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TMI Blog2025 (3) TMI 1212X X X X Extracts X X X X X X X X Extracts X X X X ..... g of Article 13(3) of the Indo UK treaty? 2. "Whether on the facts and circumstances of the case and in law, the Id. CITIA) erred in directing the Assessing Officer to grant refund of taxes paid pursuant to the order w/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, ld. Counsel for the assessee submitted that this issue stands covered by the decision of the Tribunal in assessee's own case for the A.Y. 2018-19 and 2019-20 in relation to the order passed by the ld. AO u/s. 195(2). 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 application seeking authorization for payments of USD 1,35,00,000 to Deloitte Global Service Holding Limited (DGSHL) without withholding of any tax u/s. 195(1) of the Act. The ld. A.O after recording the detailed reasons in his order under section 195(2) allowed deduction at lower rate of 3%. He held three services, in the agreement viz (1) Global technology /Knowledge management, (2) Global Communication and (3) Globa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails 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. The ld. CIT (A) following the decision of the Tribunal in assessee's own case for A.Y.2018-19 and 2019-20 vide order dated 27/07/2022 held that payments made to Deloitte Global Services Pvt. Ltd., do not fall in the scope and definition of 'royalty' under Article 13(1) of India UK DTAA and consequently, assessee was not required to deduct tax while making the payment to DGSHL. 6. We find that this issue has been discussed in detail by this Tribunal in the case of Deloittee Haskins & Sells LLP and Deloitte Touche Tohmatsu India LLP wherein the entire background has been discussed. For the sake of ready reference the Tribunal decision is reproduced hereunder:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blished with a view to facilitating fulfilment of those purposes and Deloitte Services intends to provide certain services to its members (including Holdings). Holdings has also been established with a view to facilitating fulfilment of those purposes and Holdings intends to receive certain Services from Deloitte Services and supply the same to its Holding Members (including DTTI). Under para 2.A.2 parties acknowledge that Holdings does not have capacity to provide such services and shall, instead, outsource these services to Deloitte Services. Deloitte Services shall make available such services to Holding Members (DTTI). Para 3.C states that the parties acknowledge that Holdings will generally be run on a break-even basis. 3.1 The services provided under the Shared Service Agreement are enumerated at pages 540 to 543 of the paper book. In short, these are: 1. Global AERS; Global FAS; Global Tax; Global Consulting 2. Global Clients, Global Services and Related Programs 3. Global Strategy; Research; Monitoring 4. Global Brand 5. Global Communications 6. Global Talent/Human Resources 7. Global Technology / Knowledge Management 8. Global Risk Management and Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of Article 13(3) of the India-UK DTAA. The relevant observations of the ld. CIT (A) are as under : "12. Comparing Article 11(3) of Double Taxation Avoidance Agreement with the detailed breakup reproduced above form basis for decision. Article 11(3) has several parts and we have to focus whether the payment is for information concerned commercial experience [later part of Article 11(3)(a)] or right to use, any copyright of a literary, artistic or scientific work [initial part of Article 11(3)(a)]. A plain reading of the break up of each expenses, worst come worst, vis-a-vis multiple aspects in Article 11(3) of Double Taxation Avoidance Agreement, leads to the fact that the payment is for information concerned commercial experience." 5.1 Thereafter, the ld. CIT(A) after incorporating the submissions made by the assessee about the nature of payments made for the global brand, global communication and global technology and knowledge management observed and held as under: ".........The decision can be on basis of description provided in the agreement between appellant and Deloitte Global Services Holding Ltd. The appellant submitted that the payment is not for right to u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Avoidance Agreement. Under Double Taxation Avoidance Agreement, income is not determined, but tax is determined as a fixed per cent of gross receipt. Irrespective whether there is profit or loss and whatever be its extent, tax is determined at a fixed rate. This is the manner in which receipt suffers tax in hands of recipient and extent and nature of expense does not count. Hence the aspect of mutuality and reimbursement of expenses are not relevant." 6. Before us, the learned senior counsel, Shri Percy Pardiwala, after referring to various clauses of Shared Services Agreement and the background of the case submitted that the amounts in question cannot be regarded as payment for the use of copyright of literary work (computer software) as held by the Assessing Officer. In fact, it is purely for providing common policies, guidance relating to brand, communications and other aspects and collaboration with other member firms cannot be considered as use of or right to use any copyright of literary, artistic or scientific work. Payments for use of Global Technology/ Knowledge Management cannot be regarded as provision of copyright in computer software or any literary work as no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secret in nature but is published information available in public domain. Therefore, such a payment cannot be regarded as consideration for imparting of any information concerning commercial or knowledge, experience or skill as contemplated in the definition of royalty as contained in clause (iv) of Explanation 2 to section 9(1)(vi) or under article 11(3)(a) of the India-UK tax treaty. In support of his contention, he relied upon the following decisions : "a. CIT vs. HEG Ltd. 263 ITR 230 (MP) In this case, the assessee had paid certain amounts to a USA company for purchase of some information. The transaction was held by the AO to involve imparting of information concerning technical, industrial, commercial or scientific knowledge, experience or skill and, therefore, the payment was held to be royalty. The Tribunal held that there was nothing secret or confidential in the booklet which was supplied to the assessee in the form of information for the benefit of the assessee and that the correspondence between the assessee and the firm was only information in the form of collection of data on the subject available in the market and, therefore, the payment was not in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical, industrial or commercial matters. The requirement is imparting of information concerning technical, commercial or scientific knowledge, experience or skill. The information which the licensee got through the database did not relate to the underlying experience or skill which contributed to the end-product. The applicant did not share its experience, techniques or methodology employed in evolving the database with the subscribers. The information shared was published information which was already available in public domain and not something which was exclusively available to the applicant. The present case stands on a much stronger footing since there is no information being shared but on the contrary services are being provided. In any event, any information shared with members in the course of rendering services is also published information available in public domain." Thus, he submitted that the payments in question do not constitute Royalty and are even otherwise not chargeable to tax. His second limb of argument was that once for a similar nature of payment, certificate has been issued for non-deduction of tax in the earlier years by the Assessing Officer, then, in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia-UK DTAA. As noted above, Deolitte Global Holdings has been incorporated by DTTI to facilitate attainment of various objectives to further international alignment, co-operation, cohesion and professional standards of highest quality amongst its member firms, such as the appellants herein. It incurs expenses for the above activities for the benefit of all the members which are then recovered from the members without any mark-up. 12.1 The terms on which the activities are carried out by Holdings and the expenses recovered by it from the members have been enshrined in the "Shared Services Agreement". Though there are many services which have been enumerated in the said "Shared Services Agreement", however, the dispute is with regard to the payments made under the head global brand, global communication and global technology/knowledge management. 13. Now we have to analyse the scope of terms in light of the definition of „Royalty‟ as provided in the India-UK DTAA, which is enshrined in Article 13(3), which reads as under :- "3. For the purposes of this Article, the term "royalties" means : (a) Payments of any kind received as a consideration for the use of, or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndards and platforms across the Deloitte Network and administer and monitor the same. 15. As regards payment for items of global brands, it has been stated that Holdings assists in implementing brand strategy for use of network of Deloitte members and also provides member firms with common training, policies and guidance related to the brands. Further, it will work together with all the member firms leadership, industries, functions on promoting brand addition eminence building. It has been stated to be more of guidance and advisory and not providing any intellectual property. Thus, providing common policies or guidance relating to the brand and collaborating with member firms ostensibly cannot be reckoned as use of or right to use any copyright of literary, artistic or scientific work. Holdings only perform various activities for its members and its guidance is only for internal use by the member firms. Hence, in our view payment for such services cannot be considered for information concerning industrial, scientific or commercial experience. Again, there is no transfer of intellectual property by Holdings to the appellants and also there cannot be a case of giving industrial, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see was allowed to use the software only for its own business purpose and is not permitted to transfer copy of the software and as such there is no transfer of any right in respect of copyright by the vendors and it is a case of mere transfer of copyrighted article. Thus, the payments made for the activities/services under the aforesaid three heads cannot be held to be in the nature of Royalty as per the definition given in Article 13(3) of the India-UK DTAA and, accordingly, the payments made by the appellants to Holdings cannot be held to be Royalty. 18. Before us, the judgment of Hon'ble Delhi High Court in the case of EY Global Services Ltd. v. ACIT, 441 ITR 54 (Del.) has been relied upon, wherein on the issue of whether EY Global Services Ltd., which was a Limited Liability Company engaged in providing technology and other support services and software licences to member firms of EY Network in various countries all over the world and all the member firms using the brand Ernst & Young (E&Y) had entered into contract with various third party vendors for procurement of software to be used by member firms. There also, the services which was rendered by Ernst & Young UK and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest on the licencee, does not entail parting with the copyright. Where the core of a transaction is to authorise the end-user to have access to and make use of the licenced software over which the licencee has no exclusive rights, no copyright is parted with and therefore, the payment received cannot be termed as "royalty". 14. In the present case, the EYGBS (India), in terms of the Service Agreement and the MOU, merely receives the right to use the software procured by the EYGSL (UK) from third-party vendors. The consideration paid for the use of the same therefore, cannot be termed as "royalty" as held by the Supreme Court in Engineering Analysis Centre (supra). In determining the same, the rights acquired by the EYGSL (UK) from the third-party software vendors are not relevant. What is relevant is the Agreement between the EYGSL (UK) and the EYGBS (India). As the same does not create any right to transfer the copyright in the software, the same would not fall within the ambit of the term "royalty" as held by the Supreme Court in Engineering Analysis Centre (supra). 15. We may also note that the learned AAR in its Impugned Order has relied upon its earlier view in Citrix S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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