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TMI Blog2021 (8) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... aw, the Hon'ble Dispute Resolution Panel - 2, Mumbai ('the Hon'ble DRP') erred in not following the decision of the Hon'ble Income-tax Appellate Tribunal, Mumbai in the Appellant's own case for earlier years and thereby (confirming the action of the learned Dy. Commissioner of Income-lax 3(3)(2), Mumbai(the A.O). 1.2 The Appellant therefore prays that the action of the Hon'ble DRP be held as bad in law and is liable to be quashed. 2. Addition on Account of Royalty 2.1 On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in confirming the action of the AO in bringing to tax 90% of the receipts amounting to Rs. 1,14,39,414 as "Royalties" under the provisions of Article 12(3) of the Double Taxation Avoidance Agreement between India and USA ('DTAA'} and thus, liable to tax in India. 2.2 The Appellant therefore prays that the payment received by the Appellant be held as nut in the nature of Royalties' under Article 12(3] of the DTAA. 3. Addition on account of Fees for Included Services 3.1 On the lads and in the circumstances of the ease and in law, the Hon'ble DRP erred in confirming the action of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is an entity incorporated in United States of America (USA) under Sec. 501(c)(3) of the US Internal Revenue Code and is stated to be a non-profit educational entity. The activities of the assessee company include assisting other medical institutes and healthcare system throughout the world by sharing medical and technological information with healthcare professionals. During the year under consideration, the assessee company had rendered its services to Wockhardt Hospital Limited in India. The assessee company had e-filed its return of income for A.Y. 2014-15 on 18.09.2014 declaring a total income of Rs.nil. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act. 3. During the course of the assessment proceedings, it was gathered by the A.O that the assessee had received fees aggregating to U.S $ 108,400 as per the "Master Services Agreement", dated 31.01.2011, which on being converted into Indian rupees worked out to an amount of Rs. 64,33,540/-, as under: Nature of payment Date of SBI TT Buying Rate Amount (In USD) SBI TT (Buying Rates0 Amount (in Rs.) Fees from Wockhardt Hospitals Ltd. (WHL) Under Master Services Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judication. Accordingly, in the backdrop of his aforesaid deliberations the A.O rejected the claim of the assessee and in exercise of Rule 10 of the Income Tax Rules, 1962 held 90% of the assessee's receipts as royalty and the remaining 10% as FIS. On the basis of his aforesaid observations the A.O vide his draft assessment order u/s 143(3) r.w.s 144C(1), dated 28.12.2016 proposed to assess the income of the assessee at Rs. 1,27,10,460/-. 4. Aggrieved, the assessee filed objections before the Dispute Resolution Panel-2, Mumbai, (DRP). It was inter alia observed by the DRP that the case of the assessee for A.Y 2000-01 to A.Y. 2006-07 that was decided by the Tribunal in its favour, the assessee had entered into an agreement with Wockhardt Hospital Limited titled as "Memorandum of Agreement for Education and Training Services", dated 14.12.2000, while for during the year under consideration i.e A.Y. 2014-15 it had received fees for providing various consulting services under the "Masters Services Agreement", dated 31.01.2011. Backed by his aforesaid observation, the DRP set out in its order at length the difference in the terms and conditions provided in the aforesaid respective agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee from Wockhardt Hospital Limited could neither be held as royalty nor FIS, but was in the nature of business profits which in the absence of the assessee's PE in India could not be brought to tax in India. 7. Per contra, the ld. Departmental Representative (for short 'D.R') relied on the orders of the lower authorities. It was averred by the ld. D.R that the reliance placed by the assessee on the orders passed by the Tribunal in its own case for A.Y 2000-01 to A.Y 2004-06 and A.Y. 2006-07 to A.Y.2009-10 were distinguishable on facts, for the reason, that unlike the year under consideration i.e A.Y. 2014-15 in the aforementioned years the terms and regulations inter se the assessee and Wockhardt Hospital Limited were regulated by the "Memorandum of Agreement for Education and Training Services", dated 14.12.2000, while for in the year under consideration the same was regulated by the Master Services Agreement", dated 31.01.2011, and both of them as discussed at length by the DRP were materially differently placed. However, the ld. D.R could not rebut the claim of the assessee that the issue involved in the present appeal was squarely covered by the orders passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckhardt Hospitals Ltd is in the nature of business profits and since the assessee does not have a PE in India the same should not be brought to tax in India. In the latest order of the Tribunal for the Assessment Year 2012-13 in ITA.No. 412/Mum/2016 dated 02.05.2018 it has been held as under: "Challenging the directions, dated 23/11/2015, of the Dispute Resolution Panel(DRP)-2, Mumbai the Assessing Officer(AO)has filed the present appeal. Assessee- is a non-profit educational entity set up in the United States of America(USA).It filed its return of income on 27/11/2012, declaring total income at Rs.Nil. The case was selected for scrutiny and notice was issued on 06/08/2013 u/s.143(2) of the Act. Subsequently notice u/s. 142(1) was issued on 19/02/2014 and 24/12/2014. The assessment was completed on 28/01/2016, determining its income at Rs. 3.94 crores, u/s. 143(3) r.w.s. 144C(13) of the Act. 2. During the assessment proceedings, the AO found that during the year under consideration, the assessee had received fees of USD 886,000 for providing various consulting services under agreements with various Indian entities, the break-up of which is as follows: Sr. No. Indian Entity t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny technical knowledge, experience, skill knowhow or process. The decision of the Delhi Bench of the ITAT in the case of Sheraton International Inc. (supra) supports the plea of the assessee that where the agreement between the parties provides that there was no economic consideration for right to use the name it cannot he said that any payment can be called royalty. So also the consideration paid in a lumpsum cannot be split as a part being in the nature of royalty and any part being in the nature of FIS as laid down in the case of Motorola Inc. (supra). The payment cannot be said to be FIS for the reason that nothing is made 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. 3.1. In the appeal for the A.Y. 2003-04 (Para 28, Page 41-42 of the paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. Accordingly, consistent with the view taken in earlier years in assessee's own case, we allow grounds no. 1 and 2, raised by the assessee." The above said decision of the Tribunal shall be applicable to the fees received by the assessee in the current year under Consulting Agreement (Wokhard Hospitals and Carol Info Services Ltd) and under Award Agreement of Vokhard Hospitals)," 3.3. We further find that the department is in appeal before the Hon'ble Bombay High Court for AY.s 2000-01 to AY 2004-05 ,that the Department had not filed appeal yet for AY 2006- 07 to AY 2009-10 where decision was received in July,2015,that the DRP had adjudicated the issues in favour of the assessee following the orders of the Tribunal. 3.4. In our opinion, there is no need to interfere with the Directions of the DRP, as it had followed the orders of the Tribunal for the earlier AY.s.which are yet to reversed by the Hon'ble Bombay High Court. Following the orders of earlier AY.s.of the Tribunal, we decide the effective ground of appeal against the AO. As a result, appeal filed by the AO stands dismissed." 7. Respectfully following the said order of the Tribunal, we hold that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and in law, the Learned AO filed, while passing the impugned assessment order pursuant to the DRP directions, in bringing to tax 90% of the receipts amounting to INR 2,92,60,134 as "Royalties" under the provisions of Article of the Double Taxation Avoidance Agreement between India and USA ('DTAA') and thus, to tax in India. 2.2 The Appellant therefore prays that the payment received by the Appellant be held as not in the nature of 'Royalties' under Article 12(3) of the DTAA. 3. Addition on account of Fees for Included Services 3.1 On the facts and in the circumstances of the ease and in law, the learned AO erred, while passing the impugned assessment order pursuant to the DRP directions, in bringing to tax 10% of the receipts amounting to INR. 32,51,126 as 'Fees for Included Service' under Article 12(4)(b) of the DTAA and thus liable to tax in India. 3.2 The Appellant therefore prays that the payment received by the Appellant be held as not in the nature of 'Fees for Included Services under Article 12(4)(b) of the DTAA read with the Memorandum of Understanding to the DTAA. 4. Business profits not taxable in absence of a Permanent E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Learned AO be directed to not to levy penalty under section 271(1)(c)of the Act. The Appellant craves leave to add, alter, amend, modify, delete, substitute or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing." 12. Briefly stated, the assessee had filed its return of income for A.Y. 2015-16 on 09.09.2015, declaring a total income of Rs. 3,32,06,770/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act. On the basis of the draft assessment order passed u/s 143(3) r.w.s 144C(1), dated 24.10.2017, the A.O proposed to assess 90% of the amount received by the assessee from Wockhardt Hospitals Ltd. as royalty and the balance 10% as FIS. 13. Aggrieved, the assessee filed objections before the DRP. However, the DRP not finding favour with the contentions advanced by the assessee upheld the view taken by the A.O. 14. After receiving the order passed by the DRP u/s 144C(5) on 02.05.2018, the A.O vide his order passed u/s 143(3) r.w.s 144C(13), dated 04.06.2018 held that the amount received by the assessee from Wock ..... X X X X Extracts X X X X X X X X Extracts X X X X
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