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TMI Blog2018 (7) TMI 2304X X X X Extracts X X X X X X X X Extracts X X X X ..... s and structural tests by the assessee is on account of fees for technical services [FTS] and, therefore, covered under Article 13 of India-UK-DTAA; 4) The DRP/Assessing Officer has erred in holding reimbursement towards salary cost and expenses by service PE JCB India to assessee on account of employees seconded by the assessee to JCB India in pursuance to IPAA Agreement is taxable as fees for technical services; 5) The DRP/Assessing Officer has erred in applying arbitrary computation mechanism u/r 10 of the Income tax Rules, 1962 for determining chargeability of income alleged to be covered under the provisions of Article 7 of the DTAA between India and UK; & 6) The DRP/Assessing Officer has erred in levying interest u/s 234B of the Act. 3. The representatives of both the sides were heard at length. The case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. Judicial decisions relied upon were carefully perused. 4. It is imperative to understand the facts of the case in hand. M/s JCB Bamford Excavators Ltd ['JCBE' the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. AR. As mentioned elsewhere, in earlier years, the appellant had licence to know-how and related technical documents consisting of all drawings and designs with an exclusive right to manufacture and market the technology/excavator loader in the territory of India under the brand name 3DX to JCB India. During the year under consideration, we find that pursuant to the agreement dated 17.12.2007, which is a Tripartite Agreement between JCBE, JCB India and JCB Investments, the royalty paid by JCB India to the assessee was routed through JCB Investments. In our considered opinion, the only difference that came into the hitherto arrangement was that, whereas earlier JCB India was paying royalty directly to JCBE, now it is being routed through the assessee with the deduction of 0.05%. Except for this, all the terms and conditions of the agreement between the assessee and JCB India are same relating to TTA and IPAA which means that employees of JCBE earlier seconded to JCB India continue to render services to JCBI India during the year under consideration in the same way as they were doing in the past. Our view is fortified by clause (d) of the new agreement and clause 4.2 of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionists had anything to do in the grant of IP Rights to JCB India. The service PE, as the very name suggests and the actual position indicates, is concerned only with the activities of rendering services after the grant of IP Rights. The ld. DR was also fair enough to candidly accept this position. Thus, it follows that albeit the amount of royalty received by the assessee arises out of IP Rights which are in the nature of right or property but the same cannot be considered under para 6 of Article 13 because it is not effectively connected with the service PE of the assessee in India." 14. Since there is no difference in the facts and circumstances of the royalty payment, we do not find any reason to differ from what has been held by the Coordinate Bench [supra]. Respectfully following the same, we hold that royalty received by the assessee cannot be considered under Para 6 of Article 13 because it is not effectively connected with Service PE of the assessee in India. 15. Third issue relates to receipts on account of central costs recharges and structural tests. 16. During the year under consideration, the assessee had three streams of receipts. Under the first stream the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as rights and obligations between JCBE and JCB India. 21. Since the impugned receipts are ancillary and subsidiary to the application or enjoyment of the right, property or information for which the royalty payments were received by the assessee, in our considered opinion such receipts would fall under sub-clause (a) and Article 13(4) and would be taxable as FTS. On peculiar facts of the case, we further find that sub-clause (c) of Article 13(4) which entails 'make available' clause would, therefore, not be applicable. 22. At this stage, let us first consider the relevant part of Article 5 of the India-UK DTAA clause (k) and the same reads as under: "the furnishing of services including managerial services other than those taxable under Article 13 [Royalties and fees for technical services] within a Contracting State by an enterprise through employees or other personnel, but only if". 23. The assessee has already accepted that the receipts are FTS under domestic laws, therefore, the only issue which remains for determination is as to whether these receipts are FTS under Article 13(4) of the treaty or not. Under Article 13 the term 'Royalty' means: "(a) payments of any kind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JCB UK's intellectual property to manufacture, assemble and sell licensed products (as defined in the Technology Agreement) in India and a non-exclusive licence under JCB UK's intellectual property to sell the Licensed Products outside India as determined by mutual written agreement between the parties. (D) JCB UK now wishes for JCB investments to manage the licensing of JCB UK's intellectual property to JCB India going forward. .... "PAYMENT TERMS 6.1 JCB Investments shall provide JCB UK on a biannual basis within 30 days of the 30th June and 31st December in each year with Royalty accounts showing the following for each preceding half year: 6.1.1 The royalty payable by JCB India under the License (or by and other permitted sub-licensee where applicable); and 6.1.2. The amount of any withholding tax to be paid under Clause 6.3. 6.2 The Royalty shall be payable within thirty (30) days of receipt by JCB Investments of relevant royalty payments from JCB India under the License (or from any other permitted sub-licensee where applicable). 7. 3 JCB Investment shall not: 7.3.1 Make any representation or do and act, save as expressly granted in this Agreement, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3 is dismissed. 29. Next issue relates to reimbursement towards salary costs and other expenses of seconded employees. 30. The second stream of receipts have been claimed as reimbursement of salary cost of employees which were seconded to JCB India amounting to Rs. 3,56,95,116/- and third stream of receipts is the claim as reimbursement of telephone, travelling expenses of seconded employees amounting to Rs. 1,88,93,184/-. 31. A perusal of the assessment order reveals that neither the assessee has explained the reason and purpose for such reimbursement nor any documentary evidence in support of the same was furnished so as to corroborate its claim that such receipts were merely reimbursements. We find that the assessee has also not explained the benefit extended by it to the payer of such reimbursement. Therefore, in the interest of justice and fair play, we restore this issue to the file of the Assessing Officer. The assessee is directed to demonstrate that the impugned receipts are nothing but reimbursement with supporting documentary evidences and the Assessing Officer is directed to verify the same and decide the issue afresh after giving reasonable opportunity of being he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same income. This issue is also allowed for statistical purposes. 36. Last issue relates to the charging of interest u/s 234B of the Act. We find that an identical issue was considered by the Tribunal in assessee's own case in ITA No. 540/DEL/2011 and CO No. 73/DEL/2011 and the coordinate bench has decided this issue in favour of the assessee and against the Revenue. The relevant findings read as under: "After considering the rival submissions and perusing the relevant - material on record we find it as undisputed fact that the assessee included the entire amount of royalty and fees for technical services in *real income by treating it as covered under Article 13(2) of the : DTAA. The case of the Revenue is that it is para 6 of Article 13 which will operate in the present case for taxing such amount under Article 7. -The Reliance of the ld. DR on the judgment dated 7.11.2013 rendered by Hon'ble Delhi High Court in the case of DIT Vs Alcatel Lucent USA is misplaced. In that case the Hon'ble High Court held that a non- resident assessee which does not admit income chargeable to tax in his must be inferred to have induced the Indian payer not to deduct at source and hence h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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