TaxTMI 
TaxTMI 
2025 (1) TMI 1530
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in following the decision of Hon'ble ITAT that the payment made by the assessee to the Deloitte Global Holdings Services Limited against 1) Global brand, 2) Global Communications and 3) Global technology/Knowledge Management were not for information concerning commercial experience in terms of Article 13(3) of the India-UK DTAA hence were not in the nature of royalty and is not liable for taxation in India with the meaning of Article 13(3) of the Indo US treaty? 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to grant refund of taxes paid pursuant to the order u/s 195(2) dated 18.01.2018 even though the department has filed appeal against the decision of Hon'ble ITAT?" 2. At the outset the ld AR submitted that the facts pertaining to the issue contended by the revenue is arising out of same order of AO under section 195(2) which was considered in the decision of the coordinate bench, where the appeals of both the assessees on the similar issue have been allowed in the bunch of appeals in ITA Nos. 201 to 233/Mum/2021, 4800 to 4804/Mum/2019 & 4810 to 4814/Mum/2019 dated 27.07.2022. The l....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... contributions. While there may be a surplus/ deficit in a particular year due to over/under recovery of expenses, Holdings is intended to break-even over time. Deloitte Global Holdings incurs expenses in the course of carrying out the above activities for the benefit of all members, which are recovered from members without any mark-up. The terms on which the activities are carried out by Holdings and expenses are recovered by it from its members are embodied in an agreement named as "Shared Services Agreement" entered into by the member firms with Holdings vide agreement dated 1 August 2011 between DTTI and Holdings. The relevant recitals to the agreement (copy appearing at page 521 of the paper book) state that: DTTI is a member of Holdings and DTTL whose purpose is, among other things, to further international alignment, cooperation, cohesion and professional standards of the highest quality among its Member Firms and their Affiliates. Deloitte Services has been established with a view to facilitating fulfilment of those purposes and Deloitte Services intends to provide certain services to its members (including Holdings). Holdings has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has heavily relied on the decision of the AAR in the case of EY Global Services Ltd. AAR No. 1043 of 2011. CIT vs Synopsis International Old Ltd (2012) 28 taxmann.com 162 (Kar) Shell India Markets (P) Ltd. In re (AAR) (342 ITR 223) Gartner Ireland Ltd. (37 taxmann.com 16) (Mum ITAT) CIT v. Wipro Ltd. (203 taxman 621/16 taxmann.com 275) (Kar) TNT Express Worldwide (UK) Ltd. (70 taxmann.com 129) (Bang. ITAT) Accordingly, Assessing Officer (for instance in appeal of ITA No. 4774/Mum/ 2019 for A.Y. 2018-19) held that the payments were liable for deduction of tax at source and worked out the withholding tax liability by applying a proportion of 3/10 to the total remittance of Rs. 95,49,00,000/-, since 3 out of 10 services were held by him to be in the nature of royalty. Accordingly, the Assessing Officer authorised the remittances after deduction of tax @ 3% on the overall remittances made by appellants to Holdings. 5. The ld. CIT (A) upheld the action of the Assessing Officer on the conclusion that the payments were in the nature of Royalty by holding that the payments were made for information concerning commercial experie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith fees related to services. In clause 4, it is seen that the aspect of subsequent recovery is mentioned. Even considering this, as such the payment is for services rendered. 19. In view of preceding discussion, I hold that the payment indeed is royalty within meaning of article 13(3) of India-UK Double Taxation 20. Having held that the sum is royalty, aspects regarding mutuality (grounds 7 to 17) and reimbursements of expenses has turned irrelevant. Hence corresponding grounds are not needed to be adjudicated. However regarding these, a discussion is made in paragraphs 21 to 23. 21. The point emphasized by appellant is that the arrangement is nonprofit making exercise, reimbursement of common expenses and hence mutuality applies. Effectively it is claimed to be reimbursement of expenses. According to appellant, the expense is for specified purpose matches income is in pre-determined manner and there is no surplus to be taxed. This argument is valid if attempt is to tax the same as business profit, which is never the focus of this discussion. 22. Let us consider the receipt of Royalty income in accordance with provisions of Double Taxation Avoid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Hon'ble ITAT, Delhi Bench in ITA Nos. 7017 to 7020/Del/2019 in the case of EY Global Services Ltd. vs. ACIT. 8. Mr. Percy Pardiwala further submitted that the payments in question, for rendering the services categorized as Global Brand, Global Communications and Global Technology and Knowledge Management cannot be regarded as payments for use of information concerning commercial experience as held by the ld. CIT(A). As can be seen from the Shared Service Agreement, Holdings does not have any dealings with third parties or clients but it only performs various activities for the benefit of its members. The guidance provided by Holdings to its members is for internal use by the member firms. It is essentially an agreement for rendering services within the Deloitte network. Therefore, the payment for such services cannot be considered as payments for use of information concerning commercial experience. No intellectual property is transferred by Holdings to the appellants. Moreover, provision of services cannot be regarded as provision of information concerning commercial experience. The information utilised/provided in the course of rendering these services is not of confi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ervices included (a) business promotion (b) marketing (c) publicity and (d) financial advisory, which were termed as 'Strategic and Financial Counselling Services'. Therefore, it was held that the payments were for rendition of these services and not for use of any information concerning industrial, commercial or scientific experience. It is submitted that in the present case also the payments are made for the services rendered by Holdings / Deloitte Services and, therefore, they cannot be regarded as consideration for imparting any information concerning industrial, commercial or scientific experience. c. Factset Research Systems Inc. In re 317 ITR 169 (AAR) The Applicant maintained a database which was located outside India and which contained financial and economic information including fundamental data of a large number of companies worldwide. The said information was made available to customers on a subscription basis. The question arose whether such a payment could be regarded as payment for information concerning industrial, commercial or scientific experience. In para 11 of the ruling, while dealing with this issue, AAR held that the clause does no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cted appeals for the assessment years 2008-09 to 2011-12 by the Hon'ble ITAT, Delhi. 10. Lastly, he submitted that the payments are in the nature of reimbursements since Holdings operates on a break-even basis. The costs incurred by it in the course performing activities for the benefit of members are recovered from its members without any mark-up. In a particular year, there may be a surplus or deficit on account of over/under recovery but over time, it is intended to break-even. Therefore, the payments made by the appellants to Holdings being in the nature of reimbursements cannot be regarded as income. 11. On the other hand, the ld. Department Representative strongly relied upon the order of the Assessing Officer and ld. CIT(A). He submitted that, in fact, the payments in question are for information concerning commercial experience. 12. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as the material referred to before us. As discussed above, the sole issue which permeates in all the appeals is, whether the appellants were liable to deduct tax at source under Section 195 of the Act on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lated to the Deloitte brand. *Collaborate with DTT and Member Firm leadership, industries, functions and specialty groups on brand promotion and eminence building. Global Communications * Develop and distribute internal and external communications, publications and reports for DTT. * Lead, manage, and support global public relations, thought leadership initiatives, strategic projects, events, and marketing activities. * Promote an alignment of Member Firm communications goals and strategies. * Provide strategic guidance, content, editorial services, and best practices for globally managed websites and related online vehicles. * Provide communications support to DTT and its functions. Global Technology/Knowledge Management *Acquire, develop, manage, operate and distribute information technology products and services that service the Deloitte Network. *Develop and maintain certain worldwide databases, networks and systems, and internal and external websites, that service the Deloitte Network. *Establish projects to develop global knowledge and develop or facilitate the development of methodology....
X X X X Extracts X X X X
X X X X Extracts X X X X
....13(3). Further, it also cannot be held for information concerning industrial or scientific experience and/or for commercial experience because the basic underlying fact is that it is purely for internal use of member firms and not for any third party or any client. Thus, these activities cannot be reckoned for providing industrial, commercial or scientific equipment to the appellants and, therefore, outside the nature and scope of Royalty as defined in Article 13(3) of the India-UK DTAA. 17. Lastly, as regards the services mentioned in global technology/global management, from the bare perusal of the same it cannot be said to be for use of or right to use any copyright or any literary, artistic or scientific work or any transfer of intellectual property rights. The above service is purely for internal purpose and not for any commercial exploitation, nor any scientific equipment is given to the appellants by Holdings. Global network acquires certain technology products from vendors and provides them to the member firms and also provides security advice to all the member firms for which it also develops certain database, systems and websites that is used by all the members o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n connection with the systems of Member Firms including where considered appropriate, developing or assisting in the development of such systems or any part of them. 2.2 Procuring for the Member Firms external software licences for their internal business use. 2.3 Coordinating and promoting a globally consistence policy with regard to technology infrastructure with the objective of delivering economies of scale for the Member Firms and avoiding duplicative systems or structures across the network. 3. Knowledge 3.1 Promoting and establishing global websites (both internet and intranet), establishing projects to capture and disseminate global knowledge and developing or facilitating the development of methodology and techniques which further enhance the knowledge sharing capacity of Member Firms." The Authority for Advance Ruling held the consideration received in respect of computer software deliverables as Royalty. The Hon'ble Delhi High Court, following the ratio of the principles laid down in the judgment of Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. (supra) observed and held as unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vices required by member firms and thereafter, recovered various costs incurred by it from the member firms on actual usage basis. Given the above, the assessee filed a 'NIL' return of income on 30th March 2012 contending that the payments received by the assessee from Indian member firms are mere reimbursement of costs and not taxable under the Act as well as the Double Taxation Avoidance Agreement between India and United Kingdom (hereinafter referred as "the treaty")." The Tribunal had followed the aforesaid judgment of Hon'ble Delhi High Court wherein the judgment of AAR in the case of EY Global Services Ltd. has been reversed. 20. Here, in this case also, the Assessing Officer has heavily relied upon the same judgment of AAR in the case of EY Global Services Ltd., which now stands reversed by the Hon'ble Delhi High Court. Thus, we hold that the payments made to Holdings is not taxable as Royalty under Article 13(3) of the India-UK DTAA. 21. Insofar as pleading relating to principle of mutuality for which reliance was placed on the decision of Delhi bench of Tribunal in the case of Deloitte Touche Tohmatsu under an arrangement which wa....