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2021 (6) TMI 2 - AT - Income TaxIncome deemed to accrue or arise in India - income a ttributable to India - Provision of distance learning courses - revenues received by the Appellant on account of sale of distance learning courses - PE in India - treating the Authorized Training Centers ('ATCs') to be the dependent agent permanent establishment ('PE') of the Appellant in India under Article 5(4) of the India - Canada tax treaty - taxing the revenues received by the Appellant on account of sale of distance learning courses as being in the nature of 'business profits' under Article 7 of the India - Canada tax treaty - DRP directing the A.O to restrict 40% of the entire revenue received by the assessee from the sale of the training materials as income attributable to the PE - HELD THAT - Authorized Training Centers - ATC s are the agents of independent status of the assessee viz. IATA, Canada, within the meaning of Article 5(5) of the India-Canada tax treaty. Accordingly, without adverting to the other contentions advanced by the ld. A.R in order to impress upon us that the ATC s cannot be held to be the DAPE of the assessee viz. IATA, Canada, we vacate the view taken by the A.O/DRP holding to the contrary. As we have held that the ATC s are not the DAPE of the assessee, therefore, the addition i.e 40% of the revenue generated from sale of distance learning material, attributed to them in their status as that of DAPE of the assessee corporation, viz. IATA, Canada, and assessed as the business income of the assessee in India under Article 7 of the India-Canada tax treaty cannot be sustained and is therefore vacated. Whether DRP had erred in concluding that the income received by the assessee on sale of distance learning courses is alternatively taxable as royalty, both under the Act and the India-Canada tax treaty? - The assessee pursuant to the request from the student s/ATC s despatches the course material i.e the learning kit in the form of books or CD s directly to the students or ATC s. Although, the course material providing knowledge, information and training about the aviation and travel and tourism industry in general is sold to the students/ATC s, but no use or right to use any copyright in relation to such study material is granted to them. In fact, the student s/ATC s do not have any right to reproduce/sell the contents of the study material in any form or media. As the course material providing knowledge, information and training about the aviation and tourism industry in general is merely a sale of book/CD, which does not involve transfer of intellectual property, and also does not contain any undivulged technical information which is not available in the public domain and/or knowhow, therefore, it falls outside the scope of the term information concerning technical, industrial, commercial or scientific experience under Article 12(3) of the India-Canada tax treaty. In sum and substance, as the consideration received by the assessee is towards a simplicitor sale of training material/books, thus, the same cannot be brought within the definition of royalty under Article 12(3) of the India-Canada tax treaty. Our aforesaid view that the consideration received for providing the study material to the students in distance learning courses cannot be held as royalty is fortified by the order of Hughes Escort Communication Ltd. 2012 (5) TMI 175 - ITAT DELHI Accordingly, not finding favour with the alternative observation of the DRP that the consideration received by the assessee for providing course material to the students/ATC s was liable to be assessed as royalty, we vacate the same. The Ground of appeal No. 2 raised by the assessee is allowed. Sale consideration of DGR manuals/publications as royalty - DRP taxing the income from sale of physical publications (i.e DGR manuals) as royalty income under Article 12(3) of the India-Canada tax treaty - HELD THAT - As the sale of the DGR manuals tantamount to a simplicitor sale of a copyrighted article with no vesting of any copyright of the same with the customer, the consideration therein received by the assessee cannot be attributed to the use or the right to use the copyright itself, and thus, on the said count also cannot be brought within the realm of the definition of royalty as provided in Article 12(3) of the India-Canada tax treaty. Our aforesaid view is fortified by the judgment of the Hon ble High Court of Delhi in the case of DIT Vs. Infrasoft Ltd. 2013 (11) TMI 1382 - DELHI HIGH COURT In the backdrop of our aforesaid observations we vacate the view taken by the lower authorities that the consideration received by the assessee from sale of DGR manuals was to be treated as royalty and brought to tax in its hands. The Ground of appeal No. 3 is allowed in terms of our aforesaid observations. Treating the application fees received by the assessee for DGR manuals/publications that was wrongly offered to tax as Collection of royalties from ATS , as royalty income under Article 12 of the India-Canada tax treaty - HELD THAT - As the consideration received by the assessee on sale of DGR manuals cannot be held as royalty within the meaning of Article 12(3) of the India-Canada tax treaty. Accordingly, on the basis of the said observations, the amount received by the assessee as application fees for DGR manuals/publications (claimed to have been wrongly offered to tax as Collection of royalties from ATS ) cannot be treated as royalty in the hands of the assessee. But then, as the facts substantiating the said claim of the assessee are not there before us, we therefore restore the matter to the file of the A.O for necessary verification. In case the aforesaid claim of the assessee is found to be in order, then the consequential addition made in the hands of the assessee shall be vacated. The Ground of appeal No. 4 is allowed for statistical purposes in terms of our aforesaid observations. Taxing the receipts from provision of advertising space by the assessee on its website and publications as royalty income within the meaning of Article 12(3) of the India-Canada tax treaty, for the reason, that by so advertising the customers use the logo, brand and goodwill of the assessee - HELD THAT - Providing of advertising space by the assessee to its customers, either on its website or publications/manuals, did not result to vesting of any right to use, display, exploit or modification of the assessee s brand or logo, in any manner. As such, the consideration received by the assessee from provision of advertisement space in its publications /manuals or website would not fall within the realm of the definition of royalty as provided in Article 12(3) of the India-Canada tax treaty - as no use or right to use any copyright, patent, trademark, design or model, plan was granted to the customers by the assessee in the course of providing of advertising space to them in its publications/manuals or website, the consideration received in lieu thereof cannot be brought within the meaning of the definition of the term royalty as provided in Article 12(3) of the India-Canada tax treaty. As the customers by obtaining an advertising space in the website or publications/manuals of the assessee in no way get vested with any right to commercially exploit the brand or logo of the assessee, therefore, the consideration therein received by the assessee for providing such advertising space would fall beyond the meaning of the term royalty as defined in Article 12(3) of the India-Canada tax treaty. Our view that consideration received by an assessee for providing advertising space cannot be held as royalty in its hands is fortified by the order of Yahoo India (P) Ltd. Vs. DCIT 2011 (6) TMI 162 - ITAT, MUMBAI we are unable to persuade ourselves to subscribe to the characterisation of the consideration received by the assessee for providing advertising space to its customers, as royalty, by the A.O/DRP. As such, the view taken by the lower authorities wherein they had taxed the receipts from provision of advertising space as royalty income in the hands of the assessee is vacated.Ground of appeal No. 5 is allowed. Taxing certain receipts collection of membership fees, BSP link charges and fees for clearing house facility ( ICH facility ) as business profits under Article 7 of the India-Canada tax treaty - HELD THAT - BSP Link charges were collected by the assessee for onward remittance to Accelya World SLU, Spain, without any mark-up, the same would thus not constitute income in the hands of the assessee. Accordingly, the DRP had directed the A.O to delete the addition of BSP charges in the hands of the assessee. In the backdrop of our aforesaid observations, we are of the considered view that collection of the BSP charges by the assessee from the airlines and agents for onward remittance to Accelya World SLU, Spain, without any mark-up, cannot be held to be its business income . But then, as the said aspect had not been looked into by the A.O/DRP, we therefore in all fairness restore the matter to the file of the A.O for the limited purpose of verifying the same. In case the claim of the assessee that the BSP Link charges were collected by it for onward remittance to Accelya World SLU, Spain, without any mark-up, is found to be in order, then the addition made by the A.O to the said extent shall stand deleted. Fees for clearing house facility ( ICH facility ) - We are unable to subscribe to the manner in which the A.O/DRP had summarily rejected the claim of the assessee that as the ICH services were provided by the assessee, viz. IATA, Canada directly outside India, and the fees in respect of the said services was also received by the assessee in its bank account maintained outside India, therefore, the revenue pertaining to the said ICH services could not have been attributed to the IATAIndia branch. In our considered view, the matter in all fairness requires to be restored to the file of the A.O. The A.O shall in the course of the set aside proceedings verify the veracity of the claim of the assessee that the ICH services were provided by the assessee, viz. IATA, Canada directly outside India. In case, the claim of the assessee is found to be in order, then the addition of fees received from providing ICH services made in its hands would stand vacated. Needless to say, the assessee shall be afforded a reasonable opportunity of being heard during the course of the set aside proceedings and shall remain at a liberty to substantiate its aforesaid claim on the basis of fresh documentary evidence. Collection of membership fees - We are in agreement with the claim of the assessee that amount of profit that would be attributable to a PE would be on the basis of the extent appropriate to the role played by the PE in those transactions. In a case where the transactions had taken place outside India, the same cannot be attributed to the PE, because the PE had no role to play in such transactions. As such, only the portion of profits which are attributable to the PE in India are taxable in India, and the revenue from functions/activities carried outside India cannot be taxed in India. Thus the matter in all fairness requires to be revisited by the A.O. The A.O shall in the course of the set aside proceedings verify the veracity of the claim of the assessee that the collection of membership dues was carried out by it directly outside India. In case the claim of the assessee is found to be in order, then, the addition made by the A.O on the said count would stand vacated. Short credit for self-assessment taxes paid - HELD THAT - As the said issue would require verification of records, we therefore restore the matter to the file of the A.O. The A.O is directed to verify the factual position, and in case the claim of the assessee is found to be in order, then the credit for the amount deposited by it by way of self-assessment tax be allowed to it. Interest u/s 234B and u/s 234C - HELD THAT - A.O had erred in failing to appreciate that interest u/ss. 234B and 234C is not leviable in case of a foreign company and interests u/ss. 234B and 234C had wrongly been computed without taking into consideration the respective amounts of self-assessment tax deposited by the assessee, and also the amount of TDS. As the second limb on the basis of which the charging of interest u/ss. 234B and 234C has been assailed before us would require verification of records, we thus restore the matter to the file of the A.O for necessary verifications. At the same time, as the assessee has assailed the very validity of levy of interest u/ss. 234B and 234C of the Act, on the ground that the same are not leviable in the case of a foreign company, we thus in the absence of any contention advanced by the ld. A.R before us on the said count restore the matter to the file of the A.O. The assessee shall remain at a liberty to substantiate its claim as regards nonlevy of interest u/ss. 234B and 234C.
Issues Involved:
1. General ground of taxable income determination. 2. Provision of distance learning courses. 3. Sale of physical publications (DGR manuals). 4. Application fees for sale of DGR manuals. 5. Provision of advertising space on websites and publications. 6. Collection of membership fees, BSP Link charges, and fees for IATA Clearing House facility. 7. Short grant of credit for self-assessment taxes. 8. Non-grant of credit of taxes deducted at source (TDS). 9. Wrong computation of interest under Section 234A. 10. Wrong levy of interest under Sections 234B and 234C. 11. Initiation of penalty proceedings under Section 271(1)(c). Detailed Analysis: 1. General Ground of Taxable Income Determination: - The assessee contested the determination of total taxable income at ?24,51,25,623 and the computation of tax and interest payable at ?7,42,29,180. - The Tribunal did not specifically address this general ground, focusing instead on the specific grounds of appeal. 2. Provision of Distance Learning Courses: - Dependent Agent Permanent Establishment (DAPE): The AO/DRP treated the Authorized Training Centers (ATCs) as the DAPE of the assessee under Article 5(4) of the India-Canada tax treaty, attributing 40% of the revenue from distance learning courses as business profits taxable in India. - Tribunal's Decision: The Tribunal concluded that ATCs were independent entities and not DAPEs. It was observed that ATCs provided various courses, not exclusively those designed by the assessee, and transactions were at arm's length. Thus, the addition of ?4,84,95,494 attributed to DAPE was vacated. 3. Sale of Physical Publications (DGR Manuals): - Royalty Classification: The AO/DRP classified income from the sale of DGR manuals as royalty under Article 12(3) of the India-Canada tax treaty. - Tribunal's Decision: The Tribunal held that the sale of DGR manuals was a simplicitor sale of a copyrighted article without transferring any copyright. The manuals were compilations of public domain information, not undivulged technical information. Thus, the income from DGR manuals was not royalty. 4. Application Fees for Sale of DGR Manuals: - Erroneous Classification: The assessee claimed that application fees for DGR manuals were wrongly offered as royalty income. - Tribunal's Decision: The Tribunal restored the matter to the AO for verification. If the claim is correct, the addition will be vacated. 5. Provision of Advertising Space: - Royalty Classification: The AO/DRP treated receipts from providing advertising space on the assessee's website and publications as royalty. - Tribunal's Decision: The Tribunal concluded that providing advertising space did not involve granting any right to use the assessee's brand or logo. Thus, the income was not royalty but business profit. 6. Collection of Membership Fees, BSP Link Charges, and Fees for IATA Clearing House Facility: - BSP Link Charges: The AO/DRP taxed BSP Link charges as business income. The Tribunal restored the matter to the AO for verification if the charges were collected for onward remittance without markup. - ICH Facility: The AO/DRP taxed fees for ICH facility as business income. The Tribunal restored the matter to the AO to verify if services were provided outside India and fees received outside India. - Membership Fees: The AO/DRP taxed membership fees as business income. The Tribunal restored the matter to the AO to verify if collection activities were carried out outside India. 7. Short Grant of Credit for Self-Assessment Taxes: - Tribunal's Decision: The matter was restored to the AO for verification and granting of credit if the claim is found to be in order. 8. Non-Grant of Credit of TDS: - Tribunal's Decision: The matter was restored to the AO for verification and granting of TDS credit if the claim is found to be in order. 9. Wrong Computation of Interest under Section 234A: - Tribunal's Decision: The matter was restored to the AO to recompute interest after granting TDS credit. 10. Wrong Levy of Interest under Sections 234B and 234C: - Tribunal's Decision: The matter was restored to the AO for verification of self-assessment tax and TDS. The AO was also directed to consider the assessee's claim that interest under Sections 234B and 234C is not leviable on foreign companies. 11. Initiation of Penalty Proceedings: - Tribunal's Decision: The ground was dismissed as premature since it did not arise from the impugned order. Conclusion: - The assessee's appeal was partly allowed, and the revenue's appeal was partly allowed for statistical purposes, with several issues restored to the AO for fresh adjudication.
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