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TMI Blog2025 (3) TMI 1163X X X X Extracts X X X X X X X X Extracts X X X X ..... ogy/Knowledge Management were not for information concerning commercial experience in terms of Article 13(3) of the India-UK DTAA hence were not in the nature of royalty and is not liable for taxation in India with the meaning of Article 13(3) of the Indo US treaty? 2. "Whether on the facts and circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to grant refund of taxes paid pursuant to the order u/s 195(2) dated 01.08.2018 even though the department has filed appeal against the decision of Hon'ble ITAT?" 3. At the outset, both the parties agreed that this issue stands covered by the decision of the Tribunal in assessee's own in case and other related cases and sister concerns for the A.Y.2018-19 and 2019-20 and in support, judgment and order in ITA Nos.201 to 233/Mum/2021, 4800 to 4804/Mum/2019; 4810 to 4814/Mum/2019; ITA Nos.4744, 4745 to 4782/Mum/2019 dated 27/07/2022 & ITA No.5715/Mum/2024 dated 18/02/2025 have been filed. 4. The brief facts are that assessee is a limited liability partnership firm and renders professional services to clients which include large domestic as well as multi-national corporates. The assessee made ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yee Deloitte Global Services Holding Limited) after deducting tax at the rate of 10% on the remittance amounting to Rs. 23,66,35,500 against the three services(Global Technology/Knowledge Management, Global Communication, Global Brand). In other words, the entire remittance amounting to Rs. 78.87.85.000/- shall be subjected to tax at the rate of 3% This certificate is issued on the prima facie examination of details furnished by the applicant before the undersigned. It is purely provisional in nature and subject to final assessment. This certificate is valid for the period from 5th April 2018 to 31 MARCH 2019, unless cancelled or modified with prior intimation. This certificate is issued at the request of the applicant (Deloitte Touche Tohmatsu India LLP). It is also clarified that the issue of certificate shall not in any way prejudice the assessment of total income under the provisions of Income tax r.w. India-UK tax treaty." 5. Deloitte Touche Tohmatsu India LLP (DTTILLP') entered into a shared service agreement dated 01/08/2011 with Deloitte Global Services Holding Limited ('DGSHL'), UK to avail various services from the latter DTTILLP applied under section 195(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltinational corporations and are part of Deloitte network worldwide. DTTL, also known as "Global Network" of various member firms, is incorporated in, and a tax resident of, the United Kingdom and it do not per se carry out any income earning activity and has no stream of income. It has been stated before us that, Deloitte Global Holding Services Ltd. ("Holdings") is a company limited by guarantee organized and existing under the laws of England and Wales. Deloitte Global Holdings is a special purpose vehicle created by Global Network to facilitate the attainment of objectives, inter alia, to further international alignment, cooperation, cohesion and professional standards of the highest quality among its Member Firms (such as DTTI). Deloitte Global Holdings performs various activities for the common benefit of its members. Articles of Association of Deloitte Global Holdings do not permit it to perform any services for third party clients. As per Article 15 of the Articles of Association, Holdings is not permitted to distribute dividends or any other amounts to its members except on winding up in proportion of their contributions. While there may be a surplus/ deficit in a particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts under the "Shared Services Agreement" to Holdings without deduction of tax at source. It has been brought on record before us that, the respective Assessing Officer have issued certificates for financial year 2012-13 onwards till 2016-17 authorising the remittance of amounts similar to those which has been sought to be remitted in the current year without deduction of tax at source. The copies of these orders and the certificates have been placed in the paper book before us at pages 544 to 548. However, the Assessing Officer while deciding the application filed by the appellants for the Assessment Years 2018-19 and 2019-20 held that payments to the extent they were relatable to, (1) Global brand; (2) Global Communications; and (3) Global Technology/Knowledge Management, were in the nature of royalties, being payments for use of computer software/literary work. Assessing Officer relied on the following decisions in support of his view and, in particular, AO has heavily relied on the decision of the AAR in the case of EY Global Services Ltd. AAR No. 1043 of 2011. * CIT vs Synopsis International Old Ltd (2012) 28 taxmann.com 162 (Kar) * Shell India Markets (P) Ltd. In re (AA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al exploration. Aspect regarding Article 11(3)(b) is not relevant in the context of this case. Reading the submission of appellant along with the details available in the agreement, I find that each of the items falls within information on commercial experience and hence Article 11(3)(a) applies. 18. The shared Services Agreement is a standard business agreement. I had gone through clause 4 (Historical Services : Fees) and 5 (Service terms : Service Schedule; Revision; Notices) and 8 (Ownership and Licensing of Intellectual Property and Trademarks). The payment is undoubtedly for services. Para 8A reads as under : A. Firm and Holdings acknowledge that all Services Firms will be parties to a Shared Services Agreement pursuant to which they will receive, directly or indirectly, Services from Deloitte Services. Clause 5A also talks about providing services and clause 4 also deals with fees related to services. In clause 4, it is seen that the aspect of subsequent recovery is mentioned. Even considering this, as such the payment is for services rendered. 19. In view of preceding discussion, I hold that the payment indeed is royalty within meaning of article 13(3) of India-UK Do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer has simply referred to certain decisions (cited supra) and held them to be in the nature of Royalty. 7. Mr. Percy Pardiwala submitted that now the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. vs CIT, 432 ITR 471 has reversed the view taken in the various decisions which have been relied upon by the Assessing Officer in coming to the contention that the payments were in the nature of Royalty. He further submitted that the Assessing Officer has heavily relied upon decision of the AAR in the case of EY Global Services Ltd., which was heavily relied upon by the AO in coming to the conclusion that the payments are made for use of copyright, has been reversed by the Hon'ble Delhi High Court in EY Global Services Ltd. vs. ACIT, 441 ITR 54 following the decision in Engineering Analysis (supra). The decision of the Hon'ble Delhi High Court has thereafter been followed by the Hon'ble ITAT, Delhi Bench in ITA Nos. 7017 to 7020/Del/2019 in the case of EY Global Services Ltd. vs. ACIT. 8. Mr. Percy Pardiwala further submitted that the payments in question, for rendering the services categorized as Global Brand, Global Communicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal for carrying out factual verification as to whether the information in question was available in public domain. It is submitted that in the present case there is no imparting of information at all, only services are rendered and, in any event, there is no imparting of any confidential data or information. Therefore, the payments cannot be regarded as royalty. b. Marck Biosciences Ltd. vs. ITO 164 ITD 205 (Ahd) The assessee made payments to a US company on account of professional fee for global biopharmaceutical strategic counselling and advisory services rendered by this entity. The AO took the view that the services were covered by the definition of royalty since rendition of services by the US entity amounted to parting with the "information concerning industrial, commercial and scientific experience" gained by the US entity over a period of time. The Tribunal held that the services included (a) business promotion (b) marketing (c) publicity and (d) financial advisory, which were termed as 'Strategic and Financial Counselling Services'. Therefore, it was held that the payments were for rendition of these services and not for use of any information concerni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplete identity between its participants and contributors. Holdings do not have any dealings with third party clients but wholly deals with member firms. Its activities are wholly performed for the benefit of member firms. Costs incurred in the course of performance of such activities are recovered from member firms by way of contributions without any mark-up. It operates on a break-even basis. Therefore, it must be regarded as a mutual concern. Accordingly, the payments made by the appellants to Holdings would not constitute its income. Consequently, there would be no requirement of deduction of tax at source there from. Payments made by M/s Deloitte Touche Tohmatsu, Delhi to DTT under an arrangement which is similar to the one with which the present appeals are concerned have been held to be covered by the principles of mutuality in ITA No. 6703/Del/2015 and connected appeals for the assessment years 2008-09 to 2011-12 by the Hon'ble ITAT, Delhi. 10. Lastly, he submitted that the payments are in the nature of reimbursements since Holdings operates on a break-even basis. The costs incurred by it in the course performing activities for the benefit of members are recovered fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odel, plan, secret formula or process, or 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." 14. The scope of services and the terms under these heads needs to be analysed as per the definition and scope of Article 13(3), whether these services fall within the definition of Royalty. Our discussion and analysis are as under: Global Brand * Design and implement global brand strategy for use by the Deloitte Network. * Provide Member Firms with common tools, training, and policies related to the Deloitte brand. * Collaborate with DTT and Member Firm leadership, industries, functions and specialty groups on brand promotion and eminence building. Global Communications * Develop and distribute internal and external communications, publications and reports for DTT. * Lead, manage, and support global public relations, thought leadership initiatives, strategic projects, events, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Holdings. 16. Insofar as payments for global activities given in Global Communication, Holdings distributes the publications and reports for DTTI and support global public relations, thought leadership initiatives, events, guidance, common standards, guidelines, organising internal events, etc so that there is alignment of all the member firms for internal and external communication. It gives guidance about the media communication, distribution of newsletter, external and internal distribution. From a bare perusal of aforesaid activities, it cannot be held that it is for use of or right to use of any copyright of literary, artistic or scientific work or for any other terms given in Article 13(3). Further, it also cannot be held for information concerning industrial or scientific experience and/or for commercial experience because the basic underlying fact is that it is purely for internal use of member firms and not for any third party or any client. Thus, these activities cannot be reckoned for providing industrial, commercial or scientific equipment to the appellants and, therefore, outside the nature and scope of Royalty as defined in Article 13(3) of the India-UK DTAA. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Understanding between the Applicant and EYGBS India are as follows: 1. Common standards and policies 1.1 Assisting in the development of Common Standards and Policies, including accounting policies, practices, principles and procedures. 1.2 When considered appropriate by EYG Services, providing practice manuals and other reference materials and otherwise assisting in the adoption and consistent application of Common Standards and Policies. 2. IT Services 2.1 Promoting the adoption, maintenance and development of high quality, common information technology and communication systems by Member Firms and providing advice and assistance in connection with the systems of Member Firms including where considered appropriate, developing or assisting in the development of such systems or any part of them. 2.2 Procuring for the Member Firms external software licences for their internal business use. 2.3 Coordinating and promoting a globally consistence policy with regard to technology infrastructure with the objective of delivering economies of scale for the Member Firms and avoiding duplicative systems or structures across the network. 3. Knowledge 3.1 Promoting and establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el/2019 wherein almost similar facts were there, which have been discussed in para 4 as under :- "4. Brief facts of the case are that EY Global Services Limited (hereinafter referred to as 'the assessee') is providing technology and other support services and software licenses to the member firms of the EY Network. The assessee is said to be established as a non-profit central service provider to enable EY member firms to share the costs of centralized services. Accordingly, the assessee enters into agreements with each member firm, pursuant to which it provides services required by member firms and thereafter, recovered various costs incurred by it from the member firms on actual usage basis. Given the above, the assessee filed a 'NIL' return of income on 30th March 2012 contending that the payments received by the assessee from Indian member firms are mere reimbursement of costs and not taxable under the Act as well as the Double Taxation Avoidance Agreement between India and United Kingdom (hereinafter referred as "the treaty")." The Tribunal had followed the aforesaid judgment of Hon'ble Delhi High Court wherein the judgment of AAR in the case of EY Glob ..... X X X X Extracts X X X X X X X X Extracts X X X X
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