TMI Blog2012 (4) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... ade available technical knowledge for meeting the long term targets of the clients and the benefits ran well into the future - the Balance Score Card prepared for each client and system of filling data in such BSC on a continual basis depended on the needs of each client - that the fees received for designing of the management tool called Balance Score Card will definitely fall within the definition of "fees for technical services" as given under sub-clause (iv) of Article 12 of DTA between India and Singapore - A.O. was justified in treating the amount received by the assessee from its clients as income taxable in India in accordance with DTA between India and Singapore - Appeal of assessee dismissed. - IT Appeal No. 2137 (Mds.) of 2010 - - - Dated:- 9-2-2012 - ABRAHAM P. GEORGE, GEORGE MATHAN, JJ. Vikram Vijayaraghavan for the Appellant. K.E.B. Rengarajan for the Respondent. ORDER Abraham P. George, Accountant Member In this appeal filed by the assessee, its grievance is that A.O. treated lumpsum payment received on sale of software as royalty under Article 12 of Double Taxation Agreement (DTA) between India and Singapore. As per the assessee, the amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered as fee for technical services falling under Section (9)(1)(vii) of the Act. ( iii ) Since assessee could legitimately claim the benefit of Section 90(2) of the Act, it became necessary to look into the relevant DTA with regard to treatment of royalty and fees for technical services. The Balance Score Card designed on licensed software given by the assessee to its clients was nothing but an equipment. Therefore, lumpsum consideration on professional charges could be considered as payments received as consideration for the right to use of any industrial, commercial or scientific equipment or alternatively, could be considered as fees for services being ancillary and subsidiary to the application or enjoyment of right to use an industrial, commercial or scientific equipment. ( iv ) Though the assessee rely on the decision of Mckinsey A Co. Inc. (Philippines) v. ADIT (International Taxation) 284 ITR (AT) 227 of Mumbai Bench of this Tribunal, the terms "technical" and "consultancy" could not determine the taxability and the term "technical" could not be confined only to technology related to engineering, professional and consultancy services. ( v ) Though the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsofar as the treatment of the amounts received as fees for technical services was concerned, argument of the assessee before DRP was that BSC was not a tool but only a management system and such system could be used even without software. Further as per assessee, Article 12 of DTA clearly specified that if a payment was to be considered as fee for technical services, such services should make available technical knowledge, experience, skill, know-how or process which enabled the person acquiring the services to apply the technology contained therein. As per the assessee, it was not making available any technical knowledge which could be used by its client and hence the receipts would not fall within the definition of "fee for technical services". However, DRP was not impressed on this line of reasoning as well. According to it, assessee was providing consultancy services to its client-organizations and such services were of managerial or technical in nature. Assessee had through its Principal Consultant Shri V. Ramakrishnan, made available technical knowledge, experience and skill possessed by the assessee to such clients, who in turn, used such skills to apply the knowledge conta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only getting business income from such transactions and in view of Article 7 of DTA between India and Singapore, business income could not be taxed in India unless assessee was having a P.E. in India. Particular reliance was placed on the decision of Authority for Advance Rulings in the case of InterTek Testing Services India (P.) Ltd., In re [2008] 307 ITR 418/175 Taxman 375 (AAR - New Delhi), Bharti AXA General Insurance Co. Ltd., In.re [2010] 194 Taxman 1 and Ernst Young, (P.) Ltd., In.re [2010] 189 Taxman 409 (AAR - New Delhi) for his argument that assessee had not made available any technical knowledge, experience, skill, know-how or process to its clients. According to him, technical knowledge could be considered as made available only when the person acquiring the technology could apply such technology. The fact that rendering of the service required technical input by the person providing the service would not per se mean that technical knowledge, skill, etc. was made available to the person receiving the service. For these contentions, reliance was also placed on Memorandum of Understanding dated 15th May, 1989 between Government of India and U.S. Government with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of services rendered by it in developing Balance Score Card system for its clients. For the development of such Balance Score Card system, clients were required to download from the sites designated by the assessee a licensed software. Agreements entered by the assessee with the three clients are typically similar. For easy appreciation, one such agreement as appearing on pages 1-2 of paper-book, is reproduced hereunder:- "Dear Sirs, We thank you for selecting us to assist you in the development of a balanced scorecard (BSC) for development on April 1, 2007 subject to you making available the required data and inputs in time. We outline the broad framework around which we will be happy to see you starting December 2006. Our Principal Consultant, Mr. V. Ramakrishnan, will be leading a team of our associates to help implement the Licensed Software to help develop the balanced scorecard over the time outlined in our proposal to complete development of the BSC. Several of our associates will be visiting the site. More will assist us in the back office in analysis and collation. We would require you and your colleagues to treat as confidential the IPR and formats we will be sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and return one copy of this document to us. We look forward to a mutually rewarding partnership and would request full payment should you decide to stop using our services midway." 10. What is clear from the above agreement is that assessee had sent its Principal Consultant Shri V. Ramakrishnan with a team for helping its clients in implementing a licensed software, which was required to develop the Balance Score Card for such clients. The clients were required to make lump sum payments for downloading such software from the designated sites and such software was to be used in various phases of developing the Balance Score Card system. Balance Score Card is a strategic performance management tool first developed by one Art Schneiderman in 1987, but, has thereafter undergone a number of revisions by various researchers. Balance Score Card system has evolved over time and has been modified to address the deficiencies in the first models and third generation Balance Score Card system presently used is based on a destination statement created at the beginning of the Score Card designing process. The success of Balance Score Card system depend on the type of measures adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in a Treaty with regard to the definition of the term "fees for technical services" is much different from the definition as given under Section 9(1)(vii) of the Act. Assessee, no doubt, is justified in falling back on Section 90(2) of the Act for insisting that Article of the Treaty being more beneficial should be applied and this view is well supported by Hon'ble Apex Court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 (SC). "Fees for technical services", as defined in DTA between India and Singapore, is reproduced hereunder:- "The term "fees for technical services" as used In this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through 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 paragraph 3 is received ; or ( b ) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. Necessarily the technical knowledge and skill for use imbibed by the assessee remained with such clients. Thus, we are of the opinion that the fees received for designing of the management tool called Balance Score Card will definitely fall within the definition of "fees for technical services" as given under sub-clause (iv) of Article 12 of DTA between India and Singapore. No doubt, both the A.O. as well as DRP fell in error in treating the software independently and considering a part of the amounts received by the assessee as royalty. As already held by us, and also accepted by the learned A.R., the software was only a part of the tool of management consultancy and was never to be considered as independent divorced of the total system. Thus, we are of the opinion that the whole of the amount received by the assessee was nothing but fees for technical services and the amount was definitely taxable under the DTA. Insofar as argument of the assessee that the amount ought have been considered as business income, since the receipts could clearly be identified as fee for consultancy services, the question of treating it as business income under Article 7 will not arise. In this re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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