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Income Tax Appellate Tribunal, ‘’D’’ BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-13, (in short “Ld. CIT(A)”), Ahmedabad order dated 03.03.2020 for A.Y. 2012-13.
The revenue has raised following grounds of appeal:
1. Whether on the fact and circumstances of the case, Ld. CIT (A) has erred in law in holding that payment made to Algoritheme Pharma Inc.-USA, Pharmanet Canada Inc., Cetero Research USA, Hilltop Research USA, Impopharma Inc. Canada, Lambda Therapeutic Research Canada, and Novum Pharmaceuticals Research USA, being in the nature of Clinical Trials and Testing Services does not fall in definition of fee for technical service in view of make available" clause in the concernged treaty is not satisfied?
2. Whether on the fact and circumstances of the case, Ld. CIT (A) has erred in law in holding that "make available" clause can be satisfied only when there is transfer of technology in the sense that the user of service should be enabled to do the same thing next time without recourse to the service provider?
3. Whether on the fact and circumstances of the case, Ld. CIT (A) has erred in law in holding that payment made for Clinical Trials and Testing Services does not fall in definition of fee for technical service in view of "make available' clause in the concerned treaty although Assessing Officer has given a categorical finding that make available clause is not necessary for treating it as fee for technical services as the development and transfer of a technical plan or technical design is also happening by way of submission of all raw data, documentation, and other technical study related to documents to the assessee by the sponsor?
4. Whether, the Ld. CIT(A) has erred in law and on facts in holding that the payment made to Chemical Abstract Services, USA, Elsevier B.V. Netherlands, Thomson Reuters Inc. USA for online access to the database, publication and journals does not fall under the definition of royalty under section 9(1)(vi) of the Income-tax Act, 1961 as the same is not for use of copy of literary database but only for access to the literary database?
5. Whether on the facts and circumstance of the case and in law, Ld. CIT(A) erred in holding that the remittance made to Cambridge Soft Corporation USA for purchase of ChemOffice Enterprise and consultancy/professional service does not fall under the definition of royalty under section 9(1)(vi) of the Act while it was paid for the use or right to use of computer software.
6. Whether on the fact and circumstances of the case, Ld. CIT (A) was right in law in holding that the payments made to Bio Innova & Synchron Co. Ltd., Thailand and International Bioservices Co Ltd. Thailand in the nature of Clinical Trials/bio-equivalence study were not part of the fee for technical service in view of section 9(1)(vii) of the Act while FTS is not defined in DTAA between India and Thailand?
7. Whether on the fact and circumstances of the case, Ld. CIT (A) was right in law in holding that the payments made to Bio Innova & Synchron Co. Ltd., Thailand and International Bioservices Co Ltd. Thailand in the nature of Clinical Trials/bio-equivalence study will not be taxable in India as the services were rendered by Non-Resident in Thailand completely ignoring the provisions of law that rendering of services is immaterial and it would be taxable at the place where such services have been utilized which is in India?
8. Whether on the fact and circumstances of the case, Ld. CIT(A) was right in law in holding that the services as referred in Q.No.7 are not taxable as per the provisions of section 9(1)(vii) of the Act holding that it is covered by exception as the services were used for the purpose of business of the assessee being carried out outside India, completely ignoring the fact that the source of the revenue being in Thailand will not make the business of the assessee being carried out from Thailand as the business of the assessee is being carried out from India and also completely ignoring the judgement of the Hon'ble Delhi High Court in the case of Havells India Ltd. (2013) 352 ITR 376 (Delhi) on this issue?
9. Whether on the fact and circumstances of the case, Ld. CIT (A) was right in law in holding that the payments made by the assessee to Swiss Biogenics Ltd. Sri Lanka for market survey/development expenses incurred by the assessee were in the nature of reimbursement and not FTS, completely ignoring the fact that the taxability of the transaction is required to be determined on the basis of characteristic of the transaction and the mode of payment would not make a difference in the facts of the said transaction.
10. Whether on the fact and circumstances of the case, Ld.CIT(A) was right in law in holding that the payments made by the assessee to Swiss Biogenics Ltd. Sri Lanka for market survey/development expenses are not in the nature of FTS completely ignoring the provisions of the DTAA as well as the Income Tax Act which makes it taxable on the basis of provision of any managerial, technical or consultancy services and does not use the term "make available" in Indo-Sri Lanka treaty at all.
11. That the department craves leave to add or alter any further grounds of appeal.”
3. The only effective issue raised by the Revenue is that the learned CIT(A) erred in deleting the withholding tax demand of Rs. 3,46,277,17.00 raised by the AO towards the TDS and interest thereon.
The brief facts of the case are that the assessee is a global pharmaceutical company having its principal place of business at Ahmedabad, India with a core competence in the field of healthcare. The assessee provides healthcare solutions ranging from formulations, active pharmaceutical ingredients, and animal healthcare products etc. In the year under consideration, the assessee company made foreign remittance to certain parties which were classified under the following heads:
(i) Clinical trials (a) Algorithem Pharma Inc- USA Rs. 4,53,20,847/- (b) Pharmanet Canada Inc Rs. 15,07,489/- (c) Cetro Research -USA Rs. 26,61,901/- (d) Hilltop Research-USA Rs. 2,14,51,689/- (e) Impopharma Inc- Canada Rs. 23,36,320/- (f) Lambada Therapeutic Research- Canada Rs. 47,73,195/- (g) NovumePharmaceuticals Research-Canada Rs. 1,88,20,283/- (ii) Fee for consultancy services (a) Cambridgesoft Corp. USA Rs. 18,74,371/- (b) Bio Innova &SynchronCo. Ltd- Thailand Rs. 86,00,122/- (c) InternationBioservices Co. Ltd- Thailand Rs. 10,91,728/- (iii) Online access to publication/ database & Journals (a) Chemical Abstract Services USA Rs. 33,88,992/-
(b) Thomson Reuters INC USA Rs. 31,75,380/- (c) Elsevier BV Netherlands Rs. 1,78,99,640/- (iv) Purchase of productivity tool (a) Cambridgesoft Corp. USA Rs. 3,16,81,125/- (v) Reimbursement of market survey/development expenses (a) Swiss Biogenics Ltd – Sri Lanka Rs. 76,28,381/-
The assessee regarding remittance made for the services, in the nature of clinical trials to 7 parties based in USA-Canada, and professional fee paid to the party namely Cambridge soft Corp. USA for Rs. 18,47,361/- submitted that these services fall under the purview of fees for technical services. However, as per the provisions of article 12 of DTAA with USA-Canada to tax such payment in India, one additional condition i.e. “the service provider should also make available his technical knowledge, experience, skill, know how etc, known to the recipient of the service as to equip him to independently perform the technical function himself in future, without the help of service provider” is required to be fulfilled. In its case, no search technical knowledge, experience, know-how etc. was made available by the parties to whom remittance was made on account of Fees for Technical services being clinical trial. Therefore, such payment is not liable to be taxed in India and accordingly no withholding tax was deducted by it on such payment under the provisions of section 195 of the Act.
Regarding the payment/remittance of Rs. 3,16,81,125/- to Cambridge soft Corp. USA, the assessee stated that the same was in connection with purchase of “ChemOffice Enterprise” which is a scientific tool used by the scientist to keep effective track of their work. Thus, the same is an outright purchase on which no withholding tax is required to be deducted under the provisions of section 195 of the Act.
The assessee in relation to the remittance made to 2 parties based in Thailand stated that the payments made were for bio equivalent study for the purpose of getting the approval of its product by Thai authority to sale there which is in the nature of fees for technical services. The tax DTAA with Thailand does not have any specific provision for fees for technical services therefore, the same will fall under the provisions of article 7 “Business Profit” of the DTAA with Thailand. In support of its contention, the assessee relied on the judgment of Hon'ble Madras High Court in the case of Bangkok Glass Industries Co. Ltd. vs. ACIT reported in 215 taxman 116. Furthermore, Article 7 of the India-Thailand tax treaty requires to tax the profit of the enterprise in the contracting state unless such enterprise carries on business in other contracting state through permanent establishment to the extent of income attributable to the PE. In its case none of the party have PE in India neither the assessee has PE in Thailand.
8. The assessee further submitted that the services were rendered by the foreign parties outside India in connection with the business carried on outside India (Thailand), hence the same is covered under the exception clause provided under section 9(1)(vii)(b) of the Act. Identical contention was also made by the assessee regarding remittance made to the Swiss Biogenics Ltd., Sri Lanka as reimbursement of market survey/development expenses.
9. The assessee regarding the payment made to 3 parties under the category Online access to publication/ database & Journals stated that the payment was made to have access of chemistry and related science data base, science publication and journals which cannot be covered under royalty or fees for technical services. Therefore, no withholding tax was required to be deducted on such remittance.
However, the AO disagreed with the contention of the assessee. The AO in relation to remittance made for technical services/clinical trial to the parties based in USA-Canada where DTAA contain specific provisions on FTS, analyzed the nature of services in detail and observed that "the tests are highly technical in nature and generate considerable technical information about the drugs being tested which are extremely valuable in subsequent phases of the drug commercialization". In addition to elaborate discussion about the nature of services and as to how technical these services are, the Assessing Officer also observed that "the 'make available' clause is not to be applied merely with respect to technical knowledge but also with respect to experience, skill and process" as well, and, therefore, "even if experience or skill is made available to the assessee, the make available clause would be satisfied and the nature of service would be liable to be treated as fee for included services". It was in this backdrop that the Assessing Officer proceeded to hold that the assessee had obligation to deduct tax at source from these payments discussed above, as these amounts were taxable in India in the hands of non-residents, under section 195 of the Act.
The AO regarding the remittance made to the Thailand based parties held that the payment made was in nature of fee for technical services and DTAA between India-Thailand is silent on treatment of FTS therefore the provision of income tax shall prevail in the given case. The view of the AO was also supported by the provision of article 3 and 27 of India-Thailand DTAA which state that if a term is not defined in the treaty, then such term will be governed by the laws in force of the contracting state. Thus, the AO held that payment made to Thailand based companies is covered by the provisions of section 9(1)(vii) of the Act on which assessee was liable to deduct withholding tax as per the provisions of section 195 of the Act. The AO also distinguished the case law relied upon by the assessee being Bangkok Glass Industries Co. Ltd. vs. ACIT (supra) on ground that the dispute in the said case relates to A.Y. 1991-92 to 1994-95 whereas the provision now got amended. Therefore, the principle laid down in the said case cannot be applied.
11.1 Likewise, AO regarding the payment made to Sri Lankan based party i.e. Swiss Biogenics Ltd found that such payment was made for market survey/development services provided by the party to the assessee. The services provided are technical in nature and fall under the definition of FTS provided under the provision of section 9(1)(vii) of the Act. The FTS also covered under the provisions of article 12 of India-Sri Lanka DTAA. Therefore, the payment made to impugned party is liable to be withholding tax as per the provision of section 195 of the Act.
Regarding the payment made to Cambridgesoft Coro USA for Rs. 3,16,81,125 for purchase of ChemOffice enterprise, the AO found the ChemOffice is a software and purchase of software falls under category of fees for Royalty and therefore the same should be subject to withholding tax.
Regarding payment to 3 parties being Chemical Abstract Services USA, Thomson Reuters INC USA, and Elsevier BV Netherlands for subscription of chemistry data base, science publications, and journals, the Assessing Officer was of the view that this payment is for exploitation of copyrighted database, through licence, and accordingly, taxable as royalty. It was noted that 'royalty' has been defined as "payment of any kind received as a consideration for the use of, or right to use of, any copyright of literary, artistic or scientific work" and that the expression "literary work", under section 2(o) of the Copyright Act, includes 'literary database'. It was also noted that the non-resident, to whom the payment in question was made, holds rights/copyrights which are granted under non- exclusive and non-transferable basis, for access to licensed material. It was in this background that the Assessing Officer held that the assessee ought to have deducted tax at source from the payments so made to the non-residents as these were taxable as 'royalty' under the related tax treaties.
In view of the above, the AO treated the assessee as assessee in default for don-deduction of TDS discussed under 195 of the Act. Accordingly, the AO disallowed the deduction and raised the demand of Rs. 3,46,277,17.00 only towards the TDS and interest respectively under section 201(1)/201(1A) of the Act.
15. The aggrieved assessee preferred an appeal before the learned CIT(A). The learned CIT(A) after considering the assessment order, and submission of the assessee deleted the demand raised by the AO by observing as under:
“5.6 On the perusal of the impugned order it appears obvious that the AO has not dealt as to how by getting the pharmacological tests and clinical trials done / by the non- resident entities, the appellant has come to acquire any technical j knowledge, skills, know how or processes to conduct these tests and trials by itself. I do not find any real and relevant content in the AO's discussion in the impugned order touching upon any material aspect of the services which by any stretch of imagination could make the services of the non-resident entities to be "technical service" or "included services". The AO is found not justified in holding that mere provision of study report (or test / trial results) by the service providers makes the technology/know how available to the appellant and that even deputing its employees at the time of study has in any way made available the technology to the appellant because it is well settled principal that mere provision of technical services is not enough to attract withholding tax under the DTAA for which the requirement is that the service provider should also make available its technical knowledge, skills, know how known to the recipient to the services i.e. the assessee so as to equip the assessee to Independently perform these technical functions by itself in future and without the help of that/any other service provider. The Hon'ble ITAT Ahmedabad in its order in the case of the appellant for AY 2010-11 has held in favour of the appellant that in all these tax treaties (applicable in the specific cases / instances of the appellant) there is make available clause and the rendering of the technical services by its self is not sufficient to invoke the taxability of those technical services and that for the purpose of taxability there has to be a transfer of technology so that the user of services i.e. the appellant should be enabld to do the same thing next time without recourse to the service provider and that in the case service provided by non-resident(s) did not involve any transfer of technology and thus the test laid down by Hon'ble courts were clearly not satisfied. The Hon'ble ITAT also noted that the issue regarding taxability of these services is also covered in the favour of the assessee, by the order dated 30.11.2015 passed by a Coordinate Bench. The Hon'ble ITAT approved the conclusion arrived at by the C1T (A) and declined to interfere in the matter.”
5.7 In this background and from the perusal of appellant's submission it is seen that the status of the impugned payments without TDS are as under:
Sr. Name of Company to Amount Nature of Comments No. which foreign (Rs.) Payment remittance made 1 Algorithme Pharma Inc. 45,320,847 Fees for Clinical Ground of Appeal covered by USA Trials ITAT Order in the Appellant's Own Case for A.Y. 2010-11
2. Pharmanet Canada Inc. 2,661,901 -Fees for Clinical Ground of Appeal covered by Trials ITAT Order in the Appellant's Own Case for A.Y. 2010-11
3. Cetero Research USA 5,615,817 Fees for Clinical Ground of Appeal covered by Trials ITAT Order in the Appellant's Own Case for A.Y. 2010-11
4. Hilltop Research USA 2 1,45 1,689 Fees for Clinical Ground of Appeal covered 'by Trials ITAT Order in the Appellant's Own Case for A.Y. 2010-11
5. Impopharma Inc. 2,336,320 Fees for Clinical Ground of Appeal covered by Canada Trials ITAT Order in the Appellant's Own Case for A.Y. 2010-11
6. Lambda Therapeutic 4, 773, 195 Fees for Clinical Ground of Appeal covered by Research Canada Trials ITAT Order in the Appellant's Own Case for A.Y. 2010-11
7. Novum Pharmaceuticals 18,820,283 Fees for Clinical Ground of Appeal covered by Research USA Trials ITAT Order in the Appellant's Own Case for A.Y. 2010-11
8. Chemical Abstract 3,385,992 Access to Online Ground of Appeal covered by Services USA Database ITAT Order in the Appellant's Own Case for A.Y. 2010-11
9. Elsevier BV Netherlands 17,899,640 Access to Online Ground of Appeal covered by Journal ITAT Order in the Appellant's Own Case for A.Y. 2010-11
10. Thomson Reuters Inc. 3,175,380 Journal Ground of Appeal covered by USA Subscription Fees ITAT Order in the Appellant's Own Case for A.Y. 2010-11
11. Cambridge Soft Corp. 1,874,361 Fees for Ground of Appeal covered by USA Consultancy ITAT Order in the Appellant's Services Own Case for A.Y. 2010-11
12. Bio Innova & Synchron 8,600,122 Fees for Technical Issue no before the Hon’ble Thailand Services ITAT in A.Y. 2010-11
13. International 1,091,782 Fees for Technical Issue not before the Hon’ble Bioservices Co. Ltd. Services ITAT in A.Y. 2010-11 Thailand
14. Cambridge Soft Corp. 31,681,125 Purchase of Issue not before the Hon’ble USA ChemOfficer ITAT in A.Y. 2010-11 Enterprise
15. Swiss Biogenics Ltd. Sri 7,628,381 Reimbursement Issue not before the Hon’ble Lanka for Market Survey ITAT in A.Y. 2010-11 5.8 Thus the payments made by the appellant to various non-resident entities in relation to fees for clinical trials are held to be not in the nature of technical-services and hence not liable for TDS u/s.195. It is also held that the services rendered by those non- resident entities are also neither in the nature of royalty nor in the nature of transfer of intellectual properties and on these accounts also there is no case for deduction of TDS u/s.195 and the appellant is not an assessee in default u/s.201 of the Act. Thus the impugned order to the extent of the parties at Sr. No. 1 to 7 in the table (being covered by the order of the ITAT in the case of appellant itself) above cannot be upheld and the AO is directed to delete the related demand raised u/s.201(1) and 201(1A) of the Act.
5.9 As to the parties at Sr. No. 8 to 10 in the table above it is seen that the payments made by the appellant to those non-resident entities were for the purpose of access to online journals and for subscription of journals. The access to the technical journals and subscribing to technical journals are requirements of the appellant for the purpose of business and the technical personnel including the scientists and staff in its R & D labs to be aware of latest researches and studies in the area in advanced countries abroad. Such journals are commercially available to all the interested buyers and are in no way specific 1 to the appellant and though it disseminates technical knowledge but in no way transfers the knowledge to the level that it can be said that the knowledge has been made available to the appellant on the basis of which the personnel of the appellant have come to acquire expertise and skill to replicate and use the same for appellant's business. Subscribing of journals is not transfer of a technical plan or a technical design and any kind of know how or do how or any intellectual property. The subscribing to journal is akin to purchase of journal/books from any journal stand/book store, The payment made to GAS is for online access to SciFinder, a database with collection of chemistry and related science information and the aforementioned website is available publicly to any party interested in availing of the same, upon payment of the access fee. Payment made to Elsevier B.V. Netherlands is for getting online access to Science Direct Corporate Edition, an online journal which contains the widest range of content possible on Science Direct. The payment made to Thomson Reuters is for journal subscription.
5.10 It is argued by the appellant that neither of the aforementioned is information of the nature, which has been specifically created for the appellant or designed to its requirements and that there is no element of any royalty and therefore, the question of deduction of withholding tax on such payments u/s. 195 of the I.T. Act does not arise. The appellant as relied on Factset Research Systems Inc., 317 ITR 169 (AAR) and Dun & Bradstreet Espana, S.A., 272 ITR 99 (AAR). The appellant has also drawn attention to on the Order of the Hon'ble ITAT Ahmedabad, in the appellant's own case for A.Y. 2010- 11, wherein, in respect of identical payments, the Hon'ble ITAT held that "the treaty provision unambiguously requires that only when the use is of the copyright that the taxability can be triggered in the source country and that in the present case, the payment is for the use of copyrighted material rather than for the use of copyright. ....... In our considered view, it was simply a case of copyrighted material and therefore the impugned payments cannot be treated as royalty payments. ..... In view of the above discussions, as also bearing in mind entirety of the case, we uphold the conclusions arrived at by the learned CIT (A) and decline to interfere in the matter."
5.11 Thus the impugned order to the extent of the parties at Sr. No. 8 to 10 in the table above cannot be upheld and the AO is directed to delete the related demand raised u/s.201(1) and 201(1A) of the Act.
5.12 As to the payment made of Rs.3,16,81,125/- to Cambridgesoft Corporation USA it is seen that it is for the outright purchase of a software pack, 'ChemOffice Enterprise' which is a scientific and integrated suite of personal productivity that helps scientists to keep track of their work and to gain deeper understanding of their data and reports. It is the case of the appellant that payment to the non-resident entities is neither in the nature of royalty nor fees for technical services. It is not the case of the AO that nonresident entities has a PE in India and that the payment to said entities can be held to be income of that entities under Article 7 (business profit) of DTAA with USA. Apart from relying on various case laws the appellant has also referred to the ITAT's order in its own case already dealt before in the context of the issues related to journals. The purchase of ChemOffice Enterprise is just like a purchase of MS Office and the purchase being directly from the party outside India and the seller having no PE in India, there is no chargeability of the amount paid to Cambridgesoft Corporation and therefore no TDS was required to be deducted u/s. 195 of the Act. The action of the AO in holding the appellant as assessee in default for the purpose of section 201 cannot be upheld. The AO is directed to delete the demand related to Sr.No.14 of the table before.
5.13 As to the payment made of Rs.18,74,360/- to Cambridgesoft Corporation USA it is seen that it is for consultancy/professional services provided by the said entity to the appellant. As per the appellant same does not fall within the "make available" clause/provision under Article 12 of India-USA DTAA and for the purpose reliance has been placed on CIT vs. DeBeers India Mineral P Ltd. 346 ITR 467 and host of other cases cited in the context of pharmacological test and clinical trials dealt before. I find the contention of the appellant to be in accordance with the provisions whereby TDS is not required. The AO is directed to delete the demand related to Sr.No.11 of the table before.”
5.14 As to the payments of Rs.86,00,122/- to M/s. Bio Innova & Synchron Co. Ltd. (of Thailand) and of Rs.10,91,782/- to M/s. International Bo Sciences Co. Ltd. (of Thailand) it is explained by the appellant that they are in the nature of payment for clinical trials / bio-equivalence study and they don't fall in the nature of royalty as per Article 12 of India- Thailand DTAA and that in the absence of any specific article/provision in the DTAA causing such services, the said payments are covered by Article 7 (Business Profits) of the DTAA and the same could have been invoked only if these non-resident entities had PEs in India which they don't have. The contention of the appellant is supported by the decision of the Hon'ble Madras High Court in the case of Bangkok Glass Industry Co. Ltd. V. ACIT 215 Taxman 116 and the decision of the ITAT Ahmedabad in the case of DCIT Vs. Welspun Corporation Ltd. 77 taxmann.com 165. It is further elaborated by the appellant that these services were rendered by the non-residents in Thailand and were for the use/business of the appellant in Thailand. This is covered by the exception under the Act. I find myself in agreement with the arguments of the appellant. The demand related there to cannot be upheld.
5.15 As to the payment made of Rs.76,28,381/- to M/s. Swiss Biogenic Ltd. Sri Lanka by way of reimbursement of market survey/development expenses in Sri Lanka it is seen that as per the appellant the payment was for the services rendered by the said party in Sri Lanka and for the purpose of utilization of the same for business in Sri Lanka and the objective was to find out market feasibility of appellant's product in Sri Lanka. It is contended by the appellant; that the payment was not in the nature of FTS u/s.9 (1)(vii) as the same was covered under the explanation laid down in clause (b) where under no income shall be deemed to accrue or arise if the amount is payable by a resident person (the appellant) and the payment was payable for services utilized in business outside India. This assertion of the appellant is not controverted by the AO. However the AO has held that as per the Article 12 of DTAA between India-Sri Lanka the term fees for technical services means payments of any kind other than those mention in Articles 14 & 15 of the Agreement as consideration for managerial or technical or consultancy services including the provisions of service of technical or other personnel and that the Hon'ble ITAT has not dealt on the second portion of the fees for technical services mentioned the DTAA. It is agreed that there is no make available clause for the purpose, but the facts remain that the services were rendered by the non-resident in the country outside India (i.e. Sri Lanka) and was for the purpose of the business possibilities of the appellant in Sri Lanka. It is definitely the exception covered by the provisions of the Act. Thus the appellant's contentions that services received were both rendered as well as utilized outside India and the also nonresident party has not PE in India are found to be tenable. The action of the AO in holding the appellant as assessee in default for the purpose of section 201 for the item Sr.No.15 of the table before cannot be upheld. The demand to that respect is deleted.
16. Being aggrieved by the order of the learned CIT(A), the revenue is in appeal before us.
17. The learned DR before us vehemently supported the order of the AO and on the other hand, the learned AR filed a chart of two pages along with case law compilation and submitted that the ITAT in the own case of the assessee has decided the issue in favour of the assessee. The ld. AR vehemently relied on the order of ld. CIT-A.
We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly the assessee has made foreign remittance to various parties against the services being clinical trial, professional consultancy, and market survey. Besides, the remittance was also made for subscription of data base, publication, journals, and software. The AO held that the assessee was required to deduct withholding tax on such remittance as per the provisions of section 195 of the Act and accordingly raised demand under section 201(1)/201(1A) of the Act towards TDS and interest thereon. However, the learned CIT(A) was pleased to delete the demand raised by the AO.
As far as the issue of withholding tax on remittance made to USA-Canada based 7 parties for clinical trial and professional consultancy from Cambridgesoft Corp. USA where DTAA has specific provision regarding FTS is concern, we find that such issue is covered in favour of the assessee by the order of this Tribunal in the own case of the assessee for AY 2010-11 reported in 77 taxmann.com 309. The Tribunal vide order dated 03 January 2017 held as under:
We find that the common thread in all these tax treaties is the requirement of 'make available' clause. As learned counsel rightly puts it, its not simply the rendition of a technical service which is sufficient to invoke the taxability of technical services under the make available clause. Additionally, there has to be a transfer of technology in the sense that the user of service should be enabled to do the same thing next time without recourse to the service provider. The services provided by non residents did not involve any transfer of technology. It is not even the case of the Assessing Officer that the services were such that the recipient of service was enabled to perform these services on its own without any further recourse to the service provider. It is in this context that we have to examine the scope of expression 'make available'.
As for the connotations of make available clause in the treaty, this issue is no longer res integra. There are at least two non-jurisdictional High Court decisions, namely Honble Delhi High Court in the case of DIT v. Guy Carpenter & Co Ltd. [2012] 346 ITR 504/207 Taxman 121/20 taxmann.com 807 and Honble Karnataka High Court in the case of CIT v. De Beers India Minerals (P.) Ltd. [2012] 346 ITR 467/208 Taxman 406/21 taxmann.com 214 (Kar.) in favour of the assessee, and there is no contrary decision by Honble jurisdictional High Court or by Honble Supreme Court. In De Beers India Minerals (P.) Ltd.'s case (supra), Their Lordships posed the question, as to "what is meaning of make available", to themselves, and proceeded to deal with it as follows:
'The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and 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 the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.'
10. As we have noted earlier, it is not even the case of the Assessing Officer that the assessee, i.e. recipient of services, was enabled to use these services in future without recourse to the service providers. The tests laid down by Hon'ble Court were clearly not satisfied. There mere fact that there were certain technical inputs or that the assessee immensely benefited from these services, even resulting in value addition to the employees of the assessee, is wholly irrelevant. The expression 'make available' has a specific meaning in the context of the tax treaties and there is, thus, no need to adopt the day to day meaning of this expression, as has been done by the Assessing Officer. We also find that the issue regarding taxability of these services is also covered, in favour of the assessee, by the order dated 30thNovember 2015 passed by a coordinate bench. In view of these discussions, and as we concur with the well reasoned findings of the learned CIT (A), we approve the conclusions arrived at by the learned CIT (A) and decline to interfere in the matter on this count as well. The order of the CIT (A) stands confirmed.
11. Ground no. 1 is thus dismissed.
Likewise, the issue of payment made for use of science data base, subscription of journal& Publication is also covered in favour of the assessee by the order of this Tribunal in the own case of the assessee for AY 2010-11(supra). The relevant finding is extracted as under:
13. So far as this ground of appeal is concerned, the relevant material facts are as follows. During the course of proceedings before the Assessing Officer, it was noticed that the assessee has made a payment of Rs 16,30,690 to a US based entity by the name of Chemical Abstract Service for access to database. The Assessing Officer was of the view that this payment is for exploitation of copyrighted database, through licence, and, accordingly, taxable as royalty. It was noted that 'royalty' has been defined as "payment of any kind received as a consideration for the use of, or right to use of, any copyright of literary, artistic or scientific work" and that the expression "literary work", under section 2(o) of the Copyright Act, includes 'literary database'. It was also noted that the non resident, to whom the payment in question was made, holds rights/copyrights which are granted under non exclusive and non transferable basis, for access to licensed material. It was in this background that the Assessing Officer held that the assessee ought to have deducted tax at source from the payments so made to the non residents as these were taxable as 'royalty' under the related tax treaties. Accordingly, tax withholding demand under section 201 r.w.s 195 was raised on the assessee. Aggrieved, assessee carried the matter in appeal before the CIT (A) who held the payment in question was not in the nature of royalty as it was not use of the copyright but a copyrighted material, and, accordingly, deleted the impugned demand. While doing so, learned CIT (A) reasoned as follows:
"14. In relation to the payment made to Chemical Abstract Service USA, the AO has held that the same is in the nature of royalty and has cited certain judicial pronouncements. The appellant has on facts distinguished the decisions that have been cited by the AO in her Order. In the appellant's contention, the payment made by it is only for access to online publication or database, the access of which is publicly available to any person interested in availing of such information, upon payment of requisite fee. Accordingly, the same cannot in any manner be considered as in the nature of royalty, either under the provisions of Sec. 9(1)(vi) of the I.T. Act or under Article 12 of the DTAA with USA. In support, the appellant has also placed reliance on the decisions of the AAR in the case of Factset Research Systems, 317 ITR 169 (AAR) and Dun & Bradstreet Espana,272 ITR 99 (AAR) and the Bombay High Court in the case of Dun & Bradstreet Information Services, 20taxmann.com 695.
15. Having considered the reasoning of the AO and the contentions of the appellant, I am of the view that the ratio of the decisions as relied upon by the appellant is squarely applicable to the facts of the appellant's case. Payment made for access to online publication/database cannot be considered as being in the nature of royalty, liable to withholding tax, either under the Income-tax Act or under the DTAA with USA. Therefore, I hold that the payment made to Chemical Abstract Service USA was not liable to TDS under the provisions of Sec. 195 and accordingly, the appellant could not be held liable to pay tax as an assessee in default u/s. 201(1)."
14. Aggrieved by the relief so granted by the CIT (A), the Assessing Officer is in appeal before us.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position
We find that under article 12(3) of the Indo US tax treaty, 'royalty' has been define as follows "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) payment of any kind received as consideration for the use of, or the right to use, the 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 or Article 8."
We find that as the treaty provision unambiguously requires, it is only when the use is of the copyright that the taxability can be triggered in the source country. In the present case, the payment is for the use of copyrighted material rather than for the use of copyright. The distinction between the copyright and copyrighted article has been very well pointed out by the decisions of Hon'ble Delhi High Court in the case of DIT v. Nokia Networks OY [2013] 358 ITR 259/212 Taxman 68/25taxmann.com 225. In this case all that the assessee gets right is to access the copyrighted material and there is no dispute about. As a matter of fact, the AO righty noted that 'royalty' has been defined as "payment of any kind received as a consideration for the use of, or right to use of, any copyright of literary, artistic or scientific work" and that the expression "literary work", under section 2(o) of the Copyright Act, includes 'literary database' but then he fell in error of reasoning inasmuch as the payment was not for use of copyright of literary database but only for access to the literary database under limited non exclusive and non transferable licence. Even during the course of hearing before us, learned Departmental Representative could not demonstrate as to how there was use of copyright. In our considered view, it was simply a case of copyrighted material and therefore the impugned payments cannot be treated as royalty payments. This view is also supported by Hon'ble Bombay High Court's judgment in the case of DIT (International Taxation) v. Dun & Bradstreet Information Services India (P.) Ltd. [2011] 338 ITR 95/[2012] 20 taxmann.com 695.
18. In view of the above discussions, as also bearing in mind entirety of the case, we uphold the conclusions arrived at by the learned CIT (A) and decline to interfere in the matter.
Thus, respectfully following the finding of this tribunal in the own case of the assessee discussed above we hereby do not find any reason to interfere with the finding of the learned CIT(A) to extent of demand raised under section 201(1)/201(1A) of the Act on account of payment made to 7 USA-Canada based parties on clinical trial, consultancy fees, Cambridge soft Corp. USA and the payment made to 3 parties for access of chemistry data base, science publication and science journals.
Coming to the payment made to Cambridgesoft corporation against purchase of ChemOffice enterprise, we find that the impugned payment represents the outright purchase of the software which cannot be treated as royalty and consequently, the same is outside the purview of the TDS provisions under section 195 of the Act. In holding so, we draw support and guidance from the judgment of Hon’ble Delhi High Court in the case of DIT Vs. Nokia Networks OY reported in 358 ITR 77 wherein it was observed that the transaction of software purchase on principal-to-principal basis cannot be considered as royalty payment. Hence, the demand raised by the AO is hereby deleted.
Coming to the payment made to 2 Thailand based company for bio equivalent study, in this regard we find that there is no dispute that there is no specific provision for taxation of fees for technical services in India Thailand tax treaty. Thus, the profits earned by rendering fees for technical services are only a species of business profits just as the profits any other economic activity. Likewise, there is also no dispute that Thailand based companies did not have any permanent establishments in India. Thus, the income earned by a resident of a contracting state by carrying on business in the other contracting state cannot be taxed in the source state unless such a resident has a permanent establishment in the other contracting state, i.e. source state. In holding so, we draw support and guidance from the order of this Tribunal in the case of DCIT Vs. Welspun Corporation limited reported in 77 taxmann.com 165 wherein it was held as under:
As we hold so, we are alive to the fact that there is no specific taxability provision, under India Thailand tax treaty or, for that purpose, under India UAE tax treaty, with respect to taxability of fees for technical services. Profits earned by rendering fees for technical services are only a species of business profits just as the profits any other economic activity. However, without the character of such receipts in the nature of business receipts being altered, the fee for technical services is dealt with separately in some treaties for the reason because, under those treaties the related contracting states proceed on the basis that even in the absence of the permanent establishment or fixed base requirements, the receipts of this nature can be taxed, on gross basis, at the agreed tax rate, and, to that extent, such receipts does not fall in line with the scheme of taxation of business profits under art. 7 and professional income under 14. It is interesting to note that the moment the threshold limits for permanent establishment or fixed base, as the case may be, is satisfied, the taxability shifts on net basis as business profits or professional (independent personal services) income. The business receipts or professional receipts thus cannot be seen in isolation with the fees for technical services. Its only the fact of, and mode of, taxation in the absence of PE or fixed base, which gets affected as a result of the fees for technical services. When there is an FTS clause, the FTS gets taxed even in the absence of the PE or the fixed base, but the character of FTS receipt is the same, i.e. business income or professional (independent personal) income, in the hands of the same. When there is no FTS clause, this sub categorization of income becomes irrelevant, because FTS or any other business receipt, the income embedded in such receipts gets taxed only if there is a permanent establishment or fixed base- as the case may be. The scope of business profit and independent personal service completely covers the fees for technical services as well. With FTS article or without FTS article, the income by way of fees of technical services continues to be dealt with the provisions of articles relating to business profits, independent personal services, and additionally, in the event of existence of an FTS article, with the article relating to the fees for technical services.
In view of the above discussions, in our considered view, even if the receipts in question are in the nature of fees for technical services in the hands of Afras UAE and GMS Thailand, these receipts are not taxable in the hands of these entities, in terms of the respective tax treaties, in India. It is only elementary that under article 90(2) where the Government has entered into a tax treaty with any tax jurisdiction, in relation to the assessee to whom such treaty applies, "the provisions of this (Income Tax) Act shall apply to the extent they are more beneficial to that assessee". Quite clearly, when there is no taxability under the respective treaty provisions, there cannot be any taxability under the provisions of the Income Tax Act either.
Thus, respectfully following the finding of this tribunal in the case cited above, we hereby uphold the finding of the learned CIT(A) and direct the AO to delete the demand raised by him.
Coming to payment made to Srilanka based party namely Swiss Biogenics Ltd – Sri Lanka for Market Survey/development, the AO treated the services of market survey under the preview of technical services as defined under the explanation 2 to section 9(1)(vii) of the Act. On the hand, CIT-A held that such payment falls under the exception clause (b) of section 9(1)(vii) of the Act regarding the fees for technical services and thus deleted the demand raised by the AO. In this regard, we find that Hon’ble Madras High Court in the case of Evolv Clothing Co. Pvt. Ltd. Vs. ACIT reported in 94 taxmann.com 449 has held that the payment for market survey is equivalent to sales agent commission. Hence, the same cannot fall within the definition of FTS. Therefore, the provisions of section 9(1)(vii) are not applicable and thus the demand raised by the AO is deleted. In view of the above detailed discussion, the grounds of appeal raised by the Revenue are hereby dismissed.
In the result, the appeal of the revenue is hereby dismissed.
Order pronounced in the Court on 17/05/2024 at Ahmedabad Sd/- Sd/- Sd/- Sd/- (WASEEM AHMED) (SUCHITRA KAMBLE) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 17/05/2024 Tanmay TRUE COPY आदेशक���त�ल प!े षत/Copy of the Order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent. 3. संबं�धतआयकरआयु�त/ Concerned CIT 4. आयकरआयु�त(अपील) / The CIT(A) 5. वभागीय�#त#न�ध, आयकरअपील�यअ�धकरण/ DR, ITAT, 6. गाड%फाईल / Guard file. आदेशानुसार/BY ORDER,
उप/सहायकपंजीकार (Dy./Asstt.Registrar) आयकरअपील�यअ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation :08/05/2024 (Dictated by Hon’ble Member over his dragon software) 2. Date on which the typed draft is placed before the Dictating Member 08/05/2024 3. Date on which the approved draft comes to the Sr.P.S./P.S. - /05/2024 4. Date on which the fair order is placed before the Dictating Member for