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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 ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BAD] Payment made to Srilanka 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. - Ms. Suchitra Kamble, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Revenue : Shri Sudhakar Verma, Sr. D.R. For the Assessee : Shri Jigar Patel, A.R. ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inition 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 referred in Q.No.7 are not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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/- submitted that these services fall under the purview of fees for technical services. However, as per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 extremely valuable in subsequent phases of the drug commercialization . In addition to elaborate discussion about the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 granted under nonexclusive and non-transferable basis, for access to licensed material. It was in this background that the Assessing Officer held that the assessee ought to have dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility 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 Comments 1 Algorithme Pharma Inc. USA 45,320,847 Fees for Clinical Trials Ground of Appeal covered by ITAT Order in the Appellant's Own Case for A.Y. 2010-11 2 Pharmanet Canada Inc. 2,661,901 -Fees for Clinical Trials Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 researches and studies in the area in advanced countries abroad. Such journals are commercially available to all the interested buyers and are in no way specific 1 to the appellant and though it disseminates technical knowledge but in no way transfers the knowledge to the level that it can be said that the knowledge has been made available to the appellant on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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's order in its own case already dealt before in the context of the issues related to journals. The purchase of ChemOffice Enterprise is just like a purchase of MS Office and the purchase being directly from the party outside India and the seller having no PE in India, there is no chargeability of the amount paid to Cambridgesoft Corporation and therefore no TDS was required to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 other than those mention in Articles 14 15 of the Agreement as consideration for managerial or technical or consultancy services including the provisions of service of technical or other personnel and that the Hon'ble ITAT has not dealt on the second portion of the fees for technical services mentioned the DTAA. It is agreed that there is no make available clause for the purpose, but the facts re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 res integra. There are at least two non-jurisdictional High Court decisions, namely Hon ble Delhi High Court in the case of DIT v. Guy Carpenter Co Ltd. [2012] 346 ITR 504/207 Taxman 121/20 taxmann.com 807 and Hon ble Karnataka High Court in the case of CIT v. De Beers India Minerals (P.) Ltd. [2012] 346 ITR 467/208 Taxman 406/21 taxmann.com 214 (Kar.) in favour of the assessee, and there is no contrary decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 30 th 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. 11. Ground no. 1 is thus dismissed. 20. Likewise, the issue of 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(supra). The relevant finding is extracted as under: 13. So far as this ground of appeal is concerned, the relevant material facts are as follows. During the course of proceedings before the Assessing Officer, it was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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/s. 201(1). 14. Aggrieved by the relief so granted by the CIT (A), the Assessing Officer is in appeal before us. 15. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position 16. We find that under article 12(3) of the Indo US tax treaty, 'royalty' has been define as follows 3. The term 'royalties' as used in this Article means : (a) payments of any kind received as a consideration for the use of, or the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational 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 parties on clinical trial, consultancy fees, Cambridge soft Corp. USA and the payment made to 3 parties for access of chemistry data base, science publication and science journals. 22. Coming to the payment made to Cambridgesoft corporation against purchase of ChemOffice enterprise, we find that the impugned payment represents the outright purchase of the software which cannot be treated as royalty and consequently, the same is outside the purview of the TDS provisions under section 195 of the Act. In holding so, we draw support and guidance from the judgment of Hon ble Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 irrelevant, because FTS or any other business receipt, the income embedded in such receipts gets taxed only if there is a permanent establishment or fixed base- as the case may be. The scope of business profit and independent personal service completely covers the fees for technical services as well. With FTS article or without FTS article, the income by way of fees of technical services continues to be dealt with the provisions of articles relating to business profits, independent personal services, and additionally, in the event of existence of an FTS article, with the article ..... X X X X Extracts X X X X X X X X Extracts X X X X
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