9911796707
TMI Blog2006 (10) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... ication to the Assessing Officer for permission to remit A$ 3,25,000 to Australian company without any deduction of withholding taxes. The above payments were made under an agreement dated 30th April, 1997 between appellant and FCII. The relevant provisions of the said agreement were as under : 5.5 On Going Payment Charges A.The company shall pay to Ford Credit an Annual Maintenance Fee charge of US $ 60,000 for ensuring that system updates are provided as released by Ford Credit as well as permitting the company to have access to Ford Motor Company and/or its affiliates' overseas based mainframe computer system and its software applications, for the running and operating of the business operations of the company. It will be a requirement that the system solutions being provided, will always be targeted to leverage on Ford Credit's worldwide automotive financing business at, at the leading edge of the technology, and have specific applicability and competitiveness in operating for the company. B.In addition, there will be a monthly invoice charge for the costs associated with running the business operations of the company on the Ford Motor overseas based mainframe computer. Such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accessible to the Indian company and that, to make sure this availability to the Indian company, booking for capacity usage are made in advance. It was thus concluded that the Indian company is thus allowed to use the software, developed and protected by Australian company. The Assessing Officer further observed that there are three main tests to be satisfied for a payment to be classified as royalty payment. These tests according to the Assessing Officer, are as follows : (1)It is a payment made in return for a right to exercise a beneficial privilege or right. (2)The payment is made to a person who owns the right. (3)The consideration payable is determined on the basis of amount of usage. 5. All the three tests, according to the Assessing Officer, "squarely cover" the annual maintenance, licensing charges and data processing charges. It was also observed that the payment can also be viewed as payment for the use of scientific equipment i.e., the mainframe computer. The location of the computer is immaterial because the computer could be used from any corner of the world, if it is available on line through any communica-tion system. The Assessing Officer thus concluded that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of taxing rights between the contracting States or tax jurisdictions, so far as the persons covered by the scope of the tax treaty are concerned. Once a tax jurisdiction, other than the domicile jurisdiction, has a right to tax that income, a tax treaty further provides the manner in which such an income can be taxed and also the manner in which the corresponding tax credit that such a person will get in the domicile country in respect of the taxes so paid in a country other than domicile country. It cannot be viewed as an exemption regime, as learned Departmental Representative suggests. Therefore, the question of whether or not a particular payment is taxable in a Contracting State, in the hands of a person who is, not domiciled in that Contracting State, is irrelevant unless it is, first established that the Contracting State, as a tax jurisdiction, has a right to tax that payment. We reject the contention of the learned Departmental Representative and proceed to adjudicate upon taxability of impugned payments, in India, in the hands of the Australian company in the light of the provisions of the applicable tax treaty. We have to adjudicate on the taxability of the Australian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainly a royalty payment for right to use of mainframe computer, and the costs per transaction is also a payment for the use of computer as it pertains to actual usage of the computer. In any event, according of the learned Departmental Representative, the payment for annual maintenance fees cannot be said to be for data processing, as it is independent of data processing charges. There cannot be two payments for one task of data processing, according to the learned Departmental Representative. We are, however, not im-pressed by this plea either. This type of pricing of a service, by segregating the fixed and variable price, is not unusual and is fully justified when a business does not seek to make profit, does not seek to maximize the profits or does not seek profits to vary in proportion to scale of operations. That is a typical situation when one of the group concerns has to service the other group concerns, without profit maximization as a primary driving force. Take for example, a situation in which a data processing unit XY has to serve units A, B, C, D and E. Let us assume that this XY unit has fixed costs of $ 5,00,000, incremental or variable cost of $ 1 per unit of data ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponents for price of one service, but such a method is fully justified and is most appropriate in intra group transactions, as is the case before us. The consideration for payment is only this data processing work. No part of this payment can be said to be for the use of specialized software on which data is processed or for the use of mainframe computer because the Indian company does not have any independent right to use the computer or even physical access to the mainframe computer, so as to use the mainframe computer or the specialized software. All that the right is for processing of data, and the use of mainframe computer is permitted only for that purpose. The Indian company can feed the raw data in the mainframe computer in Australia, with the help of the telecommunication link, and the output data, after due processing, is transmitted back to the Indian company. There is no privilege or right, granted to the Indian company by the Australian company. The control of the Indian company is only on the input transmission and the right is to get the output processed data back. The actual processing of data is in the exclusive control of the Australian company, and it is for this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i)for services that are ancillary and subsidiary to the rental of ships, aircraft containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (j)for teaching in or by an educational institution; (k)for services for the personal use of the individual or individuals making the payments or credits; or (l) to an employee of the person making the payments or credits or to any individual or firm of individuals (other than a company) for professional services as defined in article 14. 14. As far as the scope of article 12(3)(a) is concerned, we find that it covers only a payment for the use of, or the right to use of, any copyright, patent, design or model, plan, secret formula or process, trade mark, or other like property or right. The case of the revenue is that the payment is made for the use of specialized software with the help of which data is processed. We are not persuaded. As we have concluded earlier in this order, on the facts of this case, the payment made by the Indian company, is not for the use of, or right to use of, software, the payment is for data processing. Be that as it may, even if stand of the revenue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfied when it is established that the impugned payment is made for the use of, or right to use of, mainframe computer. The Indian company does not have any control over, or physical access to the mainframe computer in Australia. There cannot, therefore, be any question of payment for use of the mainframe computer. It is indeed true that the use of mainframe computer is integral to the data processing but what is important to bear in mind is the fact that the payment is not for the use of mainframe computer per se, that the Indian company does not have any control over the mainframe computer or physical access to the mainframe computer, and that the payment is for act of specialized data processing by the Australian company. Use of mainframe computer in the course of processing of data is one of the important aspects of the whole activity but that is not the purpose of, and consideration for, the impugned payment being made to Australian company. The payment, as we have observed earlier, is for the activity of specialized data processing. It is neither practicable, nor permissible, to assign monetary value to each of the segment of this economic activity and consider that amount in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is sine qua non for making available' technical knowledge, experience, skill, know-how etc. in terms of provisions of article 12(3)(g). It is also not covered by any other clause of the article 12 either. As regards learned Departmental Representative's reliance on the ruling given, by the Hon'ble Authority for Advance Ruling in the case of ABC ( supra), in the light of the detailed reasons set out above, we see no need to deal with the same separately. The Assessing Officer had adopted the reasoning approved by the Hon'ble Authority for Advance Ruling and we have dealt with the same in the course of our consideration to the matter. The prescription of section 245S is unambiguous. Section 245S of the Act provides that the Advance Ruling pronounced by the Authority under section 245R will be binding only on the applicant who had sought it, in respect to the transaction in relation to which the ruling had been sought, on the Commissioner, and the income-tax authorities subordinate to him, in respect to the applicant and the said transaction. It is, therefore, obvious that, apart from whatever its persuasive value, it would be of no help to us. We are not inclined to disturb our c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
