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2024 (6) TMI 809
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....on of fee for technical service in view of "make available" clause in the concernged treaty is not satisfied? 2. Whether on the fact and circumstances of the case, Ld. CIT (A) has erred in law in holding that "make available" clause can be satisfied only when there is transfer of technology in the sense that the user of service should be enabled to do the same thing next time without recourse to the service provider? 3. Whether on the fact and circumstances of the case, Ld. CIT (A) has erred in law in holding that payment made for Clinical Trials and Testing Services does not fall in definition of fee for technical service in view of "make available' clause in the concerned treaty although Assessing Officer has given a categorical finding that make available clause is not necessary for treating it as fee for technical services as the development and transfer of a technical plan or technical design is also happening by way of submission of all raw data, documentation, and other technical study related to documents to the assessee by the sponsor? 4. Whether, the Ld. CIT(A) has erred in law and on facts in holding that the payment made to Chemical Abstra....
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.... 9. Whether on the fact and circumstances of the case, Ld. CIT (A) was right in law in holding that the payments made by the assessee to Swiss Biogenics Ltd. Sri Lanka for market survey/development expenses incurred by the assessee were in the nature of reimbursement and not FTS, completely ignoring the fact that the taxability of the transaction is required to be determined on the basis of characteristic of the transaction and the mode of payment would not make a difference in the facts of the said transaction. 10. Whether on the fact and circumstances of the case, Ld.CIT(A) was right in law in holding that the payments made by the assessee to Swiss Biogenics Ltd. Sri Lanka for market survey/development expenses are not in the nature of FTS completely ignoring the provisions of the DTAA as well as the Income Tax Act which makes it taxable on the basis of provision of any managerial, technical or consultancy services and does not use the term "make available" in Indo-Sri Lanka treaty at all. 11. That the department craves leave to add or alter any further grounds of appeal." 3. The only effective issue raised by the Revenue is that the learned CIT(A) err....
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....uired to be fulfilled. In its case, no search technical knowledge, experience, know-how etc. was made available by the parties to whom remittance was made on account of Fees for Technical services being clinical trial. Therefore, such payment is not liable to be taxed in India and accordingly no withholding tax was deducted by it on such payment under the provisions of section 195 of the Act. 6. Regarding the payment/remittance of Rs. 3,16,81,125/- to Cambridge soft Corp. USA, the assessee stated that the same was in connection with purchase of "ChemOffice Enterprise" which is a scientific tool used by the scientist to keep effective track of their work. Thus, the same is an outright purchase on which no withholding tax is required to be deducted under the provisions of section 195 of the Act. 7. The assessee in relation to the remittance made to 2 parties based in Thailand stated that the payments made were for bio equivalent study for the purpose of getting the approval of its product by Thai authority to sale there which is in the nature of fees for technical services. The tax DTAA with Thailand does not have any specific provision for fees for technical services therefore....
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....e clause would be satisfied and the nature of service would be liable to be treated as fee for included services". It was in this backdrop that the Assessing Officer proceeded to hold that the assessee had obligation to deduct tax at source from these payments discussed above, as these amounts were taxable in India in the hands of non-residents, under section 195 of the Act. 11. The AO regarding the remittance made to the Thailand based parties held that the payment made was in nature of fee for technical services and DTAA between India-Thailand is silent on treatment of FTS therefore the provision of income tax shall prevail in the given case. The view of the AO was also supported by the provision of article 3 and 27 of India-Thailand DTAA which state that if a term is not defined in the treaty, then such term will be governed by the laws in force of the contracting state. Thus, the AO held that payment made to Thailand based companies is covered by the provisions of section 9(1)(vii) of the Act on which assessee was liable to deduct withholding tax as per the provisions of section 195 of the Act. The AO also distinguished the case law relied upon by the assessee being Bangkok ....
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....and of Rs. 3,46,277,17.00 only towards the TDS and interest respectively under section 201(1)/201(1A) of the Act. 15. The aggrieved assessee preferred an appeal before the learned CIT(A). The learned CIT(A) after considering the assessment order, and submission of the assessee deleted the demand raised by the AO by observing as under: "5.6 On the perusal of the impugned order it appears obvious that the AO has not dealt as to how by getting the pharmacological tests and clinical trials done / by the non-resident entities, the appellant has come to acquire any technical j knowledge, skills, know how or processes to conduct these tests and trials by itself. I do not find any real and relevant content in the AO's discussion in the impugned order touching upon any material aspect of the services which by any stretch of imagination could make the services of the non-resident entities to be "technical service" or "included services". The AO is found not justified in holding that mere provision of study report (or test / trial results) by the service providers makes the technology/know how available to the appellant and that even deputing its employees at the time of study....
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....h USA 2 1,45 1,689 Fees for Clinical Trials Ground of Appeal covered 'by ITAT Order in the Appellant's Own Case for A.Y. 2010-11 5 Impopharma Inc. Canada 2,336,320 Fees for Clinical Trials Ground of Appeal covered by ITAT Order in the Appellant's Own Case for A.Y. 2010-11 6 Lambda Therapeutic Research Canada 4,773, 195 Fees for Clinical Trials Ground of Appeal covered by ITAT Order in the Appellant's Own Case for A.Y. 2010-11 7 Novum Pharmaceuticals Research USA 18,820,283 Fees for Clinical Trials Ground of Appeal covered by ITAT Order in the Appellant's Own Case for A.Y. 2010-11 8 Chemical Abstract Services USA 3,385,992 Access to Online Database Ground of Appeal covered by ITAT Order in the Appellant's Own Case for A.Y. 2010-11 9 Elsevier BV Netherlands 17,899,640 Access to Online Journal Ground of Appeal covered by ITAT Order in the Appellant's Own Case for A.Y. 2010-11 10 Thomson Reuters Inc. USA 3,175,380 Journal Subscription Fees Ground of Appeal covered by ITAT Order in the Appellant's Own Case for A.Y. 2010-11 11 Cambridge Soft Corp. USA ....
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....e come to acquire expertise and skill to replicate and use the same for appellant's business. Subscribing of journals is not transfer of a technical plan or a technical design and any kind of know how or do how or any intellectual property. The subscribing to journal is akin to purchase of journal/books from any journal stand/book store, The payment made to GAS is for online access to SciFinder, a database with collection of chemistry and related science information and the aforementioned website is available publicly to any party interested in availing of the same, upon payment of the access fee. Payment made to Elsevier B.V. Netherlands is for getting online access to Science Direct Corporate Edition, an online journal which contains the widest range of content possible on Science Direct. The payment made to Thomson Reuters is for journal subscription. 5.10 It is argued by the appellant that neither of the aforementioned is information of the nature, which has been specifically created for the appellant or designed to its requirements and that there is no element of any royalty and therefore, the question of deduction of withholding tax on such payments u/s. 195 of t....
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....f the Act. The action of the AO in holding the appellant as assessee in default for the purpose of section 201 cannot be upheld. The AO is directed to delete the demand related to Sr.No.14 of the table before. 5.13 As to the payment made of Rs.18,74,360/- to Cambridgesoft Corporation USA it is seen that it is for consultancy/professional services provided by the said entity to the appellant. As per the appellant same does not fall within the "make available" clause/provision under Article 12 of India-USA DTAA and for the purpose reliance has been placed on CIT vs. DeBeers India Mineral P Ltd. 346 ITR 467 and host of other cases cited in the context of pharmacological test and clinical trials dealt before. I find the contention of the appellant to be in accordance with the provisions whereby TDS is not required. The AO is directed to delete the demand related to Sr.No.11 of the table before." 5.14 As to the payments of Rs.86,00,122/- to M/s. Bio Innova & Synchron Co. Ltd. (of Thailand) and of Rs.10,91,782/- to M/s. International Bo Sciences Co. Ltd. (of Thailand) it is explained by the appellant that they are in the nature of payment for clinical trials / bio-equiv....
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....the facts remain that the services were rendered by the non-resident in the country outside India (i.e. Sri Lanka) and was for the purpose of the business possibilities of the appellant in Sri Lanka. It is definitely the exception covered by the provisions of the Act. Thus the appellant's contentions that services received were both rendered as well as utilized outside India and the also non-resident party has not PE in India are found to be tenable. The action of the AO in holding the appellant as assessee in default for the purpose of section 201 for the item Sr.No.15 of the table before cannot be upheld. The demand to that respect is deleted. 16. Being aggrieved by the order of the learned CIT(A), the revenue is in appeal before us. 17. The learned DR before us vehemently supported the order of the AO and on the other hand, the learned AR filed a chart of two pages along with case law compilation and submitted that the ITAT in the own case of the assessee has decided the issue in favour of the assessee. The ld. AR vehemently relied on the order of ld. CIT-A. 18. We have heard the rival contentions of both the parties and perused the materials available on record. Ad....
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....the assessee, and there is no contrary decision by Hon'ble jurisdictional High Court or by Hon'ble Supreme Court. In De Beers India Minerals (P.) Ltd.'s case (supra), Their Lordships posed the question, as to "what is meaning of make available", to themselves, and proceeded to deal with it as follows: 'The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to....
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....aterial facts are as follows. During the course of proceedings before the Assessing Officer, it was noticed that the assessee has made a payment of Rs 16,30,690 to a US based entity by the name of Chemical Abstract Service for access to database. The Assessing Officer was of the view that this payment is for exploitation of copyrighted database, through licence, and, accordingly, taxable as royalty. It was noted that 'royalty' has been defined as "payment of any kind received as a consideration for the use of, or right to use of, any copyright of literary, artistic or scientific work" and that the expression "literary work", under section 2(o) of the Copyright Act, includes 'literary database'. It was also noted that the non resident, to whom the payment in question was made, holds rights/copyrights which are granted under non exclusive and non transferable basis, for access to licensed material. It was in this background that the Assessing Officer held that the assessee ought to have deducted tax at source from the payments so made to the non residents as these were taxable as 'royalty' under the related tax treaties. Accordingly, tax withholding demand und....
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....ne as follows "3. The term 'royalties' as 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) payment of any kind received as consideration for the use of, or the right to use, the 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 or Article 8." 17. We find that as the treaty provision unambiguously requires, it is only when the use is of the copyright that the taxability can be triggered in the source country. In the....
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....ch cannot be treated as royalty and consequently, the same is outside the purview of the TDS provisions under section 195 of the Act. In holding so, we draw support and guidance from the judgment of Hon'ble Delhi High Court in the case of DIT Vs. Nokia Networks OY reported in 358 ITR 77 wherein it was observed that the transaction of software purchase on principal-to-principal basis cannot be considered as royalty payment. Hence, the demand raised by the AO is hereby deleted. 23. Coming to the payment made to 2 Thailand based company for bio equivalent study, in this regard we find that there is no dispute that there is no specific provision for taxation of fees for technical services in India Thailand tax treaty. Thus, the profits earned by rendering fees for technical services are only a species of business profits just as the profits any other economic activity. Likewise, there is also no dispute that Thailand based companies did not have any permanent establishments in India. Thus, the income earned by a resident of a contracting state by carrying on business in the other contracting state cannot be taxed in the source state unless such a resident has a permanent establishme....
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.... of fees of technical services continues to be dealt with the provisions of articles relating to business profits, independent personal services, and additionally, in the event of existence of an FTS article, with the article relating to the fees for technical services. 29. In view of the above discussions, in our considered view, even if the receipts in question are in the nature of fees for technical services in the hands of Afras UAE and GMS Thailand, these receipts are not taxable in the hands of these entities, in terms of the respective tax treaties, in India. It is only elementary that under article 90(2) where the Government has entered into a tax treaty with any tax jurisdiction, in relation to the assessee to whom such treaty applies, "the provisions of this (Income Tax) Act shall apply to the extent they are more beneficial to that assessee". Quite clearly, when there is no taxability under the respective treaty provisions, there cannot be any taxability under the provisions of the Income Tax Act either. 24. Thus, respectfully following the finding of this tribunal in the case cited above, we hereby uphold the finding of the learned CIT(A) and direct the AO t....