TMI Blog2018 (7) TMI 2304X X X X Extracts X X X X X X X X Extracts X X X X ..... ight or property but the same cannot be considered under para 6 of Article 13 because it is not effectively connected with the service PE of the assessee in India. Since there is no difference in the facts and circumstances of the royalty payment, we do not find any reason to differ from what has been held by the Coordinate Bench [supra]. Respectfully following the same, we hold that royalty received by the assessee cannot be considered under Para 6 of Article 13 because it is not effectively connected with Service PE of the assessee in India. Receipts on account of central costs recharges and structural tests - A perusal of the bilateral agreement and tripartite agreement shows that royalty shall be equal to the royalty received by JCB Investments from JCB India under the licence and from any other permitted sub-licencee of JCB Investments less 0.5%. It can be seen that the entire royalty amount is passed on to JCBE through JCB Investments less 0.5%. We have no hesitation to hold that JCB Investments is nothing but a pass through entity. A perusal of the agreements clearly and explicitly lead out that the delivery of technical documentation and making available of techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect assessment of the profits to be attributed to the Service PE and the AO, while giving effect to the directions of the Tribunal has framed the order u/s 254/143(3) of the Act. AO is directed to decide this issue in accordance with the directions given by the co-ordinate bench in the case of JCB Investments [ 2015 (5) TMI 607 - ITAT DELHI ]. The AO is further directed to see that the same income is not doubly taxed in the hands of the appellant. This issue is, accordingly, treated as allowed for statistical purposes. Attribution of income in India - Assessee contended that in the hands of JCB Investments, the Assessing Officer has already made necessary attribution on account of alleged Service PE in India, therefore, question of attribution will not survive in the hands of the assessee - HELD THAT:- We have already mentioned elsewhere that during the year under consideration, the assessee has received everything from JCB India minus 0.05% which was retained by JCB Investments through which entire payments have been received. We have already held that substance will prevail over form. In our understanding of the facts of the case in hand, we are of the considered opinion th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g chargeability of income alleged to be covered under the provisions of Article 7 of the DTAA between India and UK; 6) The DRP/Assessing Officer has erred in levying interest u/s 234B of the Act. 3. The representatives of both the sides were heard at length. The case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. Judicial decisions relied upon were carefully perused. 4. It is imperative to understand the facts of the case in hand. M/s JCB Bamford Excavators Ltd [ JCBE the appellant for short] is a company incorporated under the laws of UK. It is a non-resident company for the purposes of Indian Tax Laws and is a tax resident of UK under Article 4 of the DTAA entered into between India and UK. On 5.03.2004, JCBE entered into Technology Transfer Agreement [TTA] with JCB India to licence the know-how and related technical documents consisting of all drawings and designs with an exclusive right to manufacture and market the technology/excavator loader in the territory of India under the brand name 3DX . 5. In the earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough JCB Investments. In our considered opinion, the only difference that came into the hitherto arrangement was that, whereas earlier JCB India was paying royalty directly to JCBE, now it is being routed through the assessee with the deduction of 0.05%. Except for this, all the terms and conditions of the agreement between the assessee and JCB India are same relating to TTA and IPAA which means that employees of JCBE earlier seconded to JCB India continue to render services to JCBI India during the year under consideration in the same way as they were doing in the past. Our view is fortified by clause (d) of the new agreement and clause 4.2 of this agreement clarifies that the delivery of technical documentation and making available of technical personnel as set out in earlier clauses (iii) (iv) of the technology agreement shall remain unaffected by this agreement and shall continue as rights and obligations between JCBE and JCB India under technology agreement. 10. In earlier A.Ys, when there was a bilateral agreement in force between the assessee and JCB India on same set of facts and circumstances, the Tribunal in ITA No. 540/DEL/2011 and CO No. 73/DEL/2011 has conclusiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fectively connected with the service PE of the assessee in India. 14. Since there is no difference in the facts and circumstances of the royalty payment, we do not find any reason to differ from what has been held by the Coordinate Bench [supra]. Respectfully following the same, we hold that royalty received by the assessee cannot be considered under Para 6 of Article 13 because it is not effectively connected with Service PE of the assessee in India. 15. Third issue relates to receipts on account of central costs recharges and structural tests. 16. During the year under consideration, the assessee had three streams of receipts. Under the first stream the assessee has shown receipts at Rs. 2,64,70,179/- which was stated to be in the nature of FTS. The bifurcation of the same is as under: SN Particulars Amount in INR 1. Central costs MIS SAP 2,04,56,359/- 2. Central cost CAD Station Recharge 33,08,924/- 3. Structural tests 27,04,896/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered opinion such receipts would fall under sub-clause (a) and Article 13(4) and would be taxable as FTS. On peculiar facts of the case, we further find that sub-clause (c) of Article 13(4) which entails make available clause would, therefore, not be applicable. 22. At this stage, let us first consider the relevant part of Article 5 of the India-UK DTAA clause (k) and the same reads as under: the furnishing of services including managerial services other than those taxable under Article 13 [Royalties and fees for technical services] within a Contracting State by an enterprise through employees or other personnel, but only if . 23. The assessee has already accepted that the receipts are FTS under domestic laws, therefore, the only issue which remains for determination is as to whether these receipts are FTS under Article 13(4) of the treaty or not. Under Article 13 the term Royalty means: (a) payments of any kind received as consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematographic films or films and tapes used for radio or television broadcasting, any patent, trade mark, design or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsed Products outside India as determined by mutual written agreement between the parties. (D) JCB UK now wishes for JCB investments to manage the licensing of JCB UK s intellectual property to JCB India going forward. .... PAYMENT TERMS 6.1 JCB Investments shall provide JCB UK on a biannual basis within 30 days of the 30th June and 31st December in each year with Royalty accounts showing the following for each preceding half year: 6.1.1 The royalty payable by JCB India under the License (or by and other permitted sub-licensee where applicable); and 6.1.2. The amount of any withholding tax to be paid under Clause 6.3. 6.2 The Royalty shall be payable within thirty (30) days of receipt by JCB Investments of relevant royalty payments from JCB India under the License (or from any other permitted sub-licensee where applicable). 7. 3 JCB Investment shall not: 7.3.1 Make any representation or do and act, save as expressly granted in this Agreement, which may be taken to indicate that it has any right, title or interest in or to any IP Rights... .... Schedule THE ROYALTY The Royalty shall be equal to the royalty received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed as reimbursement of salary cost of employees which were seconded to JCB India amounting to Rs. 3,56,95,116/- and third stream of receipts is the claim as reimbursement of telephone, travelling expenses of seconded employees amounting to Rs. 1,88,93,184/-. 31. A perusal of the assessment order reveals that neither the assessee has explained the reason and purpose for such reimbursement nor any documentary evidence in support of the same was furnished so as to corroborate its claim that such receipts were merely reimbursements. We find that the assessee has also not explained the benefit extended by it to the payer of such reimbursement. Therefore, in the interest of justice and fair play, we restore this issue to the file of the Assessing Officer. The assessee is directed to demonstrate that the impugned receipts are nothing but reimbursement with supporting documentary evidences and the Assessing Officer is directed to verify the same and decide the issue afresh after giving reasonable opportunity of being heard to the assessee. 32. Further, we find that in the case of JCB Investments also, JCB India has been treated as service PE on account of employees seconded by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t an identical issue was considered by the Tribunal in assessee s own case in ITA No. 540/DEL/2011 and CO No. 73/DEL/2011 and the coordinate bench has decided this issue in favour of the assessee and against the Revenue. The relevant findings read as under: After considering the rival submissions and perusing the relevant - material on record we find it as undisputed fact that the assessee included the entire amount of royalty and fees for technical services in real income by treating it as covered under Article 13(2) of the : DTAA. The case of the Revenue is that it is para 6 of Article 13 which will operate in the present case for taxing such amount under Article 7. The Reliance of the ld. DR on the judgment dated 7.11.2013 rendered by Hon ble Delhi High Court in the case of DIT Vs Alcatel Lucent USA is misplaced. In that case the Hon ble High Court held that a non- resident assessee which does not admit income chargeable to tax in his must be inferred to have induced the Indian payer not to deduct at source and hence he is liable for interest on non-payment of advance tax. It has further been laid down in this case that where the assessee admits that it has income chargea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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