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2018 (11) TMI 201 - AT - Income TaxTaxability of receipts under Research and Development Co-operation Agreement - Income taxable under the head ‘Royalty’ - income deemed to accrue or arise in India - assessee is a tax resident of the Netherlands entered into Research and Development Cooperation agreement (RDCA) with Philips India (PEIL) - India-Netherlands DTAA - Held that:- So far as the transaction between the assessee and PEIL India is concerned, it is simply in the nature of reimbursement of expenses incurred by KPENV, on behalf of the group companies and it is not an income for the KPENV. During the course of hearing before us, when we put this position to the ld. DR, he did not have much to say beyond placing reliance on the stand of the Assessing Officer. Hence, the payment received by the assessee company from various group companies are in the nature of reimbursement as evident from the details taken from various terms and conditions of RDCA agreement. The RDCA agreement has no income element, hence a cost sharing agreement cannot be converted into the terminology of ‘royalty’. Article 5 of the RDCA clearly shows that all the assistance, information and advice given under the RDCA are for the exclusive use only by all participating Philips Group entities and the only reason for restriction on sharing with the third parties is to protect the interests of the Philips Group as a whole. Therefore, we are of the view that the receipts under RDCA are not taxable as the same is not ‘Royalty’ under Article 12(4) of the India-Netherlands DTAA, and it is a cost sharing agreement, in nature of reimbursement, hence we delete the addition. Taxability of receipts under Management Support Services Agreement (MSSA) received by Koninklijke Philips Electronics N.V (Assessee), as per MSSA agreement between assessee and Philips Electronics India Limited (‘PEIL’) - Held that:- As per sub section 2 of section 90 of the Act DTAA entered into with the foreign company is a statutory document recognized under the Income Tax Act and by sub section 2, the provisions of the Income Act would apply only to the extent that they are more beneficial to the assessee. We note that as per Article 12 of India-Netherland DTAA these receipts do not fall in the definition of ‘Royalty’ or ‘Fees for technical services therefore, the assessee is not liable to pay tax on these receipts in India and this way, the DTAA provisions will prevail. Hence, assessee can change its stand at any point of time if it seems to him that the receipts are not taxable in his hand as per the provisions of law. Therefore, we do not agree with ld DR for the Revenue, so far this issue is concerned. Entitlement of TDS credit - Held that:- We note that assessee is entitled to take the credit of TDS certificate submitted by it during the assessment proceedings. Therefore, we direct the Assessing Officer to provide credit for tax deducted at source after verification of the TDS certificate filed by the assessee, as per the provisions of law. Therefore, we allow this ground of appeal raised by the assessee for statistical purposes.
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