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TMI Blog2014 (9) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... oposed addition of Rs. 3,83,62,648, being the amount received by the appellant for services rendered under the Master Service Agreement, 2005 to GE Money Financial Services Ltd. as being in the nature of royalty income and hence, taxable in India. On the facts and in the circumstances of the case and in law the learned Assessing Officer erred in initiating and the DRP has erred in upholding the initiation of penalty proceedings under section 274 r/w section 271(1)(c) of the Act." 2. Facts in brief:- The assessee is a non-resident company incorporated in Thailand and is a tax resident of Thailand. Accordingly, it has claimed treaty benefit under the India-Thailand DTAA. The assessee company is engaged in the business of providing services to meet the needs of various G.E. Group companies. It has entered into Master Agreement, 2005 with the G.E. Countrywide Consumer Financial Services Ltd. (GEMFSL), wherein the assessee is required to provide following Services:- Accounting and Finance Support Services Human Resources Services Legal and Compliance Services Risk Management Services Quality Consultation and Training Sales and Marketing Information Technology and System Support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice Agreement 2005, clearly indicates that the payments made to the assessee are for consultancy services provided by the Chief Executive Officer, CIO, Legal Service Team, Group Risk Team, Finance Team, etc. In other words one can say that the payments made to the assessee company is for the information / advice given by the aforesaid people/team. These people / team are specialists in their subject matter and have years of experience in the industrial, commercial or scientific fields. Therefore, it is held that the payments made to the assessee company are for providing industrial, commercial or scientific experience and, hence, the receipts are taxed as Royalty in the assessee's hands." 4. Thereafter, the DRP confirmed the aforesaid conclusion of the Assessing Officer and directed the Assessing Officer to tax such payment as royalty after giving following directions:- "The assessee has also claimed the benefit of Indo-Thailand DTAA and has submitted a copy of TRC placed in the paper book-I, is seen that the arguments of the A.O. shall be applicable even in the case of the definition as given in article 12(3) of Indo-Thailand DTAA. The ground of objection, therefore, deserve to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is any imparting of knowhow. If knowhow has not been transferred then the services rendered on account of industrial, commercial and scientific cannot be held as royalty. In support of his contention, he strongly relied upon the following case laws:- 1. M/s. McKinsey & Co. (Thailand) v/s DDIT, ITA no.7624/Mum./2010, order dated 10th July 2013 2. DDIT v/s Preroy AG, [2010] 39 SOT 187 (Mum.) 3. Diamond Services International Pvt. Ltd. v/s UOI & Ors., [2008] 304 ITR 201 (Bom.) 4. JDIT v/s Harvard Medical International, USA, [2012] 13 ITR (Trib.) 623 (Mum.) 5. Spice Telecom v/s ITO, [2008] 113 TTJ 502 (Bang.) 6. KPMG India Pvt. Ltd., v/s DCIT, [2012] 17 ITR (Trib.) 569 (Mum.) 7. Bharati AXA General Insurance Co. Ltd. In re, [2010] 326 ITR 477 (AAR) 8. Anapharn Inc., In re, [2008] 305 ITR 394 (AAR) 9. Kotak Mahindra Primus Ltd. v/s DDIT, [2006] 105 TTJ 578 (Mum.) 10. DDIT(IT) v/s Euro RSCG Worldwide Inc. [2013] 153 TTJ 378 (Mum.). 7. The learned Departmental Representative, on the other hand, submitted that, whether the services rendered by the assessee are in the nature of "royalty" depends upon the terms and conditions of the agreement and the nature of transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case is that the services rendered by the assessee are in the nature "of information concerning industrial, commercial or scientific experience". The OECD commentary on model convention on Article-12, has explained the term "industrial, commercial or scientific" experience in the following manner:- 11. In classifying as royalties payments received as consideration for information concerning industrial, commercial or scientific experience, paragraph 2 alludes to the concept of "know-how". Various specialist bodies and authors have formulated definitions of know-how which do not differ intrinsically. One such definition, given by the ''Association des Bureaux pour la Protection de la Propriete Industrielle" (ANBPPI), states that "know-how is all the undivulged technical information, whether capable of being patented or not, that is necessary for the industrial reproduction of a product or process, directly and under the same conditions; inasmuch as it is derived from experience, knowhow represents what a manufacturer cannot know from mere examination of the product and mere knowledge of the progress of technique". 11.1 In the know-how contract, one of the parties agrees to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s service payments for services rendered by a seller to the purchaser under a guarantee, payments for pure technical assistance, payments for an opinion given by an engineer, an advocate or an accountant, and payments for advice provided electronically, for electronic communications with technicians or for accessing, through computer networks, a trouble-shooting database such as a database that provides users of software with non-confidential information in response t frequently asked questions or common problems that arise frequently. "emphasis supplied". 10. From the above, it can be gathered that the royalty payment received as consideration for information concerning industrial, commercial, scientific experience alludes to the concept of knowhow. There is an element of imparting of knowhow to the other, so that the other person can use or has right to use such knowhow. In case of industrial, commercial and scientific experience, if services are being rendered simply as an advisory or consultancy, then it cannot be termed as "royalty", because the advisor or consultant is not imparting his skill or experience to other, but rendering his services from his own knowhow and expe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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