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TMI Blog2024 (6) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... own by Hon ble Court were clearly not satisfied. There mere fact that there were certain technical inputs or that the assessee immensely benefited from these services, even resulting in value addition to the employees of the assessee, is wholly irrelevant. The expression make available has a specific meaning in the context of the tax treaties and there is, thus, no need to adopt the day to day meaning of this expression, as has been done by the Assessing Officer. Payment made for use of science data base, subscription of journal Publication is also covered in favour of the assessee by the order of this Tribunal in the own case of the assessee for AY 2010-11 [ 2017 (1) TMI 554 - ITAT AHMEDABAD] as held as a matter of fact, the AO righty noted that royalty has been defined as payment of any kind received as a consideration for the use of, or right to use of, any copyright of literary, artistic or scientific work and that the expression literary work , under section 2(o) of the Copyright Act, includes literary database but then he fell in error of reasoning inasmuch as the payment was not for use of copyright of literary database but only for access to the literary database under limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a based party namely Swiss Biogenics Ltd Sri Lanka for Market Survey/development - AO treated the services of market survey under the preview of technical services as defined under the explanation 2 to section 9(1)(vii) of the Act. On the hand, CIT-A held that such payment falls under the exception clause (b) of section 9(1)(vii) of the Act regarding the fees for technical services and thus deleted the demand raised by the AO. In this regard, we find that in the case of Evolv Clothing Co. Pvt. Ltd. [ 2018 (6) TMI 1324 - MADRAS HIGH COURT] has held that the payment for market survey is equivalent to sales agent commission. Hence, the same cannot fall within the definition of FTS. Therefore, the provisions of section 9(1)(vii) are not applicable and thus the demand raised by the AO is deleted. In view of the above detailed discussion, the grounds of appeal raised by the Revenue are hereby dismissed. Appeal of revenue dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... fall under the definition of royalty under section 9(1)(vi) of the Act while it was paid for the use or right to use of computer software. 6. Whether on the fact and circumstances of the case, Ld. CIT (A) was right in law in holding that the payments made to Bio Innova & Synchron Co. Ltd., Thailand and International Bio services Co Ltd. Thailand in the nature of Clinical Trials/bio-equivalence study were not part of the fee for technical service in view of section 9(1)(vii) of the Act while FTS is not defined in DTAA between India and Thailand? 7. Whether on the fact and circumstances of the case, Ld. CIT (A) was right in law in holding that the payments made to Bio Innova & Synchron Co. Ltd., Thailand and International Bio services Co Ltd. Thailand in the nature of Clinical Trials/bio-equivalence study will not be taxable in India as the services were rendered by Non-Resident in Thailand completely ignoring the provisions of law that rendering of services is immaterial and it would be taxable at the place where such services have been utilized which is in India? 8. Whether on the fact and circumstances of the case, Ld. CIT(A) was right in law in holding that the services as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) Clinical trials (a) Algorithem Pharma Inc- USA Rs. 4,53,20,847/- (b) Pharmanet Canada Inc Rs. 15,07,489/- (c) Cetro Research -USA Rs. 26,61,901/- (d) Hilltop Research-USA Rs. 2,14,51,689/- (e) Impopharma Inc- Canada Rs. 23,36,320/- (f) Lambada Therapeutic Research- Canada Rs. 47,73,195/- (g) NovumePharmaceuticals Research-Canada Rs. 1,88,20,283/- (ii) Fee for consultancy services (a) Cambridgesoft Corp. USA Rs. 18,74,371/- (b) Bio Innova &SynchronCo. Ltd- Thailand Rs. 86,00,122/- (c) InternationBioservices Co. Ltd- Thailand Rs. 10,91,728/- (iii) Online access to publication/ database & Journals (a) Chemical Abstract Services USA Rs. 33,88,992/- (b) Thomson Reuters INC USA Rs. 31,75,380/- (c) Elsevier BV Netherlands Rs. 1,78,99,640/- (iv) Purchase of productivity tool (a) Cambridgesoft Corp. USA Rs. 3,16,81,125/- (v) Reimbursement of market survey/development expenses (a) Swiss Biogenics Ltd - Sri Lanka Rs. 76,28,381/- 5. The assessee regarding remittance made for the services, in the nature of clinical trials to 7 parties based in USA-Canada, and professional fee paid to the party namely Cambridge soft Corp. USA for Rs. 18,47,361 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the foreign parties outside India in connection with the business carried on outside India (Thailand), hence the same is covered under the exception clause provided under section 9(1)(vii)(b) of the Act. Identical contention was also made by the assessee regarding remittance made to the Swiss Biogenics Ltd., Sri Lanka as reimbursement of market survey/development expenses. 9. The assessee regarding the payment made to 3 parties under the category Online access to publication/ database & Journals stated that the payment was made to have access of chemistry and related science data base, science publication and journals which cannot be covered under royalty or fees for technical services. Therefore, no withholding tax was required to be deducted on such remittance. 10. However, the AO disagreed with the contention of the assessee. The AO in relation to remittance made for technical services/clinical trial to the parties based in USA-Canada where DTAA contain specific provisions on FTS, analyzed the nature of services in detail and observed that "the tests are highly technical in nature and generate considerable technical information about the drugs being tested which are e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to impugned party is liable to be withholding tax as per the provision of section 195 of the Act. 12. Regarding the payment made to Cambridgesoft Coro USA for Rs. 3,16,81,125 for purchase of ChemOffice enterprise, the AO found the ChemOffice is a software and purchase of software falls under category of fees for Royalty and therefore the same should be subject to withholding tax. 13. Regarding payment to 3 parties being Chemical Abstract Services USA, Thomson Reuters INC USA, and Elsevier BV Netherlands for subscription of chemistry data base, science publications, and journals, the Assessing Officer was of the view that this payment is for exploitation of copyrighted database, through licence, and accordingly, taxable as royalty. It was noted that 'royalty' has been defined as "payment of any kind received as a consideration for the use of, or right to use of, any copyright of literary, artistic or scientific work" and that the expression "literary work", under section 2(o) of the Copyright Act, includes 'literary database'. It was also noted that the non-resident, to whom the payment in question was made, holds rights/copyrights which are gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these tax treaties (applicable in the specific cases / instances of the appellant) there is make available clause and the rendering of the technical services by its self is not sufficient to invoke the taxability of those technical services and that for the purpose of taxability there has to be a transfer of technology so that the user of services i.e. the appellant should be enabld to do the same thing next time without recourse to the service provider and that in the case service provided by non-resident(s) did not involve any transfer of technology and thus the test laid down by Hon'ble courts were clearly not satisfied. The Hon'ble ITAT also noted that the issue regarding taxability of these services is also covered in the favour of the assessee, by the order dated 30.11.2015 passed by a Coordinate Bench. The Hon'ble ITAT approved the conclusion arrived at by the C1T (A) and declined to interfere in the matter." 5.7 In this background and from the perusal of appellant's submission it is seen that the status of the impugned payments without TDS are as under: Sr. No. Name of Company to which foreign remittance made Amount (Rs.) Nature of Payment Commen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntities in relation to fees for clinical trials are held to be not in the nature of technical-services and hence not liable for TDS u/s.195. It is also held that the services rendered by those non-resident entities are also neither in the nature of royalty nor in the nature of transfer of intellectual properties and on these accounts also there is no case for deduction of TDS u/s.195 and the appellant is not an assessee in default u/s.201 of the Act. Thus the impugned order to the extent of the parties at Sr. No. 1 to 7 in the table (being covered by the order of the ITAT in the case of appellant itself) above cannot be upheld and the AO is directed to delete the related demand raised u/s.201(1) and 201(1A) of the Act. 5.9 As to the parties at Sr. No. 8 to 10 in the table above it is seen that the payments made by the appellant to those non-resident entities were for the purpose of access to online journals and for subscription of journals. The access to the technical journals and subscribing to technical journals are requirements of the appellant for the purpose of business and the technical personnel including the scientists and staff in its R & D labs to be aware of latest res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ..... In view of the above discussions, as also bearing in mind entirety of the case, we uphold the conclusions arrived at by the learned CIT (A) and decline to interfere in the matter." 5.11 Thus the impugned order to the extent of the parties at Sr. No. 8 to 10 in the table above cannot be upheld and the AO is directed to delete the related demand raised u/s.201(1) and 201(1A) of the Act. 5.12 As to the payment made of Rs.3,16,81,125/- to Cambridgesoft Corporation USA it is seen that it is for the outright purchase of a software pack, 'ChemOffice Enterprise' which is a scientific and integrated suite of personal productivity that helps scientists to keep track of their work and to gain deeper understanding of their data and reports. It is the case of the appellant that payment to the non-resident entities is neither in the nature of royalty nor fees for technical services. It is not the case of the AO that non-resident entities has a PE in India and that the payment to said entities can be held to be income of that entities under Article 7 (business profit) of DTAA with USA. Apart from relying on various case laws the appellant has also referred to the ITAT' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant in Thailand. This is covered by the exception under the Act. I find myself in agreement with the arguments of the appellant. The demand related there to cannot be upheld. 5.15 As to the payment made of Rs.76,28,381/- to M/s. Swiss Biogenic Ltd. Sri Lanka by way of reimbursement of market survey/development expenses in Sri Lanka it is seen that as per the appellant the payment was for the services rendered by the said party in Sri Lanka and for the purpose of utilization of the same for business in Sri Lanka and the objective was to find out market feasibility of appellant's product in Sri Lanka. It is contended by the appellant; that the payment was not in the nature of FTS u/s.9 (1)(vii) as the same was covered under the explanation laid down in clause (b) where under no income shall be deemed to accrue or arise if the amount is payable by a resident person (the appellant) and the payment was payable for services utilized in business outside India. This assertion of the appellant is not controverted by the AO. However the AO has held that as per the Article 12 of DTAA between India-Sri Lanka the term fees for technical services means payments of any kind ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that such issue is covered in favour of the assessee by the order of this Tribunal in the own case of the assessee for AY 2010-11 reported in 77 taxmann.com 309. The Tribunal vide order dated 03 January 2017 held as under: 8. We find that the common thread in all these tax treaties is the requirement of 'make available' clause. As learned counsel rightly puts it, its not simply the rendition of a technical service which is sufficient to invoke the taxability of technical services under the make available clause. Additionally, there has to be a transfer of technology in the sense that the user of service should be enabled to do the same thing next time without recourse to the service provider. The services provided by non residents did not involve any transfer of technology. It is not even the case of the Assessing Officer that the services were such that the recipient of service was enabled to perform these services on its own without any further recourse to the service provider. It is in this context that we have to examine the scope of expression 'make available'. 9. As for the connotations of make available clause in the treaty, this issue is no longer r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the same time is satisfied.' 10. As we have noted earlier, it is not even the case of the Assessing Officer that the assessee, i.e. recipient of services, was enabled to use these services in future without recourse to the service providers. The tests laid down by Hon'ble Court were clearly not satisfied. There mere fact that there were certain technical inputs or that the assessee immensely benefited from these services, even resulting in value addition to the employees of the assessee, is wholly irrelevant. The expression 'make available' has a specific meaning in the context of the tax treaties and there is, thus, no need to adopt the day to day meaning of this expression, as has been done by the Assessing Officer. We also find that the issue regarding taxability of these services is also covered, in favour of the assessee, by the order dated 30th November 2015 passed by a coordinate bench. In view of these discussions, and as we concur with the well reasoned findings of the learned CIT (A), we approve the conclusions arrived at by the learned CIT (A) and decline to interfere in the matter on this count as well. The order of the CIT (A) stands confirmed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n interested in availing of such information, upon payment of requisite fee. Accordingly, the same cannot in any manner be considered as in the nature of royalty, either under the provisions of Sec. 9(1)(vi) of the I.T. Act or under Article 12 of the DTAA with USA. In support, the appellant has also placed reliance on the decisions of the AAR in the case of Factset Research Systems, 317 ITR 169 (AAR) and Dun & Bradstreet Espana,272 ITR 99 (AAR) and the Bombay High Court in the case of Dun & Bradstreet Information Services, 20taxmann.com 695. 15. Having considered the reasoning of the AO and the contentions of the appellant, I am of the view that the ratio of the decisions as relied upon by the appellant is squarely applicable to the facts of the appellant's case. Payment made for access to online publication/database cannot be considered as being in the nature of royalty, liable to withholding tax, either under the Income-tax Act or under the DTAA with USA. Therefore, I hold that the payment made to Chemical Abstract Service USA was not liable to TDS under the provisions of Sec. 195 and accordingly, the appellant could not be held liable to pay tax as an assessee in default u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of reasoning inasmuch as the payment was not for use of copyright of literary database but only for access to the literary database under limited non exclusive and non transferable licence. Even during the course of hearing before us, learned Departmental Representative could not demonstrate as to how there was use of copyright. In our considered view, it was simply a case of copyrighted material and therefore the impugned payments cannot be treated as royalty payments. This view is also supported by Hon'ble Bombay High Court's judgment in the case of DIT (International Taxation) v. Dun & Bradstreet Information Services India (P.) Ltd. [2011] 338 ITR 95/[2012] 20 taxmann.com 695. 18. In view of the above discussions, as also bearing in mind entirety of the case, we uphold the conclusions arrived at by the learned CIT (A) and decline to interfere in the matter. 21. Thus, respectfully following the finding of this tribunal in the own case of the assessee discussed above we hereby do not find any reason to interfere with the finding of the learned CIT(A) to extent of demand raised under section 201(1)/201(1A) of the Act on account of payment made to 7 USA-Canada based part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the related contracting states proceed on the basis that even in the absence of the permanent establishment or fixed base requirements, the receipts of this nature can be taxed, on gross basis, at the agreed tax rate, and, to that extent, such receipts does not fall in line with the scheme of taxation of business profits under art. 7 and professional income under 14. It is interesting to note that the moment the threshold limits for permanent establishment or fixed base, as the case may be, is satisfied, the taxability shifts on net basis as business profits or professional (independent personal services) income. The business receipts or professional receipts thus cannot be seen in isolation with the fees for technical services. Its only the fact of, and mode of, taxation in the absence of PE or fixed base, which gets affected as a result of the fees for technical services. When there is an FTS clause, the FTS gets taxed even in the absence of the PE or the fixed base, but the character of FTS receipt is the same, i.e. business income or professional (independent personal) income, in the hands of the same. When there is no FTS clause, this sub categorization of income becomes ir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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