TaxTMI 
TaxTMI 
2025 (12) TMI 1903
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.... being disposed of by this consolidated order for the sake of convenience and judicial economy. 2. The common grievance raised by the Revenue, in substance, is that the learned Commissioner (Appeals) erred in holding that the payments made by the assessee to Deloitte Global Holdings Services Limited towards Global Brand, Global Communications and Global Technology / Knowledge Management do not constitute "royalty" within the meaning of Article 13(3) of the India-UK Double Taxation Avoidance Agreement, and consequently in holding that no tax was required to be deducted at source under section 195 of the Act. The Revenue has further assailed the direction of the learned Commissioner (Appeals) to grant refund of taxes paid pursuant to the order under section 195(2), contending that appeals against similar orders for earlier years are pending. 3. At the very outset of the hearing, it was fairly admitted by both sides that the controversy involved in the present appeals stands squarely covered by a series of decisions rendered by this Tribunal in the assessee's own case as well as in the cases of its group concerns, beginning from assessment year 2018-19 onwards, wherein identical....
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....ted consequential relief. 7. We have carefully considered the rival submissions, perused the orders of the authorities below, and examined the material placed on record. We find that the precise issue which arises for our consideration is whether the payments made by the assessee under the aforesaid three heads can be characterised as consideration for the use of, or the right to use, any copyright, trademark, or other intellectual property, or as consideration for imparting information concerning industrial, commercial or scientific experience, so as to fall within the definition of "royalty" under Article 13(3) of the India-UK DTAA. 8. This very issue has been examined in great detail by coordinate benches of this Tribunal in the assessee's own case for assessment years 2018-19, 2019-20 and 2020-21, as well as in the cases of other Deloitte entities operating under the same global framework. The Tribunal, after an exhaustive analysis of the Shared Services Agreement, the nature of services rendered, and the applicable treaty provisions, has consistently held that such payments do not partake the character of royalty. For the sake of completeness and doctrinal continuity, th....
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....te 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 also been established with a view to facilitating fulfilment of those purposes and Holdings intends to receive certain Services from Deloitte Services and supply the same to its Holding Members (including DTTI). * Under para 2.A.2 parties acknowledge that Holdings does not have capacity to provide such services and shall, instead, outsource these services to Deloitte Services. Deloitte Services shall make available such services to Holding Members (DTTI). * Para 3.C states that the parties acknowledge that Holdings will generally be run on a break-even basis. 3.1. The services provided under the Shared Service Agreement are enumerated at pages 540 to 543 of the paper book. In short, these ....
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....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 experience in terms of Article 13(3) of the India-UK DTAA. The relevant observations of the ld. CIT (A) are as under : "12. Comparing Article 11(3) of Double Taxation Avoidance Agreement with the detailed breakup reproduced above form basis for decision. Article 11(3) has several parts and we have to focus whether the payment is for information concerned commercial experience [later part of Article 11(3)(a)] or right to use, any copyright of a literary, artistic or scientific work [initial part of Article 11(3)(a)]. A plain reading of the break up of each expenses, worst come worst, vis-a-vis multiple aspects in Article 11(3) of Double Taxation Avoidance Agreement, leads to the fact that the payment is for information conc....
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....ant is that the arrangement is non-profit 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 Avoidance Agreement. Under Double Taxation Avoidance Agreement, income is not determined, but tax is determined as a fixed per cent of gross receipt. Irrespective whether there is profit or loss and whatever be its extent, tax is determined at a fixed rate. This is the manner in which receipt suffers tax in hands of recipient and extent and nature of expense does not count. Hence the aspect of mutuality and reimbursement of expenses are not relevant." 6. Before us, the learned senior counsel, Shri Percy Pardiwala, after referring to various clauses of Shared Services Agreement and the background of the case submitted that the amounts in....
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....ldings 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 confidential or secret in nature but is published information available in public domain. Therefore, such a payment cannot be regarded as consideration for imparting of any information concerning commercial or knowledge, experience or skill as contemplated in the definition of royalty as contained in clause (iv) of Explanation 2 to section 9(1)(vi) or under article 11(3)(a) of the India-UK tax treaty. In support of his contention, he relied upon the following decisions : "a. CIT vs. HEG Ltd. 263 ITR 230 (MP). In this case, the assessee had paid certain amounts to a USA company for purchase of some information. The transaction was held b....
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....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 not contemplate merely imparting information on technical, industrial or commercial matters. The requirement is imparting of information concerning technical, commercial or scientific knowledge, experience or skill. The information which the licensee got through the database did not relate to the underlying experience or skill which contributed to the end-product. The applicant did not share its experience, techniques or methodology employed in evolving the database with the subscribers. The information shared was published information which was already available in public domain and not something which was exclusively available to the applicant. The present case sta....
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....ent 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 the payments made to Holdings by treating it to be Royalty under Article 13(3) of the India-UK DTAA. As noted above, Deolitte Global Holdings has been incorporated by DTTI to facilitate attainment of various objectives to further international alignment, co-operation, cohesion and professional standards of highest quality amongst its member firms, such as the appellants herein. It incurs expenses for the above activities for the benefit of all the members which are then recovered from the members without any mark-up. 12.1 The terms on which the activities are carried out by Holdings and the expenses recovered by it from the members have been enshrined in t....
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....hicles. * 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 and techniques which further enhance the knowledge sharing capacity of Member Firms. * Provide certain technology related security advice and services to the Deloitte Network. * Promote common technology standards and platforms across the Deloitte Network and administer and monitor the same. 15. As regards payment for items of global brands, it has been stated that Holdings assists in implementing brand strategy for use of network of Deloitte members and also provides member firms with common training, policies and guidance related to the brands. Further, it will work together with all the member firms leadership, industries, functi....
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....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 of the network. The software acquired by the network and distributed to the members does not include payment for use of or right to use computer software as it has merely obtained a licenced product from vendors for use of member firms. The licensee was allowed to use the software only for its own business purpose and is not permitted to transfer copy of the software and as such there is no transfer of any right in respect of copyright by the vendors and it is a case of mere transfer of copyrighted article. Thus, the payments made for the activities/services under the aforesaid three heads cannot be held to be in the nature of Royalty as per the definition gi....
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....nd 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 under :- "13. A reading of the above judgment would clearly show that for the payment received by EYGSL (UK) from EYGBS (India) to be taxed as "royalty", it is essential to show a transfer of copyright in the software to do any of the acts mentioned in Section 14 of the Copyright Act, 1957. A licence conferring no proprietary interest on the licencee, does not entail parting with the copyright. Where the core of a transaction is to authorise the end-user to have access to and make use of the licenced software over which the licencee has no exclusive rights, no copyright is parted with and therefore, the payment received cannot be termed as "royalty". ....
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..... 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 was similar to the one in the present appeals, we are not going into this aspect, firstly, because, in our opinion, principle of mutuality cannot be examined in proceedings u/s 195; and secondly, principle of mutuality has to be seen qua in the hands of the recipient, i.e. entity which is receiving the payment and not in the hands of the payer, which is the appellant here. Therefore, we are not entering into the issue of mutuality in this case. 22. Lastly, insofar as issue of reimbursement is concerned, the same has become purely academic once we have held that the payments made are not in the nature of Royalty and is not taxable. 23. Accordingly, ....