TMI Blog2011 (11) TMI 484X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT DELHI-A] where main purpose of the agreement was to render services and use of trademark or trade name was only incidental then the entire payment or even a part of it cannot be considered as royalty. Thus, fees received are taxable as business profits in India. Since, the Assessee did not have a permanent establishment in India, the same was held to be not taxable - in favour of assessee. Reimbursement of expenses - Held that:- Prima facie the payments are in the nature of reimbursement of expenses. In the absence of any finding by the AO to the contrary the request to remand the issue for fresh consideration cannot be acceded. Since payments made are held to be business profits not taxable in India thereby there is no obligation to deduct tax at source - in favor of assessee. - ITA NOS. 3610 (MUM.) OF 2005 AND 1558 & 1559 (MUM.) OF 2007 - - - Dated:- 18-11-2011 - SHRI N.V. VASUDEVAN, AND SHRI B. RAMAKOTAIAH, JJ. Represented By: Shri Jitendra Yadav and Smt. Malathi Sridharan for the Appellant. Kanchaun Kaushal, Shri Dhanesh Bafna and Ms. Shital Bandekar for the Respondent. ORDER Shri N.V. Vasudevan, - ITA No.1558/Mum/07 is an appeal by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and circumstances under which the aforesaid grounds arise for consideration are as follows: The Assessee is a non-resident and is incorporated as corporation under laws of Massachusetts USA. Objectives of the corporation are as follows :- "Exclusively to perform internationally certain charitable and educational functions of and to carry out certain charitable and educational purposes of President and Fellows of Harvard College (Harvard) a charitable institution for higher education duly incorporated and existing under the laws of the commonwealth of Massachusetts, and otherwise to advance the charitable and educational objectives of Harvard's Medical school (the Harvard Medical School), by assisting other medical schools, to provide high quality medical training and to enhance the quality of patient care and research by teaching training and sharing medical and technological know-how with scientists and health care professionals in countries which may not have ready access to such information by participating in and promoting joint medical research initiatives throughout the words by assisting medical institutions throughout the words in various related administrative and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me agreement was considered by this Tribunal in ITA No.4656/Mum/05 and 4660/Mum/05 in its order dated 22.12.2009 and it was held by this Tribunal that the entire payments received by the Assessee was not in the nature of FIS and was taxable as business profits in India. Since, the Assessee did not have a permanent establishment in India, the same was held to be not taxable. Nevertheless, the D.R. submitted before us that he would like to point out certain aspects which were not considered by the Tribunal in the aforesaid orders. With regard to the payments received from WHL, the issue arises for the first time and has to be considered in the light of the services rendered by the Assessee for which payments were received. With this background, we shall now consider the nature of services rendered by the Assessee to MAX and WHL. 6. Nature of services rendered by the Assessee to MAX: The assessee entered into a collaboration agreement dated 1.3.1999 with Max. As per the agreement, the assessee agreed to extend its capability in health care management, medical education and research to Max. As per the agreement, the assessee (referred to as HMI) agreed to provide following services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following services: (Clause 1 of the Agreement) "Services rendered by HIMI to WHL for the relevant year Consulting in relating to health care projects - Advising WHL on its overall health care strategy in Bombay and Southern India, including reviewing and providing feedback on existing health care projects: - Make recommendations regarding the prioritization of new health care projects; - Provide ongoing consultation/advice to WHL's corporate staff - - Advise on aligning systems to address insurance needs to enable WHL 's pro-active - approach in health care; - Advise and assistance in relation to the key selection of clinical specialist, key job descriptions for key positions such as Clinical Leaders, Nursing Leaders, Administrator Leaders, and key IT personnel - Advise and assistance in relation to emergency medical systems for the related specialities. Education Training Programms in relation to System-wide Core Competencies - Provide training for WHL executives. - Provide hospital managers and/or clinicians training in areas of Hospital Management including hospital organization, human resources etc. Laboratory Management, Medical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HMI shall be subject lo the terms of this MOA, and for the duration thereof, HMI may use the name of WHL .by referring to its relationship with WHL in factual statements to the effect that HMI is providing the services hereunder ..WHL. HMI's use of such name will be in accordance with the, restrictions set forth below. (c) All materials delivered to WHL by or o behalf of HMI in connection with providing Services, together with all copyright, trademark, trade dress, trade secret, patent, and other proprietary rights therein ("Intellectual Property") shall belong exclusively to HMI. During the term of this MOA, HMI hereby grants to WHL and the Facilities rights to use the whole (not individual pieces alone) of such Intellectual Property (other than the name "Harvard", or any of its logos and designs, which is governed by the provisions of Section 3(a) above), free of any royalty or any related economic consideration. Notwithstanding the foregoing, HMI shall, also retain all Rights to use the intellectual Property, subject to the terms of this MOA. 9. Case of the Assessing Officer: According to the AO, the Assessee by virtue of the aforesaid agreements gave a right to use copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording of "associate institution status" to WHL at corporate level. (b) Two HMI 's executives will participate on the WHL health care advisory board with 1 -2 days meetings being held twice in India. (c) HMI will provide WHL executives training at Boston in the areas of pharmacy management and education, infection control and education, bio medical engineering and education, clinical nutrition and education, and environmental services and education. (d) Training of A WHL nurse Managers at Boston. (e) HMJ will provide WHL educational resources and reference material. (f) QJ HMJ will provide training nursing educational programs in India and this training program is limited to WHL staff (g) HMI will provide the services of consultants to WHL hospital to teach or conduct educational workshops. (h) HMI will provide the educational programs to assist WHL in developing processes to monitor the overall progress of the project. (i) HMJ provides educational programes and recommendations in respect of panned patient care delivery system. (j) HMI will provide training programs in developing a comprehensive hospital commissioning plan. The appellant has contended that some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and its logos and designs, which will be liable to tax as royalty in the hands of HM under Article 12 of the DTAA at 15%. Since the tax is stated to be borne by WHL, it will have to be grossed up. The Assessing Officer is directed to give effect accordingly." 5.1 In view of all the above, I hold that 50% of the payments should be considered as payment made for 'teaching in by educational institution' and hence this 50% of the amount cannot be considered as FIS and hence not liable to tax in India. This cannot be also taxed under Article 7 of DTAA as the appellant is not having PE in India. The remaining 50% is to be taxed as royalty towards the use of the name "Harvard" and its logos and designs. In this regard I entirely agree with the order of the CIT(A)XXXI mentioned above" 11. Aggrieved by the order of the CIT(A), the Assessee as well as the Revenue are in appeal before the Tribunal on the grounds which have already been set out in the earlier part of this order. 12. We have heard the rival submissions. We shall first take up for consideration the receipts by the Assessee from MAX. As far as these receipts are concerned, the facts are identical to the facts as it existed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use, the industrial, commercial or scientific equipment other than payments derived by an enterprise in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 or Article 8. (4) For the purposes of this article 'fees for included services' means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provisions of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in para 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. 11. A plain reading of the above clause makes it clear that only such technical and consultancy services are covered by Article 12(4) as either (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information referred to in Article 12(3), or (b) 'make available' technical knowledge, experience, skill know-how etc. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e'. The meaning of the expression make available were considered by the Tribunal in the case of Raymond Ltd. v. DCIT (2003) 80 TTJ (Mum) 120. The Tribunal after elaborate analysis of all the related aspects observed that :- "The words 'making available' in Article 13.4 refers to the stage subsequent to the 'making use of' stage. The qualifying words is 'which' the use of this relative pronoun as a conjunction is to denote some additional function the 'rendering the services' must fulfil. And that is that it should also 'make available' technical knowledge, experience, skill etc. The word which occurring in the article after the word 'services' and before the words 'make available' not only described or defines more clearly the antecedent noun '(services') but also gives additional information about the same in the sense that it requires that the services should result in making available to the user technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical meaning of the language employed is that a mere rendering of services is not roped in unless the person utilizing the services is able to make use of the technical knowledge, etc. by himself in his bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the understanding of the Government s of India and the USA on the subject. This example is as follows :- "Facts : the India vegetable oil manufacturing firm has mastered the science of producing cholesterol free oil and wishes to market this product worldwide. It hires an American Marketing consultancy firm to do computer simulation of the world market for such oil and to advise it on marketing strategies. Are the fees paid to the US company for included services. Analysis : the fees would not be for included services. The American company is providing a consultancy which involves the use of substantial technical skill and expertise. It is, however, making available to the Indian company any technical experience, knowledge or skill etc. nor is it transferring a technical plan or design. What is transferred to the Indian company through the service contract is commercial information. The fact that technical skills were required by the performer of the service in order to perform the commercial information does not make the service a technical service within meaning of para (4)(b)." This example, set out in the MOU between the Indian and US governments, also makes it cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s own case for AY 00-01 and 01-02, hold that learned CIT(A) indeed erred in holding that the monies received by the assessee from Max India Ltd. constitute 'fees for included services' within the meaning of Article 12(4) of the India-US treaty, and are accordingly liable to be taxed in India. Since, the assessee does not have any permanent establishment in India, the incomes so arising to them in India cannot be taxed under Article 7 as 'business profits' either. Therefore, we direct the Assessing Officer to delete the impugned additions. The relevant grounds of cross objection of the Assessee are allowed. 14. We shall now take up for consideration the fee received by the Assessee from WHL. On this receipt, we shall first deal with the question whether the receipts in question are Royalty to the extent of 90% and FIS to the extent of 10% or whether they are in the nature of Business profits. The question whether the receipts are for teaching in or by educational institution in the light of the Article 12(5)(c) of the DTAA between India and USA will arise for consideration only if it is held to be FIS under Article 12(4) of the DTAA between India and USA. 15. We have already see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the same as royalty. 17. We have considered the rival submissions. We are of the view that the consideration received by the assessee can neither be said to be royalty nor FIS. The payment in question was purely for the purpose of advising, recommending and assisting in relation to healthcare projects. It was also for conducting education and training programmes. It was also for the purpose of review and giving feedback of various aspects and new cardiac hospital to be set up, recommendation on planned patient care delivery system. In page 15A to 15D of the CIT(A)'s order a summary of the activities undertaken by the assessee for WHL have been given. A perusal of the same shows that the consideration received by the assessee cannot be said to be royalty as they were not a payment for use of order, the right to use any copy right, trademark or industrial, commercial or scientific experience. Similarly the assessee did not make available any technical knowledge, experience, skill knowhow or process. The decision of the Delhi Bench of the ITAT in the case of Sheraton International Inc. (supra) supports the plea of the assessee that where the agreement between the parties provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of the assessee. 21. It is not in dispute before us that in A.Y 2001-02 in ITA No.4426/M/05 similar issue was considered by this Tribunal and the Tribunal held as follows: "16. Ground No. 4 raised by the assessee reads as follows :- On the facts and circumstances of the case and in law, learned CIT(A) though agreeing in principle that reimbursement of expenses received in connection with the services rendered does not constitute income however erred in confirming the addition made by the Assessing Officer on account of the reimbursement of actual expenditure of US$ 94,875 on the ground that the appellant failed to furnish the details of the same, without giving an opportunity to the appellant to substantiate its claim. 17. We have already noticed that the assessee was providing education and training programmes to hospitals, medical schools in India. The assessee had entered into agreements for providing those facilities with Max. The assessee had also entered into an agreement for providing services to Wockhardt Hospitals Limited (WHL). The assessee received a sum of US$ 75,000/- during the previous year. The assessee had entered into an agreement for rendering e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses, they could not be considered as income of the assessee. Learned CIT(A) agreed with the stand of the assessee that reimbursement of expenses cannot be considered as income; but held that the assessee has not filed details of reimbursement of actual expenses incurred; and therefore, claim of the assessee cannot be accepted. 20. Before us, learned counsel for the assessee brought to our notice invoice raised by the assessee on Wockhardt Ltd. which is at page No. 96-97 of the assessee's paper book and the invoice raised on Max India Ltd. which at page No. 98 of the assessee's paper book. Perusal of these invoices shows that the payment of US$ 75,000 by Wockhardt Ltd. is related to travel and administrative direct expenses and legal expenses. As far as payment of Max is concerned, it has description of travel cost bill as per the agreement. In our view, aforesaid documents prima facie shows that they were reimbursement of expenses. We are however of the view that these documents would not be sufficient to establish case of the assessee. The assessee has to establish that these were expenses incurred by the assessee which were actually to be incurred by Wockhardt Ltd. and Max ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be brought to tax in view of the Article 23(1) of the DTAA between India and USA. Prima facie the payments are in the nature of reimbursement of expenses. In the absence of any finding by the AO to the contrary the request of the D.R. to remand the issue for fresh consideration cannot be acceded. In that view of the matter we do not find any infirmity in the order of the CIT(A). Consequently Ground No.2 raised by the revenue is also dismissed. 25. Ground No.4 raised by the assessee in the Cross Objection reads as follows: "4. On the facts and circumstances of the case and in law, the learned CIT(A)) erred in not adjudicating upon the ground relating to incorrect foreign currency exchange rate applied by the learned AO for conversion of the fees received by the Respondent, into Indian rupees. It is prayed that the learned AO be directed to apply the exchange rates as per proviso to Rule 115 read with Rule 26 of the Income Tax rules, 1962." 26. In our view this ground has become academic in view of the conclusion that none of the receipts by the assessee from Max WHL were taxable in India. Though the CIT(A) has not decided this ground on appeal despite a specific grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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