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2016 (6) TMI 547 - AT - Income TaxNature of royalty - whether the payment received by the assessee from TNT India Pvt. Ltd. under Management and Administrative Services (in short MAS agreement is in the nature of royalty as per provisions of section 9(1)(vi) as well as Article 13 of the Indo-UK DTAA? - Held that - In the case of the assessee, it appears to be a composite agreement for providing various services, some of which are purely business/commercial practice and contract services and others are in the nature of imparting the knowledge, experience and experience, which concern the commercial or business experience. In such a scenario, when the assessee is unable to provide bifurcation of the payment relating to each kind of services, then as per para 11.6 of the OECD Model Tax Convention, where a reasonable apportionment is not possible, then the other part of the services could also be given the tax treatment as given to one part of the services provided, which constitute the principal purpose of the contract and falling under the purview of royalty. In view of the above facts and circumstances of the case, where the assessee has failed to produce the relevant information, details and record to support its case and which is also necessary to segregate such part of the payment which may not be falling under the purview of royalty, we do not find any error or illegality in the impugned orders of authorities below in treating the entire consideration received by the assessee as royalty.- Decided against assessee.
Issues Involved:
1. Whether the fee from management and administrative support services (MAS) received by the assessee is subject to tax in India. 2. Whether the fee from MAS can be characterized as "Royalty" under Article 13 of the Indo-UK DTAA and section 9(1)(vi) of the Income-tax Act, 1961. Detailed Analysis: 1. Taxability of MAS Fee in India: The assessee, a UK-based foreign company, provided MAS to TNT India Pvt. Ltd. and received ?9,99,12,153, on which TNT India deducted tax at source. The assessee filed a return declaring NIL taxable income, claiming no Permanent Establishment (PE) in India, thus asserting that income from MAS is not taxable in India under section 9(1) of the Act and Article 13 of the Indo-UK DTAA. 2. Characterization of MAS Fee as Royalty: The primary issue was whether the MAS fee qualifies as "Royalty" under section 9(1)(vi) and Article 13 of the Indo-UK DTAA. The Assessing Officer (AO) and Dispute Resolution Panel (DRP) concluded that the MAS fee constitutes royalty, as it involved imparting commercial information and know-how. Arguments by the Assessee: - The assessee contended that the MAS fee is business income, not royalty, as it did not involve imparting technical, industrial, commercial, or scientific knowledge. - The services were aimed at improving TNT India's management and administrative efficiency. - The assessee cited various judicial precedents, including CIT v. HEG Ltd., Diamond Services International (P) Ltd. v. UOI, and Spice Telecom v. ITO, to argue that not all commercial information qualifies as royalty. Arguments by the Department: - The Department argued that even general services might be considered know-how depending on their application by the recipient. - The assessee failed to provide a detailed breakup of services and billing, leading to the conclusion that the payment was for imparting confidential and economically beneficial information. - The Department emphasized the confidentiality clause in the agreement, indicating the proprietary nature of the information provided. Tribunal's Findings: - The Tribunal noted that the assessee did not furnish necessary details and break-up of payments for various services. - The MAS agreement included services that could be considered as imparting commercial information and know-how. - The Tribunal referred to the OECD Model Tax Convention and relevant judicial precedents to differentiate between payments for services and royalties. - It concluded that the services provided under the MAS agreement involved imparting knowledge and experience, thus falling under the definition of royalty. - The Tribunal upheld the lower authorities' decision to treat the entire MAS fee as royalty due to the lack of detailed information from the assessee. Conclusion: The Tribunal dismissed the appeal, affirming that the MAS fee received by the assessee is taxable as royalty under section 9(1)(vi) of the Act and Article 13 of the Indo-UK DTAA. The decision was based on the assessee's failure to provide detailed information to segregate payments for different services.
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