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TMI Blog2023 (9) TMI 978X X X X Extracts X X X X X X X X Extracts X X X X ..... oing for the assessee is merely testing the ability of the candidates as per the parameters / standards of the assessee so as to ascertain whether the candidates meet the quality / performance criteria of the assessee. Having considered all the above aspects, we are of the view that the consideration paid by the assessee to Symbiotics Ltd. UK for provision of candidate s reports do not fall within the purview of royalty under Article 13 of the India- UK DTAA. Having held above that the impugned payment to Symbiotics Ltd. UK is not royalty and the fact that the Symbiotics Ltd. UK has no PE in India and therefore not assessed to tax in India, the assessee has no obligation to withhold tax on the impugned payment made by it to Symbiotics Ltd. UK u/s 195 of the Act. It is well settled position of law that the tax is required to be withheld in respect of payments made to a non resident only if such payment is chargeable to tax in India. Decided in favour of the assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ymbiotic was towards license/ right to use the intellectual property of Symbiotic and hence payment is in the nature of "royalty". 3.3 That the CIT(A) AO failed to appreciate that the definition of royalty under the India-UK DTAA is much narrower in scope than the definition provided under the Act and the payment made is not covered by the said definition. 3.4. That the CIT(A) erred on facts and in law in holding that the software Adapt, used by Symbiotic to prepare "candidate written report' has access to UK located file servers and such servers fall within the meaning of model, design, secret formula or a process etc. stated in Explanation 2 to section 9(vi) of the Act without appreciating that the report is sold/ transmitted by Symbiotic to the appellant electronically which is in the nature of copyrighted product and the appellant is not provided with access to any software of Symbiotic. 3.5 That the CIT(A)/AO failed to appreciate that Symbiotic is merely testing the ability of the candidates as per the parameters/ standards of the appellant so as to ascertain whether the candidates meet the quality/performance criteria of the appellant company. 3.6 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative of the parties, considered their submissions and perused the material on records. 7. As regards the issue of eligible rate of depreciation allowable to CISCO IP Phones challenged by the assessee in ground No. 2 and 2.1, the Ld. AR submitted that this issue is squarely covered by the decision of the Co-ordinate Bench of the Tribunal vide order dated 20.01.2023 in assessee's own case for AY 2016-17 in ITA No. 7317/Del/2019. The Ld. DR conceded to the submission of the Ld. AR. 8. We have perused the order of the Tribunal (supra) and observed that the Tribunal remitted the issue to the file of the Ld. AO directing him to follow the ratio laid down by the Tribunal in the case of M/s. CISCO Systems Capital (India) Pvt. Ltd. vs Addl. CIT in IT(TP)A No. 1158/Bang./2012 for AY 2008-09 vide order dated 19.09.2014. The relevant extract of the decision of the Tribunal for AY 2016-17 (supra) is reproduced herein below: "8. Ld. Counsel for the assessee contended that the identical issue was considered by the ITAT in the case of M/s. Cisco Systems Capital (India) Pvt. Ltd. vs. Addl.CIT in IT (TP)A.No.1558/Bang/2012 for AY 2008-09 order dated 19.09.2014. ITAT on this subject has expounde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition. 11. Accordingly, in the interest of justice, we remit the file to the AO. AO is directed to follow the ratio laid down by the ITAT in the aforesaid order." 9. Respectfully following the decision of the Tribunal (supra), we remit this issue to the file of the Ld. AO with the direction to decide this issue afresh accordingly. 10. As regards ground No. 3 to 3.7 relating to disallowance under section 40(a)(i) on account of alleged non-deduction of tax at source by the assessee while making remittance to Symbiotics Ltd., UK challenged by the assessee, the Ld. AO held the payments made to Symbiotics Ltd.UK to be in the nature of "royalty" by recordings his findings in para 4.5, 4.6, 4.7, 4.10, 4.11 and 4.12 of the assessment order, which is reproduced herein below: "4.5 A perusal of the contract establishes that the Symbiotic is providing these services from their registered office in the UK and the file servers running the aforementioned software are also based in the UK. The reports are prepared and shipped/exported to India and as such no software is installed or runs on the systems of the assessee company. It is also evident from the contract that a customized online que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a set of licences from us and issue them to your candidates, or we can provide an e-commerce gateway to allow candidates to purchase licences for your assessment directly from us. If required, we can organise psychology service activities directly with candidates which clearly establishes that each test set/process is sold as a license and that license gives the user the right to use the intellectual property of Symbiotics and hence the payment is in the nature of Royalty. 4.11 The website gives a glimpse of the actual assessment dashboard, the screenshots of the same are as given below, as Exhibit-6:....... 4.12 From the above screenshots it can be established that the client purchases a set of license codes (as can be seen from the screenshots the codes are like software license keys) and assigns each of the license codes to a candidate through which he/she can take the test. It is to be noted that these license codes are not perpetual in nature and come with an expiry date before which the tests need to be taken. The candidate takes the set of tests in each license, as has been shown in one of the screenshots the list of tests includes Adapt Personality Questionnaire, Aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds of the assessee. 12.1 Rebutting each of the allegations of the Ld. AO extracted above, the Ld. AR made the following submissions: (i) Para 4.5 and 4.6 of the Ld. AO's order "It is respectfully submitted that the assessing officer has failed to appreciate that Symbiotics does not provide any customized software to the appellant. Symbiotics merely provides a candidate report/score card to the appellant which contains candidate's score against the measured attributes and a performance appraisal against the high level training objectives of the appellant so as to ascertain the ability of the candidates as per the parameters/ standards of the appellant. Further, the appellant fails to understand as to how the software used by Symbiotics to prepare the algorithms, questions and testing methodologies so as to provide the candidate report to the appellant constitute royalty in terms of Article 13 of the India- UK DTAA since the appellant has not been provided use of or the right to use, any copyright of a literary, artistic or scientific work or any patent, trade mark, design or model, plan, secret formula or process." (ii) Para 4.7 of the Ld. AO's order "In this regard, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation on its own merits. The appellant fails to appreciate the reliance placed by the CIT(A) on the principle of res-judicata, which is grossly misplaced. The law declared by the Supreme Court is binding on all the authorities, whether or not party to the dispute before the Court. It is further submitted that it is a settled judicial principle that the orders of the higher forum/ appellate authorities are binding on the subordinate authorities and it is not permissible for the subordinate authorities to deviate from the direction/orders of the higher/ appellate authorities. In other words, the judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities (refer Union of India and others vs. Kamlakshi Finance Corporation Limited: AIR 1992 SC 711/1992 Supp (1) Supreme Court Cases 443/55 ELT 433)" 12.2 The Ld. AR then drew our attention to the agreement dated 19.04.2016 entered by the assessee with Symbiotics Ltd. UK in respect of the services rendered by Symbiotics Ltd. UK to the assessee and referred to relevant clauses of the agreement dealing with scope of work/services, deliverables and ownersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmance against a given syllabus or training profile) and "performance profile" (i.e. a predicted performance against the high level training objectives of the training pipeline of the syllabus, highlighting areas where mitigation strategies will need to be implemented if the candidate is to progress satisfactorily. 15. The relevant clauses of the Agreement are reproduced herein below:- "1. Scope Subject to this agreement, Symbiotics shall provide certain deliverables to CSTPL in relation to evaluation and profiling of candidates basis their suitability and preparation of prescribed reports along with related support, as detailed under this agreement ("services"). 2. Deliverables Symbiotics shall provide the services from their registered office in UK utilizing their UK developed and maintained software ("Adapt") that accesses UK located fileservers to collect information from wherever the candidate is being tested at the time. Symbiotics shall provide the prepare the prescribe reports which will be shipped or exported to CSTPL in India. The following deliverables will be provided by Symbiotics to CSTPL within the time lines as mutually agreed between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... validate the efficacy of the Adapt and associated process. In the event that they wish to publish such results, Symbiotics shall respect the anonymity of all customers and candidates of CSTPL and shall additionally obtain prior written permission of CSTPL in the event of publishing data or results which pertain to CSTPL. 3) The Parties acknowledge that CSTPL shall have exclusive ownership rights of all Deliverables provided by Symbiotics while providing the Services under this Agreement, including on any related reports produced and generated by Symbiotics for CSTPL. 4) The Parties recognize that the value of ADAPT Service and Software is the proven ability of the system to select pilot candidates who, the process predicts, would perform well in the training and later organization environments. It is in the best interest of both parties to continuously aim to improve the results from the process. Symbiotics will seek access to pilot candidate performance data from CSTPL which Symbiotics will analyse to validate the performance of the ADAPT Software, and to enable any appropriate improvements that will be beneficial for CSTPL." 16. It is also worthwhile here to look into Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re against the measured attributes and provides an overall assessment of their likely performance against a given syllabus or training profile. The said deliverables in the form of candidate's report are provided to the assessee. 18. From the above, it is abundantly clear that the assessee is provided with a report / document by Symbiotics Ltd. UK containing the requisite details as per the terms of the Agreement. The assessee is not provided with access to any software of Symbiotics Ltd. UK. The candidate's report is delivered to the assessee electronically which is in the nature of copyrighted product and a mere access to use the server / software to download the reports cannot be regarded as transfer of any licence / copyright in the software so as to fall within the definition of "royalty" under Article 13 of the India-UK DTAA. What the assessee gets is merely the report in the form of deliverables prepared from the analysis undertaken by Symbiotics Ltd. UK using Adapt software. The source code of the software is accessed only by Symbiotics Ltd. UK and the assessee has no right to access, modify or duplicate such source code which is evident from clause vii of the Agreement. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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