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2014 (9) TMI 889 - HC - Income TaxLiability to deduct TDS u/s 195(1) – Remittances made to Non-resident – Article 12 of Indo-Canada DTAA - cost sharing agreement and payments were made by the assesee for reimbursement of cost/expenses - Whether the Tribunal was correct in holding that the payments made by the assessee for utilizing intranet facilities provided by the non-resident assessee is not liable to tax in India and no TDS need be made as the provisions of Section 195(1) read with section 9(1)(vi) and (vii) read with Article 12 of the DTAA between India and Canada are not applicable – Held that:- Relying upon CIT v. Synopsis International Old Ltd. [2013 (2) TMI 448 - KARNATAKA HIGH COURT] - without entering into an agreement, the assessee was not permitted or allowed to use the facility which exclusively belongs to the Canadian Company - The cost is paid for use of the said facility - By use of such facility, a right is conferred on the assessee - But a restriction is put on the assessee to sell or license or lease or in any manner transfer the right so conferred - The assessee was given the right to use the said facility for its purposes on payment of cost stipulated - the terminology of the said agreement would not conclusively decide the nature of transaction between the parties. Canadian Company under the agreement has permitted or allowed the assessee to use the facilities which they have developed at considerable cost to be paid - Merely because the agreement provides that the term 'Cost' does not include any mark-up and is limited to the actual cost, it makes no difference in the eye of law - But one thing that clearly emerges from the said agreement is that in developing the facility or tool, it is the Canadian Company which has invested the entire money - Prior to the development of the facility, there was no agreement between the Canadian Company and the assessee for sharing the cost of development of the said tool - even after payment of cost, the product used would absolutely vests with the Canadian Company - The assessee under no circumstances, would get any title to any extent in the facility developed by the Canadian Company and the right conferred is only for its user - it is nothing but a license though it is styled as the Cost Share Agreement. Some right is assigned to the assessee under the agreement on payment of cost - That right is a right to use the facility notwithstanding the fact that the cost is paid - it is clear that the cost is paid for using the computer software - When the assessee is allowed to use the said facility, it is nothing but a license to use the said facility - If really the cost paid represents the assessee's share of cost for developing the internal telecommunication and communication tool, on such payment, the Canadian Company can never claim to be the absolute owner of the said intellectual property - If CGI group companies were to pay costs for using the said facility, then the title of the facility i.e. intellectual property should equally vest proportionate to the cost share by this group companies - That is not the intention behind this agreement - this Cost Sharing Agreement is only a device to avoid payment of tax as contemplated under the aforesaid provision -It is nothing but a royalty – thus, the order of the Tribunal is set aside – Decided against assessee.
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