TaxTMI 
TaxTMI 
2020 (3) TMI 1438
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....1A) of the Act are time barred and in this regard, the assessee has placed reliance on the judgment by the Hon'ble Karnataka High Court rendered in the case of Bharat Hotels Ltd (2016) 384 ITR 77(Kar.) as per ground no. 2.2 raised by the assessee in ITA No.490(B)/2019 and similar ground in all remaining appeals. 2.1 On merit, this is the grievance of the asessee that all these appeals relate to the impugned payment made by the assessee during these 7 years towards marketing services and fees for facilitation services and the same cannot be considered as fees for technical services (FTS) or royalty u/s 9(i)(vi) & (vii) of IT Act, 1961 r.w. Article-12 of India-USA-DTAA. 3. Regarding time barring aspect, ld. AR of the assessee has placed reliance on the Tribunal order rendered in the case of Wipro Limited Vs Addl. CIT in ITA No.1215 to 1220(B)/2014 in support of this contention that at least the orders passed by the AO u/s 201(1)( and 201(1A) of the Act for FY: 2010 - 11 relevant to AY: 2011 - 12 are barred by limitation because it was held by the Tribunal in this case as per para-99 of this Tribunal order that period of limitation for initiation of proceedings for resident as w....
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....en submissions after the hearing was over and for ready reference, we reproduce the same herein below; SYNOPSIS by the learned DR of the revenue 1. Ground 1: General 2. Ground 2: Limitation 2.1. For the year under consideration as the law stood then or even now no period of limitation was is prescribed under section 201 for exercise of power thereunder in context of Non-Residents. Subsection 3 to section 201 was inserted vide Finance Act 2009 with effect from 01/04/2010. The objective of insertion of this section was explained in the memorandum to the Finance Bill 2009 which is reproduced in the order of CIT Appeal at page 28 (page 42 of Assessee's paper book). 2.2. The Memorandum clearly States that no time limits have been prescribed for the order under section 201(1) where the deductee is a nonresident as it may not be administratively possible to recover th tax from the Non Resident. Thus the legislative intent has been amply brought out in the memorandum when it is stated the limitation shall not apply in the case of non residents. Reliance is placed on the following decisions: a) In the case of Uttam Namdeo Mahale wherein Hon'ble Supreme Court ....
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....rch data etc is in the nature of Royalty. 3.2. It is further submitted that the information provided by the Non Resident entity to the assessee is not in public domain and is solely made available to assessee for economic benefit to be derived from such information. It is a case of payment for use of information concerning commercial experience and squarely falls within the definition of Royalty as per Article 12(3)(a) of Indo-US DTAA(DTAA and the relevant Article are at Page 123 of Assessee's Paper Book). 3.3. Strong Reliance is placed on the decision of Jurisdictional ITAT in case of TNT Express Worldwide (UK) (Annexure 9). 3.4. The Hon'ble ITAT, on similar facts, held that "it appears to be a composite agreement for providing various services, some of which are purely business commercial practice & contract services and others are in the nature of imparting the knowledge, experience, which concern the commercial or business experience.". The payments were held to be in the nature of Royalty. This order dealt with commentary in OECD Model Tax Convention which is a relevant guide for deciding the nature of payment whether it is Royalty or business income. (Relevan....
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.... ancillary and subsidiary to the application or enjoyment of the right, property or information for which payment of Royalty is made, then there is no application of "Make Available" clause. This clause is required to be satisfied ONLY if the payment is for technical or consultancy services falling within clause (b) of Article 12(4). Hence the arguments of the appellant are not tenable. 6.2. Notwithstanding the above contention, the requirement of "Make Available" is not confined to "technology". As is clear from Article 12(4)(b), it involves making available 'technical knowledge', 'experience', 'skill', 'know how' OR processes. The word "OR" is important. The mail correspondence (provided by assessee during the proceedings) abundantly makes it clear that the experience and skill has been made available, thus satisfying the "Make Available" clause of DTAA. Copies of mail correspondence are at Annexure 6 & 7. Relevant Pages are as follows: Page No Email dated Email From Email To 61 02/12/2016 Todd Brownrout (of Ad2Pro.USA) Kartic, employee of Assessee Company 62 02/12/2016 Todd Brownrout (of Ad2Pro.USA) Kartic....
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....that US entity has to constantly perform critical analysis and updation of the market". This finding of the AO has not been disputed by the assessee. 7. Ground 3.6.1 to 3.6.2: Royalty (already discussed) 8.Ground 3.6.3 to 3.6.7 : Not argued by Ld AR on 20/01/2020. 9. Ground 3.7 : Royalty (already discussed) 10.Ground 4: Acceptance by Department in Proceedings u/s 143(3) r.w.s 144A. 10.1. Assessee claims that this issue was already discussed by Corporate AO and the payment was accepted without any disallowance. 10.2. This claim deserves to be rejected for the following reasons: 1) Ld AR filed a 'Note' on Pg 414, claiming to have filed it before that AO. No evidence was furnished as to whether this was actually filed before that AO and whether that AO had made enquiry on this issue. 2) The orders of Corporate AO are dated 24/02/2015 & 27/03/2013 ie much prior to the facts called out during survey on 11/07/2017 by AO in International Taxation. The order passed by the present AO is dt 16/02/2018 after detailed inquiry & based on survey material. 3) The AOs in International Taxation have domain knowledge. 4) If the Corporate AO made an error, there ....
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.... goal is to help customers increase their creative capacity, reduce turnaround times and streamline the creative process. 2.2 As a part of its business strategy, the Appellant has a 100% subsidiary in US named Ad2pro Media Solutions Inc, (Hereinafter referred to as the "AMSI") based in California USA. AMSI provides marketing services to AMSPL. The consideration is based on Cost-plus Model. Further, AMSI does not have any establishment or Business connection in INDIA and more importantly does not.own any technology in providing these marketing services. 2.3 A survey was conducted under Section 133A(2A) on 11.07.2017 by the Learned Deputy Commissioner of Income Tax (IT), Circle 1(1), Bengaluru [Assessing Officer] for the purpose of verifying the deduction of tax at source and accordingly verification was carried out in the business premises of Appellant. 2.4 During the survey the Learned Assessing Officer sought details in respect of foreign remittances made by the Assessee to Ad2Pro Media Solutions, Inc, USA (AMSI, USA), [a wholly owned subsidiary company of Appellant]. The Learned Assessing Officer issued detailed questionnaire seeking the information on the nature of serv....
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....relating to pre amendment assessment year. In our opinion, after the amendment of law same logic and limitation is required to be applied for non-resident well as resident thus treating non-resident at par with resident. In other words, period of imitation for initiation of proceedings for resident as well as non-resident u/s 201 should be 6 years from the end of the financial year. Further the payer is required to maintain books of account and deduct TDS for both resident as well as non-resident. No Separate treatment had been envisaged under the Act, for the payer paying to a non-resident. " [Emphasis Supplied] 3.2 Wherefore, in view of the above submissions, since the order under Section 201 & 201(1A) of the Act for the financial year 2010-11 is passed after a period of 7 years, it is prayed for appropriate relief holding that the order u/s Sections 201 & 201(1A) of the Act for the assessment year 2011-12 are barred by limitation. 3.3 The Appellant further submits that with regard to Assessment Years 2012-13, 2013-14 & 2014-15, the orders passed u/s 201 & 201 (1A) are also beyond limitation in terms of provision contained in sub section (3) of Section 201, as it stood f....
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....oposal. o Once all the terms are finalized, a Contract is executed between Client and Ad2pro India B) Collections Services: Ad2pro US is also entrusted with the responsibility of collecting outstanding money on Invoices from Customers. 4.3 As can be seen from the above description of services, AMSI only renders commercial information to the Appellant, using its know-how and skill, which is not in possession of the Appellant. It is further submitted that the AMSI does not give any information to the Appellant about the method, manner and/or source as to how it obtains the commercial information for the appellant but only provides end-use information to the Appellant. In other words, AMSI does not 'make-available' to the Appellant the know-how, technology and methodology used in rendering the aforementioned services to the Appellant. It is further submitted that AMSI only procures clients to the Appellant who are located outside India and none of the clients or information provided by AMSI pertains to India. 4.4 The AO as well the CIT(A) have, without understanding the actual transaction which has taken place & without analysing the provisions....
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....n carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause .shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976 and approved by the Central Government. Explanation 1.- For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. Explanation 2.- For the purposes of this clause, "fees for technical services" means' any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, milling or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". [Emphasis Supplied] 4.9 As per....
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....and transfer of a technical plan or technical design." [Emphasis Supplied] 4.11 Hence, as per the above definition, only those payments which arc made in addition to or incidental to payments towards royalty [paid earlier] can be treated as Fees for included services or payment for any technical services wherein the service provider gives complete information /makes it available, to the payer, the manner & method in which the information required by the payer has been gathered /obtained by the service provider as well the source from where such information is obtained. I fence by virtue of the information made available to him, the payer will have requisite to obtain the said or similar information by himself, without availing the services of the service provider. In the instant case, as already submitted, AMSI does not 'makeavailable' to the Appellant the know-how, technology and methodology used in rendering the aforementioned services to the Appellant. It is further submitted that AMSI only procures clients to the Appellant who are located outside India and none of the clients or information provided by AMSI pertains to India. 4.12 Hence, the services provided b....
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....Russia merely promote the goods by way of meeting doctors and pharmacies and their activities are executor in nature since such services do not entail the rendering of advice to the applicant. Therefore, executor services are not consultancy services. 4.17 It is submitted that under Para 16 of the Agreement entered into between the Appellant and AMSI, USA, the parties have clearly agreed that the services rendered by AMS1, USA do not include any services like training, knowledge transfer, transfer of technology, research and development. Even the Learned Assessing Officer does not dispute the same.lt is submitted that under Para 16 of the Agreement entered into between the Appellant and AMSI, USA, the parties have clearly agreed that the services rendered by AMSI. USA do not include any services like training, knowledge transfer, transfer of technology, research and development. Even the Learned Assessing Officer does not dispute the same. 4.18 The Appellant further submits that in the India-US DTAA, there are provisions for `Memorandum for Understandings' which describes in some detail the category of services defined in paragraph 4 of Article 12 (Royalties and Fees for ....
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....greement in the case of CIT v. De Beers India Minerals (P.) Ltd. [2012] 346 1TR 467/208 Taxman 406/21 taxmann.com 214 (Kar.), where, after referring to various provisions of law, it was held that the question, whether along with rendering technical services, whether the technical knowledge with which the services was rendered was also made available to the assessee/customers is purely a question of fact which is to be gathered from the terms of the contract, the nature of services undertaken and what has transmitted in the end after rendering technical services. If along with technical services rendered, If the service provider also makes available the technology which they used in rendering services, then it falls within the definition of "fees for technical services" as contained in DTAA. However, if technology is not made available along with technical services what is rendered is only technical services and the technical knowledge is withheld, then, such a technical service would not fall within the definition of "technical services" in DTAA and the same is not liable to tax. [Emphasis Supplied] "A plain reading of 12(4) of DTAA makes it clear that only such technic....
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....ession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by on by such person in India or for the purposes of making ore earning any income from any source in India. 4.23 The Appellant submits that Section 9(1)(vii) (b) of the Act provides an exception to the general source rule by providing that where the services rendered by the non-resident service provider (recipient of income) are utilized by the resident payer for purpose of earning income from any source outside India, then, in that situation, such fees would not be deemed to accrue or arise in India. The said exception has two limbs, first is the case of business or profession carried on by Appellant outside India and second is making or earning any income from any source outside India. It is submitted that, without prejudice to the fact that the consideration paid falls under the Exception under the first limb provided under Section 9(1)(vii)(b), it is submitted that if the services were utilized fo....
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....ource outside India in as much as it enters into contract with each of its customers situated in USA separately, each such contract is subject to laws of USA and each such contract constitutes 'source of income', thereby bringing the case of the appellant within the scope of second limb of exception provided under Section 9(1)(vii)(b). It is prayed accordingly. 5. REBUTTAL TO THE ARGUMENTS THAT PAYMENTS MADE ARE IN THE NATURE OF ROYALTY& ALSO OF A COMPOSITE NATURE 5.1 The learned DR for the Revenue relying upon the order of the CIT(A) had argued that the payments made to be that of composite nature and has further argued that the payments are in the nature of royalty. The learned DR further submitted that, the information provided by the Non-resident entity to the Appellant is not in public domain and is solely made available to the Appellant for the economic benefits of the Appellant and such an activity falls within the definition of royalty as per the provisions of Article 12(3)(a) of the India-US STAA. The Appellant makes the following submissions de-hors and reserving its right to contest that the payments are neither royalty nor Fees for included services and co....
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....ant submits that Learned CIT(A) artificially divided the agreement entered between the Appellant and AMS1, USA in to two parts, as one for providing consultancy services and another for subscribing customer data base. It is further submitted that Learned CIT(A) dedicated his order upto paragraphs 57 for deciding that the impugned payment qualifies as fees for technical services under both the Act and the DTAA. However, in paragraph 58, he abruptly concludes that the payment is composite in nature. This shows that the Learned CIT(A) has not based his finding on any reasoning. 5.6 The Appellant further submits that in the process of carrying out the marketing functions, AMSI, USA may consider it necessary to subscribe for customer database. AMSI, USA may, if necessary, use the above for identifying the prospective customers. These leads are evaluated, and good leads are taken forward though e-mails, phone calls and in case client is interested, business meetings would be set up. The Appellant did not have any access to the database, or the online research subscribed by AMSI, USA. There is no interaction between the employees of the Appellant and the employees of database developer....
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.... AMSI involves making available of technical knowledge. In this regard it is submitted and reiterated that AMSI only provides commercial information about customers and customer leads and never reveals the methodology adopted or database utilized / borrowed / accessed in order to contact the concerned customers. Further, as per the provisions of Article 12 of the DTAA, the technical services have to necessarily be in relation to payment of royalty [Refer Paragraph 4.10 above]. The Appellant reiterates that the submissions with respect to royalty have been provided on the foregoing paragraphs and the same may be considered in the interest of equity and justice. 6.2 The Appellant relies on the decision of the Kolkata Tribunal in the case of Onprocess referred above which is rendered in line with the decision of the jurisdictional High Court in the case of CIT vs. De Beers India Minerals Pvt. Ltd. [2012] 21 taxmann.com 214 (Kar) wherein the Hon'ble jurisdictional High Court has held that to "make available" technical knowledge, mere provision of service is not enough; the payer must be enabled to perform the service himself The Appellant submits the same is not the case in the ....
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....ble'. While the former is universal in all cases of service contract, the latter is by exception. It is trite that making available service is the primary requirement of any service contract. However, the critical question is not whether the service is made available, but whether the technology embedded therein is made available. 6.6 Wherefore, the provisions of make-available are not attracted in the instant case in view of the above submissions. It is prayed accordingly; 7. PRAYER 7.1 In a nutshell, it is prayed to consider the above made submissions and further it is prayed for the following relief to hold that: (1) The orders of assessment are barred by limitation under the provisions of Section 201 & 201(1A) of the Act. (11) The Marketing Fee paid by the Appellant to AMSI is not a technical fee within the meaning of Section 9(1)(vii) read with Article 12 of the DTAA and that the marketing fee is only paid for business facilitation and not for imparting any technical know-how or technical information. (III) AMSI does not 'make available' any technology or methodology or know how to the Appellant as envisaged in Article 12 of the I....
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....keting services for which payment is categorized by the assessee as marketing fees and the same is not covered by definition of 'fees for included services' under the India-USA DTAA and consequently, assessee is not obligated to with-hold tax at source under the provisions of sec.195 of the Act. 6. The ld. AR of the assessee had placed reliance on the following judicial pronouncements; i. CIT Vs Grup Ism(P)Ltd.(2015) 378 ITR 205(Delhi) ii. DIT Vs Panalfa Autoelektrik Ltd.(2014) 227 Taxman 351(Delhi.) iii. Addidas Sourcing Ltd. Asst.DIT (International Taxation)(2013) 21 ITR 9trib.)697(Delhi.) iv. Dr. Reddy Laboratories Ltd. (2016) 243 Taxman 127(AARNew Delhi) Reliance was also placed on a Tribunal order rendered by the Kolkata Bench of this Tribunal in the case of Onprocess Technology India Pvt.Ltd. Vs DCIT in ITA No.1047/Kol/2016. This contention was also raised that sec.9(1)(vii) of the Act provides an exception to the general source rule by providing that were the services rendered by the nonresident service provider are utilized by the resident payer for purpose of earning income from any source outside India, then in that situation, suc....
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....y business commercial practice & contract services and others are in the nature of imparting the knowledge, experience, which concern the commercial or business experience such payment is in the nature of 'royalty'. 7. This is one of the contentions raised by the ld. DR of the revenue that the assessee did not furnish the agreement relevant to assessment year and the copy of agreement given to CIT(A) is also not a genuine agreement as can be seen from the copy of agreement given at page-181 of the assessee' paper book. 7.1 Regarding the argument of the ld.AR of the assessee that 'make available' clause of DTAA has not been satisfied, it is submitted that if the payment is ancillary or/and subsidiary to application or enjoyment of the right, property or information for which payment of royalty is made, then there is no application of 'make available' clause. It is also submitted that as per Article-12(4)(b), para-6.2 involves 'make available technical knowledge, experience, skill, know-how or process'. She submitted that various mail correspondences are provided by the assessee during the proceedings and the same abundantly makes it clear that experience and skill had been mad....
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....ents of the clients is being discussed and capabilities of the assessee are being explained and thereafter, if the client is satisfied, client asks assessee to send a proposal for services which is followed by negotiations on terms and pricing. If the assessee agreed with the terms, contract is framed by the asessee and sent to USA(AE) for onward submissions to client and thereafter, final contract is sent to the client for review and acceptance Sometimes, the client may request for changes and once the contract is finalized, it is executed by both parties i.e. client and the assessee. Sometimes marketing of assessee's services happens through references provided by existing clients. New clients based on such references approach US-AE of the assessee which is followed by business meetings understanding clients requirements and sending a proposal and the terms are finalized and the contract is executed between the client and the assessee. One of the services being rendered by US-AE is regarding collections of outstanding money on invoices from customers. 8.1 As per the above details about the nature of services received by the assessee from its US-AE, it comes out that the US-AE ....
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.... used in this Article means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of 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 person....
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.... royalties or fees for included services are borne by such permanent establishment or fixed base, then such royalties or fees or included services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. (b) Where under subparagraph (a) royalties or fees for included services do not arise in one of the Contracting States, and the royalties relate to the use of, or the right to use, the right or property, or the fees for included services relate to services performed, in one of the Contracting States, the royalties or fees for included services shall be deemed to arise in that Contracting State. 8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them. and some other person, the amount of the royalties or fees for included services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of the Con....
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....ny used to generate customer lead by using/subscribing to customer data base, market research and analysis and on-line research data and after generating such leads it was acted upon to establish contracts of supply between the customer and the assessee company in some of the cases where both sides agreed. It is seen that in the present case, no information as such is provided by US-AE of the assessee company and such technical data or other data are used by the AE of the assessee company itself to generate customer leads and after having negotiations with such potential customers, US-AE of the assesssee helped the assessee company in getting orders from various customers abroad. In our considered opinion, in the facts of the present case, this Tribunal order relied upon by the ld. DR of the revenue is not applicable to the present case. 10.1 No other argument was advanced by the ld. DR of the revenue in this regard as to how the payment in question is a payment for royalty. Regarding this aspect that the payment in question is payment for Commercial Experience provided by US AE of the assessee company to the assessee company and therefore, the payment in question is royalty, sh....
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....greement is required. 11. The next e-mail on which the comments are made by the ld. DR of the revenue is e-mail available on page-66 of the paper book which is an e-mail from Mr.Todd Brownrout CC to Mr.Kartic Srinivasan which is dated 07-04-2016. In this e-mail, Mr.Todd Brownrout has stated that he and Mr.Kartic Srinivasan will be meeting at Fairfax in 2 weeks to extend their agreement and he has requested for information in that regard and hence, it is seen that as per this e-mail also, Mr.Todd Brownrout has not provided any commercial experience. 12. The next e-mail referred to by the ld.DR of the revenue is available on page-71 of the paper book which is e-mail from Mr.Colin Wheeler to Mr.Kartic Srinivasan and it is dated 11-12-2016. In this email, it is stated by Mr.Colini Wheeler that he and Chris want to thank Mr.Badrinarayanan, Mr. Kartic and Mr.Nikhil and their team for the hospitality and the time spent on Friday at Sunnyside aligned to the agenda that Mr.Todd had set up. As per this e-mail also, no information was provided by Mr. Colin Wheeler regarding commercial experience etc. 13. The next and last e-mail referred to by the ld. DR of the revenue is available o....