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TMI Blog2024 (2) TMI 1491X X X X Extracts X X X X X X X X Extracts X X X X ..... LE MR. JUSTICE YASHWANT VARMA AND HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV For the Appellant: Mr. Ruchir Bhatia, SSC with Ms. Deeksha Gupta, Adv For the Respondent: Mr. Kishore Kunal Ms. Ankita Prakash, Advs ORDER 1. The Commissioner of Income Tax seeks to impugn the order of the Income Tax Appellate Tribunal [ ITAT ] dated 06 September 2023 and proposes the following questions for our consideration: 2.1 Whether on the facts and circumstances of the case and in law, the Ld. ITAT has erred in not holding that receipts of the assessee from its clients in India are Royalties? 2.2 Whether on the facts and circumstances of the case and in law, the Ld. ITAT has erred in not holding that this information is an-information which involves imparting of commercial experience, skill or expertise? 2.3 Whether on the facts and circumstances of the case and in law, the Ld. ITAT erred in holding that report provided by the assessee in physical and online mode/access is not covered under royalty? 2.4 Whether on the facts and circumstances of the case and in law, the Ld. ITAT has erred in holding that receipts of Assessee from clients is not Royalty despite the fact that these reports are p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term fees for technical services means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received ; or (c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design . 5. The definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eficial owner or between both of them and some other person, the amount of the royalties or fees for technical services paid exceeds for whatever reason the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention. 9. The provisions of this Article shall not apply if it was the main purposes or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties or fees for technical services are paid to take advantage of this Article by means of that creation or assignment. 3. Before us, Mr. Bhatia, learned counsel appearing in support of the appeal essentially rested the case of the appellant on sub-article (4) of Article 13 and which relates to fee for technical services received as consideration for rendering any technical or consultancy services. According to learned counsel, the service rendered by the assessee would clearly fall within sub-clause (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India is merely a report summarising its findings with respect to the background check undertaken by the assessee which is primarily a factual data and cannot per se qualify as literary or artistic or any other copyrightable work. Such a report cannot be copyrighted as it does not fulfil the requirements enlisted under section 13(1)(a) of the Indian Copyright Act, 1957. Also, none of the rights as mentioned in Section 14(a) of the Indian Copyright Act, 1957 have been rested with the client by the assessee while rendering its services. Income from provision of the services rendered by the assessee cannot be characterised as royalty for use of copyright in the report as the client merely has the right to use the findings in the report for its own internal consumption. The client does not have any rights to publicly display, sell/ distribute, copy, edit, modify or undertake any other commercial exploitation of the said report. It is thus evident that the consideration received by the assessee under the terms of its agreement with its client is purely towards provision of background screening services and does not include any consideration for use or right to use any copyright or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus clear that there is no imparting of information concerning industrial, commercial or scientific experience by assessee when it issues the reports to its clients. 15. As regards the characterisation of impugned receipts as FTS, in our view, the services rendered by the assessee do not involve any technical skill/knowledge or consultancy or make available any technical knowledge, experience, skill, know-how or processes to the clients. Assessee's role is restricted to the verification of information provided by various candidates proposed to be hired by its clients. It involves seeking information from various sources that is accessible on specific requests and no advice/guidance on the credentials of the candidate is provided by the Assessee to its client. The role of the assessee is limited to validation of data provided by the candidate and provide relevant facts captured during the course of validation. The clients make an independent decision to hire the candidate. Hence, in our view the services should not be considered as FTS under Article 13(4) of the India-UK DTAA. Accordingly, ground No. 1 to 2.3 are decided in favour of the assessee. 5. In our considered opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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