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2017 (1) TMI 554 - ITAT AHMEDABAD

2017 (1) TMI 554 - ITAT AHMEDABAD - TMI - TDS u/s 195 - payment made to Non-Resident, viz. Chemical Abstract Services USA, for online access to the database system "SciFinder" - Held that:- Payment made for access to online publication/database cannot be considered as being in the nature of royalty, liable to withholding tax, either under the Income-tax Act or under the DTAA with USA. Therefore, hold that the payment made to Chemical Abstract Service USA was not liable to TDS under the provision .....

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very well pointed out by the decisions of Hon’ble Delhi High Court in the case of DIT Vs Nokia Networks OY [2012 (9) TMI 409 - DELHI HIGH COURT ]. In this case all that the assessee gets right is to access the copyrighted material and there is no dispute about. As a matter of fact, the AO righty noted that ‘royalty’ has been defined as “payment of any kind received as a consideration for the use of, or right to use of, any copyright of literary, artistic or scientific work” and that the expressi .....

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ighted material and therefore the impugned payments cannot be treated as royalty payments. - ITA No.486/Ahd/2016 - Dated:- 3-1-2017 - Pramod Kumar AM and S S Godara JM For The Appellant : K. Madhusudan and Albinus Tirkey For The Respondent : Jigar M. Patel ORDER Per Pramod Kumar AM: 1. By way of this appeal, the Assessing Officer has challenged correctness of the order dated 15.12.2015, passed by the learned CIT(A)-13, Ahmedabad, in the matter of assessment under section 201(1) & 201(1A) r.. .....

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Research Inc., MDS Pharma Services, USA, AAI Pharma Inc., USA, inspite of substantial evidences to the contrary. 3. So far as this grievance of the Assessing Officer is concerned, the relevant material facts are like this. During the course of proceedings before the Assessing Officer, it was noticed that the assessee has made following payments to the non residents entities based in USA, Canada and UK: Sr. No. Name of the Payee Country of residence Nature of remittance Date Amount (Rs.) Nature .....

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dy 4. The Assessing Officer was of the view that the services so rendered by the non resident entities are highly technical in nature and are required to be taxed as such in the hands of the recipients of these payments. The Assessing Officer took note of the assessee s stand that in all the related tax treaties (i.e. with UK, USA and Canada), there is make available clause in the provision for taxability of fees for technical services, and that mere provision of technical services is not enough .....

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generate considerable technical information about the drugs being tested which are extremely valuable in subsequent phases of the drug commercialization . In addition to elaborate discussion about the nature of services and as to how technical these services are, the Assessing Officer also observed that the make available clause is not to be applied merely with respect to technical knowledge but also with respect to experience, skill and process as well, and, therefore, even if experience or ski .....

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ssessee. Aggrieved, assessee carried the matter in appeal before the CIT(A) who held that none of these services satisfied the make available clause under the tax treaties, and, accordingly, deleted the impugned demand. While doing so, learned CIT(A) reasoned as follows: 7. I have carefully considered the facts of this case, the reasoning as contained in the order of the AO and the factual and legal submissions of the appellant. In the present case the key issue to be decided under appeal is whe .....

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the DTAAs with USA and Canada and Article 13 of the DTAA with U.K. is not applicable since the non-resident parties did not 'make available' any technical knowledge, skill, experience, know-how or process. 9. It is a matter of record that even the AO has not disputed the fact that none of the non-resident parties have any PE in India. Considering the facts of the case and the submissions and decisions as relied upon by the appellant, I am of the view that the services rendered in this c .....

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es to rendering of Bio-Analytical services by the non-resident party and under the framework of the same language of Article 12(4)(b) of the India-USA and India-Canada DTAAs: "In this case, as rightly considered by the learned CIT(A), the assessee was conducting clinical trials through the CROs in USA to comply with the regulations therein and the CROs who are experts in this field were only conducting studies and submitting the reports in relation thereto. They are neither transfer of tech .....

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ounts paid by the assessee do not fall under Article 12, but come within the purview of Article 7 of the DTAA. Therefore, the amounts paid are to be considered as business receipts of the said CROs and since they do not have any PE in India on which aspect there is no dispute, there is no need to deduct tax at source. Similar issue was analysed and considered by the AAR in the case of Anapharm Inc. (supra), which is one of the recipients in the assessee's case also." 10. The appellant h .....

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e which is technical in nature can be said to be "fees for included services" only when it has "made available" technical knowledge or skills to the recipient of services, i.e. recipient of services can apply the same on his own. We are in full agreement of the above view of the Id.CIT(A). In the present case, the assessee had sent samples to the experts outside India and those experts submitted their report. There is nothing on record suggesting that the services rendered to .....

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. De Beers India Minerals (P.) Ltd. (supra). The Revenue has not placed any material on record to rebut the findings of the Id. CIT(A) that the services were actually made available to the assessee and would be taxable. Under these facts, we do not see any reason to interfere with the findings of the Id.CIT(A), same is hereby upheld. Thus, ground raised by the Revenue is rejected." 11. Considering the above, the issue under consideration has been elaborately dealt with, I see no reason to t .....

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des bio-technical services as one of them, technical knowledge etc. has been made available to the appellant. In this connection, the appellant has relied on the ratio of ITAT Delhi in DCIT vs. PanAmSat International Systems Inc. 103 TTJ 861, wherein the ITAT has held as under: "What the MOU does is to give examples of areas or fields in which it is possible for the parties to agree to transfer technology. Communication through satellite or otherwise is one such area, given as example, in w .....

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eas in which, depending on the actual facts, it is possible for the parties to agree to transfer technology and that on the clear facts of its case the same is not applicable. I find merit in the appellant's argument and the reliance place on the aforesaid ITAT decision, which has effectively dealt with this issue. Therefore, the appellant succeeds on the issue of chargeability of tax under the provisions of Sec. 201(1). 13. The AO has further held that the aforementioned payments are also c .....

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ssee. However, in my view, the point as to whether the payments are in the nature of fees for technical services as per the provisions of section 9(1)(vii), does not require adjudication, since the appellant is in any case entitled to the benefit of the relevant articles as per the DTAAs, as discussed hereinbefore. 5. Aggrieved by the relief so granted by the CIT(A), the Assessing Officer is in appeal before us. 6. We have heard the rival contentions, perused the material on record and duly cons .....

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rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or (c) make available technical knowledge, .....

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llary 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 or consist of the development and transfer of a technical plan or technical design. Indo US tax treaty Article 12- Royalty and fees for included services 4. For purposes of this Article, "fees for included services" means payments of any kind to any person .....

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gn. 8. We find that the common thread in all these tax treaties is the requirement of make available clause. As learned counsel rightly puts it, its not simply the rendition of a technical service which is sufficient to invoke the taxability of technical services under the make available clause. Additionally, there has to be a transfer of technology in the sense that the user of service should be enabled to do the same thing next time without recourse to the service provider. The services provid .....

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tional High Court decisions, namely Honble Delhi High Court in the case of DIT Vs Guy Carpenter & Co Ltd ([(2012) 346 ITR 504 (Del)] and Honble Karnataka High Court in the case of CIT Vs De Beers India Pvt Ltd [(2012) 346 ITR 467 (Kar)] in favour of the assessee, and there is no contrary decision by Honble jurisdictional High Court or by Honble Supreme Court. In De Beers case (supra), Their Lordships posed the question, as to what is meaning of make available , to themselves, and proceeded t .....

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king available", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or .....

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red to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. 10. As we have noted earlier, it is not even the case of the Assessing Officer that the assessee, i.e. recipient of services, was enabled to use these services in future without recourse to the service providers. The tests laid down by .....

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axability of these services is also covered, in favour of the assessee, by the order dated 30th November 2015 passed by a coordinate bench. In view of these discussions, and as we concur with the well reasoned findings of the learned CIT(A), we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter on this count as well. The order of the CIT(A) stands confirmed. 11. Ground no. 1 is thus dismissed. 12. In ground no. 2, the Assessing Officer has raised the .....

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isions in favour of revenue, on identical facts. 13. So far as this ground of appeal is concerned, the relevant material facts are as follows. During the course of proceedings before the Assessing Officer, it was noticed that the assessee has made a payment of ₹ 16,30,690 to a US based entity by the name of Chemical Abstract Service for access to database. The Assessing Officer was of the view that this payment is for exploitation of copyrighted database, through licence, and, accordingly, .....

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to licensed material. It was in this background that the Assessing Officer held that the assessee ought to have deducted tax at source from the payments so made to the non residents as these were taxable as royalty under the related tax treaties. Accordingly, tax withholding demand under section 201 r.w.s 195 was raised on the assessee. Aggrieved, assessee carried the matter in appeal before the CIT(A) who held the payment in question was not in the nature of royalty as it was not use of the co .....

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blication or database, the access of which is publicly available to any person interested in availing of such information, upon payment of requisite fee. Accordingly, the same cannot in any manner be considered as in the nature of royalty, either under the provisions of Sec. 9(1)(vi) of the I.T. Act or under Article 12 of the DTAA with USA. In support, the appellant has also placed reliance on the decisions of the AAR in the case of Factset Research Systems, 317 ITR 169 (AAR) and Dun & Brads .....

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x, either under the Income-tax Act or under the DTAA with USA. Therefore, I hold that the payment made to Chemical Abstract Service USA was not liable to TDS under the provisions of Sec. 195 and accordingly, the appellant could not be held liable to pay tax as an assessee in default u/s. 201(1). 14. Aggrieved by the relief so granted by the CIT(A), the Assessing Officer is in appeal before us. 15. We have heard the rival contentions, perused the material on record and duly considered facts of th .....

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g, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and (b) payment of any kind received as consideration for the use of, or the right to use, the industrial, commercial, or scientific equipment, other than payments derived by an enterprise described i .....

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