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TMI Blog2025 (1) TMI 1530X X X X Extracts X X X X X X X X Extracts X X X X ..... that the payment made by the assessee to the Deloitte Global Holdings Services Limited against 1) Global brand, 2) Global Communications and 3) Global technology/Knowledge Management were not for information concerning commercial experience in terms of Article 13(3) of the India-UK DTAA hence were not in the nature of royalty and is not liable for taxation in India with the meaning of Article 13(3) of the Indo US treaty? 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to grant refund of taxes paid pursuant to the order u/s 195(2) dated 18.01.2018 even though the department has filed appeal against the decision of Hon'ble ITAT?" 2. At the outset the ld AR submitted that the facts pertaining to the issue contended by the revenue is arising out of same order of AO under section 195(2) which was considered in the decision of the coordinate bench, where the appeals of both the assessees on the similar issue have been allowed in the bunch of appeals in ITA Nos. 201 to 233/Mum/2021, 4800 to 4804/Mum/2019 & 4810 to 4814/Mum/2019 dated 27.07.2022. The ld AR further submitted that the CIT(A) has relied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r year due to over/under recovery of expenses, Holdings is intended to break-even over time. Deloitte Global Holdings incurs expenses in the course of carrying out the above activities for the benefit of all members, which are recovered from members without any mark-up. The terms on which the activities are carried out by Holdings and expenses are recovered by it from its members are embodied in an agreement named as "Shared Services Agreement" entered into by the member firms with Holdings vide agreement dated 1 August 2011 between DTTI and Holdings. The relevant recitals to the agreement (copy appearing at page 521 of the paper book) state that: DTTI is a member of Holdings and DTTL whose purpose is, among other things, to further international alignment, cooperation, cohesion and professional standards of the highest quality among its Member Firms and their Affiliates. Deloitte Services has been established with a view to facilitating fulfilment of those purposes and Deloitte Services intends to provide certain services to its members (including Holdings). Holdings has also been established with a view to facilitating fulfilment of those purposes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arkets (P) Ltd. In re (AAR) (342 ITR 223) Gartner Ireland Ltd. (37 taxmann.com 16) (Mum ITAT) CIT v. Wipro Ltd. (203 taxman 621/16 taxmann.com 275) (Kar) TNT Express Worldwide (UK) Ltd. (70 taxmann.com 129) (Bang. ITAT) Accordingly, Assessing Officer (for instance in appeal of ITA No. 4774/Mum/ 2019 for A.Y. 2018-19) held that the payments were liable for deduction of tax at source and worked out the withholding tax liability by applying a proportion of 3/10 to the total remittance of Rs. 95,49,00,000/-, since 3 out of 10 services were held by him to be in the nature of royalty. Accordingly, the Assessing Officer authorised the remittances after deduction of tax @ 3% on the overall remittances made by appellants to Holdings. 5. The ld. CIT (A) upheld the action of the Assessing Officer on the conclusion that the payments were in the nature of Royalty by holding that the payments were made for information concerning commercial experience in terms of Article 13(3) of the India-UK DTAA. The relevant observations of the ld. CIT (A) are as under : "12. Comparing Article 11(3) of Double Taxation Avoidance Agreement with the detailed breakup reproduced above form basis for dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of India-UK Double Taxation 20. Having held that the sum is royalty, aspects regarding mutuality (grounds 7 to 17) and reimbursements of expenses has turned irrelevant. Hence corresponding grounds are not needed to be adjudicated. However regarding these, a discussion is made in paragraphs 21 to 23. 21. The point emphasized by appellant is that the arrangement is nonprofit making exercise, reimbursement of common expenses and hence mutuality applies. Effectively it is claimed to be reimbursement of expenses. According to appellant, the expense is for specified purpose matches income is in pre-determined manner and there is no surplus to be taxed. This argument is valid if attempt is to tax the same as business profit, which is never the focus of this discussion. 22. Let us consider the receipt of Royalty income in accordance with provisions of Double Taxation Avoidance Agreement. Under Double Taxation Avoidance Agreement, income is not determined, but tax is determined as a fixed per cent of gross receipt. Irrespective whether there is profit or loss and whatever be its extent, tax is determined at a fixed rate. This is the manner in which receipt suffers tax in hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded as payments for use of information concerning commercial experience as held by the ld. CIT(A). As can be seen from the Shared Service Agreement, Holdings does not have any dealings with third parties or clients but it only performs various activities for the benefit of its members. The guidance provided by Holdings to its members is for internal use by the member firms. It is essentially an agreement for rendering services within the Deloitte network. Therefore, the payment for such services cannot be considered as payments for use of information concerning commercial experience. No intellectual property is transferred by Holdings to the appellants. Moreover, provision of services cannot be regarded as provision of information concerning commercial experience. The information utilised/provided in the course of rendering these services is not of confidential or secret in nature but is published information available in public domain. Therefore, such a payment cannot be regarded as consideration for imparting of any information concerning commercial or knowledge, experience or skill as contemplated in the definition of royalty as contained in clause (iv) of Explanation 2 to secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the present case also the payments are made for the services rendered by Holdings / Deloitte Services and, therefore, they cannot be regarded as consideration for imparting any information concerning industrial, commercial or scientific experience. c. Factset Research Systems Inc. In re 317 ITR 169 (AAR) The Applicant maintained a database which was located outside India and which contained financial and economic information including fundamental data of a large number of companies worldwide. The said information was made available to customers on a subscription basis. The question arose whether such a payment could be regarded as payment for information concerning industrial, commercial or scientific experience. In para 11 of the ruling, while dealing with this issue, AAR held that the clause does not contemplate merely imparting information on technical, industrial or commercial matters. The requirement is imparting of information concerning technical, commercial or scientific knowledge, experience or skill. The information which the licensee got through the database did not relate to the underlying experience or skill which contributed to the end-product. The applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a surplus or deficit on account of over/under recovery but over time, it is intended to break-even. Therefore, the payments made by the appellants to Holdings being in the nature of reimbursements cannot be regarded as income. 11. On the other hand, the ld. Department Representative strongly relied upon the order of the Assessing Officer and ld. CIT(A). He submitted that, in fact, the payments in question are for information concerning commercial experience. 12. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as the material referred to before us. As discussed above, the sole issue which permeates in all the appeals is, whether the appellants were liable to deduct tax at source under Section 195 of the Act on the payments made to Holdings by treating it to be Royalty under Article 13(3) of the India-UK DTAA. As noted above, Deolitte Global Holdings has been incorporated by DTTI to facilitate attainment of various objectives to further international alignment, co-operation, cohesion and professional standards of highest quality amongst its member firms, such as the appellants herein. It incurs expenses for the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unications goals and strategies. * Provide strategic guidance, content, editorial services, and best practices for globally managed websites and related online vehicles. * Provide communications support to DTT and its functions. Global Technology/Knowledge Management *Acquire, develop, manage, operate and distribute information technology products and services that service the Deloitte Network. *Develop and maintain certain worldwide databases, networks and systems, and internal and external websites, that service the Deloitte Network. *Establish projects to develop global knowledge and develop or facilitate the development of methodology and techniques which further enhance the knowledge sharing capacity of Member Firms. *Provide certain technology related security advice and services to the Deloitte Network. *Promote common technology standards and platforms across the Deloitte Network and administer and monitor the same. 15. As regards payment for items of global brands, it has been stated that Holdings assists in implementing brand strategy for use of network of Deloitte members and also provides member firms with common training, policies and guidance relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management, from the bare perusal of the same it cannot be said to be for use of or right to use any copyright or any literary, artistic or scientific work or any transfer of intellectual property rights. The above service is purely for internal purpose and not for any commercial exploitation, nor any scientific equipment is given to the appellants by Holdings. Global network acquires certain technology products from vendors and provides them to the member firms and also provides security advice to all the member firms for which it also develops certain database, systems and websites that is used by all the members of the network. The software acquired by the network and distributed to the members does not include payment for use of or right to use computer software as it has merely obtained a licenced product from vendors for use of member firms. The licensee was allowed to use the software only for its own business purpose and is not permitted to transfer copy of the software and as such there is no transfer of any right in respect of copyright by the vendors and it is a case of mere transfer of copyrighted article. Thus, the payments made for the activities/services under the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capture and disseminate global knowledge and developing or facilitating the development of methodology and techniques which further enhance the knowledge sharing capacity of Member Firms." The Authority for Advance Ruling held the consideration received in respect of computer software deliverables as Royalty. The Hon'ble Delhi High Court, following the ratio of the principles laid down in the judgment of Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. (supra) observed and held as under :- "13. A reading of the above judgment would clearly show that for the payment received by EYGSL (UK) from EYGBS (India) to be taxed as "royalty", it is essential to show a transfer of copyright in the software to do any of the acts mentioned in Section 14 of the Copyright Act, 1957. A licence conferring no proprietary interest on the licencee, does not entail parting with the copyright. Where the core of a transaction is to authorise the end-user to have access to and make use of the licenced software over which the licencee has no exclusive rights, no copyright is parted with and therefore, the payment received cannot be termed as "royalty". 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer has heavily relied upon the same judgment of AAR in the case of EY Global Services Ltd., which now stands reversed by the Hon'ble Delhi High Court. Thus, we hold that the payments made to Holdings is not taxable as Royalty under Article 13(3) of the India-UK DTAA. 21. Insofar as pleading relating to principle of mutuality for which reliance was placed on the decision of Delhi bench of Tribunal in the case of Deloitte Touche Tohmatsu under an arrangement which was similar to the one in the present appeals, we are not going into this aspect, firstly, because, in our opinion, principle of mutuality cannot be examined in proceedings u/s 195; and secondly, principle of mutuality has to be seen qua in the hands of the recipient, i.e. entity which is receiving the payment and not in the hands of the payer, which is the appellant here. Therefore, we are not entering into the issue of mutuality in this case. 22. Lastly, insofar as issue of reimbursement is concerned, the same has become purely academic once we have held that the payments made are not in the nature of Royalty and is not taxable. 23. Accordingly, we hold that in all the appeals the payments made to Deloi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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