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2017 (6) TMI 1174 - AT - Income TaxTaxability in India - Fees charged by the assessee for rendering the managerial and consultancy services - falls within the purview of royalty - Indo -UAE DTAA benefit - permanent establishment - Held that - A resident alone under Article 4 of DTAA can avail the benefit of DTAA. Since the certificate issued by the UAE authorities, was issued only for one year from 01.04.2012, whereas the assessment years under consideration are 2009-10 and 2010-11. The returns of income for these years were filed on 09.09.2010 and 27.02.2011 respectively; therefore this certificate would not help the assessee as this is not relevant for the years under considerations. Thus it is amply clear that the assessee was not a resident of UAE at the filing of returns of income within the meaning of Article 4 of DTAA. Further the assessee has not placed any evidence showing that the assessee was wholly managed and controlled in UAE and is a tax entity in UAE. Accordingly, the assessee is not entitled to any benefits of DTAA. In view thereof, appeal of the assessee deserves to be dismissed on this ground alone. In our view the information s provided by the assessees were in the nature of expert knowledge and experience acquired by parent company of the assessee company related to industrial and commercial. During the course of argument it was submitted by the ld Senior advocate that the assessee do not own any IPRs in its name and this secrecy clause is a standard form contract to bound the employees. In our view no clause in the agreement can be said to innocuous, reasonable , literal and meaningful interpretation is required to be given to said clause. Our reading of the clause make it abundantly clear that 1) this clause was kept in the agreement to protect secret, confidential and IPRS of the assessee as well as of the parent company 2) the assessee is rendering services as regional Hub for for the benefit of ABB legal entities in India, Middle East and Africa on behalf of its parent company in Zurich and therefore it is duty-bound to protect the interest of parent company as well 3) All the employees of the assessee and ABB Ltd are bound to adhere to the policies of ABB global. Therefore the information provided by the assessee to ABB Ltd were in the nature of know-how contract, given by assessee to ABB Ltd, so that such know-how can used ABB Ltd, for its commercial and industrial purposes and further this special knowledge and experience would remain unrevealed to the public. These information were not already existing and were supplied by the assessee after its development or creation to ABB Ltd and there also exist specific provisions concerning the confidentiality of these information (clause 9) . Moreover the assessee has done very little after giving access to these information to ABB Ltd . thus the information provided of the assessee given to ABB Ltd with the right to use and exploit commercially were concerning industrial, commercial or scientific experience activities would fall under Royalty of DTAA. As we had held that the activities under consideration of the assessee falls under Royalty Clause 12 of DTAA and not under residual clause, therefore the assessee is liable to be taxed within India in accordance with Article 12 of DTAA, section 5 read with section 9 of Income Tax Act. - Decided against assessee.
Issues Involved:
1. Classification of payments as 'royalty' under the Income-tax Act, 1961 and the Double Taxation Avoidance Agreement (DTAA) between India and UAE. 2. Applicability of the Act when there is no specific Article in the DTAA for taxability of a particular payment. 3. Levy of interest under section 234B of the Act. 4. Initiation of penalty proceedings under section 271(1)(c) of the Act. Detailed Analysis: 1. Classification of Payments as 'Royalty': The primary issue was whether the payments received by the assessee from ABB Ltd. for services rendered could be classified as 'royalty' under the Income-tax Act and the DTAA between India and UAE. The assessee argued that these payments were for technical services and not 'royalty'. However, the Tribunal found that the services provided by the assessee involved sharing specialized knowledge, expertise, and experience, which were not available in the public domain. This was evidenced by the confidentiality clauses in the agreement. Therefore, the Tribunal concluded that the payments were indeed 'royalty' under Article 12(3) of the DTAA, which includes payments for the use of or the right to use industrial, commercial, or scientific experience. 2. Applicability of the Act in Absence of Specific Article in DTAA: The Tribunal examined whether, in the absence of a specific article for Fees for Technical Services (FTS) in the DTAA, the provisions of the Income-tax Act would apply. The Tribunal referred to the AO's and DRP's findings that where the DTAA is silent, the domestic law prevails. The Tribunal upheld this view, stating that the absence of a specific provision in the DTAA means that the domestic law, i.e., Section 9(1)(vii) of the Act, would govern the taxability of such payments. 3. Levy of Interest under Section 234B: The assessee contested the levy of interest under Section 234B of the Act. However, the Tribunal did not provide a detailed discussion on this issue, as the primary focus was on the classification of payments and the applicability of the DTAA provisions. The levy of interest under Section 234B was implicitly upheld as part of the final order. 4. Initiation of Penalty Proceedings under Section 271(1)(c): The assessee also challenged the initiation of penalty proceedings under Section 271(1)(c) of the Act. The Tribunal did not delve into this issue in detail, as the main contention revolved around the nature of the payments received and their taxability. The initiation of penalty proceedings was not specifically addressed in the final judgment. Conclusion: The Tribunal concluded that the payments received by the assessee from ABB Ltd. were 'royalty' under the DTAA between India and UAE. It was also held that in the absence of a specific article for FTS in the DTAA, the provisions of the Income-tax Act would apply. Consequently, the appeals filed by the assessee for the assessment years 2010-11 and 2011-12 were dismissed.
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