9911796707
TMI Blog2023 (9) TMI 478X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining the taxable income of the Appellant for the subject assessment year at INR 12,54,69,976/-- as against nil returned income and, accordingly, the assessment order passed by the Ld. AO is bad in law and void ab-initio 1.1. That on the facts and circumstances of the case and in law, the Ld. AO has erred in proposing addition of INR 12,54,69,976/- based on mere conjunctures and surmises, ignoring the factual matrix of the case as well as the nature of the transactions undertaken by the Appellant. 1.2. That the Ld. AO has failed to appreciate the submissions made by the Appellant and further erred in making several observations and inferences in the assessment order, which are factually incorrect and legally untenable. 2. That on the facts and circumstances of the case and in law, the Ld. AO erred in holding that the revenue received by the Appellant from provision of background screening and investigation services is in the nature of 'Royalty' or 'Fees for Technical Services' ("FTS") under the provisions of Article 13 of the Double Taxation Avoidance Agreement between India and UK ("India - UK DTAA"). 2.1. That on the facts and circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has failed to appreciate the submissions made by the Appellant and further erred in making several observations and inferences in the assessment order, which are factually incorrect and legally untenable. 2. That on the facts and circumstances of the case and in law, the Ld. AO erred in holding that the revenue received by the Appellant from provision of background screening and investigation services is in the nature of 'Royalty' or 'Fees for Technical Services' ("FTS") under the provisions of Article 13 of the Double Taxation Avoidance Agreement between India and UK ("India - UK DTAA"). 2.1. That on the facts and circumstances of the case and in law, the Ld. AO erred in holding that the reports provided by the Appellant are protected by Copyright laws and therefore, the use of such reports by the clients will result in use of a Copyright chargeable to tax as Royalty. 2.2. That on the facts and circumstances of the case and in law, the Ld. AO erred in holding that the Appellant maintains a Database or Appellant has taken such database under license from its owner and the consideration received by the Appellant is for allowing the use of database to its clien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the respective AYs which have not been offered to tax in India by the assessee. 3.2 The assessee has claimed exempt income of Rs. 12,54,69,976/- in AY 2019-20 and Rs. 8,51,94,915/- in AY 2020-21. The case of the assessee for both the AYs was selected for complete scrutiny under CASS. Statutory notices along with detailed questionnaire were issued through electronic mode from time to time. In response thereto the assessee filed submissions as per electronic order sheet which has been placed on record. After perusing the details, The Ld. Assessing Officer ("AO") show caused the assessee as to why the background screening and investigation services provided by the assessee to its customers in India would not fall within the purview of Article 13 of the India-UK Double Taxation Avoidance Agreement ("India-UK DTAA") and liable to tax in India and why the payment received by the assessee from Indian entity should not be taxable as Fees for Technical Services ("FTS"). 3.3 For AY 2019-20, the assessee failed to file the reply in response to the said show cause notice within due date and hence the Ld. AO proceeded to complete the assessment on the basis of material available on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l ("DRP") stating that the aforesaid allegations made by the Ld. AO are grossly incorrect and made the following submissions before the Ld. DRP:- "At the very outset and before adverting/ rebutting to the allegations made by the Assessing officer, it is most respectfully submitted that the Ld. AO has misunderstood the facts of the case and the exact nature of services rendered by the Assessee. Hence, in order to bring out clearly the facts of the case and the nature of the services rendered by the Assessee to its clients, it would be pertinent to explain the modus operandi/ nature of business of the Assessee. The Assessee is engaged in the business of providing human resource screening services, including pre-employment background screening, employment, education verification services and investigative due diligence services The exact nature of services rendered by the Assessee primarily includes verification of the following details in respect of the concerned candidate: - Educational Verification - Employment Verification - Professional reference - Other checks such as global sanction check etc. The Assessee's role is restricted to verification of the informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the income earned from provision of background screening services is in the nature of business income and in the absence of any presence in India in the form of a 'permanent establishment' or "business connection' the income earned by Assessee shall not be taxable in India either under the Income-tax Act, 1961 or under the India-UK treaty Le. Article 7 of the treaty. - In essence the Assessee collates the factual data from various sources and submits a report authenticating the information as submitted by the job Applicants of the clients. The act of mere collation of factual information cannot per se be copyrighted as it does not fulfil the requirements enlisted under Section 13(1)(a) of the Indian Copyright Act 1957. The reports prepared by the Assessee cannot be termed as 'original literary work as it lacks originality and is devoid of molecule of creativity or skill. - Without prejudice to the above, for the sake of arguments, even if it is so assumed that the information collated by the Assessee which is used for preparation of background screening reports is copyrighted and obtained under a license, even then the consideration received from services provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal merits of the case." 5. For AY 2019-20, the Ld. DRP vide its order dated 25.05.2022 directed the Ld. AO to complete the assessment by passing a speaking order after considering the assessee's submissions and for AY 2020-21, the Ld. DRP vide its order dated 12.09.2022 upheld the findings of the Ld. AO. 6. Consequently, pursuant to the directions of the Ld. DRP the Ld. AO passed the final assessment order under section 143(3) r.w. section 144C(13) on 20.07.2022 for AY 2019-20 and on 25.01.2023 for AY 2021 assessing the income of the assessee at Rs. 12,54,69,976/- and Rs. 8,51,94,915/- respectively being in the nature of royalty/FTS chargeable to tax in India. 7. Aggrieved, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto. The main issue arising out of all the grounds raised before us is whether the income of the assessee from provision of background screening and investigation services to its clients in India are in the nature of 'royalty' or 'FTS' chargeable to tax in India under the provisions of Article 13 of the India-UK DTAA. 8. The Ld. AR submitted that there is no dispute on the services rendered by the assessee. In order to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any advice/analysis/recommendation on hiring of the employees by its client and does not assume any responsibility with regard to hiring decisions taken by its clients on the basis the assessee's report. The information collected by the assessee is not protected by any copyright but its circulation is regulated under the UK and other local laws. Further, considering the nature of the business of the assessee, it has to comply with the local laws wherein a duty is cast upon the assessee to ensure the confidentiality of reports which contains details of the applicants. 11. Article 13(3) and 13(4) of India-UK DTAA reads as under:- "3. For the purposes of this Article, the term "royalties" means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely towards provision of background screening services and does not include any consideration for use or right to use any copyright or a literary, artistic or scientific work, patent, trademark, design, model, plan, secret formula, or process or information. Thus, the impugned receipts of the assessee from its clients in India cannot be regarded as 'Royalties' under the provisions of Article 13 of the India-UK DTAA. Support may be drawn by the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. vs. CIT (2021) 125 taxmann.com 42 (SC)/432 ITR 471 (SC). 13. Further the assessee does not provide access to any database to its clients but only access to reports requisition by the client in electronic form. Provision of online access of the report to its client is limited to providing access to the specific report providing relevant facts for the concerned candidates captured during the course of validation. Nothing has been brought on record by the Revenue to refute the aforesaid claim of the assessee. In the light of these facts, in our opinion online access to background screening results cannot be construed as providing access t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Article 13(4) of the India-UK DTAA. Accordingly, ground No. 1 to 2.3 are decided in favour of the assessee. 16. In common ground No. 2.4, the assessee has challenged the finding of the Ld. AO that the revenue received by the assessee is ancillary to the alleged royalties and therefore also taxable as FTS under Article 13(4)(a) of the India-UK DTAA. Having arrived at the conclusion that the impugned receipts of the assessee from provision of background screening and investigation services to its clients in India is not in the nature of royalty/FTS, this ground becomes otiose. 17. Ground No. 3 in AY 2019-20 relates to levy of interest under section 234A and 234B of the Act which is consequential in nature. 18. Ground No. 3 in AY 2020-21 relates to short grant of TDS credit by Rs. 1,35,168/-. The Ld. AO is directed to look into it and take remedial action after due verification. 19. In ground No. 4 the assessee has challenged the recovery of refund of Rs. 55,647/- and levy of interest of Rs. 5,286/-under section 234D in AY 2019-20 and refund of Rs. 2,32,800/- in AY 2020-21 claiming that no refund was received by the assessee for the subject AYs. We direct the Ld. AO to verify th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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