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TMI Blog2012 (12) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... . Lower rate of tax - fees for included services(FIS) - CIT(A)directing to tax @10% instead of @15% - Held that:- As per the Article 12(2)(b) the rate of 10% is applicable in the case of royalty referred to in sub-paragraph of 3(b) and fees for included services as defined under this article that are ancillary and subsidiary to the enjoyment of the property for which payment is received under Para 3(b) of Article. Since the amounts are not royalty being considered either 3(a) or 3(b), the rate of 10% on FIS is not correct. There is nothing on record that indicates that rate specified under Sub-Article (2)(b) is applicable and not (2)(a)(ii). Therefore, upholding the Revenue ground direct the AO to tax the above amounts confirmed by CIT(A) as FIS at 15% of the rate - in favour of revenue. - IT Appeal No. 7094 (Mum.) of 2010 - - - Dated:- 27-11-2012 - B. RAMAKOTAIAH AND VIJAY PAL RAO, JJ. Ms. Neeraja Pradhan for the Appellant. Himanshu Jain for the Respondent. ORDER B. Ramakotaiah, Accountant Member - This is a Revenue appeal against the orders of the CIT (A)-10 Mumbai dated 30.07.2010. The Revenue has raised two grounds which are as under: "1. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63,150 Total 1,78,000 75,66,780 3. Assessee filed return of income on 10-12-1999 showing total income at Nil claiming that the payments received from ERAPL are taxable as business profit under Article 7 of India-US DTAA and since assessee has no PE in India, the said receipts are not taxable in India. AO however, did not agree and held that these amounts are in the nature of royalty and taxed @15%. 4. In appeal, the learned CIT (A) considered the nature of the services rendered and the fees paid and held that the amount received from EARPL towards client coordination fees is in the nature of business profits and since assessee does not have a permanent establishment in India, the question of taxability of impugned amount does not arise in the absence of PE as provided for in Article 7 of the DTAA. With reference to the creative fees and the database cost, the CIT (A) was of the opinion that they are in the nature of fees for included services as provided under the DTAA and held that they are taxable in India. 5. Assessee has accepted the findings of the CIT (A) on the above two amounts, whereas Revenue is aggrieved on the deletion of client coordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant has agreed to serve EARPL to help to act as coordinating agency as required by such multinational clients. For this purpose, the ERAPL has to pay to the appellant certain amount of annual billings. Thus, the appellant maintains communication channel between ERAPL and its clients the client coordination fees paid to the appellant cannot be termed as Royalty because it is not a consideration for the use of right or to use any of the specified terms mentioned in the definition of Royalty under Article 12 of Indo US DTAA. The observation of AO that the client coordination services rendered by the appellant involve the use of a plan, secret formula, or process by ERAPL is without any basis. The client coordination fees can be taxed as business profits only. Since the appellant admittedly does not have a permanent establishment India, the question of taxability of the impugned amount in India would not arise in the absence PE, as provided for in Article 7 of DTAA. In view of these facts, this ground of appeal is decided in favour of the appellant". Nothing was brought on record to counter the findings of the CIT (A). Considering the nature of the payment and the order in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the first five taxable years for which this Convention has effect, (A) 15 per cent of the gross amount of the royalties or fees for included services as defined in this Article, where the payer of the royalties or fees is the Government of that Contracting State, a political sub-division or a public sector company; and (B) 20 per cent of the gross amount of the royalties or fees for included services in all other cases; and (ii) during the subsequent years, 15 per cent of the gross amount of royalties or fees for included services; and (b) in the case of royalties referred to in sub-paragraph (b) off paragraph 3 and fees for included services as defined in this Article that are ancillary and subsidiary to the enjoyment of the property for which payment is received under paragraph 3(b) of this Article, 10 per cent of the gross amount of the royalties or fees for included services. 3. The term 'royalties' as used in this Article means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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