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2019 (7) TMI 419
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.... global card / payment network. The return of income for the A.Y.2014-15 was filed by the assessee on 26/03/2015 declaring total income of Rs. Nil and assessee had offered Rs. 4,92,37,120/- as royalty income under Double Taxation Avoidance Agreement (DTAA). The assessee had entered into Network Participation Agreement (hereinafter referred to as 'agreement') with Citi Bank N.A. dated 30/06/2008 pursuant to which the assessee granted non-exclusive right to Citi Bank N.A. for using the knowhow, the technical process etc., and received participation fee thereon. The assessee duly offered the said income of participation fee as royalty in its regular return of income in terms of specific clause contained in DTAA between India and USA. On this fact, there is no dispute. The said agreement was to expire on 30/06/2016 as the original agreement entered was for a period of eight years. However, the Citi Bank thought it fit to terminate the said agreement and accordingly, entered into yet another agreement with the assessee on 07/01/2014 to terminate the agreement w.e.f. 31/12/2014. The said termination agreement / understanding mandated Citi Bank N.A to pay a compensation of USD$ 10 lakhs e....
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....reement on and as of the Effective Date; The relevant definitions of certain expressions used in the agreement are as under:- DD. Diners Club Acquiring Business- The business of establishing and maintaining relations and arrangements with Member Establishments and International Member Establishments to permit the use of Cards and Accounts for purchasing goods and services, in accordance with the terms of this Agreement and the IOM, EE. Diners Club Card Business - The Diners Club Issuing Business and the Diners Club Acquiring Business, collectively, FF. Diners Club Issuing Business- The business of issuing Cards and Accounts to Card members and Customers and servicing the use of Cards and Accounts, the provision of other related services to Card members or Customers, in accordance with the terms of this Agreement and the IOM. GG. Diners Club Network- The worldwide system, currently identified by the use Member Establishments, permitting the provision of services to Card members and Customers, Establishments and International Member Establishments. HH. Diners World Settlement Systems- The internat....
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.... to Section 2.1D, to operate a Diners Club Issuing Business in the Territory and exclusively (as to all persons other than DCI and its Affiliates) use in the Territory all Know-How and DCI Merchant Data relevant to the operation of the Diners Club Issuing Business in the Territory; (ii) the non-exclusive right to operate a Diners Club Acquiring Business in the Territory and use all Know-How and DCI Merchant Data relevant to the operation of the Diners Club Acquiring Business in and (iii) the right to access the Diners Club Network for the purposes described In Clauses (i) and (ii) above (whether or not the network is called the Diners Club Network and regardless of what other names or trademarks are used by said network), in each case during term of this Agreement and for the purposes of operating such Diners Club Card Businesses, but for no other purpose. B. Subject to the terms and conditions of this Agreement, the Trademark License Agreement and the IOM, Participant access the grant of the rights described in Section 2,1 A hereof and agrees that it shall not conduct its Diners Club Card Business outside the Territory, except to the extern that it is party to anot....
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....do-US DTAA, on which fact, there is no dispute before us. 5.2. Now, it would be relevant to look into the relevant clauses of the termination agreement dated 07/01/2014 entered into between Citi Bank, N.A. and assessee which was entered at the behest of Citi Bank N.A, pursuant to which the original agreement dated 30/06/2008 stands terminated effective from 31/12/2014. The relevant clauses in the said termination agreement are reproduced herein below. "Based on our prior discussions and exchange of "proposals for conclusion of this matter, we now set fort; our understanding of the terms and conditions that we have agreed upon for our final agreement: NPA Termination - As of the date of this Agreement, Citibank shall no longer have any right to issuers Diners Club cards in the Territory defined in the NPA. The NPA shall be terminated effective as on December ,31, 2014. As consideration for the payment by Citibank pursuant to the terms of this Agreement, DCI waives its rights related to Excluded Merchant Data and Customer Data under Sections 4 of the NPA. Disposition of Existing Diners Club Accounts- With effect from the date ....
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....ow, technical process, secrets etc to Citi Bank N.A. upto the period ending 31.12.2014 as per the original Network Participation Agreement dated 30.6.2008 and had also received 'participation fee' thereon for the same period and had offered the same to tax as royalty. In addition to this, the assessee had received termination compensation of Rs. 6.22 crores from Citi Bank N.A.. Pursuant to the termination agreement dated 7.1.2014 with effective date from 31.12.2014 and pursuant to receipt of compensation thereon to the tune of Rs. 6.22 crores , the assessee had not provided any technical knowhow, technical process, secrets, etc as provided in the original agreement dated 30.6.2008 to Citi Bank N.A.. Hence the subject mentioned compensation receipt cannot be attributed for the use of those knowhow, process, secrets etc. 5.4. We find that the term 'Royalty' is defined in the Act u/s.9(i)(vi) as under:- "Income deemed to accrue or arise in India. 9. (1) The following incomes shall be deemed to accrue or arise in India :- (vi) income by way of royalty payable by- (a) the Government ; or ....
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....ty ; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v)." 5.5. We find that the term 'royalty' is also defined in Indo-US DTAA as under:- ARTICLE 12 ROYALTIES AND FEES FOR INCLUDED SERVICES "3. The term "royalties" as used in this Article m....
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....eceived or receivable, in cash or kind, under an agreement for- (a) not carrying out any activity in relation to any business or profession; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services: Provided that sub-clause (a) shall not apply to- (i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business [or profession], which is chargeable under the head "Capital gains"; (ii) any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India. Explanation.-For the purposes of this clause,- (i) "agreement" includes any arrangement or understanding or action in....