2023 (10) TMI 1186 - AT - Income Tax

Taxability of income in India - income earned from ILP Industrial Liaison Program , Sponsorship assignments and consortium membership fees to tax as FIS u/A 12(4) of US-India DTAA - HELD THAT - Receipts from Industrial Liaison Program - As for attracting liability to pay tax under the head FIS in terms of Indo-US DTAA, the services should not only be of technical nature, but it should also make available the technical knowledge, experience, skill, know how, etc., to the recipient of such technical services. In the case of ILP program, the assessee is merely introducing the corporates to its faculty, showcasing the research projects undertaken by them which will enable the corporates to see if any of this research could be leveraged by them in their own strategic plan. Assessee is neither rendering any technical services to the Corporates nor making available any technical knowledge or experience or skill. What is being transferred to the Corporates is purely the factual information with respect to the various research projects. Assessee is not making available the underlying know-how with respect to the said research projects as enumerated under the DTAA and MOU. From the above facts, we are of the opinion that the receipts under the head ILP cannot be reckoned as FIS in nature within the meaning of Article 12 of the India-US DTAA. Accordingly, we set aside the finding of the DRP and direct the AO to delete the addition made in relation to this ground. Hence the ground of appeal of the assessee is allowed. Sponsorship receipts - Assessee undertakes specific research for the corporate and the technology and knowledge from the research is provided to the corporate in the form of research report, who will apply the same and derive an enduring benefit. Once, the assessee after the research submissions report not only provides the research report to the Indian corporate who then apply the research work for their own business. Further, in the specific IP clause agreement as incorporated above, there is a clear-cut stipulation and sponsor will get IP and in some cases it was joint IP, which also goes to show that technical knowledge has been made available to the clients. Thus, in our view it was clearly making available of technical designs and knowhow and accordingly, the ld. AO and ld. DRP had rightly concluded that the receipts under this programme falls within five years clause of India-US DTAA. Accordingly, we conclude that the receipts earned by the assessee under the sponsorship arrangement qualify as FTS/ FIS within the meaning of the Act and DTAA. In the result, this ground filed by the assessee is dismissed. Receipts from co-ordination / consortium membership as FIS under the Treaty - In the case of co-ordination agreement, the assessee is merely acting as the host wherein the assessee has the responsibility to help manage the overall direction of the research performed by the consortium members and helps to provide access and dissemination of the Consortium research to its members. Assessee does not undertake any research nor does it describe any method or process involved in carrying out such research. The assessee s role is to merely act as a co-ordinator between all the consortium members. It is only providing administrative support to the members. Thus, the assessee is not rendering any technical services to the corporate members. Also, the assessee is not providing any technical plan or design to the corporate members. Assessee cannot be said to be making available any technical know-how, experience, etc., or technical plan / design to the members as enumerated under the DTAA and MOU. There remains no ambiguity to the fact that the receipts are not FIS in nature within the meaning of Article 12 of the India-US DTAA. Accordingly, we set aside the finding of the DRP and direct the AO to delete the addition made in relation to this ground. Hence the ground of appeal of the assessee is allowed. Not granting of credit as claimed in the Income-tax Return - AO is directed to verify and grant the credit of TDS in accordance with law. The ground of appeal of the assessee is thus allowed for statistical purposes.

Summary

Issues Involved:

1. Assessment of total income.
2. Addition of receipts from Industrial Liaison Program (ILP) as Fees for Included Service (FIS).
3. Addition of receipts from Sponsorship Assignments as FIS.
4. Addition of receipts from Co-ordination/ Consortium Membership as FIS.
5. Granting of TDS credit.
6. Levying of interest under sections 234A, 234B, and 234D.
7. Initiation of penalty proceedings under section 270A.

Summary:

1. Assessment of Total Income:
The assessee, Massachusetts Institute of Technology (MIT), contested the assessment of total income at INR 15,49,92,088 against the declared income of INR 10,48,860. The tribunal examined the nature of various receipts and their taxability under the India-USA Double Taxation Avoidance Agreement (DTAA).

2. Addition of Receipts from ILP as FIS:
The ILP program was scrutinized to determine if it constituted FIS under the DTAA. The tribunal observed that MIT merely provided access to publicly available information and facilitated interactions without imparting any technical knowledge or skills. Thus, the receipts from ILP were not considered FIS, and the tribunal directed the deletion of the addition made by the AO.

3. Addition of Receipts from Sponsorship Assignments as FIS:
The tribunal examined the nature of sponsorship assignments, where MIT conducted research funded by sponsors. The AO and DRP argued that the research results and intellectual property rights shared with sponsors constituted FIS. The tribunal upheld this view, noting that the research reports enabled sponsors to apply the underlying technology, making it FIS under the DTAA. Thus, the addition was upheld.

4. Addition of Receipts from Co-ordination/ Consortium Membership as FIS:
MIT's role in consortiums was evaluated. The tribunal found that MIT acted merely as a coordinator, providing administrative support without conducting research or imparting technical knowledge. Therefore, the receipts from consortium memberships were not considered FIS, and the tribunal directed the deletion of the addition.

5. Granting of TDS Credit:
The tribunal directed the AO to verify and grant the TDS credit of INR 2,922,328 as claimed by the appellant in the Income-tax Return.

6. Levying of Interest:
The tribunal noted that the grounds on interest under sections 234A, 234B, and 234D were consequential to the earlier grounds and directed the AO to re-work the interest based on the tribunal's directions.

7. Initiation of Penalty Proceedings:
The tribunal found the ground on penalty proceedings under section 270A to be premature.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions to the AO regarding the assessment of income, granting of TDS credit, and re-working of interest. The tribunal upheld the addition of sponsorship receipts as FIS but directed the deletion of additions related to ILP and consortium memberships.