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TMI Blog2018 (10) TMI 1607X X X X Extracts X X X X X X X X Extracts X X X X ..... ome' admitted. Subsequently, the assessment was reopened under Section 147 of the Act and a notice, dated 22.03.2005 was sent. The assessee submitted their reply dated 13.04.2005, stating that the return of income filed on 31.10.2002 may be treated as return filed in response to notice under Section 148 of the Act. Subsequently, notice was issued under Section 143(2) on 22.09.2005, and the case was heard and the Assessing Officer by order dated 27.03.2006, under Section 143(3) read with Section 147 of the Act, rejected the contention raised by the assessee and treated a sum of Rs. 2,14,72,290/- as royalty and brought the same to tax under the Double Taxation Avoidance Agreement (DTAA) between India and Austria; levied excess tax by grossing up the amount and initiating penalty proceedings under Section 271(1)(c) of the Act. Aggrieved by such order, the assessee preferred appeal before the Commissioner of Income Tax (Appeals)-XI [CIT (A)]. The CIT (A) by order dated 13.10.2006, accepted the case of the assessee and allowed the appeal. The Revenue carried the matter by way of appeal to the Tribunal and the Tribunal by the impugned order dated 18.01.2008, has dismissed the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Austria as per notification dated 05.04.1965, as corrected by notification, dated 27.08.1965. It is further submitted that Article 6 of the DTAA between India and Austria mentions that royalties derived by a resident of one of the territories from sources in other territory may be taxed only in that other territory and the royality received by the Austrian company is therefore, taxed in accordance with Section 9(1)(vi) of the Act. Thus, it is contended that the agreement between the assessee and the Austrian company is only for exploitation of know how and therefore, the Assessing Officer was right in treating the payment as royalty. In support of his contention, the learned counsel placed reliance on the decision of the Madras Bench of the Tribunal in the case of TVS Suzuki Ltd., vs. Income Tax Officer (2000) 73 ITD 91 (Mad); decision of the High Court of Karnataka in Commissioner of Income Tax vs. CGI Information Systems & Management Consultants (P) Ltd., [2014] 48 taxmann.com 264 (Karnataka); and the decision of the High Court of Delhi in the case of Commissioner of Income Tax, Delhi-I, vs. Voest Alpine A.G., [2015] 55 taxmann.com 489 (Delhi). The learned counsel also referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar agreement with the Austrian company in respect of carburetter, the payment made by the assessee was treated as 'fee for technical services' and the same will equally apply to the present agreement, which is for improvement of an engine. Further, it is submitted that after the improvements are done to the engine, the same is given back to the assessee and it is the exclusive property of the assessee. The learned counsel referred to the findings given by the CIT(A) as well as the Tribunal and contended that the entire issue revolves on questions of fact and there is no substantial question of law involved in this appeal. 5. With regard to the general terms and conditions of the agreement, it is submitted that they are general in nature, intended to safeguard the Austrian company from fraud and such generic clauses cannot change the technical assistance agreement, where the payment is as fee for technical services into that of royalty. Thus, the standard clauses in the general conditions is only to protect the Austrian company and it cannot change the nature of the agreement between the parties. Further, by referring to Section 9(1)(vii) Explanation 2, it is submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 18.01.2008, which is impugned before us in this appeal. 8. The Assessing Officer, on going through the technical assistance agreement, dated 13.11.2000, held that the Austrian company is providing the design of newly developed engine for being used by the assessee and this is taxable as 'royalty'. Referring to Article 6(2) of DTAA between India and Austria, which defines royalty, it was held that the royalty means payment made for the right to use and in terms of clause (7) of the general conditions, the ideas and inventions carried out by the Austrian company where their exclusive property and though the assessee is providing technical inputs and material to the project, the new design developed by the Austrian company is the exclusive property of the Austrian company and therefore, the assessee has no right to disclose or sell the project design to any third party and they have only limited right to use the project design. 9. The CIT (A) also examined the Technical Assistance Agreement and took note of the decision in the assessee's own case in respect of technical services rendered to the assessee by the Austrian company for Carburetters and held that the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out in Austria. The assessee was to supply the material with all design documentation, engines and components as required for the project. The total price for the project work deliverables and services was agreed at EURO 349.522. The General Terms and Conditions, which were appended as annexure 4 to the technical service agreement, applies to all deliverables of work, services and goods supplied by the Austrian company. 13. On a perusal of the same, it is seen that these conditions are standard conditions as drafted by the Austrian company to suit its requirement and essentially to protect its rights and property. To get a clear picture about the effect of the general terms and conditions, one has to peruse all the conditions contained therein and not restricted it to one of the conditions alone. 14. The revenue's plea is that clause 7 of the general terms and conditions would clearly show that the know-how and patents and the ideas introduced into the project shall remain the exclusive property of the Austrian company and therefore, what has been given to the assessee is only a right to use and therefore, the payment is royalty. 15. We are unable to accede to the said con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee's own case reported in (2000) 73 ITD 91 (Mad), would be applicable with full force to the case on hand. 17. In the case of CGI Information Systems (supra), the question which was considered by the High Court of Karnataka was whether the payments made by the assessee therein for using intranet facilities provided by the non-resident assessee is liable to tax in India. The learned counsel appearing for the Revenue referred to paragraph 7 of the said judgment, wherein relevant clauses of the agreement entered into between the parties in the said case, were referred to. It is contended that the conditions therein are also more or less identical to that of the clause 7 of the General Terms and Conditions in the agreement between the assessee and the Austrian company and relying on the observations made in the said judgment, it is submitted that the payment made by the assessee has to be treated as 'royalty''. In the said case, the assessee's contention was, it was only a cost sharing agreement and not royalty, which plea was rejected. However, on going through the facts of the said case, we find that the Canadian company permitted the assessee therein to u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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