9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (7) TMI 294 - AT - Income TaxTDS u/s 195 - payment to M/s. Balanced Scorecard Collaborative inc. of USA towards affiliation fee - AO held that the fee paid as royalty within the meaning of clause (vi)(b) of Sub-section (1) of Section 9 - transfer of technical know-how or technical knowledge - PE in India - Held that - Assessee being management consultant the agreement with M/s. Balanced Scorecard Collaborative inc. of USA had this high sounding management terminology but put it simply assessee has paid only the affiliation fee and not a fee for consultation or for technical knowledge. Since there is no transfer of technical know-how or technical knowledge or use of technical knowledge in our opinion the definition royalty either under IT Act or under the DTAA does not apply to the present payment of affiliation fee. Since the M/s. Balanced Scorecard Collaborative inc. of USA does not have any PE in India the payment itself per se does not attract any TDS provisions. Since the payment of affiliation fee alone do not result in either providing any technical service or use of technical knowledge both the AO and CIT(A) have erred in considering the fee as in the nature of royalty. Since there is no transfer of technology or use of any technology and payment is only simply for affiliation the above amount cannot be considered as royalty either under the provisions of Income Tax Act or under the provisions of DTAA. The affiliation fee cannot be considered as taxable income of non-resident so as to attract TDS provisions. - Decided in favour of assessee.
Issues Involved:
1. Nature of the payment made to M/s. Balanced Scorecard Collaborative Inc. 2. Applicability of TDS provisions under Section 40(a)(ia) of the Income Tax Act. 3. Interpretation of "Royalty" under the Income Tax Act and DTAA between India and USA. Issue-Wise Detailed Analysis: 1. Nature of the Payment Made to M/s. Balanced Scorecard Collaborative Inc.: The primary issue was whether the payment of Rs. 12,44,072/- ($35,000) by the assessee to M/s. Balanced Scorecard Collaborative Inc. of USA was in the nature of a royalty or an affiliation fee. The assessee contended that the payment was an affiliation fee, as specified in the agreement, and not for the use of any right, material, or service provided by the non-resident. The agreement clause indicated that the payment was an annual fee for affiliation, not linked to the use of intellectual property or technical services. The tribunal agreed with the assessee, noting that the payment was solely for affiliation and did not involve the transfer of technical knowledge or use of technical know-how. 2. Applicability of TDS Provisions under Section 40(a)(ia) of the Income Tax Act: The Assessing Officer (AO) had disallowed the payment under Section 40(a)(ia) of the Act on the grounds that no TDS was deducted, treating the payment as royalty. The assessee argued that since the payment was not royalty, it did not attract TDS provisions. The tribunal referred to the Supreme Court's decision in GE India Technology Centre (P.) Ltd Vs. CIT, which clarified that TDS obligations arise only if the payment is chargeable to tax in the hands of the non-resident recipient. Since the payment was an affiliation fee and not taxable in India, the tribunal held that the AO erred in invoking the disallowance under Section 40(a)(ia). 3. Interpretation of "Royalty" under the Income Tax Act and DTAA between India and USA: The tribunal examined whether the payment fell under the definition of "royalty" as per Section 9(1)(vi) of the Income Tax Act and Article 12(3) of the DTAA between India and USA. The tribunal noted that the payment did not involve the transfer of any rights, use of patents, imparting of information, or use of technical knowledge. The tribunal referred to various judicial precedents, including the Delhi High Court's judgment in DIT Vs. Sheraton International Inc and the ITAT Delhi's decision in Hughes Escort Communications Ltd., which supported the view that such affiliation fees do not constitute royalty. The tribunal concluded that the payment was not royalty under either the Income Tax Act or the DTAA. Conclusion: The tribunal allowed the appeal of the assessee, directing the AO to allow the amount of Rs. 12,44,072/- as the payment was an affiliation fee and not royalty, and thus not subject to TDS provisions under Section 40(a)(ia) of the Income Tax Act. The tribunal emphasized that the payment did not involve any transfer of technical know-how or use of intellectual property, and therefore, did not attract tax liability in India.
|
