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TMI Blog2023 (10) TMI 1186X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred to the Corporates is purely the factual information with respect to the various research projects. Assessee is not making available the underlying know-how with respect to the said research projects as enumerated under the DTAA and MOU. From the above facts, we are of the opinion that the receipts under the head ILP cannot be reckoned as FIS in nature within the meaning of Article 12 of the India-US DTAA. Accordingly, we set aside the finding of the DRP and direct the AO to delete the addition made in relation to this ground. Hence the ground of appeal of the assessee is allowed. Sponsorship receipts - Assessee undertakes specific research for the corporate and the technology and knowledge from the research is provided to the corporate in the form of research report, who will apply the same and derive an enduring benefit. Once, the assessee after the research submissions report not only provides the research report to the Indian corporate who then apply the research work for their own business. Further, in the specific IP clause agreement as incorporated above, there is a clear-cut stipulation and sponsor will get IP and in some cases it was joint IP, which als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, Massachusetts Institute of Technology ( MIT or Appellant ) against the impugned order passed by the learned Deputy Commissioner of Income Tax Int. Tax Circle 3(2)(1), Mumbai ( ld. AO ) passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 ( the Act ) for Assessment Years 2018- 19, in pursuance of the directions issued by Dispute Resolution Panel, Mumbai ( the Ld. DRP ). 2. The grounds of appeal raised by the assessee read as under: 1. On the facts and circumstances of the case and in law, the Ld. AO has erred in proposing and the Hon'ble DRP further erred in confirming the action of the learned AO in assessing the total income at INR 15,49,92,088 as against income of INR 10,48,860 offered by the Appellant in its return of income for the captioned assessment year. 2. On the facts and circumstances of the case and in law, the Ld. AO erred in proposing and the Hon'ble DRP further erred in confirming the addition of receipts from Industrial Liaison program ( ILP ) amounting to INR 2,90,20,500 as Fees for Included Service ( FIS ) under the Double Taxation Avoidance Agreement between India and USA ( Treaty ). 3. On the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wide. It is a Liaison Program for members. It is a streamlined way of introducing members to the MIT faculty, departments and labs to see how specific type of MIT research would potentially impact their own strategic plan. An Industrial Liaison Officer ( ILO ) is assigned to ILP member, as a primary contact who understand the industry. ILO helps members define and prioritize their interest and needs, articulate objectives for the MIT interaction and develop an action plan in a streamlined manner. The role of an ILO is to provide ILP members with access to certain parts of MIT that relate to the member s interest, such as recent developments and reports on emerging technologies (like a brochure which is publicly available). ILO also recommend, organize and facilitates interaction with MIT faculty, researchers, labs and centres by scheduling meetings and phone calls. As a member of ILP program, participants are also eligible for the following facilities/ benefits: i. Free or discounted attendance at MIT conferences and seminars. ii. Access to the ILP video archive that stores digital presentations, abstracts and biographical materials from ILP events. iii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial world. The funding received is thus towards research cost, notwithstanding the outcome. Having said the above, the specialized knowledge, experience or skills, etc., of the MIT s faculty members in undertaking the research is not imparted or transferred to the sponsors in the course of the research. The reports provided if any, are mere statement of facts in relation to the final results / outcome in relation to the emerging technology on which research was being undertaken and / or captured the progress or status of the outcome/ findings. The report does not provide the underlying technical plan / design / process using which the corporates would be able to develop the technology on its own. Thus, the sponsorship receipts did not make available any technical knowledge, know-how etc. or developed and provided any technical plan/ designs. c. Consortium Membership: A consortium is a group of members that come together to share ideas and information relating to a particular topic. Consortiums are led by hosts that play a role of administrator and coordinator between the members. MIT acts as the host for following three types of consortium arr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l architectural (as a standard facility available to all those who become members) and administrative leadership to the consortium members. It only provides a common platform for the members to come together to accomplish the consortium goals under its overall direction as a coordinator. The access to collective knowledge of the consortium members, grant of license to use documentation/ software and right to use in internal research purposes is merely part of the above co-ordination activity as a host. MIT is not undertaking any research services for any specified party. MIT does not describe any methods or process involved in carrying out such research. The receipts merely pertain to co-ordination services. Thus, it cannot be termed that MIT has developed and delivered a technical plan or technical knowledge, experience, skill, know-how or processes is made available to the members. 5. The ld. AO has examined the agreements for each of the nature of receipts and has concluded the following for each receipt: a. ILP INR 2,90,20,500: ILP fees consist of the development and transfer of a technical plan or technical design suitable to the needs of the ILP members and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not for profit organization, is willing to accept industry participation to sponsor such researches. Research is being conducted in various areas and sponsor may participate in the areas of interest or may also sponsor research which are already undertaken. These are typically research projects focusing on initiatives that will benefit the public at large advancing its objective of advancing education and research. For example, MIT s research agreement sponsored by ABC Irrigation Limited had a goal of improving water systems in India. MIT uses budgeted funds to pay for direct and indirect costs associated with the research project and the sponsor reimburses MIT for the expenses incurred. Any funding received from a sponsored research sponsor is an offset of expenses, not a source of income, hence sponsored research agreements cannot and do not generate a profit for MIT. Ld. Counsel further submitted that MIT and the sponsor agree upon the project goals and then MIT performs research on that topic. MIT applies its knowledge in performing the research projects and then reports back to the sponsor periodically about the progress and direction of the research. MIT sponsored research ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S under the Indo-US Treaty. Receipts from Industrial Liaison Program 13. From the paper book filed by the assessee we observe that on page number 90 an agreement between MIT and Kirloskar Brothers Limited (subscriber) for Industrial Liaison Program (ILP) has been filed. Another agreement between MIT and KPIT Technologies Limited (subscriber) for ILP has been placed on record at page number 95 of the paper book. We have carefully gone through the agreements. As a member of the ILP program the subscriber will have access to full range of customized activities and supplementary services as detailed in the annexure to the agreement. There are hundreds of research centers at MIT and the external subscriber may not even be aware of the vast resources that are available at MIT. Hence, to assist the subscriber, the subscriber is assigned an Industrial Liaison Officer (officer) who will conduct an on-going assessment of subscriber s interest, need and objectives as they relate to MIT. The officer will recommend and facilitate interaction at MIT that are custom designed to satisfy the subscriber s identified objectives. The officer will also provide updates on what is going on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, fees for included services does not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a) ; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic ; (c) for teaching in or by educational institutions ; (d) for services for the personal use of the individual or individuals making the payments ; or (e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 15 (Independent Personal Services). Further, the relevant para and example in the MOU to the India-USA DTAA explaining the term Fees for included services is extracted below: Paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the service technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able the corporates to see if any of this research could be leveraged by them in their own strategic plan. The assessee is neither rendering any technical services to the Corporates nor making available any technical knowledge or experience or skill. What is being transferred to the Corporates is purely the factual information with respect to the various research projects. The assessee is not making available the underlying know-how with respect to the said research projects as enumerated under the DTAA and MOU. 18. From the above facts, we are of the opinion that the receipts under the head ILP cannot be reckoned as FIS in nature within the meaning of Article 12 of the India-US DTAA. Accordingly, we set aside the finding of the DRP and direct the AO to delete the addition made in relation to this ground. Hence the ground of appeal of the assessee is allowed. Sponsorship receipts 19. We now move to the next ground of appeal raised by the assessee in relation to receipts from sponsorship assignments, which is in relation to the addition made by the Ld. AO on account of receipts from Sponsorship Assignments amounting to INR 6,06,64,914 as FIS under the Treaty. 20. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,64,914/- received under the head of Sponsorship assignments are clearly in the nature of Fees for Included services and hereby taxed accordingly. 22. The ld. DRP analysed plea of agreements, projects relating to water purification from the agreement with the Tata Projects. The relevant portion of the statement of the work as appearing in paper book page 150, reads as under:- This project is focused on creating village-scale, off-grid water purification and desalination systems for rural India Our proposed approach is to design direct-drive photovoltaic (PV) electrodialysis (ED) water purification systems appropriate for small-scale applications, which can provide a scalable, efficient and sustainable solution for clean drinking water. The project will result in new water provision technology as well as the engineering knowledge required to adapt and scale the technology for various environmental conditions and geographic regions. The project includes investigation into methods to reduce the energy required for ED, and thus the number of PY panels required for a given system, in order to reduce cost. Our aim is to create off and desalination systems that are equal or less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed above, we are of the considered view that the receipts earned by the assessee through the sponsorship assignment programme are not only restricted to the design development of customized technologies to the clients but also ancillary and subsidiary to the application or enjoyment of the intellectual property rights developed during the research. Accordingly, we uphold the action of the AO in treating these receipts as FIS 23. We have gone through the various agreements in relation to sponsorship research. From the perusal of the agreements and IP clause agreement as appearing in paper book 142, the relevant extracts are reproduced hereunder:- SPONSOR INTELLECTUAL PROPERTY Title to any invention conceived or first reduced to practice in performance of the Research solely by the Sponsor's personnel without significant use of MIT administered funds or facilities ( Sponsor Invention ) shall remain with the Sponsor Title to and the copyright in any copyrightable material first produced or composed in the performance of the Research solely by the Sponsor's personnel without significant use of Mil administered funds or facilities-( Sponsor Copyright) shall re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we are not in agreement with the assessee when it says that the research report does not make available any technical knowledge/ experience nor provides the underlying technical plan/ design to the corporate. 25. As regards reliance placed on the decision of the Ahmedabad Tribunal in the case of ONGC, the same can be distinguished on facts. In the context of make available, the Ahmedabad Tribunal stated the crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. In that case, the broad objective of the research project was to develop the chemical enhanced oil recovery formulation. However, the underlying technology was not passed on by the service provider to the corporate. 26. As has already been discussed above, the assessee undertakes specific research for the corporate and the technology and knowledge from the research is provided to the corporate in the form of research report, who will apply the same and derive an enduring benefit. Once, the assessee after the research submissions report not only provides the research report to the Indian corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not undertake any research nor does it describe any method or process involved in carrying out such research. The assessee s role is to merely act as a co-ordinator between all the consortium members. It is only providing administrative support to the members. Thus, the assessee is not rendering any technical services to the corporate members. Also, the assessee is not providing any technical plan or design to the corporate members. Thus, the assessee cannot be said to be making available any technical know-how, experience, etc., or technical plan / design to the members as enumerated under the DTAA and MOU. 32. From the above, there remains no ambiguity to the fact that the receipts are not FIS in nature within the meaning of Article 12 of the India-US DTAA. Accordingly, we set aside the finding of the DRP and direct the AO to delete the addition made in relation to this ground. Hence the ground of appeal of the assessee is allowed. Other grounds 33. We now move to the next ground of appeal which relates to not granting of credit of TDS of INR 2,922,328 as claimed by the Appellant in the Income-tax Return. The AO is directed to verify and grant the credit of TDS in a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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