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TMI Blog2016 (4) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... FAUR RAHMAN, ACCOUNTANT MEMBER For The Assessee : Mr. Deepak Chopra and Ms. Manasvini Bajpai For The Assessee : Mr. Moharana ORDER PER SMT. P. MADHAVI DEVI, J.M. Both are assessee s appeals for the A.Y. 2009- 10 against the order of the Ld. CIT(A)-V, Hyderabad confirming the order of the A.O. under section 201(1) and 201(1A) of the I.T. Act, 1961. The assessee has raised the following grounds of appeal in ITA No. 317/h/2012: Based on the facts and circumstances of the case, GVK Oil Gas Limited (hereinafter referred to as the 'Appellant') respectfully craves leave to prefer an appeal against the order passed by the Learned Commissioner of Income-tax (Appeals)-V ('Ld. CIT(A)') dated 2 December, 2011 under section 250 of the Income-tax Act, 1961 ( Act') on the following grounds : 1. The Ld. CIT(A) erred in fact and in law in holding that the payment to M/s. GGS Spectrum Limited, UK, ('GGS'), for purchase of dataset is in the nature of royalty, hence taxable under the Act and India UK Double tax avoidance agreement. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of tax at source as required under section 195 of the I.T. Act and it was mentioned therein that the payment was made towards purchase of dataset and therefore, deduction of tax at source was not necessary. Similarly, the assessee had also made a payment of US $ 1,05,845.6 (equal to INR 45,42,893.15) to M/s GGS Spectrum Limited, UK (GGS) without deducting tax at source as required under Section u/s195 of the IT Act and it was mentioned that the payment was made towards purchase of dataset. The A.O. therefore, examined the nature of the transactions to determine the nature of the payment and whether the TDS provisions were applicable or not. 2.1. The A.O. observed that the assessee has bid for the oil and gas exploration block offered under the NELP-VII by the Ministry of Petroleum and Natural Gas, Government of India and during the course of bidding for various blocks, the company was required to understand the geological and seismic quality of the block in order to optimise the risk of exploration and in order to evaluate various blocks, the company required available geological and seismic data. The A.O. observed that for the above purpose, the assessee has entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and provides comprehensive knowledge on the hydrocarbon geology of east and west coast of India, which the Oil and Gas Companies can use to identify the potential hydrocarbon reserves in the region. Thus, he observed that the data on the IndiaSPAN is acquired by GXT using its expertise, technologies and manpower and that the data so acquired is processed by GXT using advanced software and seismic data imaging tools to obtain processed seismic profiles which are interpreted by GXT by its expert geologists and geophysicists. According to him, IndiaSPAN is the knowledge on the hydrocarbon geology of east and west coast of India, derived from the domain experience of the GXT in the field of exploration geology/geophysics and hydrocarbon exploration and amounts to information concerning industrial, commercial and scientific experience. He further observed that this data is proprietary to and a trade secret of GX Technology Corporation, USA and is undivulged to the public. He found that the above information/knowledge is available to the user only on securing a valid license from the licensor i.e., GXT and therefore, the payment made by the assessee to GXT by way of license-fee amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the dataset IndiaSPAN provided by GXT was nothing but the data compiled and processed by GXT on the directions of the Government of India and not at the behest of the assessee. He submitted that the GXT takes no responsibility on the outcome of the usage of the data by the assessee and therefore, it is clear that it provides only the data and does not provide any experience, knowledge or skill to the assessee. He has drawn our attention to various clauses of the agreement to demonstrate that the previous experience of the companies both GXT or GGS has not been passed on to the assessee but what was provided is only the data. He further submitted that IndiaSPAN is owned by the Government of India and the GXT is authorized to issue license for the use of the data only and therefore, it cannot be treated as Royalty as held by the A.O. and the Ld. CIT(A). 5. As regards the alternate finding of the A.O. that license fee paid by the assessee was towards the use of the Copyright on Dataset IndiaSPAN and therefore, the payment made by the assessee for use of such a copyright is also in the nature of Royalty , the Ld. Counsel for the assessee, submitted that the dataset is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s they were the cases of the software purchase off the SHELF, whereas in the case of the assessee, the client ordered the dataset and therefore, it was customized. He further submitted that it is not disputed that the assessee has not purchased the dataset from the GXT and GGS, but has only obtained a license with a right to use the data therein and therefore, it is in the nature of Royalty . He has drawn our attention to pages 21 of the agreement with GXT which is placed at page No.16 of the paper book to demonstrate that the ownership of the dataset lies with GXT. He submitted that where the ownership lies with the licensor and the right to use is given to a customer, then the payment cannot but be considered as the consideration for the use of the intangible property and hence, it has to be treated as Royalty . The Ld. D.R. further submitted that where the customized data has been made available upon the request of the assessee, it becomes knowhow as it cannot be used by any other party. He further relied upon the decision of ITAT at Bangalore in the case of ING Vysya Bank in support of his contention that the payment made for use of data is Royalty. Further he has also reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee in order to enable it to process the same and use such data for furtherance of its objects. Similar is the transaction with M/s. GGS Spectrum Limited, UK. The definition of Royalty under the Income Tax Act is provided under Explanation (2) to section 9(1)(vi) of the Act which reads as under : Explanation 2.- For the purposes of this clause, royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head Capital gains ) for- (i) the transfer of all or any rights (including the granting of a license) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; [ (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artistic or scientific work, including cinematograph films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) Payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 8.3. From the above definitions, we find that the definition of Royalty under the Income Tax Act is more exhaustive as compared to the definition under the DTAA between India and USA and India and UK. Under the Income Tax Act, consideration for granting of a license for the use of the property mentioned therein also means Royalty, whereas, there is no such provision under the Double Taxation Avoidance Agreements between India and USA UK. As held by the Coordinate Bench of this Tribunal at Bangalore in the case of Wipro (cited supra), the established principle is that the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsulting services. 8.4.3. In the case of Real Resourcing Ltd., In RE the Authority for Advance Rulings reported in (2010) 322 ITR 58 was dealing with the definition of FTS under the India-UK DTAA and has held as under : Though the CIT, in his comments has attempted to bring the income in question within the scope of clauses (a) and (c) of art. 13.4, they have no application. The contention that the applicant will be rendering consultancy services which are ancillary and subsidiary to the application of a right or information of the nature described in para 3(a) of art. 13 is untenable. Collecting data and analyzing it and making a database for providing information on suitable candidates for recruitment, even if they are in the nature of consultancy services, cannot be considered to be ancillary and subsidiary to the enjoyment/application of the right or information referred to in para 3(a). Moreover, by giving access to the database, it cannot be said that the information concerning industrial, commercial or scientific experience will be transmitted by the applicant to the recruiting agencies. If the contention of Revenue is accepted, it would amount to unwarranted e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for the use or the right to use the industrial, commercial or scientific experience of GIA. The activity of grading or certification is merely the application of this knowledge/ experience in a professional stream as applicable to a particular diamond or set of diamonds which are offered for certification or grading. The definition of royalty under the DTAA under art. 12(3) as defined therein, uses the expression or for information concerning industrial, commercial or scientific experience . There is no parting of information concerning industrial, commercial or scientific experience by GIA when it issues the grading certificate. Under sub-ct. (4) the payments received must be in consideration for services of managerial, technical or consultancy nature. That could include to the application or enjoyment of the right, property or information. This is not the case here. Neither is it making available technical knowledge, experience, skill, etc., to enable the person acquiring the service to apply the technology contained therein. 8.4.5. In the case of Factset Research Systems Inc., reported in (2009) 317 ITR 169, the Authority for Advance Rulings while dealing with the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation/ DATA is not customized to meet the assessee s requirements exclusively. To understand the exact nature of the transaction, the relevant clauses of agreements, are reproduced below : Agreement with GXT :- 1.4. Data means geophysical and geological information made the subject of this License and any applicable Supplement, regardless of the form or medium on which it is displayed or stored and which Licensor either owns or for which it has the right to grant use licenses. Data also includes Derivatives and Licensor Interpretations created by Licensor for non-exclusive license to Licensee or Third Parties. Specific Data subject to this License is more particularly described in each Supplement. 1.5. Derivative(s) means all processed and reprocessed Data regardless of the form or medium on which it is displayed or stored whether produced by Licensee or Third Parties. 1.8. Licensee's Consultant(s) means Third Party(- ies) which are Consultants in the geophysical industry freely selected and entrusted by Licensee to interpret, reprocess, make other technical studies or provide storage of the Data for the sole use and benefit of Licensee but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or shall have the sole right to delete or discard the original Data upon making reasonable efforts to notify Licensee of its intention to do so. 2.3. Notice of Restricted Use : Licensee may make copies of any Data and derivatives for the sole purpose of using such copies pursuant to the rights granted in this License; provided that all such copies shall have the following notice printed thereon or attached to it or its medium: NOTICE This Data is proprietary to and a trade secret of GX Technology Corporation and/or its Related Entities ( Licensor ). The use of this Data and Derivatives is restricted to companies holding a valid use license from Licensor and is subject to the confidentiality terms of that license. This notice shall not be removed, obliterated, concealed or otherwise obscured by Licensee or those to whom the Data or Derivatives is disclosed, displayed or transferred by Licensee, as may be permitted in this License. 4. Disclosure of Data Derivatives : Licensee shall have the non-exclusive right to use the Data and Derivatives for its intended use subject to the terms and conditions of Licensee under this License. Licensee shall not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACCURACY OR USEFULNESS OF SUCH DATA OR OTHERWISE AND ANY SUCH IMPLIED WARRANTIES OR REPRESENTATIONS ARE HEREBY EXPRESSLY NEGATED. SUCH DATA ARE DELIVERED HEREUNDER WITH THE EXPLICIT UNDERSTANDING AND AGREEMENT OF LICENSEE THAT ANY ACTION TAKEN OR EXPENDITURES MADE BY LICENSEE AND ITS RELATED ENTITLES AND MEMBERS OF Lts EXPLORATION GROUPS BASED ON ITS OR THEIR EXAMINATION, EVALUATION. INTERPRETATION OR USE OF THE DATA SHALL BE AT ITS OWN RISK AND RESPONSIBILITY AND NEITHER LICENSEE NOR SUCH RELATED ENTITIES AND ACQUIRERS AND PARTNERS SHALL HAVE ANY CLAIM AGAINST AND HEREBY RELEASES LICENSOR FROM ANY LIABILITY AS A CONSEQUENCE THEREOF. 6.3. Licensor makes no representation that oil and gas or other mineral leases will be granted or other exploration and/or development for production activity will be authorized for geographical areas covered by the Data by any individual, , company or other legal entity, government agency or other third party and any implied warranty or representation to that effect is hereby expressly negated. 9. Effects of Termination : 9.1. Return of Data Upon expiration or termination of this License or any Supplement, regardless of the cause, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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