TMI Blog2013 (11) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... AMIT SHUKLA , JJ. For the Appellant : Kanchan Kaushan and Dhanesh Bafna. For the Respondent : Mahesh Kumar. ORDER:- Per Bench : These cross appeals are directed against the impugned order dated 12th November 2007, passed by the learned Commissioner (Appeals)-XXXIII, Mumbai, for the quantum of assessment passed under section 143(3) of the Income Tax Act, 1961 (for short "the Act"), for the assessment year 2004-05. Since the grounds raised by either party are inter-connected, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. 2. We first take up Assessee's appeal in ITA no.791/Mum./2008. The Assessee, vide grounds no.1, 2 and 3, has challenged the taxability of a sum of US$ 9,82,500 received by the Assessee from three parties namely Max India Ltd., Wockhardt Hospitals Ltd. and Sri Ramachandra Medical College Research Institute. 3. Facts in brief:- The Assessee is a non-resident and is incorporated as Corporation under the laws of Massachusetts, U.S.A. It has been claimed that it is a non-profit educational entity which has been set-up with the following objections. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of U.S.D. 28695.39 was also received towards reimbursement of expenses. The amount so received was claimed not taxable in India in the absence of Permanent Establishment (for short "P.E") in terms of Article-5 r/w Article-7 of Indo-U.S. DTAA. Without prejudice, it was also claimed that the receipts in question were neither in the nature of "Fees" for Included Service under Article 12(4)(b) nor as "Royalty". 6. Before the Assessing Officer, it was submitted that the Assessee has provided health care related services to Max and WHL in pursuance of terms and conditions of the respect service agreements and detail submissions were made with regard to its claim of non-taxability in India. The submissions of the Assessee have been incorporated by the Assessing Officer from Pages-3 to 11 of the assessment order. The Assessing Officer rejected the Assessee's contentions on the ground that, from the reading of memorandum of agreement entered with them it is seen that the Assessee has given its rights over the three parties to use their copyright items, deliverables, name, logos, etc. with limited restrictions and the part of it will fall within the purview of "Royalties", as given in A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovide international platform to the Awardees by way of invitations for delivering a scientific address. Services rendered by HMI to MAX Reviewing concept, design, service profile and layout of new hospitals Services rendered by HMI to SRMCI Assess annual educational program needs of SRMCI. Provide monthly continuing medical education videoconferences with Harvard University faculty. Coordinate and manage the clinical clerkships and student exchanges for students and trainees. Provide training and educational workshops in curriculum development and in medical education leadership. Provide e-learning support. Assist in development and select programs in education, clinical care and research. Jointly sponsor international professional development and continuing medical education events and programs of HMI. 8. Further, the Assessee also made detail submissions as to how provisions of Article-12(3) and (4) will not be applicable. The learned Commissioner (Appeals), after discussing various clauses of the agreement, held that, in the appeal for the assessment year 2002-03 and 2003-04, the learned Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. A perusal of the clauses of Agreement dated 1.3.1999 between the assessee and Max India Ltd. clearly shows that they are purely in the nature of advisory services. Nothing is made available to Max India Ltd. by the assessee. As to whether or not giving advisory services can be considered to be making available included services, example No. 7 given in the MOU between India and USA on the DTAA throws some more light on the understanding of the Government s of India and the USA on the subject. This example is as follows :- "Facts : the India vegetable oil manufacturing firm has mastered the science of producing cholesterol free oil and wishes to market this product worldwide. It hires an American Marketing consultancy firm to do computer simulation of the world market for such oil and to advise it on marketing strategies. Are the fees paid to the US company for included services? Analysis : the fees would not be for included services. The American company is providing a consultancy which involves the use of substantial technical skill and expertise. It is, however, making available to the Indian company any technical experience, knowledge or skill etc. nor is it tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandard operating procedures, technical advice etc., it makes available to Max knowledge, experience, skill, know-how and in this regard brought to our notice certain clauses of the Agreement. In this regard our attention was drawn to Exhibit-A of the agreement dt.1.3.2000. He laid emphasis on the fact that there was reference to objective of ensuring that Max enjoys continued status as an HMI Associated Institution. We have given a careful consideration to the above submission of the learned D.R. and are of the view that the same is without any merit. Exhibit A referred to by the learned D.R. is plan envisaged in difference phases. All the phases only refers to advise given by the Assessee to max to achieve excellence in hospital management like medical equipment to be used, number of medical staff required, on-site training required etc. These services do not make available any technical knowledge, experience, skill, know-how, as explained in the decisions referred to in the order of the Tribunal in Assessee's case for AY 00-01 and 01-02. We therefore reject the contentions of the learned D.R. before us and respectfully following the decision of the Tribunal in Assessee's own cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e available by the Assessee to WHL and in this regard, the observations while deciding payments received by the Assessee from MAX would be equally applicable to the payments received from WHL also. We are of the view that the entire payment received by the assessee from WHL is in the nature of business profits and since the assessee does not have a PE in India the same cannot be brought to tax in India. Consequently, Ground No.2 3 of the Cross Objection of the assessee are allowed." Assessment Year - 2003-04 "28. ITA No.1559/M/07 is an appeal by the revenue against the order dated 26/10/2006 of CIT(A) 33, Mumbai relating to A.Y 2003-04 and C.O No.146/M/07 is a cross objection by the assessee against the very same order of the CIT(A). The ground raised by the revenue in its appeal and Ground No.1 to 3 raised by the assessee in its Cross Objection are identical to the Grounds 1 2 raised by the revenue in its appeal ITA 1558/M/07 and Ground No.1 to 3 in the Cross Objection No.145/M/07 raised by the assessee in this Cross Objection for A.Y 2002-03. For the reasons given while deciding identical grounds in A.Y 2002-03, we dismiss the grounds raised by the revenue and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of logo and hence, the payment has to be treated as royalty. The other clauses of deliverables and services are mere incidental, the dominant object of the agreement has to be seen and this aspect has neither been considered by the learned Commissioner (Appeals) nor by the Assessing Officer, therefore, the entire amount in case of SRMCRI should be held as "Royalty". In support of his contentions, he strongly relied upon the decision of the Tribunal in Sheraton International Inc. v. Dy. CIT [2007] 107 ITD 120 (Delhi). Further reliance was also placed on the decision of AAR in case of Mersen India (P.) Ltd. AAR no.1074/2010, order dated 16 th April 2012 and drew our attention to Para-18 and 19 that if one of the terms of agreement falls within the parameters of services as given in Article, the same has to be treated as dominant object and is to be taxed in India. The sum and substance of his submissions were that if the main purpose of the agreement is for usage of logo or trade name, the same is to be taxed as royalty even if there are incidental services not falling within the meaning of FIS. With regard to the learned Commissioner (Appeals)'s observation that the Assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, perused the findings of the Assessing Officer and the learned Commissioner (Appeals). The contentions of the learned Departmental Representative before us is that in case of SRMCRI, the main purpose of the agreement was the use of logo or name of the Assessee and, therefore, the same should fall within the ambit of "Royalty". It is seen that the learned Commissioner (Appeals), in annexure to the appellate order, has highlighted various programmes conducted by the Assessee for SRMCRI which is mainly orientation of various teaching on medical and health related issues via video conference. Even as per the agreement, dominant purpose is for providing education and training programmes and the use of the Assessee's name is only incidental for carrying out such teaching and training activities. It is further seen that similar usage of name is there in the agreement with WHL and Max. The Tribunal in Assessee's own case for assessment years 2002-03 and 2003-04 have considered exactly the similar contention as has been raised by the learned Departmental Representative as in those years, the Assessing Officer's case was that use of the name "Harvard" amounts to use of logo and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... free to any royalty or any related economic consideration. Notwithstanding the foregoing, HMI shall, also retain all rights to use the intellectual Property, subject to the terms of this MOA. 9. Case of the Assessing Officer: According to the AO, the Assessee by virtue of the aforesaid agreements gave a right to use copy righted items, deliverables, name, logo etc. The intellectual property rights in the materials delivered by the Assessee to Max and WHL remained exclusive property of the Assessee. According to the AO the use of the name Harward carries immense value as it is associated with quality. The Assessee had duly protected its intellectual property rights to its name and its logo in the agreement and has given only limited rights to MAX and WHL to use them. Thus the consideration received by the Assessee to the extent of 90% can be attributed to the right to use the logo and therefore 90% of the payments received by the Assessee has to be construed as Royalty. The remaining 10% was to be considered as FIS. The sums received by the Assessee as aforesaid were accordingly brought to tax by the AO." 18. Similar terms given in Exhibit "A" in case of Max which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi High Court reported in (2009) TIOL-57-HC-Del- IT. Our attention was also drawn to the decision of the Special Bench of the ITAT in the case of Motorola Inc. v. DCIT , 95 ITD 269 (Del) (SB), wherein it was held that where a lumpsum consideration was paid it was not open to the Income Tax Authorities to split the same and treat a part of the same as royalty. 17. We have considered the rival submissions. We are of the view that the consideration received by the assessee can neither be said to be royalty nor FIS. The payment in question was purely for the purpose of advising, recommending and assisting in relation to healthcare projects. It was also for conducting education and training programmes. It was also for the purpose of review and giving feed back of various aspects and new cardiac hospital to be set up, recommendation on planned patient care delivery system. In page 15A to 15D of the CIT(A)'s order a summary of the activities undertaken by the assessee for WHL have been given. A perusal of the same shows that the consideration received by the assessee cannot be said to be royalty as they were not a payment for use of order, the right to use any copy right, trademark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have already decided the issue in favour of the Assessee that the payment received is not taxable as "FIS" or "Royalty" in India, therefore, ground no.4, is treated as academic. 22. In the result, Assessee's appeal treated as allowed. We not take up Revenue's appeal ITA no. 1020/Mum./2008, vide which following grounds have been raised:- 1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to treat 50% of the fees received from Wochkhardt Hospital Ltd as non taxable representing teaching in or by educational institution and balance 50% as Royalty, as against 90% as Royalty and 10% as fees for included services taken by the Assessing Officer. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to delete the addition of Fees of US$ 35000 under the Wockhard Awards Agreement with WHL' by holding that WHL has not gained any "Technical Knowledge" from the services done by the assessee and it cannot be assessed as "fees for included services. 3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to WHL. The learned Commissioner (Appeals), after carefully analysing the nature of service rendered in this aspect, in Paras-8 and 8.1, has held that the Assessee is not doing any services which comes within the definition of FIS. 26. We have heard the rival contentions and perused the relevant findings of the Assessing Officer and the learned Commissioner (Appeals). We find that the Assessee for the purpose of Wockhardt award the Assessee is assisting in the selection of the awardees in the various medical specialties and is mainly providing structuring and managing of the Wockhardt selection committee to help them to select potential award nominees, providing selection criteria and invitation to the awardees to deliver scientific address at approximate clinical forums. The nature of services under this agreement have been enumerated as under:- "The services to be provided by the appellant is listed in Attachment A of the agreement and it is extracted below: Services to be provided by HMI" A. In the 1st 3rd and 5th and every subsequent odd numbered Contract Year HMI will provide WHL the academic component of the Awards. HMI will provide each awardees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r HIM'ss supervision will have the responsibility of vetting nominees, and reeking the final selection of the five awardees. The selection committee will have final authority or all decisions related to the selection of Wockhardt Awardees." 27. Thus, from a plain reading of the above clauses, it is seen that the Assessee is not doing any service which falls within the definition of "FIS" as contemplated in Para-4 of Article-12. We agree with the findings of the learned Commissioner (Appeals) that these are merely facilitation services with regard to the selection of awareness for Wockhardt Awards and WHL has not given any technical knowledge from such services, therefore, the learned Commissioner (Appeals) has rightly deleted the said addition. Accordingly, ground no.2, raised by the Revenue is dismissed. 28. The issue arising out of ground no.3, has been decided by us vide ground no.3, in Assessee's appeal in ITA no.791/Mum./2008, and consistent with the view taken therein that the payment made to SRIMCRI is neither taxable as "Royalty" nor as "FIS". Therefore, ground no.3, raised by the Revenue stands dismissed. 29. Ground no.4, relates to deletion of reimbursement of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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