By Geeta Jani, Dhishat B. Mehta
Chartered Accountants
TS-209-ITAT-2017(Ahd)
Oncology Services India Pvt.Ltd. vs. ADIT
A.Y.: 2009-10, Date of Order: 1st June, 2017
Facts
Taxpayer, an Indian company, had
entered into an agreement for use of standard operating procedures (SOPs)
developed by a German group entity (GCo) in order to harmonise all required
software systems, policy and processes. The Taxpayer was also granted access to
the database, email server and hardware and software of GCo for the aforesaid
purpose. During the year under consideration, the Taxpayer had made payments to
GCo as per the agreement, however, no tax was deducted at source on such
payments by the Taxpayer.
During the course of assessment
proceedings, the Assessing Officer (AO) observed that the payments were made
for “using the name, goodwill and market reputation” of GCo and held that
income from such payment is taxable in India as royalties u/s. 9(1)(vi) of the
Act.
Taxpayer argued that payments were in the nature of business
income and in absence of PE of GCo in India, not taxable in India. Further, GCo
had permitted it to use the brand name, logo and website without any cost or
financial obligation. Hence, no part of the payment may be attributed to such
use.
Aggrieved by the order of AO,
Taxpayer appealed before the CIT(A) who upheld the order of AO. Subsequently,
Taxpayer appealed before the Tribunal.
Held
– The use of name, brand, logo and website was
without any cost or financial liability. Hence, no part of the payment made to
GCo could be attributed to such use.
– SOPs granted were “matured validated standard
procedures” which were developed by GCo over a period of time and approved by
the regulatory bodies. The access to database, and allied activities like
harmonisation of software systems, policy and process, were only incidental to
this main object of sharing the SOPs and thus cannot be viewed in isolation.
– Sharing of SOPs was in effect
sharing of the information about the scientific experiences by GCo. Sharing of
such information was covered within the limb of “use of or right to use
information concerning industrial, commercial or scientific” in Article 13(3)
of India-Germany DTAA. Thus, the payment for sharing of the SOPs was taxable as
‘royalties’ under the India-German DTAA.
