Page 24 - DTPA Journal Aug 18

DTPA - J | 2017-18 | Volume 3 | August 2018

FACTS : The assessee entered into an agreement with does not result in either providing any technical service
US company for the purpose of its consultancy or use of technical knowledge, both the A.O. and CIT(A)
business and accordingly, paid a sum as fee. The A.O. have erred in considering the fee as in the nature of
held that the fee paid as royalty within the meaning of royalty. Since there is no transfer of technology or use of
clause (vi)(b) of sub-section (1) of section 9 of the any technology and payment is only simply for
Income Tax Act and disallowed the amount under affiliation, the above amount cannot be considered as
section 40(a)(i) on the ground that no TDS had been 'royalty' either under the provisions of Income Tax Act or
deducted. Before the CIT(A), it was contended by under the provisions of DTAA.
assessee that the amount paid by the assessee to US Cases relied upon :
company was affiliate fee and amount was not in
(i) GE India Technology Centre (P.) Ltd. v. CIT [2010]
connection with use of any right to use any material or
327 ITR 456/193 Taxman 234 (SC)
service provided by the non-resident as there was no
income accruing in India. After detailed discussion, (ii) DIT v. Sheraton International Inc. [2009] 313 ITR
CIT(A) held that the payment was in nature of royalty 267/178 Taxman 84 (Delhi)
under the Income-tax Act and DTAA as well. (iii) Hughes Escort Communications Ltd. v. Dy. CIT
FINDINGS : The agreement dated 31-03-2005 [2012] 51 SOT 356/21 taxmann.com 171 (Delhi)
between the assessee and US company specifies (iv) Tata Consultancy Services v. State of Andhra
various terms and conditions and the relationship, Pradesh [2004] 271 ITR 401/141 Taxman 132 (SC)
vision philosophy which CIT(A) has painstakingly (v) DIT v. Ericsson A.B. [2012] 343 ITR 470/204
considered and extracted in the order to indicate that
Taxman 192/[2011] 16 taxmann.com 371 (Delhi)
there is arrangement for use of technical knowledge.
However, as seen from the agreement itself, there are (vi) CIT v. Vinzas Solutions India (P.) Ltd. [2017] 77
taxmann.com 279/245 Taxman 289/392 ITR 155
two types of payments. The affiliation fee is one-time
(Mad.)
payment which does not provide for transfer of any
technology. However, there is further fee to be paid (vii) GE India Technology Centre (P.) Ltd. v. CIT [2010]
"Fees on consulting and reports" in the agreement. This 327 ITR 456/193 Taxman 234/7 taxmann.com 18
fee will be paid based on the performance, targets (SC)
achieved by assessee in consulting technology, tools 8) Fidelity Business Services India (P.) Ltd. vs.
etc. What assessee has paid and claimed was only an ACIT
affiliation fee and not the fee on consulting and reports.
[2018] 95 taxmann.com 253 (Karnataka HC)
The payment of affiliation fee does not involve any
transfer of technical knowledge or use of technical ITA NO. 512 OF 2017
knowledge. As seen from the paper book placed on Order Dated : 23.07.2018
record, what assessee got is in the form of two
RATIO: Tribunal has the power to give directions for
magazines which are published by the Harvard fresh enquiry into the aspects of the subject matter
Business School with a title 'Balanced Scorecard of appeal filed before it which have not been
Report'. This magazine, short of management jargon, is investigated or enquired into by the lower
nothing but a periodical magazine with various write- Authorities earlier and which may result in
ups, which cannot be considered as a right to use a enhancement of tax liability of the assessee.
copy right. Assessee being management consultant,
FACTS : The appellant assessee company bought
the agreement with M/s. Balanced Scorecard
back its own shares from its holding company at
Collaborative inc. of USA, had this high sounding
Mauritius named M/s. FIS Holding Muritian Ltd. to the
management terminology, but put it simply, assessee
extent of 2,933 Shares having face value of Rs. 10/-
has paid only the affiliation fee and not a fee for
per share at a hugely high price of Rs. 2,85,108/- per
consultation or for technical knowledge. Since there is share during the relevant previous year. The learned
no transfer of technical know-how or technical
Income Tax Appellate Tribunal, Bangalore Bench
knowledge or use of technical knowledge, the definition
"B", vide its Order dated 22/02/2017 for AY 2011-12
'royalty' either under IT Act or under the DTAA does not
held partly in favour of the Appellant – Assessee that
apply to the present payment of affiliation fee. Since
Appellant Assessee was not liable to pay tax on
U.S. company does not have any PE in India, the
'Distribution of Dividend' as defined under Section
payment itself per se does not attract any TDS 2(22)(d) of the Income Tax Act, 1961 in terms of Section
provisions. Since the payment of affiliation fee alone
115-O of the Act on the pay-out by it for buy-back of its
21 | Direct Taxes Professionals' Association - Journal www.dtpa.org