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TMI Blog2022 (7) TMI 1586X X X X Extracts X X X X X X X X Extracts X X X X ..... Act from the payments made by them to Deloitte Global Holding Services Limited ("Holdings"). In the various grounds of appeal, assessee, in sum and substance, has challenged this issue on the ground of i) principle of consistency; ii) principle of mutuality; iii) that it is in the nature of reimbursement of expenses; and lastly, iv) it is not in the nature of Royalty. 3. The facts in brief and the background qua the issue involved are that the appellants, Deloitte Touche Tohmatsu India LLP ("DTTI") and Deloitte Haskins & Sells LLP ("DHS") are limited liability partnership firms rendering professional services to large domestic as well as multinational corporations and are part of Deloitte network worldwide. DTTL, also known as "Global Network" of various member firms, is incorporated in, and a tax resident of, the United Kingdom and it do not per se carry out any income earning activity and has no stream of income. It has been stated before us that, Deloitte Global Holding Services Ltd. ("Holdings") is a company limited by guarantee organized and existing under the laws of England and Wales. Deloitte Global Holdings is a special purpose vehicle created by Global Network to facili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 to 543 of the paper book. In short, these are: 1. Global AERS; Global FAS; Global Tax; Global Consulting 2. Global Clients, Global Services and Related Programs 3. Global Strategy; Research; Monitoring 4. Global Brand 5. Global Communications 6. Global Talent/Human Resources 7. Global Technology / Knowledge Management 8. Global Risk Management and Regulations 9. Global Office of General Counsel 10. Global Finance; Procurement 11. Global Corporate Responsibility 4. In continuance with the earlier years, the appellants had made application for issuance of certificate under Section 195(2) for remittance of amounts under the "Shared Services Agreement" to Holdings without deduction of tax at source. It has been brought on record before us that, the respective Assessing Officer have issued certificates for financial year 2012-13 onwards till 2016-17 authorising the remittance of amounts similar to those which has been sought to be remitted in the current year without deduction of tax at source. The copies of these orders and the certificates have been placed in the paper book before us at pages 544 to 548. However, the Assessing Officer while deciding the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee about the nature of payments made for the global brand, global communication and global technology and knowledge management observed and held as under: ".........The decision can be on basis of description provided in the agreement between appellant and Deloitte Global Services Holding Ltd. The appellant submitted that the payment is not for right to use any copyright of literary, artistic or scientific work. The submission of the appellant is not explicit on whether the payment is for information on commercial experience under Article 11(3)(a). It is stated to be for internal purpose and not for commercial exploration. Aspect regarding Article 11(3)(b) is not relevant in the context of this case. Reading the submission of appellant along with the details available in the agreement, I find that each of the items falls within information on commercial experience and hence Article 11(3)(a) applies. 18. The shared Services Agreement is a standard business agreement. I had gone through clause 4 (Historical Services : Fees) and 5 (Service terms : Service Schedule; Revision; Notices) and 8 (Ownership and Licensing of Intellectual Property and Trademarks). The payment is und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cies, guidance relating to brand, communications and other aspects and collaboration with other member firms cannot be considered as use of or right to use any copyright of literary, artistic or scientific work. Payments for use of Global Technology/Knowledge Management cannot be regarded as provision of copyright in computer software or any literary work as no right to use copyright is given by Holdings to the appellants. He further pointed out that before the Assessing Officer it was explained in detail vide letter dated 08.01.2018 as to how the payments cannot be regarded as Royalty, however, the Assessing Officer has simply referred to certain decisions (cited supra) and held them to be in the nature of Royalty. 7. Mr. Percy Pardiwala submitted that now the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. vs CIT, 432 ITR 471 has reversed the view taken in the various decisions which have been relied upon by the Assessing Officer in coming to the contention that the payments were in the nature of Royalty. He further submitted that the Assessing Officer has heavily relied upon decision of the AAR in the case of EY Global Services Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there was nothing secret or confidential in the booklet which was supplied to the assessee in the form of information for the benefit of the assessee and that the correspondence between the assessee and the firm was only information in the form of collection of data on the subject available in the market and, therefore, the payment was not in the nature of royalty. The High Court held that any information cannot earn the status of royalty and that to have the status of royalty, the information must have some special feature. Some sort of expertise or skill is required. The matter was ultimately remitted to the Tribunal for carrying out factual verification as to whether the information in question was available in public domain. It is submitted that in the present case there is no imparting of information at all, only services are rendered and, in any event, there is no imparting of any confidential data or information. Therefore, the payments cannot be regarded as royalty. b. Marck Biosciences Ltd. vs. ITO 164 ITD 205 (Ahd) The assessee made payments to a US company on account of professional fee for global biopharmaceutical strategic counselling and advisory services rende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... published information available in public domain." Thus, he submitted that the payments in question do not constitute Royalty and are even otherwise not chargeable to tax. His second limb of argument was that once for a similar nature of payment, certificate has been issued for non-deduction of tax in the earlier years by the Assessing Officer, then, in this year no different view can be taken in view of the principles of consistency, which ought to have been applied since there was no change in facts or in law. 9. Another contention raised by him is that Holdings is a mutual concern inasmuch as there is complete identity between its participants and contributors. Holdings do not have any dealings with third party clients but wholly deals with member firms. Its activities are wholly performed for the benefit of member firms. Costs incurred in the course of performance of such activities are recovered from member firms by way of contributions without any mark-up. It operates on a break-even basis. Therefore, it must be regarded as a mutual concern. Accordingly, the payments made by the appellants to Holdings would not constitute its income. Consequently, there would be no requirem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edge management. 13. Now we have to analyse the scope of terms in light of the definition of "Royalty‟ as provided in the India-UK DTAA, which is enshrined in Article 13(3), which 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 consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic." 14. The scope of services and the terms under these heads needs to be analysed as per the definition and scope of Article 13(3), whether these services fall within the definition of Royalty. Our disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers and its guidance is only for internal use by the member firms. Hence, in our view payment for such services cannot be considered for information concerning industrial, scientific or commercial experience. Again, there is no transfer of intellectual property by Holdings to the appellants and also there cannot be a case of giving industrial, commercial or scientific equipment. Thus, the payments made for global brand cannot be treated as in the nature of Royalty as per Article 13(3) of India-UK DTAA. Another important thing is that the payment is also not for any use of trademark/patent provided by Holdings. 16. Insofar as payments for global activities given in Global Communication, Holdings distributes the publications and reports for DTTI and support global public relations, thought leadership initiatives, events, guidance, common standards, guidelines, organising internal events, etc so that there is alignment of all the member firms for internal and external communication. It gives guidance about the media communication, distribution of newsletter, external and internal distribution. From a bare perusal of aforesaid activities, it cannot be held that it is for use of or ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices and software licences to member firms of EY Network in various countries all over the world and all the member firms using the brand Ernst & Young (E&Y) had entered into contract with various third party vendors for procurement of software to be used by member firms. There also, the services which was rendered by Ernst & Young UK and the Memorandum of Understanding executed between itself and EYGBS India were as under : "4. The specific services mentioned in the services schedule annexed to the MOU, which are rendered by the Applicant under the service agreement and the Memorandum of Understanding between the Applicant and EYGBS India are as follows: 1. Common standards and policies 1.1 Assisting in the development of Common Standards and Policies, including accounting policies, practices, principles and procedures. 1.2 When considered appropriate by EYG Services, providing practice manuals and other reference materials and otherwise assisting in the adoption and consistent application of Common Standards and Policies. 2. IT Services 2.1 Promoting the adoption, maintenance and development of high quality, common information technology and communication systems b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the EYGBS (India). As the same does not create any right to transfer the copyright in the software, the same would not fall within the ambit of the term "royalty" as held by the Supreme Court in Engineering Analysis Centre (supra). 15. We may also note that the learned AAR in its Impugned Order has relied upon its earlier view in Citrix Systems Asia Pacific Pty Ltd., In Re., (2012) 343 ITR 1 (AAR), which has been expressly stated to be bad law in Engineering Analysis Centre (supra)." 19. Further, the Delhi Bench of Tribunal in the case of EY Global Services Ltd. vs ACIT in ITA No. 7017/Del/2019 wherein almost similar facts were there, which have been discussed in para 4 as under :- "4. Brief facts of the case are that EY Global Services Limited (hereinafter referred to as 'the assessee') is providing technology and other support services and software licenses to the member firms of the EY Network. The assessee is said to be established as a nonprofit central service provider to enable EY member firms to share the costs of centralized services. Accordingly, the assessee enters into agreements with each member firm, pursuant to which it provides services required by me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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