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2012 (12) TMI 576 - AT - Income TaxFIS - article 12 of India-US DTAA - Marketing and management fees - Fees for included services (FIS) - the employees of the assessee visited India - held that:- the scope of section 9(1)(vii) is somewhat different in comparison with the Article 12(4)(b). In order to rope in any amount within the purview of FIS under the Article 12(4)(b) of DTAA, which has been invoked by the AO, it is essential that the payment should be to 'make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design.' On the contrary, there is no such requirement of 'making available' any managerial, technical or consultancy services'. Simple rendition of such services is sufficient. It is not the case of the Revenue that the assessee made available some managerial, technical or consultancy services to WNS India. The amount of ₹ 41.02 crore cannot be considered as FIS, naturally the amount received by the assessee on this score needs to be examined from the angle of taxability under other provisions. Royalty - reimbursement of international telecom connectivity charges - held that:- the term "royalty" has been defined in the DTAA as per Article 12(3). Such definition of the term "royalty" as per this Article is exhaustive. Pursuant to the insertion of Explanation (5) by the Finance Act, 2012, no amendment has been made in the DTAA to bring the definition of royalty at par with that provided under the Act. Subject matter of the Explanation is otherwise not a part of the definition of Royalty as per Article 12. As such, it is clear that the contention of the learned Departmental Representative that the retrospective insertion of Explanation 5 to section 9(1)(vii) should be read in the DTAA also, cannot be countenanced. This amount can be considered as royalty only in the hands of the owner or lessor or any other person entitled to permit the use of equipment and earning income in his own right from allowing the use of such equipment to others. By no stretch of imagination an intermediary, who makes payment to the owner of equipment on behalf of some person and then gets reimbursed for the said payment, can be considered as an owner or lessor etc. of the equipment so as to be considered u/s 9(1)(vi). The said amount may be considered as royalty in the hands of MCI WorldCom and other international operations under the provisions of the Act, who own the equipment and allowed use or right to use such equipment to WNS India. The assessee in the instant case simply paid a sum of ₹ 6.14 crore to MCI WorldCom etc. in the first instance and then recovered the same from WNS India. Thus it is evident, the said sum is not royalty even as per section 9(1)(vi) of the Act. Determination of correct nature of reimbursement of international telecom connectivity charges - held that:- The international telecom connectivity charges are not related in any manner with the rendering of marketing and management services. By no standard, such a claim for reimbursement of expenses can be considered as division of the contract price so as to gain some tax advantage. - Once it is held that there is no profit element in such reimbursement, it becomes manifest that the gross income of ₹ 6.14 crore recovered by the assessee from WNS India is equal to the same amount paid by it to MCI WorldCom etc., thereby leaving no surplus liable to tax under Article 7 of the DTAA.
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