INTERNATIONAL EDUCATION & RESEARCH FOUNDATION,AHMEDABAD vs. THE DCIT, INT-TAXA-1, AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER& SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. Nos.182 & 183/Ahd/2020 (Assessment Years: 2017-18 & 2018-19) International Education & Vs. Deputy Commissioner of Research Foundation, Income Tax (International Sardar Patel Bhavan, Sardar Patel Taxation)-1, Road, Ahmedabad-380006 Ahmedabad [PAN No.AAATI2671P] (Appellant) .. (Respondent) Shri Dhinal Shah, A.R. Appellant by : Respondent by: Shri Ramesh Kumar, Sr. D.R. Date of Hearing 21.02.2024 08.03.2024 Date of Pronouncement O R D E R PER SIDDHARTHA NAUTIYAL, JM:

Both the appeals have been filed by the Assessee against the orders passed by the Ld. Commissioner of Income Tax (Appeals)-13, (in short “Ld. CIT(A)”), Ahmedabad vide orders dated 28.06.2019 passed for the Assessment Years 2017-18 & 2018-19.

ITA No. 182/Ahd/2020 (A.Y. 2017-18) “1. The Learned Commissioner of Income Tax Appeal -13 Ahmedabad has erred in charging TDS provision on Annual Payment made to the international boards through affiliation with IBO, Cambridge etc.. under the head authorization fee, fee for enrolment, license fee, registration fee as per the provision of Income Tax Act and the respective DTAA, Copy right Act 1957 and Trade Mark Act 1999, under Section 9(1)(vi) r.w.s. 195 of the act. The added TDS of Rs. 1,56,598 on the payment of Rs 15,65,984 should be deleted. 2. The Learned D.C.I.T, Intl. Tax, Ahmedabad has erred in charging interest u/s 201 and 201(1)(A) of the income tax act, 1961 on the payment made to International boards without deducting TDS u/s. 195. The added Interest of Rs 29,159 should be deleted.

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ITA No. 183/Ahd/2020 (A.Y. 2018-19) “1. The Learned D.C.I.T., Intal. Tax., Ahmedabad has erred in charging TDS provision on Annual Payment made to the international boards through affiliation with IBO, Cambridge etc.. under the head authorization fee, fee for enrolment/ license fee/ registration fee as per the provision of Income Tax Act and the respective DTAA, Copy right Act 1957 and Trade Mark Act 1999, under Section 9(1)(vi) r.w.s. 195 of the act. The added TDS of Rs. 2,30,091 on the payment of Rs 23,00,915 should be deleted. 2. The Learned D.C.I.T, Intl. Tax, Ahmedabad has erred in charging interest u/s 201 and 201(1)(A) of the income tax act, 1961 on the payment made to International boards without deducting TDS u/s. 195. The added Interest of Rs 13,806 should be deleted. 3. The Learned D.C.I.T., Intl Tax, Ahmedabad has erred in calculation of the TDS and Interest by taking 07/11/2017 payment twice. The TDS of Rs 70,895 on payment of Rs 6,38,058 on 07/11/2017 should be deleted. 4. The appellant craves, to add, amend, alter, edit, delete, modify and change all or any of the grounds of appeal at the time of or before hearing of this appeal.”

“1. That the appeal filed by the Assessee Company before the Dy. Commissioner (Appeals) was disposed by order dated 28/06/2019 passed by Dy. Commissioner (Appeals)-13. 2. That the time for filing of the appeal before the Tribunal was to expire on 27/08/2019. 3. a) The Assessee company was waiting for the order copy of the Dy. Commissioner of (Appeal)-13. a) The appellant order was served through electronic mail. b) The management was not aware that appeal can be filled with E assessment order. c) Management was waiting for paper copy of the order to file an appeal. Finally During discussion, it was brought to notice that the order was already duly served online. d) This being reasonable cause lf late filing an appeal by 175 days.”

ITA Nos. 182&183/Ahd/2020 International Education & Research Foundation vs. DCIT Asst. Years –2017-18 & 2018-19 - 3 - Accordingly, in the light of the above reasons, the appeal in filing was delayed due to lack of understanding of technicalities of Income Tax and a prayer was made that since the assessee has a good case on merits, in the interest of justice, the delay in filing of appeal may kindly be condoned. Accordingly, looking into the facts of the case instant case, the delay of 176 days in filing of the present appeal is hereby condoned.

ITA Nos. 182&183/Ahd/2020 International Education & Research Foundation vs. DCIT Asst. Years –2017-18 & 2018-19 - 4 - use of their trademarks by the assessee. However, the basis of annual payments has not been submitted by the assessee during the course of 201 proceedings. The AO observed that the course materials have been designed by the owner of trademarks, being overseas International Schools. The study material and guidance have been provided by the owner of trademarks. Therefore, the foreign educational institutions are providing services related to use and application of trademarks and hence such payments are taxable in India as royalty. Accordingly, the Assessing Officer held that the assessee was liable to deduct taxes at source on such overseas payment under Section 195 of the Act and the assessee was held to be an assassin in default under Section 201/201(1A) of the Act for non- deduction of tax at source.

ITA Nos. 182&183/Ahd/2020 International Education & Research Foundation vs. DCIT Asst. Years –2017-18 & 2018-19 - 5 - engage with the students through online medium and role of the assessee is limited only to facilitate the students in enrolling for the online courses offered by the overseas education institutions. The whole course curriculum, teaching, books etc. are all provided by the overseas International educational Institutions themselves, directly to the students and even the examinations are conducted by the overseas university itself and the degree certificate is also issued by the overseas university itself to the students directly. The assessee only determines the admission and fees criteria and the assessee is not using any services of the overseas International educational Institutions and the assessee is only acting as a facilitator between the student and the international education institutions. Accordingly, it was submitted that in the instant facts, the payment by the assessee do not qualify as royalty since it is not for the use of any trademark or copyright and it is a pure business arrangement and in absence of Permanent Establishment of the overseas educations in India, there is no requirement for deduction of tax at source.

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Therefore, these foreign institutions are providing services related to use and application of trademarks. Further, in the present case, the assessee has been authorized to use the trademark for advertisement to attract the students at their schools. The use of trademarks between the assessee and the foreign education institutions has been authorized on the basis of certificate issued by them. Thus, the payments made by the assessee fall under the category of royalty as per the provisions of the Income Tax Act as well as under the DTAA. Further, Ld. CIT(Appeals) observed that agreement between the assessee and non-resistant institutions is not based on sharing of profits. The assessee has not provided any basis for annual lump-sum payment and has also not been able to controvert the arguments of the Assessing Officer. Accordingly, the Ld. CIT(Appeals) dismissed the appeal of the assessee with the following observations:

“In present case, the owners of the trademarks are receiving the payment based on per student as well as on lump sum annual basis. Basis of annual payment was not submitted by the Appellant during the proceedings even though it was specifically asked for before both Appellate and Assessment proceedings. It is seen that the Appellant has right to use the trade marks for its purpose and the annual payment has been made for this purpose only, Therefore, as per Explanation 2 of section 9(1)(vi), the payment falls in the nature of royalty. The impugned payment has also been made for imparting of information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property. The AO has observed that IBO/Cambridge University is providing all materials related to teaching of students. The course materials are designed by them and study material are provided by them from time to time. To ensure the quality of teaching, training is also being organized regularly. These foreign institutions are providing services related to use and application of the trade marks. Thus, the payment also falls under Royalty as defined in explanation 2(vi) of the section 9(l)(vi) of the Act and hence taxable under the Act. Further, in the present case, the Appellant has been authorized to use the trade mark for advertisement to attract the students. It is an admitted fact that a trade marks is entitled to be registered as copyright. Once it is held that trademarks used by the Appellant falls in the category of copyright, the payment in respect of the same will fall in the category of royalty and therefore would be taxable under the provisions of the IT Act 1961. Based on above provisions of the Income Tax Act, the AO has held that the payment to international educational institute falls under nature of royalty

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and taxable under the I.T. Act. I do not see any reasons for disagreeing with the findings of the AO. However, for taxation of income under the Income Tax Act, the taxability under the DTAA needs to be evaluated. As the Appellant had submitted copy of Tax resident Certificate of the foreign assessee, therefore taxability under DTAA was evaluated by the AO. The AO had observed as under: The payments made by the assessee trust to two counties as mentioned below: 1. United Kingdom 2. Switzerland The taxability on the payment made by the assessee falls under the provision of India-UK DTAA under Article 13 of the DTAA. Relevant article 13 of DTAA is reproduced hereunder: "ARTICLE 13: ROYALTIES AND FEES FOR TECHNICAL SERVICES 3. For the purposes of this Article, the term "royalties" means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience;..." Based on Article 13 of India-UK DTAA, the definition of royalty is similar to the definition as defined in the I.T. Act and includes the trade mark under the category of royalty and hence also taxable under the DTAA as well. The taxability on the payment made by the assessee fails under the provision of India- Swiss Confederation DTAA under Article 12, The relevant article 12 is reproduced here under: "ARTICLE 12: ROYALTIES AND FEES FOR TECHNICAL SERVICES … 3. The term "royalties" as used in this Article means 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 the use of, or the right to use, any industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience." Based on Article 12 of India-Swiss Confederation DTAA, the definition of royalty is pari passu to the definition as defined in the I.T. Act and includes the

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trade mark under the category of royalty and hence also taxable under the DTAA as well. The definitions of royalty in accordance with the Income Tax Act 1961 and the DTAA cover intangibles like trade mark. The use of trade mark between the Appellant and the foreign educational institutions has been authorized on the basis of certificate issued by them. Thus, the payment made by the Appellant falls under the category of royalty as per the provisions of income Tax act as well as DTAA. The case laws relied upon by the Appellant are distinguishable on facts. The Agreement between the Appellant and the non-resident institutions is not based on sharing of profits. The Appellant has not provided any basis for annual lump sum payment. The Appellant has not rebutted arguments of the AO. In the present case the assessee has right to use the trade marks for its purpose and the payment is made for its purpose only. As per Explanation 2 of section 9(1)(vi), the payment falls under it and hence taxable as royalty. The payment of the assessee falls under explanation 2(ii) as the has been made for imparting of information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property. In this case the IBO/Cambridge University is providing all material related to teaching of students. The course materials are designed by them and study material are provided and guided by them from time to time. To ensure the quality of teaching and its mythologies, Training is also being organized regularly. These foreign institutions are providing services related to use and application of the trade marks. Thus, the payment also falls under explanation 2(vi) of the section 9(l)(vi) of the Act and hence taxable under the Act. As per provision of Income Tax Act, the respective DTAA, Copy right Act 1957 and Trade Mark Act 1999, the payment made by the Appellant falls under Royalty and hence taxable in India under section 9(l)(vi) r.w.s. 195 of the Act. Based on above discussion and facts of the case and in law, it is held that the payment made by the Appellant falls under the category of 'Royalty' and hence taxable in India under section 9(l)(vi) r.w.s. 195 of the Act and as per DTAA. Therefore, the Appellant should have deducted tax at source which it has failed to do. Therefore, the provisions of section 201 and section 201(1A) have rightly been invoked by the AO in case of Appellant. 7. In the result, the appeal of the appellant is Dismissed.” 7. The assessee is an appeal before us against the aforesaid order passed by Ld. CIT(Appeals) dismissing the appeal of the assessee. Before us, the counsel for the is submitted that admittedly, in the instant facts, the overseas education institutions, IBO/Cambridge do not have a permanent

ITA Nos. 182&183/Ahd/2020 International Education & Research Foundation vs. DCIT Asst. Years –2017-18 & 2018-19 - 9 - establishment/business connection in India and this is also not the allegation of the Department. Accordingly, it was submitted that the receipts of overseas education institutions qualify as business receipts in their hands and are not taxable India in the absence of a permanent establishment/business connection of the overseas educational institutions in India. Further, the Counsel for the assessee submitted that the assessee only acts as a facilitator between the overseas educational institutions and the students in India, the students in India make the payment of fees to the assessee for enrolling in the courses conducted directly by the overseas educational institutions and a part of the fees is retained by the assessee and a part of the fees is shared with the overseas education institutions. It was submitted before us that on the basis of the facts available on record, there is nothing to suggest that payments were made towards use of trademark of the overseas education institutions. The counsel for the assessee submitted that in the instant case, the payments were made by the assessee only for the “authorization” given by the overseas education institutions to the assessee to enroll Indian students in various courses offered by overseas International educational Institutions. The use of trademarks of Cambridge/IBO at the school premises is only “incidental” to such authorization given to the assessee for enrolment of students to various courses run by the overseas education institutions. No separate payments has been made by the assessee towards use of trademarks as can be seen from the material available on record. The counsel for the assessee relied on several judicial precedents in support of the contention that payments are only for the authorization given by the overseas educational institutions to enable the assessee to enroll students to various courses offered by overseas International educational Institutions and not for the use of trademarks by the assessee and the use of trademarks / brand-name is purely incidental to such “authorization”.

ITA Nos. 182&183/Ahd/2020 International Education & Research Foundation vs. DCIT Asst. Years –2017-18 & 2018-19 - 10 - 8. In response, DR submitted that in the instant facts, the payments have been made for the use of trademarks primarily since it was only on the basis of the brand value associated with such prominent names as Cambridge/IBO that the assessee was able to attract students. Therefore, it would be incorrect to suggest that the payment was only for the use of authorization and no payment was made by the assessee for use of trademark/ brand name of these reputed institutions. This is further supported by the fact that the overseas education institutions have also registered themselves under Trademarks Act, 1999 with a view to protect their interest and safeguard their brand name / use of their trade mark by any other person or entity in India. Further, it has also been noted by the Ld. CIT(Appeals) as well as Assessing Officer that the assessee has not furnished any basis for the lump sum payments being made by the assessee to the overseas educational institutions, despite a specific request both by Assessing Officer as well as by Ld. CIT(Appeals).

ITA Nos. 182&183/Ahd/2020 International Education & Research Foundation vs. DCIT Asst. Years –2017-18 & 2018-19 - 11 - overseas educational institutions for lump sum / annual payments, in absence of which the nature of payment cannot be ascertained, much less came to the conclusion that payments do not qualify as “royalty”. It is observed that in the instant facts, no royalty payments have been made by the assessee for the use of brand name of Cambridge/IBO for the purpose of attracting students to enroll for the courses offered by overseas International educational Institutions. In our view, the students are attracted to enroll for the courses offered by overseas educational institutions on the basis of reputation carried by these overseas institutions and therefore, it cannot simply be said that the use of brand name of the educational institutions is only “incidental” to the payments made by the assessee to overseas education institutions and such payment is only for authorization granted by the overseas institutions to attract students to enroll with the courses offered by them via the medium of the assessee. It is also observed that the overseas education institutions have applied for registration under Trademarks Act, 1999, which is ostensibly with a view to ensure that their brand name/trademark is not exploited by any other entity/person in India and with a view to protect their trademark / brand name in India. In our considered view, it is important for the Tax Authorities to analyze the basis of payment made by the assessee to the overseas institutions on an annual/lump sum basis. We also observe that in the invoice which has been issued by the overseas education institution on the assessee, a certain discount has also been offered to the assessee (refer page 28-30 of Paper- Book). However, no explanation was offered to us regarding the basis for raising the invoice on the assessee and also on what basis discount has been offered to the assessee by the overseas education institutions as such annual payment. We are unable to accept that even without understanding / analyzing the basis of raising invoice by the overseas International educational Institutions on the assessee, it can be concluded that the nature

ITA Nos. 182&183/Ahd/2020 International Education & Research Foundation vs. DCIT Asst. Years –2017-18 & 2018-19 - 12 - of payments do not qualify as royalty under the Act read with the DTAA. The argument put forth by the Ld. Counsel for the assessee that as per the agreement, the payments do not qualify for use of trademarks also cannot be accepted for the simple reason that the students are attracted to enroll for the courses offered by overseas educational institutions based on the reputation they carry. Accordingly, we are unable to accept the argument that even without analyzing the basis of invoice raised by such overseas educational institutions on the assessee, one can come to the conclusion that these payments do not qualify as a “royalty” payments. The assessee was afforded several opportunities both during the course of assessment as well as appellate proceedings to explain the basis for raising invoice by the overseas education Institutions on the assessee and the assessee was unable to give any concrete basis before the tax authorities as to the basis of raising invoices. In absence of clarity on the basis of invoices which have been raised on the assessee, it would only be an academic exercise to discuss the judicial precedents cited by the Ld. Counsel for the assessee. This is also to be seen in light of the fact that the assessee has not made any royalty payments for use of the brand name of such reputed institution such as Cambridge/IBO for the purpose of attracting students to enroll in their courses and acting as the facilitator/mediator of equation services between the students and the overseas education institutions.

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national education institutions and the payment is only for authorizing the assessee to act as a mediator between these students and the educational institutions outside of India.

Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 08/03/2024 TANMAY, Sr. PS TRUE COPY आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 04.03.2024(The dictation given by the member on his dragon software) 2. Date on which the typed draft is placed before the Dictating Member 04.03.2024 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 05.03.2024 5. Date on which the fair order is placed before the Dictating Member for pronouncement .03.2024 6. Date on which the fair order comes back to the Sr.P.S./P.S 08.03.2024 7. Date on which the file goes to the Bench Clerk 08.03.2024 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………………………………