By Geeta Jani, Dhishat B Mehta, Chartered Accountants
11.
[2017] 80 taxmann.com 275 (Ahmedabad – Trib)
Marck Biosciences Ltd. vs. ITO
A.Y.: 2009-10, Date of Order: 28th March, 2017
Facts
The Taxpayer was an Indian company. It paid professional fee
to a US company (“USCo”) for global biopharmaceutical strategic counselling and
advisory services, which comprised (a) business promotion; (b) marketing; (c)
publicity; and (d) financial advisory. In the agreement, the services were
termed as ‘Strategic and Financial Counselling Services”. According to the
Taxpayer, income embedded in professional fee paid for the said services was
not taxable in India in terms of India-USA DTAA. Hence, it did not withhold tax
from the said payment.
According to the AO, however, the rendition of services by
USCo constituted parting with the “information concerning industrial,
commercial and scientific experience”. Hence, the services rendered by
USCo were covered within the definition of “royalty” under Explanation 2 to
section 9(1)(vi) as also under article 12(3)(a) of India-USA DTAA.
Held
– The payments made by the Taxpayer were for
rendition of the services, which comprised (a) business promotion; (b)
marketing; (c) publicity; and (d) financial advisory. The payments were not for
use of any information concerning industrial, commercial or scientific
information’.
– The nature of payment should be characterized
from the activity in consideration of which the payment was made. The payment
was made for rendition of services and not for right to use any information
concerning industrial, commercial or scientific experience that was in
possession of the service provider.
– The fact that in the process of availing
these services, the Taxpayer benefits from rich experience of the service
provider is wholly irrelevant. Accordingly, the impugned payment was not
covered within the definition of “royalty” under article 12(3)(a) of India-USA
DTAA.
