M/S AD2PRO MEDIA SOLUTIONS PRIVATE LIMITED ,BANGALORE vs. THE DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) CIRCLE-1(1), BANGALORE

ITA Nos.490-503(Bang)/2019 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES : “A”, BANGALORE

BEFORE SHRI A.K.GARODIA, ACCOUNTANT MEMBER And SHRI P.K.GADALE, JUDICIAL MEMBER (ITA Nos.490 to 503(Bang)/2019) (Assessment years: 2011-12 to 2017-18) M/s Ad2pro Media Solutions Pvt.Ltd., No.10, 2nd Floor, Bannerghatta Road, J.P.Nagar-III Phase, Bangalore-560078 Appellant Vs The Deputy Commissioner of Income Tax, (International Taxation) Circle-1(1), BMTC Building, Koramangala, Bangalore-560095 Respondent

Appellant by: Shri V. Chandrashekar, Advocate Revenue by : Vandana Sagar, CIT-DR Date of hearing : 20-01-2020 Date of pronouncement : 20-03-2020

O R D E R PER BENCH: All these fourteen appeals are filed by the assessee and these are directed against a combined order of the ld. CIT(A)-12, Bangalore dated 31-01-2019 for assessment years 2011-12 to 2017-18. Out of these 14 appeals, 7 appeals are in respect of demands raised by the AO u/s 201(1) of the IT Act, 1961 and the remaining 7 appeals are in respect of demand raised by the AO of interest u/s 201(1A) of the Act for the same assessment years. All

ITA Nos.490-503(Bang)/2019 2 these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.

ITA Nos.490-503(Bang)/2019 3 limitation as per this Tribunal order in which all earlier judicial pronouncements were duly considered.

3.1 As against this, ld. DR of the revenue submitted that as per the judgment of the Hon’ble Karnataka High Court rendered in the case of Bharat Hotels Ltd (supra) on which reliance has been placed by the assessee as per ground no.2.2 raised by the assessee, it was held that if no period of time is prescribed for exercise of power then it can be exercised within a reasonable time and what is reasonable time will depend upon the facts of the case and the provision of the Act under which action has been taken. She further submitted that in the present case, survey was conducted in the case of the assessee on 11-07-2017 and the notice was issued by the AO on 16-01-2018 and orders were passed by him on 16-12-2018 and therefore, it can be seen that notice was also issued within reasonable time after the date of survey and orders were also passed within reasonable time after the date of survey and issue of notice and hence, these orders cannot be said to be time barred.

ITA Nos.490-503(Bang)/2019 4 4.1. Regarding such ground in the remaining 6 years, it is seen that such grounds are raised only in three years i.e. 2012 – 13 to 2014-15 but since the orders for these years are passed within 6 years from the end of the relevant FY, we hold that these orders are not time barred. 4.2 As per the directions of the Bench, both sides have submitted synopsis and written submissions after the hearing was over and for ready reference, we reproduce the same herein below;

SYNOPSIS by the learned DR of the revenue 1. Ground 1: General 2. Ground 2: Limitation 2.1. For the year under consideration as the law stood then or even now no period of limitation was is prescribed under section 201 for exercise of power thereunder in context of Non-Residents. Subsection 3 to section 201 was inserted vide Finance Act 2009 with effect from 01/04/2010. The objective of insertion of this section was explained in the memorandum to the Finance Bill 2009 which is reproduced in the order of CIT Appeal at page 28 (page 42 of Assessee's paper book). 2.2. The Memorandum clearly States that no time limits have been prescribed for the order under section 201(1) where the deductee is a nonresident as it may not be administratively possible to recover th tax from the Non Resident. Thus the legislative intent has been amply brought out in the memorandum when it is stated the limitation shall not apply in the case of non residents. Reliance is placed on the following decisions: a) In the case of Uttam Namdeo Mahale wherein Hon'ble Supreme Court held that that if no limitation has been prescribed, then it can be executed any time. ANNEX 1. b) In the case of Bhura Exports wherein Hon'ble Calcutta High Court held that when there was no period of limitation fixed for exercising power under section 201 at the relevant point of time, there is no question of invoking a reasonable period of limitation for applying provisions contained in section 201 ANNEX 2. c) In the case of Nilgiri Dairy Farm wherein Hon'ble Tribunal Bangalore held that the legislature his consciously used the word "resident in India". Had it been the intention of the legislature to prescribe the time limit for the non residents, they would have comfortably used the word "payee" but they have used the word "resident in India". Therefore the intention of the legislature is very clear that they do not want to fix the time limit for initiating action under section 201 for nonresidents ANNEX 3. 2.3. In various other decisions including those relied upon by assessee and also in case of Bharat Hotels Ltd (384 ITR 77 KAR),

ITA Nos.490-503(Bang)/2019 5 it is held by Hon'ble Karnataka High Court that if no period of time is prescribed for exercise of power, then it must be exercised within a reasonable time and what is a reasonable time would depend upon the facts of the case and the provisions of the Act under which action has been taken. In the present case, it can be seen that the AO passed the order within a reasonable time. Survey was conducted in this case on 11/07/2017 and the order was passed within a reasonable time on 16.02.2018. Therefore, there is no force in the argument of the appellant and the order is not barred by limitation 3. Ground 3:Treatment of Payment as Royalty (Composite Payment). 3.1. CIT(A) in Para 32 at P 36 of his order (Page 50 of Assessee's Paper Book) noted that one of the limbs of marketing services is lead generation, the Market team generates customer leads by subscribing to customer database, Market Research and analysis, online research data. Referring to decisions of Hon'ble ITAT Bangalore in the case of Cross Tab Marketing Services Ltd (Para 50 on Pg 57 of CIT (A) and to ABB FZ LLC (Para 52), he came to the conclusion (at Para 58) that the payment is composite in nature. He therefore held that the payment for subscribing to customer data base, Market research and analysis, online research data etc is in the nature of Royalty. 3.2. It is further submitted that the information provided by the Non Resident entity to the assessee is not in public domain and is solely made available to assessee for economic benefit to be derived from such information. It is a case of payment for use of information concerning commercial experience and squarely falls within the definition of Royalty as per Article 12(3)(a) of Indo-US DTAA(DTAA and the relevant Article are at Page 123 of Assessee's Paper Book). 3.3. Strong Reliance is placed on the decision of Jurisdictional ITAT in case of TNT Express Worldwide (UK) (Annexure 9). 3.4. The Hon'ble ITAT, on similar facts, held that "it appears to be a composite agreement for providing various services, some of which are purely business commercial practice & contract services and others are in the nature of imparting the knowledge, experience, which concern the commercial or business experience.". The payments were held to be in the nature of Royalty. This order dealt with commentary in OECD Model Tax Convention which is a relevant guide for deciding the nature of payment whether it is Royalty or business income. (Relevant extract at Pg 21 of the Order at page 106 of Department's Paper Book). The relevant extract is as under: "Various specialist bodies and authors have formulated definitions of know-how. The words "payment... for information concerning industrial commercial or scientific experience" are used in the context of the transfer of certain information that has not been and does not generally fall within other categories of intellectual property rights. It generally corresponds to undivulged information of an industrial commercial or a scientific nature arising from previous experience which has practical application in

ITA Nos.490-503(Bang)/2019 6 the operation of an enterprise and from the disclosure of which an economic benefit can be derived" 3.5. It may be mentioned that the assessee did not furnish the Agreement relevant to the assessment year before the assessing officer. The copy of Agreement given to Ld CIT appeal is also not a genuine agreement as can be seen from the contents of the copy of Agreement given: at page 181 of the assessee's paper book. The 2nd paragraph reads "whereas Ad2pro India is engaged in the business of "(inserts suitable words)". In paragraph 5 of the Agreement on page 181, it states "whereas Ad2pro India and Ad2pro USA have decided to have a mutually beneficial partnership under which Ad2pro USA will provide marketing services which would include (insert nature of services} on an exclusive basis". 3.6. Further the signatures of Mr. Todd Brownrout as on page 181 do not match with the signatures claimed to be of Todd Brownrout on page 184 and on page 188. Therefore the assessee has failed to provide a true Copy of the agreement relevant for the year under consideration. 3.7. Based on the above contentions, part of the payment has been rightly held by Ld CIT(A) to be in the nature of Royalty. And CIT(A) has again given this clear finding at Pg 69 (Para 78) of his Order while summarizing. 4.Ground 3.4: (3.4.1 to 3.4.3) Payment in the nature of Consultancy: Not argued by Assessee's AR on 20/01/2020. 5.Ground 3.4.4 and 3.4.5: Exceptions to sec 9(1)(vii)(b): Not argued by Assessee's AR on 20/01/2020. 6. Ground 3.5: "Make Available" CIT(A) Para 60 Page 53 of his order [Pg 67 of Assessee's Paper Book].

6.1. Attention is drawn to Article 12(4)(a) of the DTAA [Page 424 of Assessee's Paper Book]. If the Payment is ancillary and subsidiary to the application or enjoyment of the right, property or information for which payment of Royalty is made, then there is no application of "Make Available" clause. This clause is required to be satisfied ONLY if the payment is for technical or consultancy services falling within clause (b) of Article 12(4). Hence the arguments of the appellant are not tenable. 6.2. Notwithstanding the above contention, the requirement of "Make Available" is not confined to "technology". As is clear from Article 12(4)(b), it involves making available 'technical knowledge', 'experience', 'skill', 'know how' OR processes. The word "OR" is important. The mail correspondence (provided by assessee during the proceedings) abundantly makes it clear that the experience and skill has been made available, thus satisfying the "Make Available" clause of DTAA. Copies of mail correspondence are at Annexure 6 & 7. Relevant Pages are as follows:

ITA Nos.490-503(Bang)/2019 7 P Email Email From Email To a dated g e TTodd Brownrout (of Kartic, employee of 6 02/12/2016 N Ad2Pro.USA) 1 o Assessee Company

Todd Brownrout (of Kartic, employee of 02/12/2016 6 Ad2Pro.USA) 2 Assessee Company

Badri Narayan(from 6 02/12/2016 Kartic, Assessee's Co ) 2

6 04/01/2017 Todd Brownrout Kartic, 5 Badri Narayan, 6 07/04/2016 Todd Brownrout CC to Kartic 6

7 11/12/2016 Colin Wheeler Badri Narayan, 1 CC to Todd Brownrout.

7 01/12/2016 Todd Brownrout Badri Narayan 3 6.3. The above mails show how intricately Todd Brownrout of Ad2Pro USA is involved with the working of Appellant Company and is sharing his experience with the appellant company, advising it and providing consultancy. He is also on the panel for training and for Digital Advertising Showcase' before the clients. 6.4. The Ld AR during the course of hearing admitted that Todd Brownrout is also a director in the Appellant Company. This supports the case of Revenue and further goes to prove that his skill sets and experience are made available to the assessee on a regular basis. 6.5. The assessee's reliance on the decision of Hon'ble Karnataka High Court in the case of De Beers is misplaced in the present context since this decision dealt only with making available "Technology". Hon'ble Court had no occasion to deal with making available of "Skill" or 11 experience" which are relevant to the present case. 6.7. Facts of the case "Onprocess Technology" relied upon by assessee are distinctly distinguishable. Para 12 of that order clarifies that payment in that case was only for "Canvassing for Customers". On the other hand, in the present case, a host of activities are performed by the Non Resident entity. 6.8. Ld AR further argued that if the same was "made available" to it, why would it be making payment year after year. This argument is not tenable since the appellant is making repeated payments not only because it is more convenient for it to outsource this aspect but also for

ITA Nos.490-503(Bang)/2019 8 another important reason that there is constant up-gradation in the commercial information received. Reference may be made to Para 27 of AOs order at Pg 20 (Page 116 of Assessee's Paper Book) wherein the AO has observed that "Services are being rendered and constantly up-graded especially with respect to the dynamic and creative solutions of advertising in order to maintain higher edge in the competitive US market and to boost the assessee's business and to, increase profits it is important to underline that US entity has to constantly perform critical analysis and updation of the market". This finding of the AO has not been disputed by the assessee. 7. Ground 3.6.1 to 3.6.2: Royalty (already discussed) 8.Ground 3.6.3 to 3.6.7:Not argued by Ld AR on 20/01/2020. 9. Ground 3.7 : Royalty (already discussed) 10.Ground 4: Acceptance by Department in Proceedings u/s 143(3) r.w.s 144A. 10.1. Assessee claims that this issue was already discussed by Corporate AO and the payment was accepted without any disallowance. 10.2. This claim deserves to be rejected for the following reasons: 1) Ld AR filed a 'Note' on Pg 414, claiming to have filed it before that AO. No evidence was furnished as to whether this was actually filed before that AO and whether that AO had made enquiry on this issue. 2) The orders of Corporate AO are dated 24/02/2015 & 27/03/2013 ie much prior to the facts called out during survey on 11/07/2017 by AO in International Taxation. The order passed by the present AO is dt 16/02/2018 after detailed inquiry & based on survey material. 3) The AOs in International Taxation have domain knowledge. 4) If the Corporate AO made an error, there is no reason to perpetuate it. Reliance is placed on the decision of Hon'ble Supreme Court in case of "Distributors Baroda" (155 ITR 120), wherein it was held that "to perpetuate an error is no heroism. To rectify it, is the compulsion of judicial conscience." Yours faithfully,

(VANDANA SAGAR) On Duty as Commissioner of Income Tax (ITAT-1) Bengalur

ITA Nos.490-503(Bang)/2019 9

SYNOPSIS & WRITTEN SUBMISSIONS by Learned AR of the assessee 1. PREAMBLE 1.1 The Appellant, being aggrieved by the order of the learned Commissioner of Income-tax (Appeals) — 12, Bangalore, had instituted this Appeal along with the Grounds of the Appeal which is attached with the Appeal Memo. In furtherance thereto, the Appellant had filed a paper compilation together with a detailed Written Submissions forming part of the Paper Compilation in order to assist this Hon'ble Bench. It is prayed that the same may kindly be considered in the interest of equity and justice.

1.2 The Appellant submits that the above mentioned appeals were heard by this Hon'ble Bench on 20-01-2020 and in continuation to such hearing, the Appellant is filing this Synopsis & Written Submission which briefly explains the issues involved with reference to the relevant case laws relied upon by the Appellant at the time of hearing and further in response to the arguments made by the Revenue during the appeal proceedings.

1.3 The issues which are not elaborated in this Synopsis are not given up and the same may be considered from the Written Submissions filed. It is prayed that the above Synopsis and Written Submissions may kindly be taken on record, considered and adjudicated upon and the appropriate relief be granted for the advancement of substantial cause of justice & equity.

2.2 As a part of its business strategy, the Appellant has a 100% subsidiary in US named Ad2pro Media Solutions Inc, (Hereinafter referred to as the "AMSI") based in California USA. AMSI provides marketing services to AMSPL. The consideration is based on Cost-plus Model. Further, AMSI does not have any establishment or

ITA Nos.490-503(Bang)/2019 10

Business connection in INDIA and more importantly does not.own any technology in providing these marketing services.

2.3 A survey was conducted under Section 133A(2A) on 11.07.2017 by the Learned Deputy Commissioner of Income Tax (IT), Circle 1(1), Bengaluru [Assessing Officer] for the purpose of verifying the deduction of tax at source and accordingly verification was carried out in the business premises of Appellant.

2.4 During the survey the Learned Assessing Officer sought details in respect of foreign remittances made by the Assessee to Ad2Pro Media Solutions, Inc, USA (AMSI, USA), [a wholly owned subsidiary company of Appellant]. The Learned Assessing Officer issued detailed questionnaire seeking the information on the nature of services rendered by AMSI, USA to the Appellant. In response to the same the authorized representative of the Appellant appeared from time to time and produced the details called for.

2.5 Common order under Section 201 & 201(1A) of the Act dated 16-02-2018 was passed in respect of the above mentioned assessment years treating the Appellant as `Assessee-in-default' under Section 201(1) for not deducting tax at source in respect of payments made by Assessee to AMSI, USA for the AY's 2011-2012 to 2017-2018.

2.6 Aggrieved by the order of assessment, the Appellant preferred an appeal before the Commissioner of Income-tax (Appeals) which came to be dismissed confirming the order passed by the assessing officer vide appellate order dated 31-01-2019. 2.7 Aggrieved by the order of assessment, confirmed by the CIT A, the Appellant is in appeal before your office and the issues that are required to be adjudicated by this Hon'ble Bench are: (i) Whether the orders of assessment passed under Section 201 & 201(1A) are barred by limitation?

(ii) Whether the payments made by the Appellant to its subsidiary (AMSI) are subject to with-holding of tax under Section 195 of the Act read with India-US DTAA?

"99. In view thereof, there is conflict of judgments of various courts. One set of judgment are in favour of the assessee and the other set of judgments are in

ITA Nos.490-503(Bang)/2019 11

favour of the Revenue. There is no direct judgment after the amendment of Section 201, by the jurisdictional High Court which deals with the issue of initiation of proceedings under the amended provision of 201. In the absence of any binding judgment by the Hon 'ble jurisdictional High Court, we are bound to adopt the same logic as upheld by the jurisdictional High Court, by treating the resident and the non- resident at par after relying upon the decision of Special Bench in the matter of Mahindra and Mahindra (supra), in case relating to pre amendment assessment year. In our opinion, after the amendment of law same logic and limitation is required to be applied for non-resident well as resident thus treating non-resident at par with resident. In other words, period of imitation for initiation of proceedings for resident as well as non-resident u/s 201 should be 6 years from the end of the financial year. Further the payer is required to maintain books of account and deduct TDS for both resident as well as non-resident. No Separate treatment had been envisaged under the Act, for the payer paying to a non-resident. "

[Emphasis Supplied] 3.2 Wherefore, in view of the above submissions, since the order under Section 201 & 201(1A) of the Act for the financial year 2010-11 is passed after a period of 7 years, it is prayed for appropriate relief holding that the order u/s Sections 201 & 201(1A) of the Act for the assessment year 2011-12 are barred by limitation.

3.3 The Appellant further submits that with regard to Assessment Years 2012-13, 2013-14 & 2014-15, the orders passed u/s 201 & 201 (1A) are also beyond limitation in terms of provision contained in sub section (3) of Section 201, as it stood for the relevant assessment years, prior to the amendment, which came into effect from 1/10/2014.

Assessment Amount in Year Rs.

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2011-2012 3,33,83,259 2012-2013 3,60,15,119 2013-2014 6,20,38,318 2014-2015 7,76,35,411 2015-2016 8,98,12,228 2016-2017 11,73,87,016 2017-2018 23,0347,627 Total 64,60,18,978

4.2 It is submitted that Ad2pro US renders Business Facilitation Services and Collection services for Ad2pro India. Ad2pro India has no direct sales and marketing or business development activities in the US other than through Ad2pro US. In other words, every business won in the US comes from Ad2pro US. The list and details of services rendered are as under:

A) Business Facilitation Services (Marketing Services / Cost of Services outsourced) Business Facilitation Services (Marketing Services / Cost of Services outsourced) happens through any of the below manner.  Lead Generation o Marketing team generate Customer Leads through personal contacts and Request for Proposals (RFP). o Leads are evaluated, and Qualified good leads are considered for taking forward. o Cold calls or e-mails detailing the services of the company are being sent to such leads. o Business meetings are set up with interested parties. o Requirements of the Client is being discussed and capabilities of Ad2pro India are being explained.

o Client asks Ad2pro to send a proposal for services. o Ad2pro US facilitates the negotiations on terms and pricing taking feedback and inputs from Ad2pro India. o Final contract is sent to Client for review and acceptance. o Client reviews and sometimes may request for changes. o Once the contract is finalized it is executed between Client and Ad2pro India.

 Existing Client References o In many case promotions of Ad2pro's services happens through references provided by existing Clients. o New Clients, based on such references, approach Ad2pro US Marketing Team. o This is followed by Business meetings, understanding Clients requirements and sending a proposal.

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o Once all the terms are finalized, a Contract is executed between Client and Ad2pro India

B) Collections Services: Ad2pro US is also entrusted with the responsibility of collecting outstanding money on Invoices from Customers.

4.3 As can be seen from the above description of services, AMSI only renders commercial information to the Appellant, using its know-how and skill, which is not in possession of the Appellant. It is further submitted that the AMSI does not give any information to the Appellant about the method, manner and/or source as to how it obtains the commercial information for the appellant but only provides end-use information to the Appellant. In other words, AMSI does not 'make-available' to the Appellant the know-how, technology and methodology used in rendering the aforementioned services to the Appellant. It is further submitted that AMSI only procures clients to the Appellant who are located outside India and none of the clients or information provided by AMSI pertains to India.

4.4 The AO as well the CIT(A) have, without understanding the actual transaction which has taken place & without analysing the provisions of the Act and the DTAA, and without application of mind, taken a view that the payments are subject to with-holding of tax under the provisions of Section 195 of the Act,

4.5 The Appellant wishes to re-produce the provisions of Section 195 of the Act for ready reference:

"Other SUMS. 195. (1) Any person responsible fir paying to a non-resident, not being a company. or to a foreign company, any interest (not being interest referred to in section 194LB or section 194a) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall . at the time of credit of such income to the account of the of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force" [Emphasis Supplied]

4.6 As per provisions of Section 195 of the Act, the person responsible for paying the non- resident is liable to with-hold tax but the same is to be read with conjunction with Section 190 of the Act which states that "Nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of section 4."

ITA Nos.490-503(Bang)/2019 14

4.7 Wherefore, only when certain sums are treated as income or deemed to be income which is accruing or arising or deemed to accrue or arise in India, the provisions of Section 195 of the Act are applicable. The AO & the CIT A have erroneously held that the payments made by the Appellant to AMS1 amounts to 'Fees for technical services' within the meaning of Section 9(1)(vii) of the Act.

4.8 The Appellant wishes to re-produce the provisions of Section 9(1)(vii) of the Act for ready reference:

"Income deemed to accrue or arise in India. 9. (1) The following incomes shall he deemed to accrue or arise in India:-

(I'll) income by way of for technical services payable by— (a) the Government; or (b) a person who is a resident. except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside india; or (c) a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause .shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976 and approved by the Central Government. Explanation 1.—For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.

Explanation 2.—For the purposes of this clause, "fees for technical services" means' any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, milling or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".

[Emphasis Supplied]

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4.9 As per the definition, technical services mean services which managerial or technical services rendered. It is a settled position of law that, every time any transaction is sought to be taxed in the case of a non-resident, the relevant provisions of the DTAA has to be referred to and the provisions of the DTAA shall prevail over the provisions of the Income-tax Act, 1961. In this regard, reliance is placed on the decision of the Hon'ble Apex Court in the case of Union of India and Another Vs. Azadi BachaoAndolan reported in 263 ITR 706 wherein the Hon'ble Supreme Court has observed as under:

"No provision of the Double Taxation Avoidance Agreement can possibly fasten a tax liability where the liability is no/ imposed by the Act. If a tax liability is imposed by the Act, the Agreement may be resorted to for negativing or reducing it ; and, in case of difference between the provisions of the Act and the Agreement, the provisions of the Agreement would prevail over the provisions of the Act and can he enforced by the appellate authorities and the court." [Emphasis Supplied]

4.10 Wherefore, the provisions of DTAA and its definitions and provisions relating to 'Fees for technical services' have to be necessarily looked into & considered under the facts and circumstances of the case. Article 12 of the India-US DTAA deals with 'Fees for included services' which covers the definition of 'Fees for technical services'. The relevant provisions of the DTAA is reproduced herein below for ready reference;

ITA Nos.490-503(Bang)/2019 16 ARTICLE 12 "ROYALTIES AND FEES FOR INCLUDED SER VICES" "1. Royalties and fees for included services arising in a Contracting Slate and paid to a resident of the other Contracting State may be taxed in that other State 2…. 3…. 4. For purposes of this Article. fees for included services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right. property or information for which a payment described in paragraph 3 is received; or (1)) make available technical knowledge, experience. skill. know-how, or processes, or consist of the development and transfer of a technical plan or technical design." [Emphasis Supplied]

4.11 Hence, as per the above definition, only those payments which arc made in addition to or incidental to payments towards royalty [paid earlier] can be treated as Fees for included services or payment for any technical services wherein the service provider gives complete information /makes it available, to the payer, the manner & method in which the information required by the payer has been gathered /obtained by the service provider as well the source from where such information is obtained. I fence by virtue of the information made available to him, the payer will have requisite to obtain the said or similar information by himself, without availing the services of the service provider. In the instant case, as already submitted, AMSI does not 'make- available' to the Appellant the know-how, technology and methodology used in rendering the aforementioned services to the Appellant. It is further submitted that AMSI only procures clients to the Appellant who are located outside India and none of the clients or information provided by AMSI pertains to India.

4.12 Hence, the services provided by AMSI which is categorized by the Appellant as Marketing Tee are not covered by the definition of 'Fees for included services' under the India-USA DTAA and consequentially the Appellant is not obligated to with-hold tax at source under the provisions of Section 195 of the Act.

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4.13 It is further submitted that the expression 'consultancy' means advisory services and the same does not involve instances where the non-resident is acting as a link between the resident and another party, facilitating the transaction between them, or where the nonresident is soliciting business for the resident and generating income out of such solicitation. The services rendered by the AMSI, USA to Appellant do not fall under the expression 'consultancy' for the reason that the AMSI, USA does not provide advisory services to Appellant. It only facilitates the transaction between the Appellant and the customers of Appellant in USA. It only provides customer leads & procures orders for Appellant, based on negotiations made by the Appellant with the said customers, assists in preparation of contracts between customers and Appellant, helps in collecting payments on behalf of Appellant and repatriating the same to the Appellant.

4.14 The Appellant further submits that, as stated in the agreement, the Appellant delivers design for print and digital to retailers and media companies worldwide. The Appellant generates the Ideas and builds the technology that transforms the manner how businesses manage designs. In the instant case, the Appellant is an Expert. It cannot seek advice from the AMSI, USA which is merely a business facilitator. It is submitted that executor services involve actual carrying out of the services as stated in the contract. The advisory services involve advising the client how to carry out the activities

4.15 Reliance is placed on the following decisions of various courts: (i) CIT v. Grup Ism (P.) Ltd. [2015] 378 ITR 205 (Delhi); (ii) DIT v. PanalfaAutoelektrik Ltd. [2014] 227 Taxman 351 (Delhi); (iii) Adidas Sourcing Ltd. Asst. DIT (International Taxation) [2013] 21 ITR (Trib.) 697 (Delhi); (iv) Dr. Reddy Laboratories Ltd., [2016] 243 Taxman 127 (AAR — New Delhi).

4.16 The Appellant submits that, in case of Dr.Reddy Laboratories 387 ITR 337 AAR, it was held that medical representatives of DRL Russia merely promote the goods by way of meeting doctors and pharmacies and their activities are executor in nature since such services do not entail the rendering of advice to the applicant. Therefore, executor services are not consultancy services.

4.17 It is submitted that under Para 16 of the Agreement entered into between the Appellant and AMSI, USA, the parties have clearly agreed that the services rendered by AMS1, USA do not include any services like training, knowledge transfer, transfer of technology, research and development. Even the Learned Assessing Officer does not dispute the same.lt is submitted that under Para 16 of the Agreement entered into between the Appellant and AMSI, USA, the parties have clearly agreed that the services rendered by AMSI. USA do not include any services like training, knowledge transfer, transfer of technology, research and development. Even the Learned Assessing Officer does not dispute the same.

4.18 The Appellant further submits that in the India-US DTAA, there are provisions for `Memorandum for Understandings' which describes in some detail the category of services defined in paragraph 4 of Article 12 (Royalties and Fees for Included

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Services). It also provides examples of services intended to be covered within the definition of included services and those intended to be excluded, either because they do not satisfy the tests of paragraph 4, or because, notwithstanding the fact that they meet the tests of paragraph 4, they are dealt with under paragraph 5. The DTAA clarifies the understanding of the terms `Technical Services and Consultancy Services' in the following manner: "Article 12 includes only, certain technical and consultancy services. But technical services, we mean in this context services requiring expertise in a technology. 13v consultancy services, we Mean in this context advisory services. The categories of technical and consultancy services are to some extent overlapping because a consultancy service could also be a technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in a technology is required to perform it. Under paragraph 4, technical and consultancy services are considered included services only to the following extent: (1) as described in paragraph 4(a), if they are ancillary and subsidiary to the application or enjoyment of a right, property or information for which are royalty payment is made; or (2) as described in paragraph 4(b), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot he included service ”- [Emphasis Supplied)

4.19 In view thereof, mere consultancy services which are not technical i.e., which is not in relation to transfer of any technical knowledge or know- how and further which is not ancillary to payment of royalty cannot be treated as 'Fees for technical services' within the meaning of Section 9(1)(vii) of the Act and consequentially not liable for with-holding of tax at source. It is prayed that your Honours to hold accordingly in the interest of equity and justice.

4.20 Reliance is placed on the decision of the Kolkata Tribunal in the case of Onprocess Technology India Private Limited Vs DC1T in 1TA No. 1047/Ko1/2016 wherein the Hon'ble Tribunal has held that:

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"3. This Court had an occasion to consider this agreement in the case of CIT v. De Beers India Minerals (P.) Ltd. [2012] 346 1TR 467/208 Taxman 406/21 taxmann.com 214 (Kar.), where, after referring to various provisions of law, it was held that the question, whether along with rendering technical services, whether the technical knowledge with which the services was rendered was also made available to the assessee/customers is purely a question of fact which is to be gathered from the terms of the contract, the nature of services undertaken and what has transmitted in the end after rendering technical services. If along with technical services rendered, If the service provider also makes available the technology which they used in rendering services, then it falls within the definition of "fees for technical services" as contained in DTAA. However, if technology is not made available along with technical services what is rendered is only technical services and the technical knowledge is withheld, then, such a technical service would not fall within the definition of "technical services" in DTAA and the same is not liable to tax. [Emphasis Supplied] "A plain reading of 12(4) of DTAA makes it clear that only such technical and consultancy service are covered which is either (a) are ancillary and subsidiary to the application or enjoyment of the right. property or information referred to in article 12(3) or (b) 'make available' technical knowledge, experience, skill, know-how etc. We find that rendering of technical service cannot be equated with making available the technical service. Whereas for attracting sec. 9(1)(vii) 'rendering' of technical, managerial or consultancy services by itself is sufficient, the tax treaty between India and USA goes further and requires that rendering of services should fiwther result to 'make available' technical knowledge, experience, skill etc. to the person utilizing services. 7 he use of the expression 'making available' in the tax Treaty reference to the stage subsequent to the 'making use of stage The (vial ifYing word is 'which'. The use of this relative pronoun denotes some additional finction. The 'rendering of service' must, fUlfill and that is it should also 'make available' technical knowledge, experience, skill etc. The normal, plain and grammatical meaning of the language employed is, is that mere rendering of service is not roped in Article 12 of the Treaty unless the person utilizing services is also able to make use of the technical knowledge, experience, .skill etc. by himself in his business or .for his own benefit and without recourse to the performer of the services

i

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n futture. The technical knowledge, expertise, skills etc. must remain with the person utilizing the services even after the rendering of service comes to an end"

[Emphasis Supplied]

4.21 Wherefore, it is prayed before this Hon'ble Bench to hold that the payments made by the Appellant to AMSI are not subject to with-holding of tax at. source under Section 195 of the Act in the interest of equity and justice.

4.22 Without prejudice to the above made averments, it is submitted that the transaction in the impugned case falls under the exception provided under Section 9(1)(vii)(b) of the Act. The relevant provisions of the Act are reproduced herein below:

"(vii) income by way of fees for technical services payable by— (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by on by such person in India or for the purposes of making or e

earning any income from any source in India. 4.23 The Appellant submits that Section 9(1)(vii) (b) of the Act provides an exception to the general source rule by providing that where the services rendered by the non-resident service provider (recipient of income) are utilized by the resident payer for purpose of earning income from any source outside India, then, in that situation, such fees would not be deemed to accrue or arise in India. The said exception has two limbs, first is the case of business or profession carried on by Appellant outside India and second is making or earning any income from any source outside India. It is submitted that, without prejudice to the fact that the consideration paid falls under the Exception under the first limb provided under Section 9(1)(vii)(b), it is submitted that if the services were utilized for earning income from source outside India, although the business as such is carried on in India, the second limb would become applicable. As per the second limb of clause (b) of section 9(1)(vii), fee paid in making or earning any income from any source outside India would not be deemed to accrue or arise in India and accordingly, not taxable. 4.24 Reliance is placed on the following decisions namely:

(i) Kunwar TrivikramNarain Singh v. State of Uttar Pradesh (1965) 57 ITR 29 (SC);

(ii) Lufthansa Cargo India (P) Ltd. v. DCIT (2004) 91 ITD 133 (Delhi);

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(iii) IBM World Trade Corpn. v. DDIT [2012] 20 taxmann.com 728 (Bangalore - Trib.);

(iv) Infosys Technologies Ltd., In re [2012] 210 Taxman 295 (AA R)

4.25 It is further submitted that, the jurisdictional Tribunal in the case of 2012 (5) TMI 58 - ITAT BANGALORE - IBM World Trade Corporation Versus Deputy Director of Income-tax, International Taxation, Circle-l(1) has held that, It is a settled position that as per section 90(2), the provisions of the Act or the provisions of the Treaty, whichever is beneficial, apply to the assessee - royalty income in respect of the agreement entered into before 1.6.2005 are from one 'source' and royalty income in respect of agreements entered into on or after 1.6.2005 are from a different 'source' , the contracts or agreements being the source of income have been entered into on different dates and the statute recognizes such time differentiation and provides separate tax rates for each such stream - the assessee is justified in comparing the rate of 10% and 20% (as per section 115A) separately and independently with the rate of 15% (as per Article 12 of the India-USA DTAA Treaty where a provision in the taxing statute is capable of two reasonable interpretations, the view favourable to the assessee is to be preferred.

4.26 It is also submitted that in the instant case, Appellant has customers in USA. It enters into agreement/contract with each of its customers separately. Therefore, it is submitted that even though Appellant is carrying on business in India, it is also earning income from outside India thereby satisfying the condition of the second limb. The services are rendered outside the India and services are utilized outside the India. Thus, the AO should appreciate that the appellant is earning income from source outside India in as much as it enters into contract with each of its customers situated in USA separately, each such contract is subject to laws of USA and each such contract constitutes 'source of income', thereby bringing the case of the appellant within the scope of second limb of exception provided under Section 9(1)(vii)(b). It is prayed accordingly.

5.2 Prima facie, it is submitted that the assessing officer, while treating the Appellant as `Assessee in Default' as per the provisions of Section 201 & 201(1A) of the Act, has treated the payments made to the US company as Fees for Technical Services (Fees for Included Services as per DTAA) & accordingly invoked the provisions applicable to the

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same. He has not treated or even considered the payments to be Royalty. The learned CIT(A) in his order u/s 251 has erred in stating that that one of the limbs of marketing services is lead generation, the Market Team generates customer leads by subscribing to customer database, Market Research and analysis and hence such payments are to be construed as Royalty.

5.3 The Appellant, prima facie, objects to this finding of the learned CIT(A). It is submitted that the Learned CIT(A) could not have discovered a new source of income in exercise of his powers under section 251. If the learned CIT(A) was of the opinion that the payments are in the nature of Royalty, in such circumstances the learned CIT(A) ought to have issued notice under Section 251 of the Act giving an opportunity to the Appellant to show-cause as to why the same should not be treated as Royalty. The learned CIT(A) never gave any such notice and he is not empowered to make such conclusions ma /nolo under the Act as per the provisions of Section 251 of the Act. The addition being sustained on the ground that the payment constitutes Royalty, is bad in law & needs to be deleted. The learned CIT(A) has confirmed the finding of the learned assessing officer that the payments are Fees for included services. Wherefore, the learned CIT(A) ought to have restricted his finding to such extent or ought to have resorted to provisions of Section 251 of the Act and issues show-cause notice. The failure to issue show cause notice is fatal.

5.4 The Appellant places reliance on the following decisions of various courts in support of its contentions:

(i) Saheli Synthetics (P.) Ltd. vs CIT [2008] 302 ITR 126 (Gujarat);

(ii) CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443;

(iii) CIT v. Shapoorji Pallonji Mistry [1962] 44 ITR 891 (SC); 5.5 With regard to the opinion of the CIT A that the payments are of composite nature and liable to be treated as Royalty, the Appellant submits that Learned CIT(A) artificially divided the agreement entered between the Appellant and AMS1, USA in to two parts, as one for providing consultancy services and another for subscribing customer data base. It is further submitted that Learned CIT(A) dedicated his order upto paragraphs 57 for deciding that the impugned payment qualifies as fees for technical services under both the Act and the DTAA. However, in paragraph 58, he abruptly concludes that the payment is composite in nature. This shows that the Learned CIT(A) has not based his finding on any reasoning.

5.6 The Appellant further submits that in the process of carrying out the marketing functions, AMSI, USA may consider it necessary to subscribe for customer database. AMSI, USA may, if necessary, use the above for identifying the prospective customers. These leads are evaluated, and good leads are taken forward though e-mails, phone calls and in case client is interested, business meetings would be set up. The Appellant did not have any access to the database, or the online research subscribed by AMSI, USA. There is no

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interaction between the employees of the Appellant and the employees of database developer. The entire arrangement is between AMSI, USA and the database vendor and the appellant is completely out of picture.

5.7 It is further submitted that no part of payment by the appellant to AMSI, USA is towards subscribing to (a) customer database, (b) market research and (c) analysis and online research data. In fact, AMSI, USA does not itself own any such database or online research data. What the appellant pays to AMSI, USA is towards rendering of certain marketing services. The payment is not made for transfer of all or any rights [including grant of license] of any IPRs listed in Explanation 2 to Section 9(1)(vi).

5.8 It is submitted that the marketing services provided by AMSI USA do not consist of transfer of all or any rights or granting of license in respect of any patent etc. The agreement does not confer any such rights. Let alone agreement conferring such rights, such rights as such do not exist in the hands of AMSI USA. In the absence of existence of any such rights with AMSI USA, there is no question of imparting any information concerning the working of, or use of any such patent etc.

5.9 The Appellant submits that, there is no finding by either the Learned AO or the Learned CIT(A) about imparting of the information concerning technical, industrial, commercial or scientific knowledge or experience or skill. There is neither any averment nor any evidence brought about as regards any such imparting. In fact, the finding by the AO in paragraph 27 is to the contrary. His observation in paragraph 27 is that the services were not one time service and the services are being rendered and constantly upgraded especially with respect to the dynamic and creative solutions of advertising in order to maintain higher edge in the competitive US market and to boost the Appellant's business and to cut costs and increase profits. This itself suggest that establishes that there is no imparting at all.

5.10 Wherefore, the payments cannot be construed as payment towards royalty or as a composite payment as alleged by the CIT(A) and hence not liable to with- holding of tax at source under Section 195 of the Act.

6.1 With regard to the submissions of the revenue on the issue of on the issue of make available, the learned DR for the revenue has submitted that the payment made by the Appellant to AMSI involves making available of technical knowledge. In this regard it is submitted and reiterated that AMSI only provides commercial information about customers and customer leads and never reveals the methodology adopted or database utilized / borrowed / accessed in order to contact the concerned customers. Further, as per the provisions of Article 12 of the DTAA, the technical services have to necessarily be in relation to payment of royalty [Refer Paragraph 4.10 above]. The Appellant reiterates that the submissions with respect to royalty have been provided

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on the foregoing paragraphs and the same may be considered in the interest of equity and justice.

6.2 The Appellant relies on the decision of the Kolkata Tribunal in the case of Onprocess referred above which is rendered in line with the decision of the jurisdictional High Court in the case of CIT vs. De Beers India Minerals Pvt. Ltd. [2012] 21 taxmann.com 214 (Kar) wherein the Hon'ble jurisdictional High Court has held that to "make available" technical knowledge, mere provision of service is not enough; the payer must be enabled to perform the service himself The Appellant submits the same is not the case in the instant case as the Appellant is unable to perform the actions of AMSI and further AMSI does not make available to the Appellant the methodology adopted in rendering its services.

6.3 Reliance is also placed on the decision of the jurisdictional High Court in the case of DIT v. Sun Microsystems India (P.) Ltd. [2014] 369 ITR 63 (Kar) wherein the Hon'ble Court has held that:

6.4 The Appellant further submits that, the test of 'make available' must fulfil the following conditions namely:

Mere rendering of specific technical services is not sufficient to attract definition of 'fees for technical services'. The services rendered should make available technical knowledge, experience, skill, know-how, etc.

(ii) To fit into 'make available', the technology, the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end.

(iii) It is not enough that the services offered are the product of intense technological effort and that a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in future without depending upon the provider.

(iv) The expression 'make available' means the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilise the technical knowledge, experience, skill, know- how, or processes in future on his own without further recourse to the service provider. In other words, it requires that the service provider should make his technical knowledge, experience, skill, know-how etc. known to the recipient of the service so as to equip him to independently perform the technical function himself in future, without the help of the service provider.

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6.5 In the instant case as submitted above, the services rendered by AMSI, USA are commercial in nature. It is rendered only to facilitate the business of the Appellant. The personnel of Appellantare not receiving any technical knowledge, skills, know-how from the services rendered by AMSI, USA. The Learned CIT(A) apparently has mixed up between 'services made available' and 'technology in services made available'. While the former is universal in all cases of service contract, the latter is by exception. It is trite that making available service is the primary requirement of any service contract. However, the critical question is not whether the service is made available, but whether the technology embedded therein is made available.

6.6 Wherefore, the provisions of make-available are not attracted in the instant case in view of the above submissions. It is prayed accordingly;

7.1 In a nutshell, it is prayed to consider the above made submissions and further it is prayed for the following relief to hold that:

(1) The orders of assessment are barred by limitation under the provisions of Section 201 & 201(1A) of the Act.

(11) The Marketing Fee paid by the Appellant to AMSI is not a technical fee within the meaning of Section 9(1)(vii) read with Article 12 of the DTAA and that the marketing fee is only paid for business facilitation and not for imparting any technical know-how or technical information.

(III) AMSI does not 'make available' any technology or methodology or know how to the Appellant as envisaged in Article 12 of the India-US DTAA and the Appellant is not liable to with-hold tax at source on the marketing Fees under the provisions of Section 195 of the Act.

(IV) The payment of marketing fee is not in the nature of royalty or composite transaction and the learned CIT(A) is not justified in holding so in his appellate order thereby violating the provisions of Section 251 of the Act and further violating the principles of natural justice.

(V) Without prejudice, hold that the Marketing Fee paid by the Appellant to AMSI falls within the exception provided under Section 9(1)(vii)(b) of the Act and consequentially not liable to TDS under Section 195 of the Act.

(VI) Grant such other relief that this Hon'ble Bench may deem fit on the facts and circumstances of the case.

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For the above submissions and the submissions made at the time of hearing, the. Appellant prays that the appeals be allowed for the advancement of substantial cause of justice and equity.

ITA Nos.490-503(Bang)/2019 27

ITA Nos.490-503(Bang)/2019 28 ii. DIT Vs Panalfa Autoelektrik Ltd.(2014) 227 Taxman 351(Delhi.) iii. Addidas Sourcing Ltd. Asst.DIT(International Taxation)(2013) 21 ITR 9trib.)697(Delhi.) iv. Dr. Reddy Laboratories Ltd. (2016) 243 Taxman 127(AAR- New Delhi)

Reliance was also placed on a Tribunal order rendered by the Kolkata Bench of this Tribunal in the case of Onprocess Technology India Pvt.Ltd. Vs DCIT in ITA No.1047/Kol/2016. This contention was also raised that sec.9(1)(vii) of the Act provides an exception to the general source rule by providing that were the services rendered by the non- resident service provider are utilized by the resident payer for purpose of earning income from any source outside India, then in that situation, such fees would not be deemed to accrue or arise in India. In support of this contention, reliance was also placed on the following judicial pronouncements;

i. Kunwar Trivikram Narain Singh v State of Uttar Pradesh (965) 57 ITR 29(SC). ii. Lufthansa Cargo India (P)Ltd v DCIT (2004) 91 ITD 133 (Del.) iii. IBM World Trade Corpn. V DDIT (2012) 20 taxmann.com 728(Bangalore- Trib.) iv. Infosys Technologies Ltd in re (2012) 210 Taxman 295(AAR). 6.1 Regarding this aspect that the payment in question is royalty, it is submitted by ld.AR of the assessee that CIT(A) could not have discovered a new source of income in exercise of his powers u/s 251. It is also submitted that he CIT(A) has never given a notice u/s 251 of the Act giving opportunity to the assessee to show cause as to why the same should not be treated as royalty. It is submitted that for this

ITA Nos.490-503(Bang)/2019 29 reason alone, the addition on this basis that the payment constitutes royalty is bad in law and should be deleted. In support of this contention, reliance was placed on the following judicial pronouncements.

i. Saheli Synthetics (P) Ltd. vs CIT (2008) 302 ITR 126 (Guj.) ii. CIT v Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443: iii. CIT v Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC). 6.2 Regarding make available aspect, reliance was also placed by ld. AR of the assessee on the judgment of the Hon’ble Karnataka High Court rendered in the case of DIT Vs Sun Microsystems India (P) Ltd. (2014) 369 ITR 63(Kar.).

6.3 As against this, it was submitted by ld. DR of the revenue that it is noted by CIT(A) in para-32 page, page-36 of his order that one of the limbs of the marketing services is lead generation and the marketing team generates customer leads using/subscribing to customer data base, market research and analysis, online research data and he has referred to Tribunal order rendered in the case of cross Tab Marketing Services Ltd.1465-1467(B)/2012 s reported in 46 Taxman 146 and rendered in the case of ABB FZ LLC Vs DCIT as reported in 83 Taxmann.com 86 . Reliance was also placed on the Tribunal order rendered in the case of TNT Express Worldwide (UK) Ltd. Vs DCIT (Int. Taxation) in IT(TP)A No.6/Bang/2011 dated 29-04- 2016 in which it was held that when there is a composite agreement for providing various services, some of which are purely business commercial practice & contract services and others are in the nature of imparting the knowledge, experience, which concern the commercial or business experience such payment is in the nature of ‘royalty’.

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7.1 Regarding the argument of the ld.AR of the assessee that ‘make available’ clause of DTAA has not been satisfied, it is submitted that if the payment is ancillary or/and subsidiary to application or enjoyment of the right, property or information for which payment of royalty is made, then there is no application of ‘make available’ clause. It is also submitted that as per Article-12(4)(b), para-6.2 involves ‘make available technical knowledge, experience, skill, know-how or process’. She submitted that various mail correspondences are provided by the assessee during the proceedings and the same abundantly makes it clear that experience and skill had been made available thus, satisfying make available clause of DTAA and she had referred to 7-e-mails during 01-12-2016 to 04-01-2017 being e-mail from Todd Brownrout of Ad2pro Media Solutions, USA to Kartic employee of the assessee company and Mr. Badrinarayanan. She also submitted that in the course of hearing, it was submitted by the ld. AR of the assessee that Todd Brownrout is also a Director of the assessee company and in reply to this, this is the contention raised by the ld. DR of the revenue that these facts supports the case of the revenue and further goes to prove that the skill and experience are made available to the assessee on regular basis.

7.2 Regarding various judgments of which reliance has been placed by the ld. AR of the assessee, it is submitted by ld. DR of the

ITA Nos.490-503(Bang)/2019 31 revenue that these judgments are not applicable in the facts of the present case.

ITA Nos.490-503(Bang)/2019 32 the client for review and acceptance Sometimes, the client may request for changes and once the contract is finalized, it is executed by both parties i.e. client and the assessee. Sometimes marketing of assessee’s services happens through references provided by existing clients. New clients based on such references approach US-AE of the assessee which is followed by business meetings understanding clients requirements and sending a proposal and the terms are finalized and the contract is executed between the client and the assessee. One of the services being rendered by US-AE is regarding collections of outstanding money on invoices from customers.

8.1 As per the above details about the nature of services received by the assessee from its US-AE, it comes out that the US-AE provides services regarding finding of customers for the assessee company to whom the assessee can render various services.

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paragraph 3 and fees for included services as defined in this Article (other than services described in subparagraph (b) of this paragraph): (i) during the first five taxable years for which this Convention has effect, (A) 15 percent of the gross amount of the royalties or fees for included services as defined in this Article, where the payer of the royalties or fees is the Government of that Contracting State, a political subdivision or a public sector company; and (B) 20 percent of the gross amount of the royalties or fees for included services in all other cases; and (ii) during the subsequent years, 15 percent of the gross amount of royalties or fees for included services; and (b) in the case of royalties referred to in subparagraph (b) of paragraph 3 and fees for included services as defined in this Article that are ancillary and subsidiary to the enjoyment of the property for which payment is received under paragraph 3(b) of this Article, 10 percent of the gross amount of the royalties or fees for included services. 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 right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; 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 payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8. 4. For purposes of this Article, "fees for included services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) 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. Notwithstanding paragraph 4, "fees for included services" does not include amounts paid: (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a); (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (c) for teaching in or by educational institutions; (d) for services for the personal use of the individual or individuals making the payment; or (e) to an employee of the person making the payments or to any individual or firm

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of individuals (other than a company) for professional services as defined in Article 15 (Independent Personal Services). 6. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for included services, being a resident of a Contracting State, carries on business in the other Contracting States, in which the royalties or fees for included services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the royalties or fees for included services are attributable to such permanent establishment or fixed base. In such case the provisions of Article 7 (Business Profits) or Article 15 (Independent Personal Services), as the case may be, shall apply. 7. (a) Royalties and fees for included services shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority, or a resident of that State. Where, however, the person paying the royalties or fees for included services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for included services was incurred, and such royalties or fees for included services are borne by such permanent establishment or fixed base, then such royalties or fees or included services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. (b) Where under subparagraph (a) royalties or fees for included services do not arise in one of the Contracting States, and the royalties relate to the use of, or the right to use, the right or property, or the fees for included services relate to services performed, in one of the Contracting States, the royalties or fees for included services shall be deemed to arise in that Contracting State. 8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them. and some other person, the amount of the royalties or fees for included services paid exceeds 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 such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of the Convention. A”

ITA Nos.490-503(Bang)/2019 35 payment is for information concerning commercial experience. In this regard, ld. DR of the revenue placed reliance on a Tribunal order rendered in the case of TNT Express Worldwide (UK)(supra). In para- 13 of this Tribunal order, it is noted by the Tribunal that the AO has given this finding by holding that the asssessee supplied information to TNT India which has been used by TNT India for his own account. The AO further noted in that case that commercial information has been provided by assessee to TNT Express India arises from previous experience which definitely has practical application in the operations of the enterprises and from which the commercial benefit can be derived. In para-21 of this Tribunal order, it is noted by the Tribunal that it appears to be composite agreement for providing various services some of which are purely business or commercial practice and contract service and others are in the nature of imparting the knowledge and experience which concern the commercial or business experience. It is further noted that in such a scenario when the assessee is unable to provide bifurcation of the payment relating to each kind of services, then as per para-11.6 of OECD Model Tax Convention where reasonable apportionment is not possible then the other part of the services could also be given the same treatment as a service provider which constitutes principles of contract and falling within the purview of ‘royalty’. Hence, it is seen that as per the facts of that case, the assessee supplied information to TNT India which was to be used by TNT India for its own account. In the present case, this is not even an allegation of the AO that any information was provided by the US AE of the assessee company i.e. Service Provider for use of the assesee company as per nature of services rendered by the AE of the assesssee company as noted by the AO in para-17 of the assessment order. In that para, it is noted that the AE of the assessee company used to generate customer lead by using/subscribing to customer data base, market research and analysis and on-line research data and

ITA Nos.490-503(Bang)/2019 36 after generating such leads it was acted upon to establish contracts of supply between the customer and the assessee company in some of the cases where both sides agreed. It is seen that in the present case, no information as such is provided by US-AE of the assessee company and such technical data or other data are used by the AE of the assessee company itself to generate customer leads and after having negotiations with such potential customers, US-AE of the assesssee helped the assessee company in getting orders from various customers abroad. In our considered opinion, in the facts of the present case, this Tribunal order relied upon by the ld. DR of the revenue is not applicable to the present case.

10.1 No other argument was advanced by the ld. DR of the revenue in this regard as to how the payment in question is a payment for royalty. Regarding this aspect that the payment in question is payment for Commercial Experience provided by US AE of the assessee company to the assessee company and therefore, the payment in question is royalty, she has placed reliance on various e-mails between Todd Brownrout of US-AE of the assessee company and Mr.Kartic and Mr. Badrinarayanan, employees of the assessee company. In this regard, this was the submissions of theld.AR of the assessee that Mr.Todd Brownrout is also a Director of the assessee company and therefore, these e-mails from him cannot be considered as e-mail from US-AE. Copy of these e-mails are available on pages 61-73 of the paper book filed by the ld. DR of the revenue. On page-60 of the paper book filed by the ld. DR of the revenue is e-mail from Mr.Kartic Srinivasan to Mr.Todd Brownrout with a copy to Mr.Badrinarayanan on 02-12-2016 and the subject of this e-mail is ‘final documents’ In this e-mail, it is mainly stated by Mr.Kartic that he along with Mr.Badrinarayanan can clean up the language and there are some other clauses of the proposed agreement and on page-61 of the paper

ITA Nos.490-503(Bang)/2019 37 book is the reply from Mr.Todd Brownrout to Mr.Kartic and this e-mail is dated 02-12-2016 at4.15pm whereas the timing of the earlier-mail from Mr.Kartic Srinivasan to Mr.Todd Brownrout was at 11.02 am. In this e-mail also, there are some comments and queries about the terms of the said e-mails and hence, it cannot be said that any information was provided by Mr.Todd Brownrout to the assessee company which can be said to be providing information about the commercial experience. Another e-mail on page-62 of the paper book filed by the ld. DR of the revenue dated 02-122-2016 at 3.55 pm and in this e-mail, it is stated by Mr.Todd Brownrout that he has received the contract and it is not ready to be signed and he has marked-up the attachment with specific questions. Hence, as per this e-mails also, it cannot be said that Mr.Todd Brownrout has provided some commercial experience. On page-63 of thepaper book filed by the ld. DR of the revenue is another e-mail from Mr.Kartic Srinivasan to Mr. Badrinarayanan on Nov.29, 2016 at 2.27pm. The ld. DR of the revenue has not commented about this e-mail and her comments are about e-mail dated 04-01-2017 available on page-65 of the paper book. This e-mail is sent by Mr.Todd Brownrout to Mr.Kartic Srinivasan on Jan 4, 2017 at 4.17pm. In this e-mail, it is stated by Mr.Todd Brownrout that one short term issue which they need to address is the APN agreement which has expired at that time and it was suggested that the extension of the agreement is required.

ITA Nos.490-503(Bang)/2019 38 per this e-mail also, Mr.Todd Brownrout has not provided any commercial experience.

13.1 With the above discussions, we have seen that as per these e-mails, no information concerning the commercial experience was provided by Mr.Todd Brownrout or Mr.Colin Wheeler. Hence, these arguments of the ld. DR of the revenue does not support the case of the revenue.

ITA Nos.490-503(Bang)/2019 39 essential that the services provider makes available experience, skill, know-how or process or transfer of assets, transfer of development and technical design etc. In the present case, as per the scope of work noted above and as noted by the AO in para-17 of the assessment order, the marketing team of the service provider i.e. US-AE used to generate customer leads using/subscribing customer data base, market research and analysis and online research data and hence, it is seen that the service provider has not made available any technical knowledge, experience, know-how, process or develop and transfer technical plan on technical design. Hence, the impugned payment is not hit by Article-12(4) of the Indo-US DTAA i.e. fees for included services.

14.1 As per above discussion, we find that in the present case, the impugned payment cannot be said to be on account of ‘royalty’ or fees for included services. At this juncture, we feel it proper to discuss and examine the applicability of the judgments cited by ld. AR of the assessee as noted above.

ITA Nos.490-503(Bang)/2019 40 of the assessee abroad and this Tribunal order supports the view taken by us in the above para.

15.1 As per the above discussion, we have seen that in the facts of the present case, the services received by the assessee company cannot be considered as ‘royalty’ or fees for included services and the assessee was not under obligation to deduct TDS on this payment and as a consequence, the demand raised by the AO u/s 201(1) & 201(1A) of the Act cannot survive and the same is deleted.

Order pronounced in the open court on

Sd/- Sd/- (P.K.GADALE) (A.K.GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 20-03-2020 *am Copy of the Order forwarded to: 1.Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5. DR 6. ITO (TDS) 7.Guard File By Order Asst. Registrar

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