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TMI Blog2021 (10) TMI 1401X X X X Extracts X X X X X X X X Extracts X X X X ..... rson who has exclusive right over a thing for allowing another to make use of that thing. Similarly, the case is also covered by the decision of the Delhi Bench of the Tribunal in the case of Bharti Airtel Ltd. [ 2016 (3) TMI 680 - ITAT DELHI ] wherein it has been held that in order to receive a royalty in respect of allowing the usage or right to use any property including an intellectual property, the owner thereof must have an exclusive right over such property. Technology for manufacture of glass fibre including the use of bushing has been provided by OCNLIC a Dutch Company and royalty has been paid to that Dutch Company and, therefore, the amount of lease rental on alloy which are used to refurbish the bushing cannot be again treated and taxed as royalty in the hands of the assessee by invoking the India US DTAA and provisions of section 9(1)(vii) read with Explanation 5 of the Income-tax Act. Addition deleted - Decided in favour of assessee. - ITA No. 2050/MUM/2016 - - - Dated:- 4-10-2021 - SHRI MAHAVIR SINGH, VICE-PRESIDENT AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For the Appellant : Shri J D Mistry For the Respondent : Shri Sreenivasa Raghavan S Iyengar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest u/s. 234B so levied on it and to re-compute its tax liability accordingly. 4.0 Re: General 4.1 The appellant craves leaves to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 3. The issue involved in Ground no.1 is against the final assessment order dated 28.01.2016 passed u/s 143(3) r.w.s. 144C(13) of the Act in pursuance of direction of of the DRP wherein the lease rentals amounting to Rs 2,72,37,701/- was treated as royalty and taxed accordingly. The facts in brief are that the assessee being a non-resident company incorporated in accordance with the corporate laws of United States of America and a tax resident of that County. The assessee has filed return of income on 28.11.2012 declaring total income at Nil and claimed refund of Rs 47,47,635/-, which was processed u/s. 143(1) of the Income Tax Act, 1961. Thereafter, the case of the assessee was selected for scrutiny and notices u/s. 143(2)/142(1) were issued and served on the assessee. During the year under consideration, the assessee has leased out an alloy comprising of rhodium and platinum to Owens- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the bushings and the same is taxable under Article 12(3) of the DTAA between India and USA and section 9(1)(vii) read with Explanation 5 of the Income-tax Act. The assessee has challenged the final assessment order passed in pursuance of the order of the DRP. The DRP whiel rejecting the appeal of the assesee on this issue has observed and held as under: 7.1 The Appendix 1, Grounds of objection NO. 1,2 3 relates to treatment of an amount of Rs.2,72,37,701/- as 'royalty' income. The facts are that the assessee is a company based in USA and belongs to Owens Corning Croup, which is a leading manufacturer of glass. M/s Owens Coming India Pvt. Ltd. (OCIPL) is an India company and isengaged in manufacture of glass fibers in India. 7.2 The 'Bushings' which are used in the process of manufacture of glass fibers are made of precious metal via Platinum and Rhodium. The average life of the busing is 250 days approximately. 7.3 As per the lease agreement between Owena Corning Inc. and Owens Corning India Pvt. Ltd., Design No. R20-2372-TT47B and 2 bushings - Design No. R20-24G9-TT7 has been leased to Owens Corning India Pvt Ltd. By Owens Corning Inc. USA. Those 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted at page no.4 of the paper-book submitted vide submission dated 1.12.2018. The ld AR submitted that the assesse provides only metal alloys by referring to copy of invoice filed in the paper book.The ld AR argued that metal alloys provided by the assesse to OCIPL and OCIIPL are used in the re-fabrication and refurbishing of bushings which are used by these companies in the process of manufacture of glass fibres. The bushing are re-fabricated by the s separate Singapore entity called OCSPL. The ld AR submitted that the royalty in connection with the design of bushings is already paid by these companies as part of technology license Agreement with OCNLIC which is filed at page no. 27-50of the paper book filed on 4.11.2020. The ld AR submitted that the as is evident from the agreement that OCNLIC has the right to grant sublicense to the Intellectual Property in the territory and OCIPL pays royalty towards all the know how including design , drawings for bushings. The ld AR submitted that such royalty is subject to tax withholding by OCIPL in India. The ld AR while referring to agreement between OCIPL and OCNLIC pointed out that purchase of alloy is a separate requirement and has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady in use by the Indian entity and even royalty in respect of the complete remittance was offered as royalty. The following chart has been prepared on the basis of the Recital on Page 27 of the paper book submitted by the appellant From the above chart it is clear that the Indian company had a composite agreement since 8/4/1997 which was time and again extended and as per agreement dated 8/5/2002 (two agreements mentioned) the same was signed again on 22/7/2008 with an additional agreement on 17/12/2008 in respect of AGM technology. In the intervening period, on 20/10/2006 due to Corporate Restructuring the ongoing composite agreement for use of licensor Intellectual property, patents and trademarks seems to have been amended due to assignment of the rights by Owen Comings to OC NL Invest Cooperativ UA to sublicence its intellectual property. The agreement referred and effective from 1/4/2007 clearly refers to the same superseding the earlier agreements. This agreement itself was valid for five years i.e upto 2012. However, the Group for whatever reasons, rearranged its working whereby the technology was transferred to a Netherland Group company and other activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich a payment described in paragraph 3(a) or (b) is received, the service must be related to the application or enjoyment of the right, property, or information. In addition, the clearly predominant purpose of the arrangement under which the payment of the service fee and such other payment are made must be the application or enjoyment of the right, property, or information described in paragraph 3. The question of whether the service is related to the application or enjoyment of the right, property, or information described in paragraph 3 and whether the clearly predominant purpose of the arrangement is such application or enjoyment must be determined by reference to the facts and circumstances of each case. Factors which may be relevant to such determination (although not necessarily controlling) include: 5. whether the person performing the services is the same person as, or a related person to, the person receiving the royalties described in paragraph 3 (for this purpose, persons are considered related if their relationship is described in Article 9 (Associated Enterprises) or if the person providing the service is doing so in connection with an overall arrangement whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the items used in manufacturing process and that is inclusive in the technology agreement. The leased alloy is nothing without it being used in the form of BUSHING and this forms part of technology agreement on which royalty is separately paid As this is assessee's appeal, there was no need to challenge the DRP finding of the transaction being Royalty. As the assessee is challenging the same, without prejudice, the alternate submission of it being FIS is being made now. In a nutshell it is submitted that keeping in mind the scheme of things the remittances fall under the clause of Fees for Included Services as submitted and explained hereinabove. Hence it is immaterial whether the royalty is paid to the assessee or not (when the same is paid to an associated enterprise) as is clear from the example in DTAA Agreement and the issue is of the taxability of the receipts and not the limbs under which it is taxed. 6. We have heard the rival submissions and perused the material on record. The undistinguished facts are that the assessee is a US resident company and taxed resident of USA and its income in India and its taxability is governed by the provisions of Income t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h regard to the bushings is with OCNLIC and assessee is merely providing alloys of Platinum and Rhodium, consideration for alloys cannot be treated as royalty. The case is covered by the decision of Hon ble Madras High Court in the case of CIT vs. Neyveli Lignite Corpn. Ltd. [243 ITR 459], wherein it has been held that payment to be constituted as royalty should be the payment made to a person who has exclusive right over a thing for allowing another to make use of that thing. Similarly, the case is also covered by the decision of the Delhi Bench of the Tribunal in the case of Bharti Airtel Ltd. Vs. ITO (47 ITR 418), wherein it has been held that in order to receive a royalty in respect of allowing the usage or right to use any property including an intellectual property, the owner thereof must have an exclusive right over such property. We note that the technology for manufacture of glass fibre including the use of bushing has been provided by OCNLIC a Dutch Company and royalty has been paid to that Dutch Company and, therefore, the amount of lease rental on alloy which are used to refurbish the bushing cannot be again treated and taxed as royalty in the hands of the assessee by i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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