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TMI Blog2022 (9) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... corporated in Canada which provides clinical and bioanalytical services to assist pharmaceutical companies around world in development of new drugs or generic copies of drugs already being marketed. The clients pay fees to applicant in lieu of above services The AAR held that fees received by applicant for services provided to Indian companies cannot be considered to be 'fees for included services' within meaning of article 12(4) of the India Canada Treaty. AAR further held that fee paid by Indian companies to applicant in respect of bioequivalence tests conducted by it is in nature of 'business profits' under article 7 of DTAA between India and Canada and same is not taxable in India, as applicant does not have a permanent establishment in India. Determining the applicability of make available clause - From the terms of the Agreement, and copies of invoices produced before us, it does not seem that there is any intention on behalf of Lambda Canada to make available technical knowhow/ technical knowledge to the assessee so that the assessee can deploy similar technology or techniques in future without depending on the provider. In fact, it has been argued a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remittance is a business income in the hands of the recipient and in the absence of any business connection / Permanent Establishment in India, no business income can be taxed in India, and accordingly, the Appellant was not required to deduct tax at source u/s. 195 of the Act on such remittance. 6. The learned CIT(A) has accordingly erred both in law and on the facts of the case in confirming the action of AO in treating the Appellant as assessee-in-default u/s 201(1) of the Act for nondeduction of tax at source u/s 195 of the Act. 7. The learned CIT(A) has further erred in law and on the facts of the case in confirming the action of AO in grossing up the deductible amount u/s 195 A of the Act. 8. Both the lower authorities failed to appreciate that the said remittance is not at all chargeable to tax 'in India and therefore there was no obligation to deduct tax at source. Accordingly, there was no question of invoking provisions of 8.201(1) and S. 201(1A) of the Act. 9. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s employees to carry out the services assigned to them. Therefore the assessee's stand that no technical knowledge, experience, skill, know-how or processes has been made available is not supported by facts. 18. During the course of hearings sample of reports (in CD form) of Bio analysis made available by Lambda Canada to Lambda India were furnished by the assessee. It was explained that the tests/studies conducted by Lambda Canada formed just one part of the entire Study. On receipt of the report of bio analysis from Lambda Canada, depending on the results, further studies were conducted and only after all phases of bio analytical studies were completed could the assessee give its comprehensive report to the sponsor' who requisitioned the study. The following illustration will make matters more clear. 18.1 A sponsor ABCcommissions the assessee to conduct a bio analysis of its product named XYZ . Suppose this involves the study to be conducted in 5 phases. In turn, the assessee has outsourced the work of conducting phase 2 of this study to .Lambda Canada, who is fully equipped with the technical expertise and infrastructure to conduct such study. Lambda Canada p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is pointed out in para-17 of the assessment order. It is, thus, clear that the Lambda Therapeutic Research Inc., Canada, is providing bio availability and clinical trials and is required to have highly advanced technical skills for such trails. It is evident from the agreement that Lambda Therapeutic Research Inc.. Canada acknowledges that it has the necessary skills, experience, expertise and necessary infrastructure etc. to provide services contemplated in the agreement. In my view, such expertise, experience or technical knowledge is identical to experience etc. referred to in section 9(1)(vii) and also Article 12 of the India - Canada DTAA. The appellant has also pointed out that such services were obtained due to timeline constraints i.e. the appellant was not able to perform the specified test due to excessive work. It was also submitted that Lambda Therapeutic Research Inc., Canada is a subsidiary of the appellant company and all the expertise knowledge etc. were also not available with the appellant company. In my view, these two arguments are immaterial as the fundamental question which needs to be answered is that, whether the nature of services rendered by Lambda Therape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions cited above. Further, the make available clause is not satisfied in this case as Lambda Canada has merely shared clinical test reports which contain results of tests and trials carried out by Lambda Canada. These reports are used by the assessee to finalise the study and hand over the final study report to its customers situated in India. Therefore there is no transfer of technology since the underlying technology used by Lambda Canada prepare such reports has not been shared with assessee so as to enable it to render similar services to other customers without being dependent upon Lambda Canada. In response, the Ld. DR relied upon the observations made by the AO and Ld. CIT(Appeals) in their respective orders. 6. We have heard the rival contentions and perused the material on record. In our view, the case of the assessee is directly covered by the case of Anapharm Inc., In re [2008] 174 Taxman 124 (AAR) where the applicant is a company incorporated in Canada. It provides clinical and bioanalytical services to assist pharmaceutical companies around world in development of new drugs or generic copies of drugs already being marketed. It entered into agreements with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he actual modalities of the transaction as set out in the application. Then agreement with Ranbaxy says that Ranbaxy shall be the owner of the tested samples and test compounds. Further, the applicant will store tested samples and test compounds for three months and make these available to Ranbaxy at the expiry of that period. Handing over tested samples and test compounds cannot be equated with making technology, know-how, etc., available to Ranbaxy. The agreement also states that Ranbaxy shall be the owner of all intellectual property rights resulting from the services. This would mean that, if on the basis of these results, Ranbaxy is able to acquire patent or other intellectual property rights in respect new generic drugs developed by it, then the applicant shall not claim any interest whatsoever in such right. It is altogether a different aspect. By agreeing to this provision, the applicant has not made its technical expertise, know-how, etc., avail- able to Ranbaxy. It is only natural that Ranbaxy which has developed the generic drug should enjoy the intellectual property rights in relation thereto. The analytical test has not contributed to the development of new gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s produced before us, it does not seem that there is any intention on behalf of Lambda Canada to make available technical knowhow/ technical knowledge to the assessee so that the assessee can deploy similar technology or techniques in future without depending on the provider. In fact, it has been argued as is also evident from the terms of agreement that Lambda India also had similar technology available with it to conduct similar analysis/testing and preparation of feasibility report and the only purpose for entering the agreement was for the reason that the time being the assessee was loaded with excess work and accordingly part of the work was assigned to Lambda Canada. Therefore, evidently there was no intention between the parties that any technology be made available to the assessee. Accordingly, we are of the considered view that in the instant facts no technology was made available to the assessee in respect of the above payments and hence there was no requirement to deduct tax at source under Article 12 of the India Canada DTAA. 9. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 07-09-2022 - - TaxTMI - TMITax - I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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