TaxTMI 
TaxTMI 
2026 (10) TMI 158
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....greement between India and USA as royalty and/or Fees for Included Services ("FIS"). The case of the assessee, on the other hand, is that the impugned receipts are in the nature of business profits falling within Article 7 of the India-USA DTAA and, in the absence of any Permanent Establishment ("PE") of the assessee in India, no part thereof is chargeable to tax in India. 2. Brief facts are that the assessee is a company incorporated in and tax resident of the United States of America and is engaged in the business of providing information technology and allied services. During the relevant previous year, the assessee rendered certain services to Atos India and received aggregate consideration of Rs. 1,19,64,455 comprising Rs. 37,42,692 towards co-ordination services relating to the Tower Watson Project Rs. 82,58,843 towards services relating to the McGraw Hill Cap IQ Project and Rs. 9,26,110 towards MHS Storage services. The services under the Tower Watson arrangement essentially comprised service-desk and co-ordination support in relation to IT incidents, problems and service requests, whereas the services pertaining to the McGraw Hill Cap IQ Project comprised various project....
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.... the assessee. Consequent to these directions, the Assessing Officer passed the impugned final assessment order bringing the entire receipt of Rs. 1,19,64,455 to tax under Article 12 of the India-USA DTAA. 5. Before us, learned counsel for the assessee submitted that the entire approach of the authorities below proceeds on an erroneous assimilation of two conceptually different situations, namely, use of technical expertise, systems or intellectual resources by a service provider in rendering services and transfer or making available of such expertise, knowledge, know-how or intellectual property to the recipient of the services. Insofar as the Tower Watson Project is concerned, learned counsel drew our attention to the decision of the Tribunal in the assessee's own case for assessment year 2014-15 in ITA No.6841/Mum/2017, order dated 01.03.2023, wherein the identical arrangement relating to the Tower Watson service desk was examined and the Tribunal held that the consideration did not constitute royalty or FIS and was in the nature of business profits under Article 7 of the DTAA. It was submitted that there has been no material change either in the underlying contractual arrang....
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.... were justified in holding that the consideration was in the nature of royalty and, in any event, the close technical interaction between the assessee and Atos India resulted in technical knowledge and expertise being made available to the latter within the meaning of Article 12(4)(b). 8. We have heard the rival submissions and perused the relevant material placed on record. At the outset, it needs to be borne in mind that "royalty" under Article 12(3) and "Fees for Included Services" under Article 12(4) are distinct treaty concepts having separate and specific ingredients, and a receipt cannot be brought within either merely because the service in question has technological content or requires specialised technical expertise for its rendition. For determining whether a payment constitutes royalty, the enquiry has to be directed towards whether the consideration is for the use of, or right to use, any of the rights, property or information specifically contemplated under Article 12(3). Similarly, for bringing a technical or consultancy service within Article 12(4)(b), it is not enough that technical knowledge, experience, skill or know-how has been employed by the service provid....
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....nowledge, experience, software, systems or other intellectual resources for rendering a service and that person granting to the customer the use of, or right to use, the underlying copyright, process, know-how, information or experience itself. The former is a case where technology or intellectual property constitutes the means employed by the service provider for producing the contractual result; the latter involves the subject matter of the right itself being placed at the disposal of the payer. This distinction has received authoritative exposition from the Hon'ble Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT (2021) 432 ITR 471 (SC). While considering the royalty provisions under various DTAAs, including the distinction between copyright and a copyrighted article, the Hon'ble Supreme Court held that where the distribution agreement or end-user licence does not create any interest or right in the distributor/end-user amounting to the use of or right to use copyright, the consideration cannot be regarded as royalty merely because copyrighted software is involved. What has to be examined is the real nature of the rights flowing from the arrangement an....
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....ue under Article 12(4)(b) of the India-USA DTAA. The expression "make available" occurring therein imports a condition materially different from and additional to the mere rendering of a service which may otherwise possess technical or consultancy attributes. The technical knowledge, experience, skill, know-how or processes employed in rendering the service must be transmitted to the recipient in such a manner that the recipient is enabled to apply the same independently. The Memorandum of Understanding accompanying the India-USA DTAA itself elucidates that the mere fact that provision of a service may require technical input by the service provider does not per se mean that technical knowledge, skills or processes have been made available to the person purchasing the service. This principle has been explained with considerable clarity by the Hon'ble Karnataka High Court in CIT v. De Beers India Minerals (P.) Ltd. (2012) 346 ITR 467 (Kar.), wherein it was held, in substance, that the recipient must be enabled to apply the technical knowledge, experience, skill, know-how or process on its own; the mere fact that the recipient derives the benefit or obtains the product of technical e....
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.... purposes of Article 12(4)(b), and the latter condition has not been established in the present case. 14. Thus, on an overall consideration of the nature of the arrangements, the services actually rendered and the governing provisions of the India-USA DTAA, we find no basis for bringing the impugned receipts within the ambit of Article 12. The consideration cannot be characterised as royalty under Article 12(3), since no use of, or right to use, any copyright, patent, process, know-how or information concerning industrial, commercial or scientific experience has been shown to have been granted to Atos India. The mere deployment by the assessee of its own software, technical resources, specialised knowledge or intellectual inputs in the course of rendering the services does not amount to parting with the underlying right or property in favour of the service recipient, and the Microsoft licence component, for the reasons discussed hereinabove, does not alter this conclusion. Equally, the receipts cannot be regarded as FIS under Article 12(4)(b), because the rendition of services has not resulted in technical knowledge, experience, skill, know-how or processes being made available ....