TaxTMI 
TaxTMI 
2024 (5) TMI 635
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....additions of INR 12,67,41,890/- based on mere conjunctures and surmises, ignoring the factual matrix of the case as well as the nature of the transactions undertaken by the Appellant. 1.2. That the Ld. AO has failed to appreciate the submissions made by the Appellant and further erred in making several observations and inferences in the assessment order, which are factually incorrect and legally untenable. 2. That on the facts and circumstances of the case and in law, the Ld. AO erred in holding that the revenue received by the Appellant from provision of background screening and investigation services is in the nature of 'Royalty' under the provisions of Article 12 of the Double Taxation Avoidance Agreement between India and USA ("treaty"). 2.1. That on the facts and circumstances of the case and in law, the Ld. AO erred in holding that the consideration received by the Appellant for providing solutions to clients is for use of information concerning industrial, commercial, or scientific experience and same is liable to taxed as royalty. 2.2. That on the facts and circumstances of the case and in law, the Ld. AO erred in holding that the....
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....respectively in the computation sheet annexed to the impugned order passed by the Ld. AO. 7. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 270A of the Act 3. At the outset, it has been brought to our notice that the issue of the involved in the appeal before us, has been squarely covered by the order of the Tribunal in the case of HireRight Ltd., in ITA No. 373/Del/2023 & ITA No. 1884/Del/2022, which read as under:- The two appeals filed by the assessee are directed against the order dated 20.07.2022 and 25.01.2023 of the Ld. Assistant Commissioner of Income Tax, Circle International Tax-2(1)(1) ("AO") passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the "Act") pertaining to Assessment Year ("AY") 2019-20 and 2020-21 respectively. Since the issues involved in both the appeals are common, the same were heard together and are being disposed of by this common order. 2. The assessee has raised the following grounds of appeal:- AY 2019-20 - ITA No. 1884/Del/2022 "1. That on the facts and circumstances of the case and in law, Ld. AO, h....
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....also taxable as FTS. 3. That on the facts and circumstances of the case and in law, the Ld. AO has erred in levying interest under section 234A and 234B of the Act. 4. That on the facts and circumstances of the case and in law, the Ld. AO has erred in recovering refund of INR 55,647 and levying interest of INR 5,286 under Section 234D of the Act without appreciating the fact that no refund was received by the Appellant for the subject assessment year. 5. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 270A of the Act." AY 2020-21 - ITA No. 373/Del/2023" 1. That on the facts and circumstances of the case and in law, Ld. AO, has grossly erred in determining the taxable income of the Appellant for the subject assessment year at INR 8,51,94,915/- as against nil returned income and, accordingly, the assessment order passed by the Ld. AO is bad in law and void ab-initio. 1.1. That on the facts and circumstances of the case and in law, the Ld. AO has erred in proposing addition of INR 8,51,94,915/- based on mere conjunctures and surmises, ignoring the fact....
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....t that no refund was received by the Appellant for the subject assessment year. 5. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 270A of the Act." 3. Briefly stated, the assessee is a foreign company and a tax resident of UK. It is engaged in the business of providing human resource background screening services including preemployment background screening, employment, education, verification services and investigative due diligence services. The exact nature of services rendered by the assessee primarily includes verification of the details in respect of the concerned candidate viz. i) educational verification ii) employment verification iii) professional reference iv) other checks including but not limited to global sanction check, criminal check, drugs test, etc. The assessee does not have any permanent establishment ("PE") in India. 3.1 The assessee filed its return of income for AY 2019-20 on 27.01.2020 declaring total income of Rs. nil and claimed refund of Rs. 12,54,69,976/-. For AY 2020-21 it e-filed its return on 05.02.2021 declaring total income of Rs. nil and cla....
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....rovided to the clients lies with the assessee and the assessee has all the right to exercise with the information. The information lying with the assessee is transferred to the clients for use and thus the impugned income falls within the purview of royalty and FTS under the provisions of Article 13 of the India-UK DTAA and hence chargeable to tax in India. According to Ld. AO, the reports provided by the assessee are protected by copyright laws and therefore the use of such reports by the clients will result in use of a copyright chargeable to tax as royalty; the assessee maintains a database or has taken such database under licence from its owner and the consideration received by the assessee is for allowing the use of database to its clients and is chargeable to tax as royalty; the screening report provided by the assessee contains confidential information use of which amounts to the use of commercial experience of the assessee chargeable to tax as royalty; and services provided by the assessee are ancillary to the alleged 'royalties' and therefore also taxable as FTS. Accordingly, the Ld. AO proceeded to pass the draft assessment order on 29.09.2021 for AY 2019-20 and on 08.03.....
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....ignment of the candidate vests entirely with the clients of the Assessee. Also, the Assessee does not assume any responsibility with regard to hiring decisions taken by the client on the basis of the Assessee's findings. The assumption and assertions made by the Ld. AO in the draft assessment order are based on incorrect understanding of the facts in the present case. In totality of the above, it is respectfully submitted that the consideration received by the Assessee cannot be taxed as 'Royalties under the India-UK DTAA for the below stated reasons: - The definition of Royally under the India-UK DTAA unambiguously requires that the consideration received must be for the use of or right to use, any copyright of a literary artistic, or scientific work. However, the Ld. AO has summarily alleged that the consideration received is taxable as royalty under Article 13 of the India-UK Tax Treaty, without specifying the exact nature of the copyright in use. hence the conditions laid down in Article 13(3)(a) is not satisfied. - The Consideration received by the Assessee is for rendering of background screening services and not for use or right to use any ....
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....he information documentation obtained for the purposes of rendering human resource screening services - The Assessee at no stage of the process provides access to any database containing information/documentation relevant to the human resource background screening services. All that is provided is the online access to the report prepared by the Assessee. - The payments made by the clients to Assessee are for rendition of standard services and not for use of any information concerning industrial, commercial or scientific experience. The information obtained by the Assessee from different sources is in the nature of factual data and in any case it is not an information which would show any kind of commercial experience, skill or expertise. Accordingly, such payments do not fall under the definition of Royalty under the India- UK Tax Treaty and therefore, is not liable to be taxed in India In the light of the detailed arguments in support of the Assessee's claim, it is most humbly submitted that the receipts earned from background screening services involving verification of facts/information cannot in any manner be construed as payments towards Royaltie....
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....s all the requisite details/documents were duly produced by the assessee before the Ld. AO. 9. The Ld. DR, on the other hand, relied on the order of the Ld. AO. 10. We have heard the Ld. Representative of the parties and perused the records. It is an undisputed fact that the assessee is a tax resident of UK and does not have a PE in India and hence it has opted to be governed by the provisions of the India-UK DTAA being more beneficial to the assessee. Provision of services by the assessee and its nature thereof is also not under dispute. Perusal of the agreement of the assessee with Barclays shows the exact nature of services performed by the assessee. We have gone through the relevant extracts of the said agreement and are convinced with the contention of the Ld. AR that the assessee's role is restricted to verification of the information concerning various candidates proposed to be hired by its clients (viz. educational qualifications, past employment details etc.) and providing the clients the relevant facts captured by the assessee during the course of validation. The source of information used for verification of the details may be available on public domain....
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....b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received ; or (c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design." 12. As regards the impugned receipts being in the nature of royalty, in our considered view, none of the requisites under Article 13(3) of the India UK DTAA are satisfied so as to qualify such receipts as 'royalty'. What assessee is providing to the clients in India is merely a report summarising its findings with respect to the background check undertaken by the assessee which is primarily a factual data and cannot per se qualify as literary or artistic or any other copyrightable work. Such a report cannot be copyrighted as it does not fulfil the requirements enlisted under section 13(1)(a) of the Indian Copyright Act, 1957. Also, none of the rights as mentioned in Section 14(a) of the Indian Copyright Act, 1957 have been rested with the client by the assessee while rendering its services. Income from provision of the services rendered by the assessee canno....
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....the process of validation. Hence it cannot tantamount to imparting of commercial experience. The screening report which is issued does not involve any transfer of commercial experience to the client or getting the right to use the experience. There is also no transfer of any skill or knowledge of assessee to the customers in the issuance of screening reports, as the client is only given access to findings of the assessee in the form of a report which contains factual information but nowhere the assessee imparts its experience, skill of carrying out background screening services to its client. It is thus clear that there is no imparting of information concerning industrial, commercial or scientific experience by assessee when it issues the reports to its clients. 15. As regards the characterisation of impugned receipts as FTS, in our view, the services rendered by the assessee do not involve any technical skill/knowledge or consultancy or make available any technical knowledge, experience, skill, know-how or processes to the clients. Assessee's role is restricted to the verification of information provided by various candidates proposed to be hired by its clients. It in....