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2014 (10) TMI 78 - HC - Income TaxRoyalty u/s 9(1)(vi)– DTAA between India and Austria - recurring payments - technical assistance agreement - lump-sum payment as attributable to ‘information and services, to be furnished’ – Held that:- The differentiation between ‘technical know-how’ and ‘technical services’ - In know-how or under a know-how contract, one party agrees to grant ‘right to use’ or simply provide to the other special knowledge and experience not revealed to the public - the granter may not guarantee the result of the formulae, information and for which licence for use is granted - This ‘service’ element goes beyond mere providing of technical know-how - the consideration paid for right to use technical know-how etc. under the Agreement would be taxable in India as ‘royalty’ under Article VI and consideration paid for technical services would be taxable in India to the extent of such amounts were attributable to the activities actually performed in the country of source, after allowing deduction of expenditure incurred in India - payments made for technical services furnished by the non-resident assessee outside India would not be taxable in India. The entire amount paid including the periodical payments were treated as royalty, ignoring Article VII of the DTAA and the relevant clauses of the Agreement - Ignorance and nescience was not due to lack of awareness, but attributable to failure to understand and deal with the issue inspite of the submission/contention - It was propelled with the desire to ensure 100% taxation of the entire consideration - No attempt was made to elucidate, and painstakingly answer the objections with facts and to bifurcate and divide the consideration in a reasonable manner between right to use technical information or know-how etc. and the consideration paid for services - in respect of services, differentiation regarding services rendered in the source state, i.e. India, the amount attributable to the activities actually performed in India and expenses incurred, was not undertaken - Consideration paid for technical services outside India had to be examined and excluded - the payments received were offered for taxation as ‘royalty’ under Article VI of the DTAA - the findings/division of the appellate authorities may not be in terms of the reasoning and finding recorded - Evidence and material, by passage of time would have disappeared and desiccated. Assessee offered and stands taxed on 5% commission – the matter cannot be remitted back on the ground that the bifurcation/division made should be ignored and on a reasonable basis after ascertaining full facts, the amounts should be bifurcated and amounts covered under Article VI should be taxed in India and the amounts covered under Article VII should be taxed in India only if they were attributable to activities actually performed in India, after deducting expenditure - It does appear that the assessee stands taxed on payments under clause 4.2 in India and therefore, has paid tax in India Consideration paid for technical services would be taxable under Article VII of the DTAA, to the extent the amounts were attributable to the activities performed by the respondent-assessee in India. Deduction of expenses would be made - consideration paid for right to use technical information and know-how would be taxable under Article VI of the DTAA - the consideration paid for furnishing technical services outside India, shall not be taxable in India - the expression ‘royalty’ and the other similar expressions used in other DTAAs or u/s 9(1)(vi) of the Act may not or may warrant same interpretation – Decided partly in favour of revenue.
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