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TMI Blog2014 (1) TMI 1285X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is making remittance for procurement of commercial information for onward transmission to the principal BHAG - the remittance made by the assessee is not for availing technical services and does not amount to royalty and is not liable for withholding taxes as held by assessing officer - The order of CIT(A) is upheld – Decided against Revenue. - ITA No. 3879/Del/2011 - - - Dated:- 26-7-2013 - Shri R. P. Tolani And Shri Shamim Yahya,JJ. For the Appellant : Ms. Vanita R. Sharma DR For the Respondent : Shri Arun Bansal CA ORDER Per R. P. Tolani, J. M. This is Revenue's appeal against the order of CIT(A)-XXIX, New Delhi dated 31-05-2011, reversing the order of ITO Ward-3(2), New Delhi passed u/s 195 of the Income-tax Act, 1961. 2. Brief facts are: The assessee is an associated concern of a drug manufacturing company known as Bayer Healthcare AG ("BHAG" in short). The assessee has entered into a master clinical services agreement with BHAG for clinical trials. The assessee's arrangement with CSPL which is tied up with clinical trial unit (CTU) of University of Kelmia, Srilanka stipulates to manage the relationship between CTU and its clients and to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... withholding tax rate of 10% against the 'Nil' withholding tax rate application submitted by the appellant for remittance of Clinical Research operational fees to M/s Clinical Solutions Pvt. Ltd., Sri Lanka. 2. The Assessing officer has erred in law and on the facts of the case in not appreciating that the activity of CSPL is in the nature of business activity and accordingly not taxable under Article 7 f Double Taxation Avoidance Agreement between India Sri Lanka ('DTAA') since CSPL does not have a permanent establishment ('PE') in India under Article 5 of DTAA. 3. The Assessing officer has erred in law and on the facts of the case in treating the payment made by Appellant to CSPL in the nature of Royalty on the assumption that payment is made for getting the information concerning industrial, commercial, or scientific experience by ignoring the fact that payment is not covered under Clause 3 of article 12 of the DTAA." 2.3. However, CIT(A) held that the remittance did not require deduction of withholding tax and allowed assessee's appeal by following observations: "In view of the discussion above, it is clear that the nature of services rendered by the CSPL, CTU and Sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rug which is to be used by Bayer for the purpose of commercial manufacture. Therefore, the consideration amounts to royalty. Reliance is placed on Hon'ble Supreme Court judgment in the case of CIT Vs. Kamal Behari Lal Singha 82 ITR 460 (SC) for the proposition that the nature of the receipt is determined entirely by its character in the hands of the receiver and the source from which the payment is made has no bearing on the question. Besides, the royalty payment as per Article 12 of the Indo Srilanka DTAA covers information for the right to use industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. In view thereof, the order of assessing officer is correct and deserves to be upheld. 4. On the other hand, ld. Counsel for the assessee contends: Assessee is making the payment to CSPL who is into the business of getting the clinical research done for the hospitals and medical institutions and has a tie up with Clinical Trial Unit (CTU), the University of Kelaniya, Sri Lanka to manage the relationship between the CTU and its clients and to provide the marketing services and to provide advice on finance manageme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, sample analyses and analytical testing of food and feed samples. During the year under consideration, the assessee provided services to Indian company 'E' for testing of dog feeds and similar products. The basic intent of test was to check the mycotoxin level and whether the same was within permissible limit or not. For testing purposes, 'E' sent samples to the laboratory of the assessee located in Singapore. After testing, the test reports were sent to India and the assessee received service fee for the same. The assessee claimed that those receipts were business income and, thus not taxable in India. The Assessing officer held that the assessee had made available technical knowledge, skill or know-how to Indian customer and as such the payments made to it were to the nature of fees for technical services as defined under Article 1(4) of the DTAA between India and Singapore. 4.3.1. ITAT on this issue held that the remittance was not for the purpose of technical know how but for making available clause of supplying information, by following observations: "The assessee provided testing services and issued test reports. These reports cannot be said to make available a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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