2024 (3) TMI 530 - AT - Income Tax

TDS u/s 195 - TDS on overseas payment - Annual Payment made to the international boards through affiliation with IBO, Cambridge etc. under the head authorization fee, fee for enrolment, license fee, registration fee - assessee in default u/s 201/201(1A) for non-deduction of tax at source - assessee submitted that it is not using any trademark of the overseas universities, as none of the Universities are registered in India. The payment made to IBO and to Cambridge towards annual fees is not for use of trademark and assessee acts as a facilitator between the student and international education institutions like IBO and Cambridge. HELD THAT - It is important to analyze the basis of making payment by the assessee to overseas educational institutions and the basis on which invoice has been raised by overseas educational institutions for lump sum / annual payments, in absence of which the nature of payment cannot be ascertained, much less came to the conclusion that payments do not qualify as royalty . As observed that in the instant facts, no royalty payments have been made by the assessee for the use of brand name of Cambridge/IBO for the purpose of attracting students to enroll for the courses offered by overseas International educational Institutions. In our view, the students are attracted to enroll for the courses offered by overseas educational institutions on the basis of reputation carried by these overseas institutions and therefore, it cannot simply be said that the use of brand name of the educational institutions is only incidental to the payments made by the assessee to overseas education institutions and such payment is only for authorization granted by the overseas institutions to attract students to enroll with the courses offered by them via the medium of the assessee. Also the overseas education institutions have applied for registration under Trademarks Act, 1999, which is ostensibly with a view to ensure that their brand name/trademark is not exploited by any other entity/person in India and with a view to protect their trademark / brand name in India. It is important for the Tax Authorities to analyze the basis of payment made by the assessee to the overseas institutions on an annual/lump sum basis. We also observe that in the invoice which has been issued by the overseas education institution on the assessee, a certain discount has also been offered to the assessee. However, no explanation was offered to us regarding the basis for raising the invoice on the assessee and also on what basis discount has been offered to the assessee by the overseas education institutions as such annual payment. We are unable to accept that even without understanding / analyzing the basis of raising invoice by the overseas International educational Institutions on the assessee, it can be concluded that the nature of payments do not qualify as royalty under the Act read with the DTAA. The argument put forth by assessee that as per the agreement, the payments do not qualify for use of trademarks also cannot be accepted for the simple reason that the students are attracted to enroll for the courses offered by overseas educational institutions based on the reputation they carry. Accordingly, we are unable to accept the argument that even without analyzing the basis of invoice raised by such overseas educational institutions on the assessee, one can come to the conclusion that these payments do not qualify as a royalty payments. In absence of clarity on the basis of invoices which have been raised on the assessee, it would only be an academic exercise to discuss the judicial precedents cited by the Ld. Counsel for the assessee - matter is being restored to the file of AO to understand the basis on which lump sum fee has been charged by the overseas entities from the assessee and also the basis for allowing/affording discount to the assessee. In our view, unless and until the nature and the basis of raising invoices by the overseas education institutions is not clear to the tax authorities, it is not possible to come to the conclusion that no payments were made for use of trade name/brand of the national education institutions and the payment is only for authorizing the assessee to act as a mediator between these students and the educational institutions outside of India. The issue is restored to the file of Assessing Officer with the aforesaid and directions.

Summary

Issues Involved:
1. Charging TDS on annual payments to international boards.
2. Charging interest under Section 201 and 201(1A) for non-deduction of TDS.
3. Calculation errors in TDS and interest.

Summary:

Issue 1: Charging TDS on Annual Payments to International Boards
The Assessee challenged the imposition of TDS on annual payments made to international boards like IBO and Cambridge under various heads such as authorization fee, license fee, and registration fee as per Section 9(1)(vi) r.w.s. 195 of the Income Tax Act. The Assessing Officer (AO) held that these payments were taxable as royalty in India, as the foreign institutions provided services related to the use and application of trademarks. The Ld. CIT(A) upheld this view, stating that the payments fell under the category of royalty as per the Income Tax Act and DTAA, given the use of trademarks for attracting students.

Issue 2: Charging Interest under Section 201 and 201(1A)
The AO charged interest under Sections 201 and 201(1A) for non-deduction of TDS on payments made to international boards. The Ld. CIT(A) supported this decision, noting that the Assessee failed to provide a basis for the annual lump-sum payments, thus justifying the interest charges.

Issue 3: Calculation Errors in TDS and Interest
The Assessee contended errors in the calculation of TDS and interest, particularly regarding a payment made on 07/11/2017, which was allegedly taken twice. The Tribunal observed that the Assessee did not provide a clear basis for the lump-sum payments and the discounts offered by the international boards. Consequently, the matter was restored to the AO to analyze the basis of these payments and discounts.

Conclusion:
The Tribunal restored the matter to the AO to understand the basis of the lump-sum payments and discounts offered by the international educational institutions. The Tribunal emphasized the need to ascertain the nature of payments to determine if they qualify as royalty. The appeals for both assessment years were allowed for statistical purposes.