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TMI Blog2023 (12) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... the same are not in the nature of Fee for Included Services . Whereas the Tribunal has confirmed the addition of receipts from Sponsorship Assignments holding the same to be Fee for Included Services taxable in India in terms of Article 12 of DTAA. Receipts from Industrial Liaison Program - As examining the scope of services provided by the Appellant under Industrial Liaison Program concluded that the Appellant provides factual information related to the research projects and the same does not involve rendering of any technical services or making available any technical knowledge or experience or skill. Therefore, the receipts from Industrial Liaison Program are not liable to tax in India in terms of Article 12 of the DTAA. Facts and circumstances being identical, respectfully following the above decision of the Tribunal in the case of the Appellant for the immediately preceding Assessment Year 2018-19, we hold that receipt from Industrial Liaison Program do not qualify as Fee for Included Services in terms of Article 12 of the DTAA and are, therefore, not taxable in India. Receipt from Sponsorship Assignment qualify as Fee for Included Services in terms of Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Addition of receipts from Industrial Liaison program (ILP) amounting to INR 20,529,000 on the alleged ground that the same is in the nature of Fees for Included Service (FIS), under Article 12 of the Double Taxation Avoidance Agreement between India and USA ('the Treaty') On the facts and circumstances of the case and in law, the Ld. AO erred in proposing, and the Hon'ble DRP has further erred in confirming the addition of receipts from ILP amounting to INR 20,529,000 as FIS under the Treaty The Appellant prays before the Hon ble ITAT to direct the AO to delete the addition made by the AO in relation to ILP recipes. 3. Addition of receipts from Sponsorship Assignments amounting to INR 31,948,834 on the alleged ground that the same is in the nature of FIS, under Article 12 of the Treaty 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 Sponsorship Assignments amounting to INR 31,948,834 as FIS under the Treaty. The Appellant prays before the Hon'ble ITAT to direct the AO to delete the addition made by the AO in relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case and in law, for the purposes of taxing the interest on income-tax refund in the computation sheet, the Ld. AO has erred in applying the higher tax rate of 40 percent under the Act and not allowing the tax rate of 15 percent under the Treaty, as claimed by the Appellant, without any cogent reasons and without providing any opportunity of being heard. The Appellant prays before the Hon'ble ITAT to direct the Ld. AO to apply tax rate of 15 percent under the treaty while computing tax on interest on income-tax refund. 8. Denial of Tax Deducted at Source ( TDS') On the facts and circumstances of the case and in law, the Ld. AO has erred in not granting the TDS credit of INR 816,358 as claimed by the Appellant in the Income-tax Return ('ITR'). The Appellant prays before the Hon'ble ITAT to direct the Ld. AO to allow additional TDS credit amounting to INR $16,358 as claimed in the ITR. 9 Levy of interest under section 234B of the Income-tax Act, 1961 (the Act) On the facts and circumstances of the case and in law, the Ld. AO erred in levying interest under section 234B of the Act. The Appellant submits that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... researches. 4.1. The Appellant filed its return of income for the Assessment Year 2019-2020 on 27/09/2019 declaring a total income of INR 1,03,56,790/-. The case was selected for regular scrutiny. During the assessment proceedings, the Assessing Officer noted that Form 26AS reflected, inter alia, following receipts for the relevant previous year which were not been offered to tax as income by the Appellant: Particulars Amount (INR) (a) Receipts under Industrial Liaison program 2,05,29,000 (b) Receipts under Sponsorship Assignment 3,19,48,834 (c) Receipts under Coordination Membership Agreement 5,01,09,903 (d) xx xx (e) xx xx 4.2. The Appellant was asked to explain the nature of the receipts and reason why the same were not offered to tax in India. Providing explanation for the same, the Appellant made following submissions before the Assessing Officer relating to the nature of receipts under (a) Industrial Liaison Program, (b) Sponsorship A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st resources through its team or ILO. The team of ILOS has cultivated strong working relationships with MIT faculty, and continuously monitors the latest lab news, research and technology developments. They know the Institute and connect people to the expertise, talent and technologies that are of interest to a company and that advance knowledge around the world. 4. The Primary reason companies join the ILP is for face to face discussions with MIT faculty and researchers, as these interactions often result in successful research collaborations. Any research collaborations are separately negotiated and agreed to outside of the ILP agreement. The ILP actively advocates a company's research and strategic agenda on campus and secures substantive meetings with key faculty and researchers The TLO provides continuity and serves as the facilitator to move discussions along and to work with both representatives and faculty to enable mutually beneficial outcomes. 5. ILP arranged meetings are recognized by time-pressured faculty as being highly professional, yielding high-calibre discussions and highlighting potential partnership opportunities. Faculty objectives in participatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, it is willing to accept industry participation to sponsor such researches. 2.2 Researches are being conducted in various areas and sponsor may participate in the areas of interest or may also sponsor researches 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 say, ABC Irrigation Limited had a goal of improving water systems in India, MIT uses budgeted funds to pay for direct and indirect cost 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. 2.3 The Sponsors and the MIT may form a research committee consisting of members from each party. The committee shall meet periodically to discuss the activities to be undertaken under the project respectively, exchange ideas and discuss on furtherance of the research project, to review and monitor the progres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct. The Indian corporates do not get equipped to carry on the services once the contract with the companies expires. The corporates would have to necessarily contact MIT, if a similar service needs to be rendered in the future. The reports provided by MITT to the sponsors only provide the final conclusion 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 their own. Thus, the sponsorship receipts did not make available any technical knowledge, know-how etc. or developed and provided any technical plan/design. 2.12 Accordingly, the receipts under sponsorship research arrangement is not in the nature of FIS and in absence of any permanent establishment, these receipts are not subjected to tax in India. 1. Receipts under coordination membership agreement: Rs. 5,01,09,903/- 1. 1. 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 help drive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process involved in carrying out such research. MIT is not performing any research and the role of the MIT is to act as a co- ordinator between the consortium members. 2. Given that the receipts merely pertain to co-ordination services and there is no technical or consultancy services that is being rendered by the MIT the said receipts should not be taxable in India. 3. Without prejudice to the above, the mere act of co-ordination cannot be termed as knowledge being made available to the members and hence the receipts under the Co-ordination Membership Agreement should not quality as FIS under the treaty and should not be subject to tax in India. 4. In this regard, reliance is placed on the Authority for Advance Rulings in the case of ABB Ltd (AAR No. 834 of 2009). wherein it has been held that fees paid for the role of being an administrator and coordinating agency under the agreement are not liable to be taxed as fees for technical services. 5. While MIT along with other shall use diligent efforts to provide vendor neutral architectural and administrative leadership it is only to provide a common platform for the members to accomplish the consortium goals und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to is subscriber, does not on that score, make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base Station. Al that he wants is the facility of using the telephone when he wishes to, and being able lo, get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable to fixed telephone service. Neither service cam be regarded as technical service for the purpose of section 194J) 1. 1. Thus, in light of the above judicial precedents, merely by providing vendor neutral architectural and administrative leadership it cannot be said that any technical plan or service have been rendered by MIT that make available any technical knowledge, experience, skill, etc to the members. Thus, the receipts cannot be classified as FIS and therefore ought not to be taxable in India. 1. 1. Thus, to summarize, receipts under co-ordination membership agreement are not tantamo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 021 did not yield any favourable result as DRP rejected the objections raised by the Appellant vide order, dated 28/04/2022. As a result, the Assessing Officer passed the Final Assessment Order, dated 12/05/2022, under Section 143(3) read with Section 144C(13) of the Act making, inter alia, aggregate addition of INR 10,25,87,373/-. 5. Being aggrieved, the Appellant has preferred the present appeal before the Tribunal against the additions aggregating to INR 10,25,87,373/- made in the Final Assessment Order dated 12/05/2022. 6. During the course of hearing, both the sides agreed that issues raised in Ground No. 2, 3 and 4 are identical to the issues raised in appeal preferred by the Appellant for the Assessment Year 2018-19 [ITA No. 607/Mum/2022] which has been disposed off by the Tribunal vide order, dated 31/07/2023. On perusal of the aforesaid order of the Tribunal, we find that the Tribunal has, in identical facts and circumstances, held that receipts from Industrial Liaison Program and receipt from Coordination Membership Agreement are not liable to tax in India in terms of Article 12 of DTAA as the same are not in the nature of Fee for Included Services . Whereas the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreements that MIT does not provide any technical services to the corporates under the ILP program. This program is akin to a trade exhibition whereby the corporates are introduced to the MIT faculty members and researchers and their projects. This helps the corporates to identify the specific types of research that would potentially impact the strategic plans of corporates. 15. We have examined the taxability of ILO receipt in the hands of the assessee who is a non-resident with reference to the Indo US treaty. The relevant extract of Article 12 of the treaty and the MOU to the treaty are reproduced below: ARTICLE 12 ROYALTIES AND FEES FOR INCLUDED SERVICES 1. Royalties and fees for included services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for included services may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if the beneficial owner of the royalties or fees for included services is a resident of the other Contracting State, the tax so charged shall not exceed: (a) x.x.x.x ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gy. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc. are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se he considered to make the technology available. Example (7) Facts: The Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol-free oil and wishes to market the product world-wide. It hires an American marketing consulting firm to do a computer simulation of the world market for such oil and to advise it on marketing strategies. Are the fees paid to the U.S. Company for included services? Analysis: The fees would not be for included services. The American company is providing a consultancy service which involves the use of substantial technical skill and expertise. It is not, however, making available to the Indian company any technical experience, knowledge or skill, etc., nor is it transferring a technical plan or design. What is transferred to the Indian company through the service contract is comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd are, therefore, not taxable in India. Accordingly, addition of INR 2,05,29,000/- made by the Assessing Officer in relation to the receipts from Industrial Liaison Program is deleted and Ground No. 2 raised in the present appeal is allowed. 6.4. Ground No. 3 raised by the Appellant is directed against the addition of INR 3,19,48,834/- made by the Assessing Officer in relation to the receipts from Sponsorship Assignment. 6.5. We note that in paragraph 26 of the of the decision of the Tribunal in the case of the Appellant for the Assessment Year 2018-19 [ITA No. 607/Mum/2022, dated 31/07/2023] the Tribunal has returned factual finding that as per the arrangement between the Appellant and the corporate-sponsor, the Appellant undertakes specific research for the corporate-sponsor and the technology knowledge from the same is provided to the corporate-sponsor in the form of research report; the corporate-sponsor is free to apply the aforesaid technology knowledge and derive an enduring benefit. Thus, the Appellant is making available technical designs and knowhow to the corporate-sponsor. Further, the fact that corporate-sponsor also gets intellectual property rights in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Intellectual Property rights for the inventions conceived during the research and for each such invention on which a patent application is filed by assessee, assessee has agreed to grant the Sponsor, a non-exclusive, non-transferable royalty free license for internal research purposes. Thus, the income earned by the assessee through this Sponsorship assignment program, is not only restricted to the design and 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, in view of the above discussion, receipts of Rs. 6,06,64,914/- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecific client. The intention is to provide technological inputs/skills or experience by way of research to suit the requirements of the clients sponsoring the research. We are not in agreement with the assessee, when it says that the research report does not provide the underline technical plan/design/process using which the corporate would be able to develop the technology on their own As has already been discussed the assessee undertakes specific research for the corporate and the technology and knowledge from the research is provided to the corporate who will apply the same and derive an enduring benefit from the same. In view of the facts 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l knowledge and experience by providing technical plans and business carried out during the process of research to the Indian Corporates and accordingly, the same falls within the scope and ambit of FIS under Article 12(4) of US-India DTAA. 24. We also note from the agreements that the assessee use to undertake specific research project for its sponsors and provide them with the research reports. This research report enables the sponsor to apply the underlying technology and intellectual property conceived during the research in its specific projects, which shall help the corporate in deriving enduring benefit from the said research. Thus, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of the Appellant in India as Fee for Included Services in terms of Article 12 of the DTAA read as under: Receipts from co-ordination / consortium membership The receipts from co-ordination / consortium membership arrangements, which is in relation to the addition of the receipts from Co-ordination/ Consortium Membership amounting to INR 6,42,57,814 as FIS under the Treaty. 29. Shri Jain submitted that the assessee acts as the host for the consortiums. 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 help drive the direction of research performed by the consortium and manage access to that research. Given that the receipts merely pertain to co-ordination services and there is no technical or consultancy services that is being rendered by the MIT, the said receipts should not be taxable in India. 30. As mentioned above, for attracting liability to pay tax under the DTAA, the services not only should be of technical nature, but it should also make available the technical knowledge, experience, skill, know how, etc., to the recipient of such techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing available any technical know-how, experience, etc., or technical plan/design to the members as enumerated in Article 12 of the DTAA. Both the sides agreed that there is no change in the facts and circumstances of the case. Therefore, respectfully following the above decision of the Tribunal in the case of the Assessee for the immediately preceding Assessment Year 2018-19, we hold that receipt from Coordination Membership Agreement do not qualify as Fee for Included Services in terms of Article 12 of the DTAA and are not taxable in India. Accordingly, addition of INR 5,01,09,903/- made by the Assessing Officer in relation to the receipts from Coordination Membership Agreement is deleted and Ground No. 4 raised in the present appeal is allowed. 7. Next we would take up Ground No. 8 raised by the Appellant since we have already disposed Ground No. 5, 6 and 7 in paragraph 3 above. By way of Ground No. 8, the Appellant has claimed that the Assessing Officer has failed to grant credit of tax deducted at source amounting to INR 8,16,358/- as claimed by the Appellant in the return of income. In order to redress the grievance of the Appellant, we direct the Assessing Officer to ver ..... X X X X Extracts X X X X X X X X Extracts X X X X
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