TaxTMI 
TaxTMI 
2026 (1) TMI 979
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....ration is received for the use of or the right to use industrial, commercial, or scientific experience. 3. On the facts and circumstances of the case & in law, the Ld. AO/DRP failed to appreciate that the receipts of INR 47,60,85,618 earned by the Appellant from the Indian Customers qualify as business income and the same is not chargeable to tax in the hands of the Appellant in India in the absence of Permanent Establishment (PE) of the Appellant in India. 4. Without prejudice to the above, the Ld. AO/DRP grossly failed to appreciate that the consideration of INR 5,16,00,963 received towards printed charts constitute sale of goods and cannot be taxed as royalty in hands of Appellant. 5. On the facts and circumstances of the case & in law, the Ld. AO/DRP failed to appreciate that the equalization levy amounting to INR 85,88,397 paid in respect of the receipts amounting to INR 42,44,84,655 be refunded or the Appellant be entitled/eligible to the claim of corresponding credit." 3. The brief facts, in so far as necessary for adjudication of the controversy, are that the assessee is a company incorporated under the laws of the Federal Republic of Germany a....
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....rtion of receipts. It was also noticed by the Assessing Officer that the assessee had claimed exempt income under section 10(50) of Rs.42,44,84,655, whereas in the return of income the exempt income reflected in the schedule was shown at Rs.29,41,51,732, and that a portion of income of Rs.13,03,32,920 had been subjected to tax deduction at source at ten per cent and had also been offered to tax in the return. Based on these aspects, and after referring to section 9(1)(vi) and Article 12, the Assessing Officer concluded that Article 12 includes imparting of any information concerning industrial, commercial or scientific knowledge, experience or skill and observed that the assessee itself had stated that it compiles data in an agreed format based on information obtained from government or other publicly available sources and/or customer-supplied data, and that such data is developed/compiled using underlying experience, algorithm and logic which contribute to the final product, and therefore to use scientific and commercial experience the data is processed and made available to customers. The relevant observations of the Assessing Officer, including the operative portion proposing th....
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....c Flight Bag software and ground tools software, which are used in the systems installed in aircraft cockpits and for other on-ground operations. During the year under consideration, the assessee earned total receipts of Rs.47,60,85,618, the break-up of which as set out in the original record is tabulated. The said table is reproduced hereunder: SL No. Nature of Transaction Amount (in Rs. ) I. Provision of flight information/data 41,88,32,797 II. Granting of License for EFB Software/Ground Tools 39,20,756 III. Other Ancillary/Incidental services to provision of software 17,32,102 IV. Sale of Goods 5,16,00,963 Total 47,60,85,618 7. The nature of transactions entered into by the assessee with Indian customers, as captured in the assessment record, shows that the provision of flight information/data primarily involves giving customers access to navigational data, airport data, en-route data, runway analysis data and similar aviation information, which enables customers to achieve efficiencies in operations such as determining optimal aircraft payload, fuel and time savings and improvements in overall operational processes....
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....ation. Article 12(3) defines "royalties" to mean payments of any kind received as consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including films or tapes used for broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. Thus, where the Revenue seeks to bring a payment within the last limb information concerning industrial, commercial or scientific experience it must be shown not merely that the provider possesses experience or expertise, but that such experience in the nature of know-how has been transferred or imparted to the payer, enabling independent use by the payer, and that the payment is in consideration for such transfer of know-how. 9. The OECD Commentary, which has consistently been treated as a valuable interpretative aid for treaty language, construes the expression "information concerning industrial, commercial or scientific experience" as referring to the concept of know-how, namely undivulged and proprietary in....
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....yments mode under the latter contracts generally fall under Article 7." 10. Apart from the international commentary, heavy reliance has also been placed on the judgment of the Hon'ble jurisdictional Bombay High Court in Diamond Services International (P) Ltd. v. Union of India, wherein their Lordships considered whether a grading/certification report would amount to transfer of industrial or commercial experience and held, upon a careful understanding of the meaning of "experience" and "use", that the nature of the transaction did not invest the payer with any right to use the cumulated experience of the service provider, that there was no imparting of information concerning industrial, commercial or scientific experience, and that what the service provider did was use its experience and technical know-how for a consideration without parting with such information, thus taking the payment outside the ambit of royalty under Article 12. The relevant extract of the said judgment, is reproduced hereunder : 11. The grading report by GIA is a statement of fact as to the characteristics of the diamond. Does this report amount to transfer of any industrial or commercial experien....
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.... defined therein, that uses the expression "or for information concerning industrial, commercial or scientific experience". There is no parting of information concerning industrial, commercial or scientific experience by GIA when it issues the grading certificate. Under sub-clause (4) the payments received must be in consideration for services of managerial. technical or consultancy nature. That could include to the application or enjoyment of the right, property or information. This is not the case here. Neither is it making available technical knowledge, experience, skill, etc., to enable the person acquiring the service to apply the technology contained therein. 14. The question that remains to be answered is whether there is imparting of specific experience by GIA to the person. "Impart in Webster's Encyclopaedic Unabridged Dictionary has been defined to give, to bestow communicate; to grant a part or share of In Oxford English Reference Dictionary it is prescribed as "give a share of (a thing) A plain reading, therefore, of the meaning of the word "impart" implies that it means to give, to bestow, communicate, to grant a part or share of or give a share of a thing....
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....ional, the governing legal position may be stated with clarity: the mere existence of skill, experience, technical capacity or specialised knowledge in the hands of the provider does not, by itself, render the consideration "royalty." The decisive test is the nature of what is parted with. To qualify as royalty for information concerning industrial, commercial or scientific experience, the payment must be in consideration of a transfer or imparting of proprietary know-how typically undivulged, arising from prior experience such that the recipient, having received such know-how, can deploy it independently without further participation of the provider. Where, on the other hand, the provider retains the know-how, applies it himself to render a service or to deliver an output, and the recipient merely receives the product or result without being enabled to replicate the underlying process, the payment is not for know-how but for services or for supply, and would fall for consideration under Article 7. 12. When we examine the present facts through the above lens, it becomes apparent that the assessee gathers aviation-related information from government sources and other publicly ava....
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....y interpretation, one must be vigilant against expanding the concept of "royalty" beyond its intended bounds; otherwise, every specialised product or service would become royalty merely because it is delivered by an enterprise possessing expertise an outcome neither contemplated by Article 12 nor supported by the jurisprudence. 14. As regards the ancillary services of training, implementation and support, the record itself shows that these services are ancillary and incidental and inextricably linked to the principal supply of data and software and are provided remotely from outside India. Such services involve the application of knowledge by the assessee to ensure effective use and functioning of the supplied product; they do not involve transfer of technical experience or making available any know-how enabling independent reproduction by the customer. The OECD Commentary itself draws a firm distinction between a know-how contract and a service contract, and clarifies that where the provider continues to perform the work himself using his expertise, the payment is not royalty. Therefore, these ancillary receipts also cannot be brought within the net of Article 12(3) as royalty ....