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TMI Blog2016 (4) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... . US$ 10, 70, 000 was towards providing basic engineering design, as stated earlier. In order to remit the said amount, the assessee requested the assessing Officer(AO) to issue of no objection certificate at Nil rate of TDS. Before him, the assessee argued that the job carried out by UOP was in the nature of procurement of capital asset, that it was not in the nature of FTS. However, the AO did not accept the assessee's contention. He held that the design was made as per the specification of the assessee, that it was not a ready-made design but prepared as per the requirements of the assessee, that UOP was also involved at various stages to hold meeting with the employees of the assessee to review the design and process flow diagrams and piping instrument diagrams, that UOP was required to prepare and provide operating manual giving general information to the assessee, that the non-resident company was responsible to suggest changes in basic designs, that it was not simply a purchase transaction that UOP was responsible to train the personnel of the assessee. Finally, the AO held that UOP was not only supplying BEDS but was also making available the necessary support to use and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the process produced in the unit. He referred to Article 3, 5. 1 and 5. 2 of the Agreement and held that basic design and engineering activity was a part of technological information, that services done on BEDS was only as a part of the license granted by UOP for licensed process, that technical services would come under Article 12 (4)(a) of the India US Tax Treaty, that without the basic design and engineering the assessee could not use the process obtained from UOP, that the services provided for BEDS was an ancillary and subsidiary to the application or enjoyment of right obtained from UOP, that the amount paid would be covered by the definition of FIS as contemplated under Article-12(4)(a) of the Treaty, that engineering agreement for BEDS was nothing but granting of license to the assessee to use technical information of UOP, that the payment would come under the purview of Article-12(3)(a) of the tax treaty, that same was to be assessed as royalty. Finally, he held that the payment had to be taxed as Royalty/FIS. 4. Before us, the Authorised Representative (AR) stated that agreements for basic design and royalty were separate agreements, that the non-resident company had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment was made outside India, that same was taxable either as capital gains or a business income, that the assessee was not having any PE in India, that the business income was not taxable, that the capital gain was not taxable in India as per DTAA, that the AO and the FAA were of the opinion that payment made for BEDS was covered by the definition of Royalty or FTS and that same was taxable. 5. 1. Before proceeding further, we would like to refer to some of the cases that deal with the similar issue. First of them is the case of Indian oil Corporation Ltd. (supra). Facts of that case were that the assessee had decided to install a bitumen production unit in India, that an Austrian company had a right to grant license in favour of third-party, that the assessee entered into an agreement with the Austrian company for setting up a plant for manufacture of bitumen, that the agreement consisted among other things of BEDP and it consisted of supply of design for installation and operation of the reactor section including process layout for the reactor, that in respect of the BEDP the non-resident company raised three invoices, that the assessee made an application to the AO under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount paid by the assessee was for creating an asset in the shape of a plant that the consideration was for passing of information concerning the design of plant which was tailormade to meet the requirement of a buyer, that the Austrian company had granted the right to use the manufacturing process which was embedded in the plant to be set up based on the BEDP and not the right to use the license, that the consideration was not based on the amount of use, that the impugned payment could not be held in the nature of royalty, it was a technical fee for business profit, that it was not chargeable to tax in India unless the fee was paid for services rendered in India or if the Austrian company had PE in India, that it was not the case of the revenue authorities that the services were rendered in India or the Austrian company had a PE in India, that the payment by the assessee to the non-resident company was not in the nature of royalty and therefore same was not chargeable to tax in the hands of Austrian company under the Act, that there was no obligation on the part of the assessee to deduct tax at source. Next case is of Modern Threads(I) Ltd. (supra). In that matter the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up of the plant the consideration received would undoubtedly be a business profit in the hands of the sublicensee and the sublicensee having no permanent establishment India such business profit were liable to be assessed in the hands of the sublicensee in Italy and not in India as royalty, that technical assistance to be provided showed that same were not of the same character and the same had to be treated as such distinctly, that the payment for supply of technical knowhow and basic process engineering documentation was separate and the same was not a royalty similar to that provided in clause(3) of Article 13, that the payment, thus, made was nothing but the business profit of the sublicense for supply of technical know-how and documentation, that the amount payable to the Italian company for supply of technical knowhow and basic process engineering documentation for setting off the plant in India for manufacturing of PTA was the business profit in the hands of Italian company, that the revenue authorities were, therefore, not justified in tax on the said payment in India treating the same is royalty. In the case of Finoram Sheets Ltd. , Pune Tribunal had held that sum paid f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment-one agreement is for supply of basic designing to set up a plant and others are for use of property-rights. Reversing the order of the FAA, we hold that payment in question was neither royalty nor FTS. Effective ground of appeal is decided in favour of the assessee. ITA/7679/Mum/2007: 6. In this appeal, we find that the assessee had entered into an agreement, dtd. 29/06/2004, with Belco Technologies Corporation Ltd. , USA, that Belco had developed BDEP specifically for the use of HPCL for EDV wet scrubbing system. The total fee payable to Belco was US$ 2, 71, 246. The assessee contended before AO that the job carried out by Belco was providing basic engineering design and that it had acquired capital asset from the American-company. However, the AO was of the opinion that the agreement entered by the assessee was not only for supply of engineering design, that the Basic Design and Engineering Package(BDEP) also included providing other services of consultancy training and skilled personnel, that the transaction could not be termed of mere sale of capital asset, that the payment in question was FTS. The FAA, in the appellate proceedings, upheld the order of the AO. 6. 1. Bef ..... X X X X Extracts X X X X X X X X Extracts X X X X
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