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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI. CHANDRA POOJARI & SMT. BEENA PILLAI
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed against common order dated 25.07.2019 passed by Ld.CIT(A)-12, Bangalore for A.Ys. 2016-17 & 2017-18.
Brief facts of the case are as under: 2.1 The assessee company M/s. Stonehill Education Foundation is an IB world school and offers all the three IB Programmes – the PYP, MYP and DP. During the years under consideration the assessee company has made certain payments to International Baccalaureate for use of registered trade mark and also for the use of copyright, Page 2 of 6 & 2061/Bang/2019 literary work without deducting tax at source on such payments as per provisions of section 195. 2.2 The Ld.AO held the assessee to be “assessee in default” u/s. 201(1) r.w.s. 195 of the Act. The Ld.AO also levied interest u/s. 201(1A). 2.3 The Ld.AO noted that following payments were made by the assessee to the US entity during the years under consideration. AY 2016-17 Recipient’s Foreign Amount Nature of S.No. Paid date name Currency paid Transactions International IB Grade 12 Baccalaureate USD November 1. 4,96,278 Examination Organization – 10,692 30,2015 Fees USA AY 2017-18 Recipient’s Foreign Amount Nature of S.No. Paid date name Currency paid Transactions Submission for Unit International Planners – Baccalaureate USD June International 1. 1,38,503 Organization – 2,088 13,2016 Baccalaureate USA Americans Online Registration 2.4 He also noted that payments were made by assessee to Singapore branch of Swiss entity, the details of which are as under: AY 2016-17 Recipient’s Foreign Amount Nature of S.No. Paid date name Currency paid Transactions Annual Membership charges paid International to Baccalaureate SGD 14,75,186 September 1. accreditation Organization – 31,182 15,2015 body towards (SG BR) Middle Year Programs (MYP), Page 3 of 6 ITA Nos. 2060 & 2061/Bang/2019 Primary year (PYP) & Diploma Programs (DP) Annual Programme Fee for the period 01.09.2015 to 31.08.2016 IB Asia International Pacific Baccalaureate SGD January annual 2. 1,14,272 Organization 2,400 28,2016 conference (SG BR) registration fee AY 2017-18 Recipient’s Foreign Amount Nature of S.No. Paid date name Currency paid Transactions International Registration Baccalaureate SGD May fee for IBO 1. 8,59,796 Organization – 18,390 18,2016 workshops (SG BR) for Teachers Primary Year Program (‘PYP’), Middle Year Programs (MYP) & International Diploma Baccalaureate SGD 16,21,608 August Programs 2. Organization 32,587 25,2016 (DP) Annual (SG BR) School Fee for membership and accreditation for Academic Year 2016-17 Workshop registration International charges for Baccalaureate September MYP 3. SGD 970 48,331 Organization 07,2016 Languages (SG BR) workshop for Stonehill Staff Page 4 of 6 & 2061/Bang/2019 Workshop & International Conference Baccalaureate SGD November registration 4. 1,86,274 Organization 3,800 19,2016 fee for PYP & (SG BR) MYP Stonehill Staff 2.5 Before the Ld.AO, assessee claimed that the payments made by assessee to the US as well as Singapore branch is not in the nature of ‘royalty’ or ‘FTS’, and therefore the DTAA with India and DTAA with USA and Switzerland, would be applicable in the present facts.
The Ld.AR at the outset submitted that the Ld.CIT(A) relied on the principles laid down by Hon'ble Karnataka High Court in case of CIT vs. Samsung Electronics Co. Ltd. reported in (2011) 203 taxman 477 in support that, the payments made by the assessee is in the nature of royalty. The Ld.CIT(A) also relied on the decision of Hon'ble Karnataka High Court in case of CIT vs. Wipro Ltd., reported in (2011) 16 taxmann.com 275 to hold that the payment made by assessee to the US entity and swiss entity is towards license to use the database maintained by the non-resident entity, and therefore, is to be regarded as ‘royalty’. Before us the Ld.AR placed reliance on the recent decision of Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt.Ltd., reported in (2021) 125 taxmann.com 42 in support of the contention that the transactions has to be looked into based on the DTAA with USA and Singapore.
We note that Hon’ble Supreme Court, while considering the issue of sale of software to be in the nature of ‘royalty’ dwelled on various aspects of Copyrights Act, wherein, difference has been drawn between “right to use” and “ownership” of intellectual properties. We also note that, the authorities below have not considered the agreement entered into by the assessee with these entities for which Page 5 of 6 & 2061/Bang/2019 the payments were made, by the assessee in lieu of the services rendered. The services rendered by the non-residents are to be analysed based on the DTAA with respective countries.
Taking a considered view, we deem it appropriate to remit this issue back to the Ld.AO, to verify all the agreements and the terms and conditions agreed upon by the assessee. The Ld.AO is directed to analyse the terms and conditions under the agreement in the light of various principles laid down by Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt.Ltd. (supra). He may call upon all relevant information in order to come to a conclusion, in accordance with law.
Needless to say that proper opportunity of being heard is to be granted to assessee. Accordingly, the issue of taxability of the payments made by assessee has to be decided prior to coming to the conclusion, as to whether the assessee could be termed to be assessee in default. We therefore remit the issues to the Ld.AO for a denovo verification in accordance with law. In the result, appeals filed by the assessee for both the years under consideration partly stands allowed for statistical purposes. Order pronounced in open court on 01st June, 2022.