9911796707
TMI Blog2012 (4) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the relevant previous year, assessee had rendered services to companies located in India also. Assessee furnished copies of agreements entered with three of its clients in India, namely, M/s Adani Wilmar Ltd., M/s PMC Projects Pvt. Ltd. and M/s Mundra Port and Special Economic Zone Ltd, to the Assessing Officer. Incidentally, assessee had filed return for impugned assessment year declaring NIL income and claiming refund of tax deducted at source on the payments received from the Indian clients. Assessing Officer was of the opinion that the services for development of BSC, which was a business management tool, could be divided into two segments - one part being professional fees received by the assessee and second being lumpsum amount received for sale of relevant software. According to A.O., receipts were for technical services insofar as it related to professional fees. With regard to lumpsum amounts received for software, the A.O. considered it to be royalty. Assessee's argument before A.O. was that these were all business profits of the assessee and in view of Article 7 of DTA between India and Singapore, such business profits were not taxable in India. Assessing Officer ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of royalty and fees for technical services. He, therefore, proposed that the total invoice amount of Rs. 2,07,86,482/- was to be considered as royalty and fees for technical services and tax has to be levied on the assessee accordingly. 3. Against the draft assessment so proposed, assessee moved before the Dispute Resolution Panel (DRP) in terms of Section 144C of the Act. Argument of the assessee was that supply of software and consultancy services were interdependent insofar as development of BSC was concerned. According to assessee, the A.O. fell in error in treating them separately. As per the assessee, software developed for the purpose of Balance Score Card was a packaged software which the clients could download from internet. Again, as per the assessee, the lump sum payments received from such software could not be treated as "equipment royalty" because user had no domain or control over such software to suit its business needs. As per the assessee, the same software was being supplied to different clients and assessee never parted with possession or control over the rights in such software. The payments received, therefore, could not be considered as equipmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asures were continually made and compared with certain target value within a simple concise report in such a manner that would help the management to effectively focus on areas where performance deviated from expectations. In other words, according to him, Balance Score Card was a trigger which called for improved performance and kept the management on alert, on deficiencies in meeting targets. Relying on the agreement entered by the assessee with one of its clients, namely, M/s Adani Wilmar Limited (placed at pages 1-2 of paper-book), learned A.R. submitted that there was a licensed software and the team from assessee-company was only helping the client to implement such licensed software. According to him, the Assessing Officer fell in error when he considered the software as something unconnected to the process of developing Balance Score Card. Learned A.R. submitted that such a software was only a tool used in the development of Balance Score Card. Lower authorities fell in error, according to him, in splitting into the receipts from clients to price for software and fee for management consultancy. There was no royalty since there was no equipment which was in the domain of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t received by the assessee - one for supply of software and the other for professional service. According to him, technical services were made available to its clients. Placing reliance on the payment terms which appear on page 1 of paper-book in the agreement between the assessee and M/s Adani Wilmar Limited, learned D.R. submitted that the software was to be supplied for a fee of S$ 171,025. Such software which was downloaded from the designated site was for the stages of development of BSC and deployment and implementation of BSC. Therefore, according to him, the whole of the amount received by the assessee was either royalty or technical service fees and these were clearly taxable in accordance with DTA between India and Singapore. Assessee could not say that these were business income for the simple reason that only where the amounts could not be correctly classified, could it be considered as business income. The question of P.E. or business connection arose only if it was business income, and hence this was not relevant here, according to learned D.R. 8. In reply, learned A.R. submitted that there were 11 steps for the development of Balance Score Card as mentioned in paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 207, deployment and implementation support for a period of 18 (eighteen months starting April 1, 2007) Of this sum of S$ 171,025 the sum of S$ 112,500 will be for the development phase of the project; the balance will be spread out over 18 months. For any additional work over and above the contracted time the daily rate will be S$ 8750 per day per consultant, and will be undertaken, subject to your approval before incurring the additional effort. The schedule and fee in case of extension of the contract will have to reviewed and mutually accepted before start of the next phase. Travel for the principal consultant and associates required to be on site for your work outside of Singapore and within Singapore & India will be to your account per the usual norms (Business class Airfare, Appropriate Lodgings, Boarding Costs and Sundry expenses if any). Miscellaneous expenses for communication etc. will be to your account as and when they arise and will be billed under separate heads- once a quarter. Travel time is to our account. Payment for the first phase of development - THE PROJECT - by end March will be in three installments, 50% in January 2007, 25% in February 2007 and balanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation based on the destination statements. The measures will vary from organization to organization, since any two organizations rarely has same destination statements. We cannot say that the clients of the assessee were having the same destination statements. Each will have its own goals and different strategies to reach such goals. The measures will also be different. A team, which is evolving a Balance Score Card system necessarily has to identify the measures that are relatable to the entity under study. We cannot say that this is a type of service which can be used by any organization by application of an off the shelf software. The software might be helpful in development of the phases of the Balance Score Card as well as functioning thereafter. But, considerable skill will be required in identifying the measures and fixing the targets for each such measure for a decisive meaningful Balance Score Card for different areas. So, we are in full agreement with the observation of learned A.R. that the software is only a part of the total process of development of Balance Score Card. No doubt, the fee payable by the assessee has been linked to the downloading of the software but, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . By means of the Balance Score Card system developed by the assessee, the clients were getting an advantage which went much beyond the period of agreement between the assessee and its clients. The Balance Score Card definitely enabled the clients to acquire the skills necessary for implementing their business strategies more effectively and this is definitely a long term objective. Assessee had definitely made available technical knowledge and skill which enabled its clients to acquire the knowledge for using Balance Score Card system for their business purposes for meeting their long term targets and the benefits ran well into the future. No doubt, all technical and consultancy services cannot fall within the scope of definition of "fees for technical services" as defined under the DTA, and this has been clearly held by AAR in the case of Bharti Axa General Insurance Co. Ltd., In re (supra) as well as in the case of Ernst & Young (P.) Ltd., In re (supra) and also in the case of InterTek Testing Services India (P.) Ltd. (supra). To fit into the terminology "the technical knowledge, skill, etc." shall remain with the person receiving the services even after the particular contract ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
