TaxTMI 
TaxTMI 
2015 (4) TMI 503
X X X X Extracts X X X X
X X X X Extracts X X X X
....on received by the appellant under the DTAA is to be assessed as royalty and not as business profits ?" 3. The following are the substantial questions of law raised in the assessee's appeal : "(i) Whether in the facts and circumstances of the case, the Tribunal was right in deciding the issue without considering whether the assessee had satisfied the condition of carrying on a business in India ? (ii) Whether on the facts and circumstances of the case, the entire receipts of the assessee from its collaborator in India only be taxed as 'royalty' ?" 4. The assessee herein is a non-resident company of Thailand. It entered into technical assistance know-how agreement on 19th March, 1990 with M/s Mohan Breweries & Distilleries Ltd. (MBDL). A reading of the agreement dt. 19th March, 1990 shows that M/s MBDL decided to establish a container glass plant in the Union Territory of Pondicherry in India, and accordingly MBDL entered into an agreement with the assessee herein for transfer of glass technology know-how. Thus, the agreement herein speaks about transfer of know-how relating to engineering, design equipment procurement, operating and manufacturing technology ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urnace - forehearth - feeder and production techniques - surface coating - annealing lehrs - cold and sorting and packaging - quality control - internal transport and warehouse - laboratory know-how - mould design and maintenance - energy : electricity, gas and oil - water and waste water - light weighing glass containers. (b) Management problems - production control : daily, monthly and yearly - control of efficiencies of production machines on the basis of international standards (MPA) and BCI systems - control of costs, administration and accounting advice - computerization. 7. Article IV touches on technical training on the following terms : BCI is prepared to train people of MBDL within its training possibilities in its training centre as well as in production practice. According to the qualification of the trainer BCI will undertake training in following items : - tank operation - sorting - machine operation - mould design and maintenance - elements of batch calculation - laboratory (chemistry, physics and microscopy) - maintenance systems and spare parts organisation - computerization. 8. In ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quired the presence of consultants of the assessee company for a fairly long period. The assessee was to give training in India and abroad to the personnel of the Indian company. For the stay in excess of 32 man-months, an additional fee for attendance of the assessee's personnel was to be paid. So too for attendance of Indian personnel for training abroad. If it exceeded 31 months, additional payments were to be made. Thus, on the additional payment of 6,61,390 USD, the CIT(A) held that barring a sum of 4,79,640 USD, which would be treated as royalty, the receipt of the amount of 1,12,000 USD and 69,750 USD would be treated as fee for technical services received by the assessee company, which would have to be considered for taxation under art. 7, subject to the condition that the assessee had a PE in India. The CIT(A) pointed out that the DTAA with Thailand providing for consultancy over 183 days would require the existence of a PE. When the technical services such as consultancy had been dealt with under the DTAA and such receipts forming part of the business profits of the assessee, subject to an enquiry as to the existence of a PE as required under art. 7, such receipt woul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....us clauses in the agreement between the parties, the Tribunal held that there was no infirmity in the order of the CIT(A) and thus it confirmed the remand order of the CIT(A) to find out whether there was a PE. Having upheld the order of the CIT(A), the Tribunal also held that art. 22 had no relevance as far as the royalty and fee for technical services contemplated under the agreement were concerned and the said article would come into play only when the item of income did not fall for consideration under any of the express provisions of the DTAA. In other words, it held that art. 22 was concerned about miscellaneous income not covered under any of the provisions of DTAA. Thus holding that royalty and fee for technical services contemplated under the agreement were taxable under art. 12 and art. 7 respectively, the Tribunal held that art. 22 could not be invoked. Having stated so, surprisingly, in para 9 of the order, the Tribunal once again considered art. 22 only to hold that the portion of fee for technical services arising in India was to be taxed in accordance with section 115(1)(b). Referring to section 9(1)(vii)(b) of the Act, which deals with income by way of technical ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rprise carries on business in the Contracting State through a PE situated therein. The taxability is only so much of the income as is attributable to that PE for sale in that other State, the goods or merchandise. 16. Article 12 defines "royalty" as follows : "The term 'royalties' as used in this article means payments of any kind [ received as a consideration for the alienation or the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematography films, phonographic records, and films or tapes for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula 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." Sub-art. (4) to art. 12 states that where the assessee being resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a PE situated therein, or performs in that other State independent personal services from a fixed base situated therein, the provisions of art. 7 or art. 15, as the case may b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ITR 774 as well as the decision of the Tribunal which "was relied on by the assessee. Given the fact that the services rendered by the assessee covered transfer of know-how as well as giving, technical assistance and technical advise, learned counsel appearing for the assessee pointed out that what went in as by way of technical advice was with reference to the resolving of the day-to-day problems in the implementation of the transfer of technical know-how. The technical advice given related to resolving the issues in the actual working of the transferred knowledge and there was no transfer of technical know-how to fall for consideration under the head of "royalty", hence, the entire payment has to be treated as falling for consideration between payment of royalty and payment of rendering technical advice. On going through arts. 2 and 3 of the agreement between the assessee and the Indian company, we agree with the view of the CIT(A) that the entirety of the payment cannot be considered as one falling for consideration under art. 12. Further, taking note of the fact that the assessee company was also involved in training Indian personnel i....