UK. On 05.03.04, JCBE entered into Technology Transfer Agreement (TTA) with JC Bamford India Ltd. (JCBI) to license the know-how and related technical documents consisting of all drawings and designs with an exclusive right to manufacture and market Excavator Loader (P-92 version) in the territory of India under the brand name 3DX. On 17.12.07, JCBE, JCBI and the assessee entered into a tripartite Intellectual Property Agreement, pursuant to which JCBE's licence of intellectual property, given to JCBI for manufacturing and marketing 3DX in India, was sublicensed to the assessee company in consideration of the payment of royalty by the assessee to JCBE. Under the new Agreement, the licence was to be commercially exploited by JCBI as was done earlier, but the royalty for such user was to be paid by JCBI to the assessee, who was to pass on 99.5% of the same to JCBE. That is how, the assessee derived income in the nature of Royal....
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....gainst the holding of its service PE in India. 4. We have heard the rival submissions and perused the relevant material on record. It is observed that in the earlier years, JCBE licensed intellectual property rights for manufacture of excavators under the brand name 3DX to JCBI. However, by virtue of new Agreement entered on 17.12.07 w.e.f. 01.04.07 amongst the assessee, JCBE and JCBI, the intellectual property rights came to be sub-licensed to the assessee without interfering in any manner its actual exploitation by JCBI. All the terms and conditions for the use of such rights by JCBI under TTA and IPAA are same. The only difference that came into the hitherto arrangement was that whereas earlier JCBI was paying royalty directly to JCBE, now it is being routed through the assessee with the deduction of 0.05%. The question of a service PE of JCBE in India came up for consideration before the Tribunal for assessment years 2006-07 and 2007-08. Vide its order for the AY 2006-07, the tribunal categorized employees of JCBE on deputation to India on assignment basis in the first category and those doing stewardship activities and inspection and testing in the second category. JCBI has b....
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....he service PE of the assessee is established in India. These grounds are, therefore, not allowed. 5. The next major issue raised through various grounds is against the holding by the AO that the royalty earned by the assessee was effectively connected with the service PE of the assessee in India. We find that similar issue was there and has been elaborately discussed in the afore stated order of the tribunal for the earlier years. The tribunal has held that the total amount consisting Lumpsum Licence/Know-how Fees and also royalty as mentioned in para 2.2 of TTA was consideration for the transfer of IP rights simplicitor and also the service rendered by the employees of the second category. The Tribunal further held that in so far as the question of royalty representing consideration for the transfer of IP rights simplicitor was concerned, the service PE representing the deputationists had no role to play either in creating or making it available to JCB India. That is how the Tribunal came to hold that the same was not effectively connected with the service PE of the assessee in India. The amount of royalty and consideration for rendering of services by the employees of second cat....
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....er words, the contention was that since it was JCBE who was the beneficial owner of the royalty received from JCBI and not the assessee, Article 13(2) of the DTAA will cease to apply and resultantly, the assessee should be subjected to tax as provided under the domestic law. 9. We have heard the rival submissions and perused the relevant material on record. In our considered opinion, the CO deserves to be dismissed on two distinct counts. 10. The first reason is that the CO of the Revenue is not maintainable as per law. Section 253(1) of the Act deals with the filing of appeals by the assessee before the tribunal against the orders specified therein. Sub-section (2) of section 253 empowers the Revenue to file appeal before the tribunal. This section provides that the CIT may, if he objects to any order passed by the CIT(A) u/s 154 or 250, direct the Assessing Officer to appeal to the Appellate Tribunal against the order. This section does not embrace cases where the first appeal lies to the tribunal against the order passed by the Assessing Officer u/s 144C(13) pursuant to the direction given by the Dispute Resolution Panel (DRP) u/s 144C(5) of the Act. This is in a sharp contras....
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....been clothed with such power by the Finance Act, 2012, provided the objection was filed by the assessee before the DRP on or after 01.07.12. Thus, it becomes palpable that the Department has no power to file appeal or object to the any direction issued by the DRP in pursuance of which the Assessing Officer passed order u/s 144C, if the assessee filed objection before the DRP before this cut-off date of 1.7.2012. Adverting to the facts of the instant case, we find that the assessee filed objection against the draft assessment order before the DRP on 30.01.2012. Since the objection in this case was filed by the assessee before the DRP prior to 01.07.12, the Revenue could have neither filed appeal nor cross objection against the order of the Assessing Officer. We, therefore, hold that the cross objection filed by the Revenue is not maintainable as per law. 11. The second reason for which the CO of the Revenue deserves the fate of dismissal is the language of section 253 of the Act which permits the CIT to authorize the Assessing Officer to file appeal u/s sub-section (2A) 'if he objects to any direction issued by the Dispute Resolution Panel under sub-section (5) of section 144C'. In....
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....eneficial owner of the royalty and hence the same should be charged to tax at the lower rate of 15% as provided under the DTAA. When the position is so, we fail to see as to how the Revenue can rake up such issue through the CO. It goes without saying that right to appeal is a statutory right provided to the aggrieved party. The same can be exercised strictly in accordance with and as per the terms of the relevant provision. If the law does not specifically or generally confer such a right against a particular action of the authorities, then the same cannot be inferred. Turning to the facts of the instant case, we find that the section 253 of the Act does not give any right to the Revenue to appeal against a non-finding of the Assessing Officer or the DRP, as the case may be. The natural corollary which ergo follows is that the instant CO of the Revenue lacks the necessary mandate so as to become eligible for consideration and adjudication. 13. We, therefore, hold that the CO filed by the Revenue is not maintainable. The same is liable to be and is hereby dismissed. 14. At this juncture, it is relevant to note that the assessee claimed the entire receipt as royalty chargeable to ....
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....t be extended to it as it is not beneficial owner and, hence, the taxability of royalty should be determined as per section 115A(1)(b) of the Act. 16. After considering the rival submissions and perusing the relevant material on record, we find that section 90(2) of the Act provides that : 'Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.'. The effect of this section in unequivocal terms is that the provisions of the Act or the DTAA, which ever are more beneficial to the assessee, apply. In so far as the instant issue is concerned, the provisions of Art. 13(2) of the DTAA providing for lower rate of tax, being more beneficial to the assessee, shall apply if it is found to be covered within the mandate of para 2 of the Article 13 of the DTAA. In the otherwise situation, the issue would be decided in the fa....
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....stant case is not the assessee, but JCBE, the lower rate of tax as provided under para 2 of Article 13 would not be available. 21. Before going ahead, we need to ascertain the meaning of the term 'beneficial owner', which has neither been defined under the Act nor the DTAA. In common parlance, a beneficial owner of a particular income is the one who is entitled to such income in his own right. Sometimes, a beneficial owner may turn out to be a person different from the immediate recipient or formal owner or recipient of income. Commentary on the Double Taxation Convention states that the 'Beneficial ownership' is 'an ownership which is not merely the legal ownership by the mere fact of being on the register but the right at least to some extent to deal with the property as your own'. Hence the 'beneficial owner' is he who is free to decide (i) whether or not the capital or other assets should be used or made available for use by others or (ii) on how the yields there from be used or (iii) both. The DTAA applies to persons who are residents of one or both of the Contracting States. As such, the benefits of the Treaty are meant to be given only to the residents of such States and no....