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TMI Blog2013 (11) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... e & Research Institute. 3. Facts in brief:- The Assessee is a non-resident and is incorporated as Corporation under the laws of Massachusetts, U.S.A. It has been claimed that it is a non-profit educational entity which has been set-up with the following objections. "Exclusively to perform internationally certain charitable and educational functions of and to carry out certain charitable and educational purposes of President and Fellows of Harvard College (Harvard) a charitable institution for higher education duly incorporated and existing under the laws of the commonwealth of Massachusetts, and otherwise to advance the charitable and educational objectives of Harvard's Medical school (the Harvard Medical School), by assisting other medical schools, to provide high quality medical training and to enhance tie quality of patient care and research by teaching training and sharing medical and technological know-how with scientists and health care professionals in countries which may not have ready access to such information by participating in and promoting joint medical research initiatives throughout the words by assisting medical institutions throughout th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has given its rights over the three parties to use their copyright items, deliverables, name, logos, etc. with limited restrictions and the part of it will fall within the purview of "Royalties", as given in Article-12(3) and part of it will fall within the meaning of FIS, as given in Article-12(4). The reimbursement of expenditure was also held to be taxable as per the specified rates given in Article-12. Thus, after applying the provisions of Rule-10 of Income-tax Rules, 1962, he apportioned 90% as income from royalty and 10% as income from FIS. Thus, an addition of Rs. 4,59,35,280, was made after converting the same in INR. 7. Before the learned Commissioner (Appeals), the Assessee referred to various clauses of the agreement entered into by the Assessee with MAX, WHL and SRMCRI and submitted that none of the services provided fall within the realm of "Royalty" or "FIS". The nature of such services rendered by these parties were illustrated as under:- Services Rendered by HMI to WHL A. Consultancy and Education and Training Services Consulting in relating to health care projects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; * Provide training and educational workshops in curriculum development and in medical education leadership. * Provide e-learning support. * Assist in development and select programs in education, clinical care and research. * Jointly sponsor international professional development and continuing medical education events and programs of HMI. 8. Further, the Assessee also made detail submissions as to how provisions of Article-12(3) and (4) will not be applicable. The learned Commissioner (Appeals), after discussing various clauses of the agreement, held that, in the appeal for the assessment year 2002-03 and 2003-04, the learned Commissioner (Appeals) has held that insofar as the payment received from Max is concerned, the entire amount should be treated as FIS and should be taxed @ 15%. With regard to receipts from WHL is concerned, relying upon the earlier year's order passed by the learned Commissioner (Appeals), he held that 50% of the receipts should be treated as payment attributable to teaching as an educational institution and the same cannot be considered as FIS and the remaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the understanding of the Government s of India and the USA on the subject. This example is as follows :- "Facts : the India vegetable oil manufacturing firm has mastered the science of producing cholesterol free oil and wishes to market this product worldwide. It hires an American Marketing consultancy firm to do computer simulation of the world market for such oil and to advise it on marketing strategies. Are the fees paid to the US company for included services? Analysis : the fees would not be for included services. The American company is providing a consultancy which involves the use of substantial technical skill and expertise. It is, however, making available to the Indian company any technical experience, knowledge or skill etc. nor is it transferring a technical plan or design. What is transferred to the Indian company through the service contract is commercial information. The fact that technical skills were required by the performer of the service in order to perform the commercial information does not make the service a technical service within meaning of para (4)(b)." This example, set out in the MOU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there was reference to objective of ensuring that Max enjoys continued status as an HMI Associated Institution. We have given a careful consideration to the above submission of the learned D.R. and are of the view that the same is without any merit. Exhibit A referred to by the learned D.R. is plan envisaged in difference phases. All the phases only refers to advise given by the Assessee to max to achieve excellence in hospital management like medical equipment to be used, number of medical staff required, on-site training required etc. These services do not make available any technical knowledge, experience, skill, know-how, as explained in the decisions referred to in the order of the Tribunal in Assessee's case for AY 00-01 and 01-02. We therefore reject the contentions of the learned D.R. before us and respectfully following the decision of the Tribunal in Assessee's own case for AY 00-01 and 01-02, hold that learned CIT(A) indeed erred in holding that the monies received by the assessee from Max India Ltd. constitute 'fees for included services' within the meaning of Article 12(4) of the India-US treaty, and are accordingly liable to be taxed in India. Since, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from WHL is in the nature of business profits and since the assessee does not have a PE in India the same cannot be brought to tax in India. Consequently, Ground No.2 & 3 of the Cross Objection of the assessee are allowed." Assessment Year - 2003-04 "28. ITA No.1559/M/07 is an appeal by the revenue against the order dated 26/10/2006 of CIT(A) 33, Mumbai relating to A.Y 2003-04 and C.O No.146/M/07 is a cross objection by the assessee against the very same order of the CIT(A). The ground raised by the revenue in its appeal and Ground No.1 to 3 raised by the assessee in its Cross Objection are identical to the Grounds 1 & 2 raised by the revenue in its appeal ITA 1558/M/07 and Ground No.1 to 3 in the Cross Objection No.145/M/07 raised by the assessee in this Cross Objection for A.Y 2002-03. For the reasons given while deciding identical grounds in A.Y 2002-03, we dismiss the grounds raised by the revenue and allow Ground No.1 to 3 raised by the assessee in its Cross Objection. Both the parties agreed that the facts and circumstances prevailing in both the A.Ys are identical. Ground No.4 raised by the assessee in Cross Objection No.14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Commissioner (Appeals) nor by the Assessing Officer, therefore, the entire amount in case of SRMCRI should be held as "Royalty". In support of his contentions, he strongly relied upon the decision of the Tribunal in Sheraton International Inc. v. Dy. CIT [2007] 107 ITD 120 (Delhi). Further reliance was also placed on the decision of AAR in case of Mersen India (P.) Ltd. AAR no.1074/2010, order dated 16th April 2012 and drew our attention to Para-18 and 19 that if one of the terms of agreement falls within the parameters of services as given in Article, the same has to be treated as dominant object and is to be taxed in India. The sum and substance of his submissions were that if the main purpose of the agreement is for usage of logo or trade name, the same is to be taxed as royalty even if there are incidental services not falling within the meaning of FIS. With regard to the learned Commissioner (Appeals)'s observation that the Assessee is providing teaching services is not correct, as the teaching and training are two different activities and in case of SRMCRI, it is a case of training and, therefore, does not fall within the purview of the word "Teaching" as given in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogo or name of the Assessee and, therefore, the same should fall within the ambit of "Royalty". It is seen that the learned Commissioner (Appeals), in annexure to the appellate order, has highlighted various programmes conducted by the Assessee for SRMCRI which is mainly orientation of various teaching on medical and health related issues via video conference. Even as per the agreement, dominant purpose is for providing education and training programmes and the use of the Assessee's name is only incidental for carrying out such teaching and training activities. It is further seen that similar usage of name is there in the agreement with WHL and Max. The Tribunal in Assessee's own case for assessment years 2002-03 and 2003-04 have considered exactly the similar contention as has been raised by the learned Departmental Representative as in those years, the Assessing Officer's case was that use of the name "Harvard" amounts to use of logo and, therefore, 90% of the payment is attributable to right to use the logo. This aspect of the matter has been dealt with in Paras-8 and 9, of the appellate order which, for the sake of ready reference, is reproduced below:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llectual Property, subject to the terms of this MOA. 9. Case of the Assessing Officer: According to the AO, the Assessee by virtue of the aforesaid agreements gave a right to use copy righted items, deliverables, name, logo etc. The intellectual property rights in the materials delivered by the Assessee to Max and WHL remained exclusive property of the Assessee. According to the AO the use of the name Harward carries immense value as it is associated with quality. The Assessee had duly protected its intellectual property rights to its name and its logo in the agreement and has given only limited rights to MAX and WHL to use them. Thus the consideration received by the Assessee to the extent of 90% can be attributed to the right to use the logo and therefore 90% of the payments received by the Assessee has to be construed as Royalty. The remaining 10% was to be considered as FIS. The sums received by the Assessee as aforesaid were accordingly brought to tax by the AO." 18. Similar terms given in Exhibit "A" in case of Max which was contended by the learned Departmental Representative in the earlier year also has also been taken note of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also drawn to the decision of the Special Bench of the ITAT in the case of Motorola Inc. v. DCIT , 95 ITD 269 (Del) (SB), wherein it was held that where a lumpsum consideration was paid it was not open to the Income Tax Authorities to split the same and treat a part of the same as royalty. 17. We have considered the rival submissions. We are of the view that the consideration received by the assessee can neither be said to be royalty nor FIS. The payment in question was purely for the purpose of advising, recommending and assisting in relation to healthcare projects. It was also for conducting education and training programmes. It was also for the purpose of review and giving feed back of various aspects and new cardiac hospital to be set up, recommendation on planned patient care delivery system. In page 15A to 15D of the CIT(A)'s order a summary of the activities undertaken by the assessee for WHL have been given. A perusal of the same shows that the consideration received by the assessee cannot be said to be royalty as they were not a payment for use of order, the right to use any copy right, trademark or industrial, commercial or scientific experience ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee that the payment received is not taxable as "FIS" or "Royalty" in India, therefore, ground no.4, is treated as academic. 22. In the result, Assessee's appeal treated as allowed. We not take up Revenue's appeal ITA no. 1020/Mum./2008, vide which following grounds have been raised:- 1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to treat 50% of the fees received from Wochkhardt Hospital Ltd as non taxable representing teaching in or by educational institution and balance 50% as Royalty, as against 90% as Royalty and 10% as fees for included services taken by the Assessing Officer. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to delete the addition of Fees of US$ 35000 under the Wockhard Awards Agreement with WHL' by holding that WHL has not gained any "Technical Knowledge" from the services done by the assessee and it cannot be assessed as "fees for included services. 3. On the facts and in the circumstances of the case and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no make available of any knowledge, experience or skill to WHL. The learned Commissioner (Appeals), after carefully analysing the nature of service rendered in this aspect, in Paras-8 and 8.1, has held that the Assessee is not doing any services which comes within the definition of FIS. 26. We have heard the rival contentions and perused the relevant findings of the Assessing Officer and the learned Commissioner (Appeals). We find that the Assessee for the purpose of Wockhardt award the Assessee is assisting in the selection of the awardees in the various medical specialties and is mainly providing structuring and managing of the Wockhardt selection committee to help them to select potential award nominees, providing selection criteria and invitation to the awardees to deliver scientific address at approximate clinical forums. The nature of services under this agreement have been enumerated as under:- "The services to be provided by the appellant is listed in Attachment A of the agreement and it is extracted below: Services to be provided by HMI" A. In the 1st 3rd and 5th and every subsequent odd numbere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... care in their specialty. The selection committee will have all the final rights on the selection process and will have the right to charge the selection process if it so deems fit. (iii) Vetting nominees and selecting potential awardees. The selection committee under HIM'ss supervision will have the responsibility of vetting nominees, and reeking the final selection of the five awardees. The selection committee will have final authority or all decisions related to the selection of Wockhardt Awardees." 27. Thus, from a plain reading of the above clauses, it is seen that the Assessee is not doing any service which falls within the definition of "FIS" as contemplated in Para-4 of Article-12. We agree with the findings of the learned Commissioner (Appeals) that these are merely facilitation services with regard to the selection of awareness for Wockhardt Awards and WHL has not given any technical knowledge from such services, therefore, the learned Commissioner (Appeals) has rightly deleted the said addition. Accordingly, ground no.2, raised by the Revenue is dismissed. 28. The issue arising out of ground no.3, has been decided by us vide ground no.3, in Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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