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2025 (3) TMI 1163 - AT - Income TaxIncome deemed to accrue or arise in India - Royalty as per the section 9(1)(vi) of the Income tax Act and Article 13 of the DTAA between India UK - payments proposed to be made for Global technology/Knowledge management Global Communication and Global Brand - HELD THAT - As relying on case of Deloittee Haskins Sells LLP and Deloitte Touche Tohmatsu India LLP 2022 (7) TMI 1586 - ITAT MUMBAI we hold that the payments made to DGSHL do not fall within the scope and ambit of royalty under Article 13 of India UK DTAA and consequently assessee was not required to deduct TDS while making the payment. Accordingly the appeals of the Revenue are dismissed.
ISSUES PRESENTED and CONSIDERED
1. Whether the payments made by the assessee to Deloitte Global Holdings Services Limited for services related to Global Brand, Global Communications, and Global Technology/Knowledge Management are considered 'royalty' under Article 13(3) of the India-UK Double Taxation Avoidance Agreement (DTAA) and thus subject to taxation in India. 2. Whether the CIT(A) was correct in directing the Assessing Officer to grant a refund of taxes paid pursuant to the order under Section 195(2), despite an appeal by the department against the ITAT's decision. ISSUE-WISE DETAILED ANALYSIS Issue 1: Classification of Payments as Royalty Relevant Legal Framework and Precedents: The case revolves around the interpretation of the term 'royalty' as defined in Article 13(3) of the India-UK DTAA. The legal framework includes Section 9(1)(vi) of the Income Tax Act and relevant case law, including the Supreme Court's decision in Engineering Analysis Centre of Excellence (P) Ltd. vs CIT and the Delhi High Court's ruling in EY Global Services Ltd. vs ACIT. Court's Interpretation and Reasoning: The Tribunal analyzed whether the payments for Global Brand, Global Communications, and Global Technology/Knowledge Management services fall under the definition of 'royalty' as per the DTAA. It was concluded that these payments were not for the use of or right to use any copyright, trademark, or commercial experience, and thus did not constitute 'royalty'. The Tribunal relied on the precedent set by the Delhi High Court in EY Global Services Ltd., which clarified that payments for use of software or services that do not involve transfer of copyright do not qualify as royalty. Key Evidence and Findings: The Tribunal considered the Shared Services Agreement and the nature of the services provided by Deloitte Global Holdings. It was found that the services were meant for internal use within the Deloitte network and did not involve any transfer of intellectual property or confidential information. Application of Law to Facts: The Tribunal applied the principles from the Engineering Analysis Centre of Excellence case and the Delhi High Court's decision in EY Global Services Ltd. to determine that the payments for the services in question were not 'royalty'. The Tribunal emphasized that the services were for internal use and did not involve any proprietary interest or transfer of copyright. Treatment of Competing Arguments: The Revenue argued that the payments were for information concerning commercial experience, thus qualifying as royalty. However, the Tribunal rejected this argument, noting that the services were for internal guidance and not for commercial exploitation. The Tribunal also dismissed the reliance on the AAR's decision in EY Global Services Ltd., as it had been overturned by the Delhi High Court. Conclusions: The Tribunal concluded that the payments made by the assessee to Deloitte Global Holdings for the specified services do not constitute 'royalty' under Article 13(3) of the India-UK DTAA, and thus, the assessee was not required to deduct tax at source. Issue 2: Refund of Taxes Paid Relevant Legal Framework and Precedents: The issue pertains to the procedural aspect of tax refunds and the impact of pending appeals on such refunds. The Tribunal considered the procedural guidelines under the Income Tax Act and the implications of the ITAT's previous decisions. Court's Interpretation and Reasoning: The Tribunal held that since the payments were not considered royalty, the CIT(A)'s direction to grant a refund of taxes paid was appropriate. The pending appeal by the department did not alter the non-taxability of the payments as determined by the Tribunal. Key Evidence and Findings: The Tribunal noted that the CIT(A) had followed the ITAT's decision in the assessee's own case for previous assessment years, which had already established that the payments were not taxable as royalty. Application of Law to Facts: The Tribunal applied the principles of consistency and the established legal position regarding the non-taxability of the payments to uphold the CIT(A)'s direction for a refund. Treatment of Competing Arguments: The Revenue's argument against the refund was based on the pending appeal. However, the Tribunal emphasized that the legal determination of non-taxability took precedence over procedural delays due to appeals. Conclusions: The Tribunal concluded that the CIT(A) was correct in directing the refund of taxes paid, as the payments were not taxable as royalty, and the pending appeal did not affect this determination. SIGNIFICANT HOLDINGS The Tribunal held that the payments made to Deloitte Global Holdings do not fall within the definition of 'royalty' under Article 13(3) of the India-UK DTAA. Consequently, the assessee was not required to deduct tax at source. The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s direction for a refund of taxes paid. Core Principles Established:
Final Determinations on Each Issue:
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