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TMI Blog2017 (6) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits but that the foreign entity not having a PE in India does not come in the way of taxation of royalties- which precisely is the case of the revenue. In this view of the matter, the payment for sharing of the SOPs, as is the case before us, indeed taxable as ‘royalties’ under the Indo German tax treaty. We see no reasons to interfere in the conclusions arrived at by the authorities below. Once we come to the conclusion that the consideration received by the OSE, for sharing of SOPs, was taxable in its hands in terms of the provisions of the Indo German tax treaty, and there is nothing before us to even challenge its taxability under the provisions of the domestic law either, it is only a natural corollary of this finding that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, taxable in India as royalties under section 9(1)(vi) of the Act. The Assessing Officer, accordingly, required the assessee to show cause as to why the assessee not be treated assessee in default for not having deducted tax at source from the payments made to OSE. It was explained by the assessee that OSE did not have any permanent establishment in India, and that since the payments made to OSE were only for the purpose of sharing SOPs, access to database, email server, hardware and software, these payments, in the absence of the PE of OSE in India, were not taxable in India. These receipts by the OSE were required to be treated as business profits in the hands of the OSE, and, as such, taxability could arise only if the OSE had a PE in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement specifically states that OSE and OSI both agree to have the same SOPs and agree to harmonise all required software systems, policy and processes and that the incidental cost of implementation of and updating of software will be borne by OSI . This is also clear from the invoices raised by the OSE which categorically state that the invoice is for transfer of knowhow, i.e. SOPs. However, for the reasons that we will set out in a while now, even this contention of the assessee does not really help the assessee much. 6. The question then is whether the payment for use of SOPs developed by the German entity, and incidental activities, is taxable in the hands of the assessee. While dealing this aspect of the matter, and to underst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an tax treaty, which defines the expression royalties , provides that The term royalties as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience . The sharing of standard operating procedures, even going by the claim of the assessee, does amount to sharing information concerning industrial, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f royalties- which precisely is the case of the revenue. In this view of the matter, the payment for sharing of the SOPs, as is the case before us, indeed taxable as royalties under the Indo German tax treaty. 10. In view of the above discussions, as also bearing in mind entirety of the case, we see no reasons to interfere in the conclusions arrived at by the authorities below. Once we come to the conclusion that the consideration received by the OSE, for sharing of SOPs, was taxable in its hands in terms of the provisions of the Indo German tax treaty, and there is nothing before us to even challenge its taxability under the provisions of the domestic law either, it is only a natural corollary of this finding that the assessee ought t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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