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23. TS-18-ITAT-2013(Ahd)
Sintex Industries Ltd. vs. ADIT
A.Ys.: 2009-10 and 2010-11, Dated: 18-1-2013
S/s. 9(1)(vii), 195 – Transfer of fabric designs by a UK Company to an Indian Company is in the nature of FTS in terms of treaty and hence liable to withholding tax in India.
Facts
An Indian Company (Taxpayer) made payments to a UK Company (FCo) for providing fabric designs. As per the agreement, FCo was required to; deliver fabric designs for cotton shirting; show and/make available all documents/reports in relation to fabric designs; provide detailed quantity report in writing along with specific/new design developed, to the Taxpayer. It was also contemplated in the agreement that on expiry or termination, FCo would be required to return all the documents and other internal documents of the Taxpayer. The tax authority held that the payments made were in the nature of FTS under the India-UK DTAA, which was also upheld by the CIT(A). Aggrieved, the Taxpayer appealed to the Tribunal.
Held
The Tribunal did also note that there was no clause in the agreement obliging the Taxpayer to return the design supplied by FCo on expiry or termination of the agreement. It accordingly held that the designs supplied by FCo to the Taxpayer became the property of the Taxpayer, which could be either used by the Taxpayer for its own business or be sold to any outsider for consideration. Accordingly, the Tribunal ruled that FCo was required to transfer the design to the Taxpayer and consequently FCo made available the designs which could be used in the business of the Taxpayer or sold to an outsider and hence, the above services were in the nature of FTS under the India-UK DTAA as it involved transfer of a technical plan or design. Further, the Tribunal also referred to the MOU to India- US DTAA to arrive at the conclusion that the payments made to FCo were for making available technical services. Consequently, the payments made were subject to withholding tax in India.
