TaxTMI 
TaxTMI 
2025 (12) TMI 1707
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....ty in the form of "information concerning industrial, commercial or scientific experience" or "copyright" or "equipment" and the provision of services does not make available any technical knowledge, know how or skill, hence such services are not taxable as per DTAA as held by single member of Ld. DRP. 3. That Ld. AO and Ld. DRP erred on facts and in law in not appreciating that, the Assessee is a "Service Provider" and performs specific research related activities and is not imparting or sharing any specialized knowledge or experience with its AE. 4. That Ld. AO and Ld. DRP erred in facts and in law making an addition of Rs. 10,66,76,030/- received for providing IT support services to its AE by construing same as FTS. 5. That the Ld. AO and Ld. DRP erred in facts in not appreciating that IT support charges are in nature of cost-to-cost reimbursement without any profit element involved. 6. That Ld. AO and Ld. DRP erred in facts and in law in not appreciating that the provision of IT support services provided by the Assessee to its AE does not amount to use or right to use of "scientific, industrial and commercial equipment" and thereby c....
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....d should be treated as royalty taxable as per applicable rates as prescribed under India-Netherland DTAA read with Section 9(1)(vi) of the IT Act. With respect to the amount of Rs. 10,66,76,030/- on account of reimbursement of information technology ('IT') support services, the DRP held that it partakes the nature of FTS liable to tax as per application rate under the India-Netherland DTAA u/s 9(1)(vii) of the Act 6. Now the further aggrieved assessee is in appeal before us. Before us, the ld. counsel for the assessee, on the issue of receipts from Testing Services, submitted that Testing Services were performed at Assessee's Research and Development ('R&D') center situated in Netherlands with the use of required chemicals and technologies. For the purpose of testing, Nunhems India sends sample of seeds and leaves for testing to Netherlands. 7. The ld AR further stated that the Assessee receives request for testing of seeds/leaves from Nunhems India through a common software called as "Nautilus". The sample seeds/leaves on which testing is to be performed are sent by Nunhems India to the Assessee through courier (i.e., adopting physical mode). The testing ....
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....ices does not fall under the 'make available' clause and, therefore, is not taxable as fees for technical services. The ld AR concluded that the testing services are "services" rendered by the Assessee (not royalty for use of intangible rights) and hence, are not taxable in the hands of the Assessee since no technology or skills of the Assessee are being made available to Nunhems India through these services. 11. Per contra, the ld. DR relied upon the orders of the Assessing Officer and the DRP. The ld DR submitted that the assessee had provided information in the form of test reports to its associate enterprise in India i.e. M/s Nunhems India Private Limited (Nunhems India) to improve plant varieties, achieving breeding progress through the assessment of external and internal traits such as plant habitus, disease resistance, yield or quality traits. Nunhems India breeding programs of seeds and business operations depend on such reports and thus has commercial significance. Further, information is also of industrial in nature as it aids to the business activity of the recipient. The ld DR stated that the test reports also share scientific knowledge, experience, skill etc....
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....ith any other significant matters which are not of a routine nature will not be considered Services for the purposes of this Agreement. 2. REIMBURSEMENT OF COSTS In consideration of Services provided by SERVICE PROVIDER under this Agreement, NUNHEMS INDIA shall pay SERVICE PROVIDER the costs incurred by SERVICE PROVIDER in the performance of Services hereunder, with a Mark-up of six per cent (6%) to such costs. 14. The issue to be adjudicated, in the present case, is whether the Marker Testing Services and Double Haploid ('DH') Services, considering the nature of service, would fall within the definition of Royalty as enumerated in Article 12(4) of the Indo-Netherlands DTAA. Firstly we need to understand the nature of services rendered. 15. The nature of service rendered by the assessee to Nunhems India, according to the 'Service Agreement For Research And Development Activities' between the assessee, Nunhems Netherlands B.V. and Nunhems India Private Ltd, operational since 01.01.2012, is to support the breeding programs in India by providing marker analysis services and producing doubled haploids. First of all, the 'Test report' are not simply test ....
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....ted. The process flow involved for DH Services is that firstly, Nunhems India sends some seeds to Assessee for DH conversion. The Assessee grows these seeds at their poly houses till the time they become a plant. Out of that plant, a tissue or cell is extracted in R&D centre and new plant is formed which is called a DH plant. From DH plant, seeds are extracted again by R&D centre and sent back to Nunhems India. Time or total duration required to complete this process is 1.5 years (i.e., 18 months). 17. Given this factual matrix of the case, we find that the AO has treated the receipts from marker analysis services and Double Haploid s services as "Royalties" under Explanation 4 to section 9(1)(vi) of the Act read with Article 12(4) of the Indo-Netherlands DTAA, on the ground that the assessee imparts its scientific experience with Nunhems India, in the form of test reports which are used as information that decides the industrial or commercial viability of the seeds. The AO holds the view that the information, as to whether it is industrial, scientific or commercial, has to be seen from the perspective of information recipient. Thus, consideration received by the assessee is for....
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....rning industrial, commercial or scientific experience.] 20. In our understanding the term "Royalty", according to the definition in Article 12(4) of the Indo-Netherland DTAA as above, has two segments. To our mind the DTAA thus defines two categories of consideration- one is for use of 'çopyright' and the other is for use of 'information'. "Royalty", in one segment, is payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process. The other segment comprises of payment of any kind received as a consideration for information concerning industrial, commercial or scientific experience. The two segments are segregated by the use of expression "or" which is primarily a coordinating conjunction, used to connect alternatives. The use of the expression or for information concerning industrial, commercial or scientific experience therefore, signifies a distinct and separate category than the "copyright" of 'literary, artistic or scientific work including cinematograph films, any patent, trade mark, de....
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....ing with enhanced traits, such as higher yield, significantly increase crop productivity, pest and disease resistance- potentially reducing the need for chemical pesticides and drought resistance and greater uniformity i.e., making them easier to grow and harvest. 24. We are of the considered view that the report the assessee sends to the India AE, encapsulate all the scientific experience and knowledge of the assessee, gleaned in the process of converting the seed from ordinary to double Haploid seeds, prepared over a time period spanning over 18 months. The reports sent to the Indian AE are nothing but a bank of scientific experience and advice emanating from technological and scientific method undertaken by the assessee as mandated in the "Agreement" itself. 25. In so far as the assessee's contention that the use of "Nautilus" software doesn't tantamount to Royalty as no copyright of the software is given to the Nunhems India, is concerned, we feel the same is misplaced. We are of the view that consideration paid to the assessee is not merely for the access to Nautilus software, but more specifically for the information contained in the marker analysis and report of produc....
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....ng of an information concerning commercial and scientific experience with Nunhems India which enables the Indian AE to improve the "plant variety, and achieve breeding progress through assessment of external and internal traits such as plant habitus, disease resistances, yield and quality traits. variety of seeds of different plants". In cases of 'seeds', the assessee converts the seeds sent by Indian AE into Double Haploid, grows these seeds into DH plant and extracts seeds from the said DH Plants and gives the extracted seed to the Indian AE. The entire information of scientific experience from conversion of seed into DH plant and extraction of seed from that DH plant, is captured in the Test Report which is shared with the Indian AE. This imparting of scientific experience and knowledge to the Indian AE, through Test reports, for a consideration, is independent of the "make available" clause being satisfied for the purposes of treating the said consideration fall under the definition of "Royalty" under Article 12(4) of the Treaty. 29. The assessee reliance on the Commissioner of Income-tax, International Taxation -1 vs. Amazon Web Services, Inc and Commissioner of Income-tax,....
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....loid (DH) plant and provides the seeds, with enhanced properties, extracted from the said DH plants, for commercial exploitation. Such creation of 'enhanced' seeds involves technology and scientific experience whose information is passed on to the Indian AE. These distinguishing features in the instant facts of the case, makes it different from the facts of the cases decided by the hon'ble Courts in the above cases. We therefore hold that the said receipts from Testing service, satisfies the condition enumerated in Article 12(4) of the Indo-Netherlands Treaty to be considered as "Royalty". The ground 1 to 3 are dismissed. 33. Ground Nos. 4 to 9 is with regard to addition of Rs. 10,66,76,030/- received for providing IT support services to its AEs by construing the same as Financial Statements. Facts relating to this issue, in brief, the assessee received consideration for IT support services of Rs. 10,66,76,030/- from Nunhems India. The assessee submitted that the above charges have been recovered on cost to cost basis. The AO treated the said receipts of Rs. 10,66,76,030/- for usage of IT infrastructure in the nature of FTS liable to tax as per application rate under the India- ....
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.... royalty under Article 12 of India-USA DTAA due to absence in possession/physical control by customers over the servers/ equipment. 37. The ld AR further drew our attention towards the SOW entered between the Assessee and third party providing IT services (enclosed as Item 16.1 of Paper-book), to show that the Assessee and other group affiliates cannot solve IT issues on its own in future independently. Every time the Assessee and group entities have to knock the doors of the third party for these IT support services. The technology used in rendering the IT support services are not being transferred for further use of Nunhems group. In other words, the Assessee/ other group entities are not enabled to apply the technology on their own. 38. The ld AR submitted that in the present case, the services rendered by the Assessee are routine in nature and are provided on recurring basis. The Assessee did not 'make available' any skills, knowhow, knowledge, experience, etc. known to the recipient of the service so as to equip him to independently perform the technical function himself in future, without the help of the service provider and hence, the same is not taxable as fees for te....
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....red by the assessee to the Indian AE fall within the definition of Fees for Technical Service (FTS) as per article 12(5)(b) of the tax treaty and covered under section 9(1)(vii) of the IT Act-1961 and Article-12 of the tax treaty 42. The ld DR relied on the decision in the Intertek Testing Services, in (2008) (307 ITR 418), by Authority of Advance Ruling (AAR) that the expression "technical services" cannot be construed in narrow sense as also on in the case of G.V.K. Industries 371 ITR 453 (SC), wherein it was held by the apex court that advice given by a financial consultancy firm on the modalities of procuring loans shall be regarded as technical and consultancy service; Hon'ble Supreme Court in the case of Continental Construction Ltd. vs. CIT 195 ITR 811 (SC) which has held that the advice rendered by the lawyer would be a piece of 'technical service'. In the case of CBDT Vs. Oberoi (India) (P.) Ltd., 97 Taxman 453 (SC), it was held that services provided by hotel consultants and specialists to a Foreign Hotel was 'technical service'. 43. We have heard the rival submissions and have perused the relevant material on record. To adjudicate the issue, it woul....
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....CS Netherlands"), that TCS Netherlands along with its local supplier, would provide IT support services to the Assessee and Nunhems India wherein Nunhems India may request for end to end IT support services including IT infrastructure services, data centre services, cyber security, applications, and maintenance of various business suite applications etc to be rendered by TCS Netherlands / local supplier on behalf of TCS Netherlands. 45. In this arrangement, whenever Nunhems India face any technical issues/require any technical support in relation to IT, it raises a ticket by way of e-mail (describing the issue being faced) to IT helpdesk. Subsequently, TCS within stipulated time period resolves the technical issue. In relation to such services, TCS Netherlands raises invoices on the Assessee and Assessee raises corresponding invoices (on cost-to-cost basis without any markup) on group affiliates of other countries to recover IT support service cost attributable to such countries. 46. Admittedly, the said receipts are merely reimbursement of IT support services, where whatever the third party, TCS Netherlands, charges the assessee, the same is recouped from the Indian AE. We f....
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....f technology and on the given facts of the case, there is no transfer of technology and what has been appreciated by the Assessing Officer/ld. CIT(A) is the incidental benefit to the assessee which has been considered to be of enduring advantage. 21. In our understanding, in order to invoke make available clauses, technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and 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 the future without depending upon the provider." 49. Similarly, the decision of the hon'ble Delhi Court in the case of Relx (supra) squarely applies to the facts of this issue wherein it held that access to data base did not constitute rendering of any technical or consultancy services and in any case did not amount to technical knowledge, experience, skill, know-how or processes being made available to subscriber neither there was any transfer of copyright. It would also be pertinent to refer to the relevant observations of the Hon'ble High Court in the ca....