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2024 (6) TMI 809 - AT - Income TaxIssues Involved: 1. Classification of payments for clinical trials and testing services under the definition of "fee for technical service." 2. Interpretation of the "make available" clause in tax treaties. 3. Classification of payments for online access to databases, publications, and journals under the definition of "royalty" u/s 9(1)(vi) of the Income-tax Act. 4. Classification of payments for software purchase and consultancy services under the definition of "royalty" u/s 9(1)(vi) of the Act. 5. Classification of payments for clinical trials/bio-equivalence studies under the definition of "fee for technical service" u/s 9(1)(vii) of the Act. 6. Taxability of payments made to non-residents for services rendered outside India. Summary: Issue 1: Classification of Payments for Clinical Trials and Testing Services The Revenue argued that payments made to various foreign entities for clinical trials and testing services should be classified as "fee for technical service" under the relevant tax treaties. The CIT(A) held that these payments do not fall under this definition as the "make available" clause was not satisfied. The Tribunal upheld this view, stating that the services did not involve any transfer of technology enabling the recipient to perform the services independently in the future. Issue 2: Interpretation of the "Make Available" Clause The CIT(A) and the Tribunal emphasized that the "make available" clause requires the service provider to transfer technical knowledge, experience, or skills to the recipient, enabling them to perform the same services independently. The Tribunal cited previous judgments, including those of the Delhi and Karnataka High Courts, to support this interpretation. Issue 3: Payments for Online Access to Databases, Publications, and Journals The Revenue contended that payments for online access to databases, publications, and journals should be classified as "royalty" u/s 9(1)(vi) of the Income-tax Act. The CIT(A) and the Tribunal disagreed, stating that these payments were for access to copyrighted material, not for the use of the copyright itself. The Tribunal cited its own previous order and judgments from other courts to support this view. Issue 4: Payments for Software Purchase and Consultancy Services The Revenue argued that payments for the purchase of ChemOffice Enterprise software and consultancy services should be classified as "royalty" u/s 9(1)(vi) of the Act. The CIT(A) and the Tribunal held that the purchase of software was an outright purchase and not subject to withholding tax. For consultancy services, the "make available" clause was not satisfied, and thus, the payments were not taxable as "fee for technical service." Issue 5: Payments for Clinical Trials/Bio-equivalence Studies The Revenue contended that payments made to Thailand-based entities for clinical trials/bio-equivalence studies should be classified as "fee for technical service" u/s 9(1)(vii) of the Act. The CIT(A) and the Tribunal held that these payments were covered under the "Business Profit" article of the India-Thailand tax treaty and were not taxable in India as the entities did not have a permanent establishment in India. Issue 6: Taxability of Payments Made to Non-Residents for Services Rendered Outside India The CIT(A) and the Tribunal held that payments made to non-residents for services rendered outside India were not taxable in India. This included payments to Swiss Biogenics Ltd. for market survey/development expenses, which were considered reimbursements and not "fee for technical service." Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the withholding tax demand of Rs. 3,46,277,17.00 raised by the AO, concluding that the payments in question did not fall under the definitions of "fee for technical service" or "royalty" as argued by the Revenue. The appeal of the Revenue was dismissed.
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