TMI Blog2014 (9) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... n concerning industrial, commercial and scientific experience is, whether there is any imparting of knowhow or not - If there is no “alienation” or the “use of” or the “right to use of” any knowhow i.e., there is no imparting or transfer of any knowledge, experience or skill or knowhow, then it cannot be termed as “royalty” - The services may have been rendered by a person from own knowledge and experience but such a knowledge and experience has not been imparted to the other person as the person retains the experience and knowledge or knowhow with himself, which are required to perform the services to its clients - it cannot be held that such services are in nature of “royalty” - if the services have been rendered de–hors the imparting of knowhow or transfer of any knowledge, experience or skill, then such services will not fall within the ambit of Article–12 - Since neither the AO nor the DRP has examined the nature of service rendered by the assessee from this angle therefore, the matter should be restored back to the file of the AO to examine the nature of services – Decided in favour of assessee. - ITA No. 8922/Mum./2010 - - - Dated:- 6-8-2014 - Shri B. R. Baskaran And Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 2007 08, the assessee had shown its income at nil on the ground that the income accrued to the assessee qualifies as business income and the same cannot be taxed under Article 7 as the assessee has no Permanent Establishment (P.E) in India as defined in Article 5 of India Thailand DTAA. In the draft assessment order, the Assessing Officer held that consideration received by the assessee from the provisions of services from outside India to GEMFSL is on account of business connection in India and, hence, taxable under the domestic law i.e., Indian Income Tax Act. He also held that services rendered by the assessee would also fall within the definition of fees for technical services as envisaged under section 9(1)(vii) of the Act and, hence, the same is taxable in India. Alternatively, he held that the services rendered by the assessee would also fall within the definition of royalty under the Article 12(3) of the treaty and, hence, would be taxable in India. Against the said draft assessment order, the assessee filed its objection before the DRP and also the copy of tax residency certificate issued by the Thailand tax authorities. The DRP directed the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer, in pursuance of such direction held that the payments received by the assessee are for providing industrial, commercial or scientific experience and, hence, the receipts are taxable as royalty within the meaning of Article 12(3) of the Indo Thailand DTAA and tax the said receipts @ 15%. 6. Before us, the learned Counsel, Shri Rajan Vora, on behalf of the assessee, submitted that the India Thailand tax treaty does not have any separate Article for FTS and, accordingly, the income from the services rendered by the assessee would be governed by Article 7. Since the assessee does not have any P.E. within the meaning of Article 5, therefore, the said receipts cannot be taxed in India. The fact that the assessee does not have a P.E., has not been disputed by the Assessing Officer. He also pointed out that in the assessment year 2006 07, the Assessing Officer had taxed the similar receipts from GEMFSL as being in the nature of FTS under the Act, however, in the first appeal, the learned Commissioner (Appeals) held that in the absence of any FTS clause under the India Thailand treaty and in the absence of P.E. of the assessee in India, the said receipts could not be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services rendered by the assessee are in the nature of royalty depends upon the terms and conditions of the agreement and the nature of transactions. All the services which have been enumerated in the agreement can only be rendered by a person of an experience in various fields. He also drew our attention to certain services like accounting and final support services for which lot of experience is required and not only that, while rendering such services, there is parting of knowhow also. The services rendered by the assessee fall within the ambit of giving information concerning industrial, commercial or scientific experience as appearing in Para 3 of Article 12. He also referred to Para 11.6 of OECD commentary, which deals with the practically of the situations in the contracts which cover both knowhow and the provisions of technical assistance. If one part of the services fall within the ambit of imparting of knowhow and other part falls within the services, then it should be construed as royalty only. In the case of assessee also, some of the services can be classified as royalty . 8. We have heard the rival submissions and perused the impugned order and the material pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot know from mere examination of the product and mere knowledge of the progress of technique . 11.1 In the know-how contract, one of the parties agrees to impart to the other, so that he can use them for his own account, his special knowledge and experience which remain unrevealed to the public. It is recognised that the grantor is not required to play any part himself in the application of the formulas granted to the licensee and that he does not guarantee the result thereof. 11.2 This type of contract thus differs from contracts for the provision of services, in which one of the parties undertakes to use the customary skills of his calling to execute work himself for the other party. Payments made under the latter contracts generally fall under Article 7. 11.3 The need to distinguish these two types of payments, i.e. payments for the supply of know-how and payments for the provision of services, sometimes gives rise to practical difficulties. The following criteria are relevant for the purpose of making that distinction: Contracts for the supply of know-how concern information of the kind described in paragraph 11 that already exists or concern the supply of that type ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then it cannot be termed as royalty , because the advisor or consultant is not imparting his skill or experience to other, but rendering his services from his own knowhow and experience. All that he imparts is a conclusion or solution that draws from his own experience. The eminent author Klaus Vogel in his book Klaus Vogel On Double Tax Convention has reiterated this view on difference between royalty and rendering of services in the following manner: Imparting of experience: Whenever the term royalties relates to payments in respect of experience (knowhow) the condition for applying art.12 is that the remuneration is being paid for imparting such knowhow . In contrast, the criterion used to distinguish the provisions of know how from rendering advisory services is the concept of imparting. An advisor or consultant, rather than imparting this experience, uses it himself (BFH BStBI.II 235 (1971); Minister des Relations exterieures, Reponses a M. Bockel, 36 Dr. Fisc. Commn. 1956 (1984). All that he imparts is a conclusion that he draws inter alia from his own experience. His obligation to observe secrets, or even his own interest in retaining his means of production wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
