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2016 (11) TMI 1358 - AT - Income TaxTDS u/s 195 - nature of payment made - reimbursement of expenses or payment towards product development fees to assessee - Double Taxation Avoidance Agreement - falling under the ambit of the term FTS - non deduction of tds - assessee treated as 'assessee in default' under Section 201(1) and 201(1A) - Held that:- The payment in question were made by the assessee in respect of research and development and operation towards clinical trial carried out by the Malaysian subsidiary of the assessee. As per the tripartite Memorandum of Understanding (MOU) between the assessee, its Malaysian subsidiary and Cipla, it was agreed upon between the parties that Cipla would make the payment towards product development fees to assessee to be utilized by it for its clinical trial, research and development and operational expenditure in India as well as in Malaysia. There is no dispute that as per the MOU between the parties, the cost of R & D as well as clinical trials undertaken by the assessee and its Malaysian subsidiary was to be borne by Cipla and in turn outcome of the R & D as well as clinical trials will be belonging to Cipla. Thus the outcome product of the R & D as well as clinical trials would not belong to the assessee or its subsidiary but the Cipla had the right over the same. Therefore the Cipla has right to acquire the outcome in the shape of technical information, technology documentation, know how and process involved in all clinical R&D. Though the assessee has reimbursed the expenses to its subsidiary however in case the payment is considered as tax for technical services then the element of profit becomes irrelevant as the gross payment is taxable. Thus it is clear under Article 13(3) of DTAA in question there is no clause of make available and the terms FTS means payment of any kind in consideration for rendering of managerial, technical or consultancy services/provision for services by technical or other personnel. Conducting clinical trials & R&D is clearly a service which is technical in nature therefore providing the outcome of the research to Cipla through the assessee clearly falls under the ambit of the term FTS as per the Article 13 of the DTAA between India & Malaysia. Thus, we do not find any error or infirmity in the orders of the authorities below in holding that the payment in question is FTS and consequently the assessee was liable to deduct tax at source under Section 195 of the Act. - Decided against assessee
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