TaxTMI 
TaxTMI 
2009 (11) TMI 29
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.... have jointly initiated a programme known as "Accelerated Technology Assessment and Commercialization" ("ATAC"). The programme, it is stated, is for a period of 24 months. The applicant states that a major part of the programme has to be completed by the applicant and the rest with the help of UT(IC2) of University of Texas (for short 'UT'). 2.The applicant entered into an agreement with the University of Texas which is effective from 26th January, 2009. It is recited therein that the applicant (FICCI) desires UT to perform certain work and services for the "IC2-FICCI-DRDO Innovation programme" and that FICCI agreed to provide the facilities and assistance during the course of the programme and that UT was willing to perform such services as outlined in attachment A. It is stated that UT(IC2) which is a wing of the University of Texas is a globally recognized Institute with a mission to engage in cutting edge research to enhance the solving of unstructured problems related to market economics, wealth creation and growth through entrepreneurial activity and commercialization of technological innovation. It is further stated that UT(IC2) Institute offers its 29 years of experience....
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....t strategies for selected technologies UT(IC2) 6. The DRDO will pay consultancy fee of INR 4.5. crores to FICCI in various stages. The payment to be made to UT(IC2) by the applicant is 660,000 US dollars payable in 5 installments starting from 15th December, 2008 and ending with 31st March, 2010. These payments will be made after the UT(IC2) raises its invoices. In the application filed on 23rd April, 2009, the applicant stated that the programme has already been initiated and the experts from UT(IC2) visited India to meet and discuss the relevant issues with DRDO officials and to collect information about their innovations and that UT(IC2) was processing the data for implementation. 7. The applicant has sought ruling on the following questions: i. Whether on the facts and circumstances of the case, the IC2 Institute of University of Taxes, Austin, USA executing the agreement between FICCI and UT(IC2) is covered by the Double Taxation Avoidance Agreement (DTAA) between India and USA? ii. Whether on the facts and circumstances of the case UT(IC2) is not liable to pay income-tax in India out of the payments received by it from FI....
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....ated in the Certificate that it is statutorily bound to file Income-tax return. Moreover, it has to pay tax on the non-exempt income. Hence, the first question has be answered in the affirmative by holding that the DTAA would be applicable in the instant case. 2nd Question 11. The answer to this question depends on whether (i) the payments received by UT(IC2) represents 'fees for included services' within para 4 of Article 12 of the DTAA read with para 5 of Article 12. It is the contention of the Revenue that the income shall be deemed to accrue or arise in India by reason of Section 9(1)(vii)(b) of the Income-tax Act, 1961. Under the said provision, "income by way of fees for technical services payable by a resident shall be deemed to accrue or arise in India. In the Explanation 2 to Section 9(1)(vii), the expression "fees for technical services" has been defined to mean any consideration for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel). If we go by this definition, the services rendered by UT(IC2) might fall within the scope of the definition in Explanation 2. However, if the non-....
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....c) for teaching in or by educational institutions; (d) for services for the personal use of the individual or individuals making the payments; or (e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 15 (Independent Personal Services). 14. First we shall consider whether the payment falling within the purview of "fees for included services" as defined in para 4 would get excluded by para 5(c). Is it a case of teaching by an educational Institute? To answer this question, we must have regard to the terms of the Agreement and the real nature and predominant purpose of the arrangement under which the assistance is extended by UT (IC2) in collaboration with FICCI for the implementation of ATAC programme. 15 The Agreement speaks of UT performing the work and services described in attachment-A. In attachment-A, the Scope of Work is set out. The programme consists of four components; (i) training, (ii) technology assessment, (iii) business development; and (iv) programme management. The details thereof will be adverted to later. UT and FICCI will collaborate and us....
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....e is clearly intended to acquire a technical service for the firm. However, the fee paid is for teaching by an educational institution, and is, therefore, under paragraph 5(c), not an included service. It is irrelevant for this purpose whether MIT conducts the course on its campus or at some other location. 17 The example gives an indicium of the teaching activity concerning a business concern, but, the present case does not at all fit into the said example, or the criterion deducible from that example. Though certain attributes of teaching are present in the process of educating the participants at the workshop about the key principles and features of technology commercialization, it is only incidental to the primary objective of business promotion of technologies. We are, therefore of the view that clause (c) of Article 12.5 does not come to the aid of the applicant. 18. The next question is whether the services undertaken by UT fall within the scope of 'fees for included services' within the meaning of clause (b) of para 4 of Art.12. In other words, whether technical or consultancy services rendered by UT "make available technical knowledge, experience, skill etc". The exp....
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....duct of intense technological effort and a lot of technical knowledge and experience of the service provider would have gone into it. But that is not enough to fall within the description of services which make available the technical knowledge, etc. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in future without depending on the provider." 20.This Authority also relied on the clarification given in the MOU forming part of the India-USA DTAA. 21. Example 3 given in the MOU to the India-US DTAA is quite apposite in the context of the present case. "3. Facts: The Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol-free oil and wishes to market the product worldwide. It hires an American market consulting firm to do a computer simulation of the world market for such oil and to advise it on marketing strategies. Are the fees paid to the US company for included services? Analysis: The fees would not be for included services. The American company provides a consultancy service which involves the use of substantial techni....
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....ology Commercialization Management Board Workshop". It is stated that the said Workshop which was to take place in USA was found to be unnecessary and therefore not conducted. 25. Explaining broadly the principles involved in technology commercialization and making the participants familiar with various aspects of the programme does not prima facie amount to making available technical knowledge or expertise possessed by the instructors of UT. At any rate, it seems to be merely incidental to the implementation of the programme which, as discussed hereinafter, does not fall within the definition of 'included services'. It is not possible to split up this segment of service and apportion a part of consideration received for 'training', even if it has the flavour of 'included services'. An overall view of the entire transaction has to be taken. 26.. Now we come to the second component of the programme which is 'technology assessment'. The screening and assessment process is done by evaluating the submitted technologies to find out the unique and globally competitive technologies. There are four steps involved in this. The assessment process begins at the DRDO laboratory leading t....
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....able DRDO to find potential customers do not fall within the scope of services contemplated in paragraph 4 of Art.12 of the DTAA. 28. The business development phase is the third phase of the programme's commercialization process. In this phase, UT with the assistance of FICCI personnel identifies 12 global and US partners and UT will also advise FICCI in their business development activities for '8 engagements' within the Indian market. UT/FICCI will negotiate letters of intent with each potential partner and to create a framework for completed licensing agreement. Thereafter UT/FICCI will continue to monitor and support direct negotiations between DRDO and the potential partner for the purpose of concluding the licensing agreement. 29. The fourth component in the programme is programme management. UT will provide Programme Manager to design and implement the programming for its duration and to offer the needed administrative assistance. 30. The expected results of the programme as summarized in Attachment A are as follows : * 200 screened technologies with results reports; * 70 technology validation reports to identify the top 40 technologies; * 40 Quicklook repo....
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....n to Quicklook Report prepared by UT and contended that such report imparts technical knowledge and valuable information to DRDO and therefore it amounts to transfer of technology. We find no substance in this contention. There is no factual or legal basis to support the inference that the technical knowledge, skill or experience of UT have been passed on to the DRDO so as to enable the recipient to acquire and apply same on its own. Nor can it be said by any process of reasoning that UT transferred technical know-how or technical plan, as faintly contended on behalf of the Revenue at one stage. 34. As some emphasis has been laid by Revenue on the Quicklook Report prepared by UT, we would like to advert to the contents of that 19 report which has already been referred to earlier briefly. A copy of the Quicklook Report relating to ELISA diagnostic test for Japanese Encephalitis prepared by UT(IC2 Institute) under the heading of TECHNOLOGY COMMERCIALISATION REPORT is found in Enclosure 10 of the Paper-book filed by the applicant. 35. The opening page is a synopsis of the Report in the form of 'Executive Summary'. The special features and utility of the kit, the status of int....
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....; and (d) key challenges i.e, the market being quite small and the target market group in South East Asia belonging to poorer regions with limited access to healthcare and the likelihood of technology facing some IP barriers. In the same manner, the 'market' relating to West Nile virus has been analysed. The interview notes and the market base line reports are furnished among other things as annexures to the Report. 36. We have also gone through another Quicklook Report ('Commercialization of technology report') relating to explosive detection kit. That report too is on the same model and pattern as the one relating to JE ELISA kit. It is sufficient to extract the recommendation contained in the last two paragraphs of the Executive Summary which read thus: "One potential opportunity uncovered is that in the U.S. new regulations due to enact in a couple of years will require courier companies (Fed EX.UPS) to have x-ray machines and run packages through those. This might offer an opportunity to provide a low-cost kit for initial inspection of packages deemed suspicious. The recommendation of this report is to move forward with commercialization with a very targeted focus. Re....