ADIT (I.T) -2(2), MUMBAI v. M/s. WOCKHARDT HOSPITALS LTD., MUMBAI

ITA 3610/MUM/2005 | misc
Pronouncement Date: 18-11-2011 | Result: Dismissed

Appeal Details

RSA Number 361019914 RSA 2005
Assessee PAN AABCH2171F
Bench Mumbai
Appeal Number ITA 3610/MUM/2005
Duration Of Justice 6 year(s) 6 month(s) 5 day(s)
Appellant ADIT (I.T) -2(2), MUMBAI
Respondent M/s. WOCKHARDT HOSPITALS LTD., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 18-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted L
Tribunal Order Date 18-11-2011
Date Of Final Hearing 15-11-2011
Next Hearing Date 15-11-2011
Assessment Year misc
Appeal Filed On 13-05-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI B.RAMAKOTAIA H (A.M) ITA NO.1558/MUM/07(A.Y.2002-03) ITA NO.1559/MUM/07(A.Y.2003-04) JDIT-OSD(IT) 3(1) SCINDIA HOUSE R.NO.132 1 ST FLOOR N.M.ROAD MUMBAI 38 (APPELLANT) VS. HARVARD MEDICAL INTERNATIONAL USA C/O. PRICEWATER HOUSE COOPERS PVT. LTD. PWC HOUSE PLOT 18/A GURUNAK ROAD (STATION ROAD) BANDRA (W) MUMBAI 50. PAN:AABCH 2171F (RESPONDENT) C.O.NO.145/M/07(ARISING OUT OF ITA NO.1558/M/07) A. Y.2002-03. C.O.NO.146/M/07(ARISING OUT OF ITA NO.1559/M/07) A. Y.2003-04. HARVARD MEDICAL INTERNATIONAL USA C/O. PRICEWATER HOUSE COOPERS PVT. LTD. PWC HOUSE PLOT 18/A GURUNAK ROAD (STATION ROAD) BANDRA (W) MUMBAI 50. PAN:AABCH 2171F (CROSS OBJECTOR) VS. JDIT-OSD(IT) 3(1) SCINDIA HOUSE R.NO.132 1 ST FLOOR N.M.ROAD MUMBAI 38 (APPELLANT IN APPEAL) ITA NO.3610/MUM/05 JDIT-OSD(IT) 3(1) SCINDIA HOUSE R.NO.132 1 ST FLOOR N.M.ROAD MUMBAI 38 (APPELLANT) VS. M/S. WOCKHARDT HOSPITALS LTD. WOCKHARDT TOWERS BANDRA KURLA COMPLEX BANDRA (E) MUMBAI 51. PAN:AAACW 3342G (RESPONDENT) REVENUE BY : SHRI JITENDRA YADAV/ SMT. MALATHI SRIDHARAN ASSESSEES BY : S/ SHRI KANCHAUN KAUSHAL/ DHANESH BAFNA/MS.SHITAL BANDEKAR ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 2 DATE OF HEARING : 15/11/11 DATE OF PRONOUNCEMENT : ORDER PER N.V.VASUDEVAN J.M ITA NO.1558/MUM/07 IS AN APPEAL BY THE ASSESSEE AGA INST THE ORDER DATED 26.10.2006 OF CIT(A)-XXXIII MUMBAI RELATING TO AY 02-03. THE ASSESSEE HAS FILED C.O.NO.145/MUM/07 AGAINST THE VE RY SAME ORDER OF THE CIT(A). ITA NO.1558/MUM/07 (REVENUES APPEAL) 2. GR.NO.1 RAISED BY THE REVENUE IN ITS APPEAL REA DS AS FOLLOWS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT 50% OF THE FEES RECEIVED FROM WOCKHARDT HOSPITAL LTD. AS NON T AXABLE REPRESENTING TEACHING IN OR BY EDUCATIONAL INSTITUT ION AND BALANCE 50% AS ROYALTY AS AGAINST 90% AS ROYALTY AND 10% A S FEES FOR INCLUDED SERVICES HELD BY THE ASSESSING OFFICER THE ABOVE GROUND OF APPEAL CAN BE CONVENIENTLY DECI DED TOGETHER WITH GR.NO.1 TO 3 RAISED BY THE ASSESSEE IN ITS CROSS O BJECTION WHICH READS AS FOLLOWS: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XXXIII MUMB AI [THE CIT(A)] ERRED IN HOLDING THAT THE FEES OF USD 2 00 000 RECE IVED BY THE RESPONDENT FROM MAX INDIA LTD. (MAX) DURING THE Y EAR ARE FEES FOR INCLUDED SERVICES (FIS) UNDER ARTICLE 12(4) OF TH E DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA (THE DTA A) AND THUS LIABLE TO TAX. IT IS PRAYED THAT THE LEARNED ASSESSING OFFICER (A O) BE DIRECTED TO HOLD THAT THE FEES FROM MAX FOR SERVICES RENDERED BY THE RESPONDENT ARE OUTSIDE THE SCOPE OF ARTICLE 12 OF THE DTAA AND FUR THER IN THE ABSENCE OF A PERMANENT ESTABLISHMENT IN INDIA BE HELD TO B E NOT TAXABLE IN INDIA. ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 3 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED CIT(A) ERRED IN TAXING USD 465 000 50% OF THE FEES OF USD 9 30 000 RECEIVED BY THE RESPONDENT FROM WOCKHARDT HOSPITALS LIMITED (WHL) AS ROYALTIES UNDER ARTICLE 12(3) OF THE DTAA. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO TRE AT THE ENTIRE FEES FROM WHL FOR SERVICES RENDERED BY THE RESPONDENT AS OUTSIDE THE SCOPE OF ARTICLE 12 OF THE DTAA AND FURTHER IN THE ABSENCE OF A PERMANENT ESTABLISHMENT IN INDIA BE HELD TO BE NOT TAXABLE IN INDIA. 3. WITHOUT PREJUDICE TO GROUNDS 1 AND 2 ABOVE ON T HE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE FEES RECE IVED BY THE RESPONDENT FROM MAX AND WHL OUGHT TO BE REGARDED AS BUSINESS PROFITS AND IN THE ABSENCE OF A PERMANENT ESTABLI SHMENT IN INDIA IN TERMS OF ARTICLE OF THE DTAA BE HELD TO BE NOT TAX ABLE IN INDIA. 3. THE FACTS AND CIRCUMSTANCES UNDER WHICH THE AFOR ESAID GROUNDS ARISE FOR CONSIDERATION ARE AS FOLLOWS: THE ASSESSEE IS A NON-RESIDENT AND IS INCORPORATED AS CORPORATION UNDER LAWS OF MASSACHUSETTS USA. OBJECTIVES OF THE CORPORATION ARE AS FOLLOWS :- EXCLUSIVELY TO PERFORM INTERNATIONALLY CERTAIN CHA RITABLE AND EDUCATIONAL FUNCTIONS OF AND TO CARRY OUT CERTAIN C HARITABLE AND EDUCATIONAL PURPOSES OF PRESIDENT AND FELLOWS OF HA RVARD COLLEGE (HARVARD) A CHARITABLE INSTITUTION FOR HIGHER EDUCA TION DULY INCORPORATED AND EXISTING UNDER THE LAWS OF THE COM MONWEALTH OF MASSACHUSETTS AND OTHERWISE TO ADVANCE THE CHARITA BLE AND EDUCATIONAL OBJECTIVES OF HARVARDS MEDICAL SCHOOL (THE HARVARD MEDICAL SCHOOL) BY ASSISTING OTHER MEDICAL SCHOOLS TO PROVIDE HIGH QUALITY MEDICAL TRAINING AND TO ENHANCE THE QUALITY OF PATIENT CARE AND RESEARCH BY TEACHING TRAINING AND SHARING MEDICAL A ND TECHNOLOGICAL KNOW-HOW WITH SCIENTISTS AND HEALTH CARE PROFESSION ALS IN COUNTRIES WHICH MAY NOT HAVE READY ACCESS TO SUCH INFORMATION BY PARTICIPATING IN AND PROMOTING JOINT MEDICAL RESEARCH INITIATIVES THROUGHOUT THE WORDS BY ASSISTING MEDICAL INSTITUTIONS THROUGHOUT THE WORDS IN VARIOUS RELATED ADMINISTRATIVE AND MANAGEMENT FUNCT IONS AND BY PROVIDING SUCH OTHER CHARITABLE AND EDUCATIONAL SER VICES IN THE MEDICAL FIELD TO AND FOR THE BENEFIT OF HARVARD MED ICAL SCHOOL AND SUCH OTHER ORGANIZATIONS AFFILIATED WITH OR RELATED TO HARVARD AS HARVARD MAY DESIGNATE PROVIDED THAT SUCH ORGANIZATIONS FUR THER THE ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 4 EDUCATIONAL PURPOSES OF HARVARD AND ARE ORGANIZATIO NS DESCRIBED IN SECTION 501(C)(3) OF THE INTERNAL REVENUE CODE OF 1 986 AS AMENDED FROM TIME TO TIME. 4. DURING THE PREVIOUS YEAR THE ASSESSEE RECEIVED A SUM OF US $ 11 30 000 FROM THE FOLLOWING PERSONS 1. MAX INDIA LTD. (MAX)US $ 2 00 000 FOR SERVICES RENDERED IN RELATION TO HEALTH CARE. 2. WOCKHARDT HOSPITAL LTD. (WHL) US$ 9 30 000 FOR SERVICES RENDERED IN RELATION TO HEALTH CARE. THE ISSUE THAT REQUIRES CONSIDERATION IN THIS APPEA L IS AS TO WHETHER THE AFORESAID RECEIPTS ARE CHARGEABLE TO TAX IN INDIA I N THE HANDS OF THE ASSESSEE. THE AO AFTER CONSIDERING THE NATURE OF SERVICES REN DERED BY THE ASSESSEE FOR WHICH IT RECEIVED THE AFORESAID PAYMENTS WAS OF THE VIEW THAT 90% OF THE AFORESAID PAYMENTS WAS IN THE NATURE OF ROYALTY TAX ABLE UNDER ARTICLE 12(3) OF THE DTAA BETWEEN INDIA AND USA AND 10% OF THE AF ORESAID PAYMENTS WAS IN THE NATURE OF FEES FOR INCLUDED SERVICES(FIS) TA XABLE UNDER ARTICLE 12(4) OF THE DTAA BETWEEN INDIA AND USA. ON APPEAL BY THE A SSESSEE THE CIT(A) HELD THAT THE 50% OF THE FEES RECEIVED BY THE ASSES SEE FROM WHL WAS IN THE NATURE OF ROYALTY AND THE REMAINING 50% WAS NOT TAX ABLE BECAUSE IT WAS PAYMENT TO THE ASSESSEE FOR TEACHING IN OR BY EDUCA TIONAL INSTITUTIONS WITHIN THE MEANING OF ARTICLE 12(5)(C) OF THE DTAA BETWEEN INDIA AND USA. AS FAR AS PAYMENT RECEIVED FROM MAX IS CONCERNED THE CIT( A) HELD THAT THE ENTIRE PAYMENT WAS FEES FOR INCLUDED SERVICES (FIS) WITH IN THE MEANING OF ARTICLE 12(4) OF THE DTAA AND CHARGEABLE TO TAX. AGGRIEVED BY THE ORDER OF THE CIT(A) HOLDING THAT 50% OF THE FEES RECEIVED BY THE ASSESS EE FROM WHL IS NOT TAXABLE THE REVENUE HAS PREFERRED GROUND NO.1. AG GRIEVED BY THE ORDER OF CIT(A) HOLDING THAT 50% OF THE FEES RECEIVED BY THE ASSESSEE FROM WHL IS TAXABLE AS ROYALTY THE ASSESSEE HAS RAISED GROUND NO.2 & 3 IN ITS C.O. AGGRIEVED BY THE ORDER OF CIT(A) HOLDING THAT PAYME NTS RECEIVED FROM MAX IS TAXABLE AS FIS THE ASSESSEE HAS RAISED GROUND NO.1 AND 3 BEFORE THE TRIBUNAL. ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 5 5. IN AY 2000-01 & 2001-02 SIMILAR PAYMENTS MADE BY MAX TO THE ASSESSEE UNDER THE SAME AGREEMENT WAS CONSIDERED BY THIS TRIBUNAL IN ITA NO.4656/MUM/05 AND 4660/MUM/05 IN ITS ORDER DATED 2 2.12.2009 AND IT WAS HELD BY THIS TRIBUNAL THAT THE ENTIRE PAYMENTS RECEIVED BY THE ASSESSEE WAS NOT IN THE NATURE OF FIS AND WAS TAXABLE AS BUS INESS PROFITS IN INDIA. SINCE THE ASSESSEE DID NOT HAVE A PERMANENT ESTABL ISHMENT IN INDIA THE SAME WAS HELD TO BE NOT TAXABLE. NEVERTHELESS THE D.R. SUBMITTED BEFORE US THAT HE WOULD LIKE TO POINT OUT CERTAIN ASPECTS WHI CH WERE NOT CONSIDERED BY THE TRIBUNAL IN THE AFORESAID ORDERS. WITH REGARD TO THE PAYMENTS RECEIVED FROM WHL THE ISSUE ARISES FOR THE FIRST TIME AND H AS TO BE CONSIDERED IN THE LIGHT OF THE SERVICES RENDERED BY THE ASSESSEE FOR WHICH PAYMENTS WERE RECEIVED. WITH THIS BACKGROUND WE SHALL NOW CONSI DER THE NATURE OF SERVICES RENDERED BY THE ASSESSEE TO MAX AND WHL. 6. NATURE OF SERVICES RENDERED BY THE ASSESSEE TO MAX: THE ASSESSEE ENTERED INTO A COLLABORATION AGREEMENT DATED 1.3.1999 WITH MAX. AS PER THE AGREEMENT THE ASSESSEE AGREED TO E XTEND ITS CAPABILITY IN HEALTH CARE MANAGEMENT MEDICAL EDUCATION AND RESEA RCH TO MAX. AS PER THE AGREEMENT THE ASSESSEE (REFERRED TO AS HMI) AGREED TO PROVIDE FOLLOWING SERVICES TO MAX (CLAUSE 7 OF THE AGREEMENT):- (A) HMI WILL ADVICE AND ASSIST MAX IN MAXS DEVELOPING ITS OVERALL HEALTHCARE STRATEGY INCLUDING ADVISING AND ASSISTI NG WITH MAXS FEASIBILITY STUDY CONCEPT DESIGN AND MASTER PLANNIN G AND TAKING A LEADERSHIP ROLE IN THE EVALUATION AND SELECTION OF LOCAL MEDICAL PARTNERS AND THE SPECIFIC CLINICAL SERVICES TO BE P ROVIDED CONCERNING THE FACILITY TO BE BUILT IN THE NATIONAL CAPITAL RE GION OF DELHI. (B) HMI WILL ADVISE AND ASSIST IN DEVELOPMENT OF QUALIT Y PROGRAMS AND SYSTEMS MEDICAL EDUCATION AND TRAINING PROGRAMS AN D CLINICAL PROTOCOLS FOR THE CLINICAL SERVICES TO BE PROVIDED BY THE FACILITY AND ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 6 WILL ADVISE IN THE DEVELOPMENT OF INFORMATION SYSTE MS FOR THE FACILITY. (C) HMI WILL ADVISE IN THE DEVELOPMENT OF THE FACILITY TO BE OWNED MANAGED AND/OR OPERATED BY MAX AND THE COMPANY INC LUDING EQUIPMENT CHOICE AND PLANNING PROCUREMENT (IF REQUE STED) SITE SELECTION AND ARCHITECTURAL CONSULTATION. (D) HMI WILL PROVIDE CONSULTATION AND TECHNICAL ADVICE ON MANAGEMENT ADMINISTRATION AND OPERATIONS OF THE COMPANY AND TH E FACILITY INCLUDING RENDERING OF ADVICE AND DETERMINING THE C RITERIA FOR SELECTION OF KEY PERSONNEL AND MEDICAL PARTNERS AND A HUMAN RESOURCES NEEDS ASSESSMENT FOR THE COMPANY. (E) HMI SHALL PROVIDE TO MAX THE DELIVERABLES/INPUTS AS SPECIFIED IN EXHIBIT A HERETO AND SHALL ORGANIZE STRUCTURE AND IMPLEMENT CRITICAL EDUCATION AND TRAINING PROGRAMS FOR KEY PE RSONNEL TO THE EXTENT SPECIFIED IN THE SAID EXHIBIT A. SUCH TRAI NING WILL BE CONDUCTED IN INDIA OR ELSEWHERE AS IS DEEMED NECESS ARY BY BOTH PARTIES. CLAUSE-8 OF THE AGREEMENT LISTS OUT THE OBLIGATIONS OF MAX LIKE GIVING ITS BUSINESS PLANS FINANCE CAPITAL BUDGETS ETC. IN CONSIDERATION OF RENDERING THE AFORESAID SERVICES MAX AGREED TO PAY THE CONSI DERATION AS SET OUT IN CLAUSE 9 OF THE AGREEMENT. CLAUSE-9 OF THE AGREEME NT PROVIDES THAT FOR RENDERING SERVICES HEREIN CONTEMPLATED HMI SHALL B E PAID A FEE OR REMUNERATION IN US$ BY MAX. CLAUSE10 OF THE AGREEME NT PROVIDES THAT MAX WILL HAVE THE RIGHT TO DESIGNATE ITSELF AS HARVARD MEDICAL INTERNATIONAL ASSOCIATED INSTITUTION TOGETHER WITH THE USE OF HM IS DESIGNATED LOGO. 7. SERVICES RENDERED BY THE ASSESSEE TO WHL: THE AGREEMENT BETWEEN THE ASSESSEE AND WHL IS TITLE D AS MEMORANDUM OF AGREEMENT FOR EDUCATION & TRAINING SERVICES. THE AGREEMENT IS DATED 14- ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 7 12-2000. IT PROVIDES FOR RENDERING OF THE FOLLOWIN G SERVICES: (CLAUSE 1 OF THE AGREEMENT) SERVICES RENDERED BY HIMI TO WHL FOR THE RELEVANT YEAR CONSULTING IN RELATING TO HEALTH CARE PROJECTS - ADVISING WHL ON ITS OVERALL HEALTH CARE STRATEGY IN BOMBAY AND SOUTHERN INDIA INCLUDING REVIEWING AND PROVIDING FEEDBACK O N EXISTING HEALTH CARE PROJECTS: - MAKE RECOMMENDATIONS REGARDING THE PRIORITIZATION OF NEW HEALTH CARE PROJECTS; - PROVIDE ONGOING CONSULTATION/ADVICE TO WHLS CORP ORATE STAFF - ADVISE ON ALIGNING SYSTEMS TO ADDRESS INSURANCE N EEDS TO ENABLE WHL S PRO-ACTIVE - APPROACH IN HEALTH CARE; - ADVISE AND ASSISTANCE IN RELATION TO THE KEY SELE CTION OF CLINICAL SPECIALIST KEY JOB DESCRIPTIONS FOR KEY POSITIONS SUCH AS CLIN ICAL LEADERS NURSING LEADERS ADMINISTRATOR LEADERS AND KEY IT PERSONNE L - ADVISE AND ASSISTANCE IN RELATION TO EMERGENCY ME DICAL SYSTEMS FOR THE RELATED SPECIALITIES. EDUCATION & TRAINING PROGRAMMS IN RELATION TO SYSTE M-WIDE CORE COMPETENCIES - PROVIDE TRAINING FOR WHL EXECUTIVES. - PROVIDE HOSPITAL MANAGERS AND/OR CLINICIANS TRAIN ING IN AREAS OF HOSPITAL MANAGEMENT INCLUDING HOSPITAL ORGANIZATION HUMAN R ESOURCES ETC. LABORATORY MANAGEMENT MEDICAL RECORDS MANAGEMENT T RAINING INCLUDING MEDICAL RECORD COMPONENTS MEDICAL RECORD FILING SY STEMS MEDICAL RECORD CODING PHARMACY MANAGEMENT & EDUCATION INFECTION CONTROL ETC. - PROVIDE NURSING LEADERSHIP & PROFESSIONAL DEVELOP MENT EDUCATION & FELLOWSHIP - PROGRAM. - CONTINUING MEDICAL AND NURSING EDUCATION PROGRAM IN INDIA ON SELECT TOPICS - TEACH AND/OR CONDUCT EDUCATIONAL WORKSHOPS ETC. FACILITY SPECIFIC DELIVERABLE (NEW CARDIAC AND WOME NS HOSPITALS) - REVIEW AND GIVE FEEDBACK TO WHL ON VARIOUS ASPECT S FOR THE NEW CARDIAC HOSPITAL I.E. IN RESPECT OF CLINICAL PROGRAMS EVA LUATION OF THE SITE PLANS ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 8 REVIEWING AND PROVIDING FEEDBACK ON THE DESIGN PREP ARED BY WHL OF THE HOSPITAL FACILITY ETC. - PROVIDE RECOMMENDATIONS ON THE AMOUNT AND TYPE OF ON-SITE ORIENTATION AND EDUCATION & TRAINING PROGRAMS REQUIRED FOR EA CH TYPE OF PERSONNEL. - REVIEW AND PROVIDE RECOMMENDATION ON THE PLANNED PATIENT CARE DELIVERY SYSTEM. - PROVIDE PROGRAMS TO ASSIST WHL IN THE DEVELOPMENT OF CLINICAL PROGRAM PLAN FOR THE NEW WOMENS HOSPITAL AND PLAN FOR HOS PITAL SITE. 8. THE CONSIDERATION PAYABLE FOR SERVICES TO BE RE NDERED BY THE ASSESSEE TO WHL HAS BEEN SET OUT IN CLAUSE-2 OF THE AGREEMENT. CLAUSE-3 OF THE AGREEMENT PROVIDES FOR USE OF THE NAME OF THE ASSES SEE BY WHL. THE RELEVANT PORTIONS THEREOF ARE AS FOLLOWS: 3. USE OF NAMES; INTELLECTUAL PROPERTY:- (A) SUBJECT TO THE TERMS OF THIS MOA AND FOR THE D URATION THEREOF WHL THE EXISTING CARDIAC HOSPITAL AND THE EXISTING KIDNEY HOSPITAL AND WHEN DEVELOPED THE PROPOSE CARDIAC HOSPITAL A ND THE PROPOSED WOMENS HOSPITAL EACH MAY REFER TO ITSELF AS RECEI VING EDUCATION AND TRAINING SERVICES FROM HMI AND DESIGNATE THEMSELVES AS A HARVARD MEDICAL INTERNATIONAL ASSOCIATED INSTITUTION. WHL S AND SUCH FACILITIES USE OF SUCH NAME WILL BE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH BELOW AND SUCH OTHER REASONABLE RESTRICT IONS INTENDED TO PROTECT THE GOODWILL IN THE NAME AS HMI MAY IMPOSE FROM TIME TO TIME. ANY OTHER USE OF THE NAME HARVARD AND THE ASSOCIA TED LOGOS AND DESIGNS (ALONE OR AS PART OF ANOTHER NAME) IN CONNE CTION WITH THIS MOA THE SERVICES WHL OR ANY FACILITY SHALL BE PER MITTED ONLY DURING THE TERM OF THIS MOA AND ONLY UPON THE WRITTEN APP ROVAL OF AND IN ACCORDANCE WITH RESTRICTIONS AGREED TO BY HMI. (B)THE USE OF THE NAMES AND LOGOS OF WHL AND THE FA CILITIES BY HMI SHALL BE SUBJECT LO THE TERMS OF THIS MOA AND FOR THE DURATION THEREOF HMI MAY USE THE NAME OF WHL .BY REFERRING TO ITS RE LATIONSHIP WITH WHL IN FACTUAL STATEMENTS TO THE EFFECT THAT HMI IS PROVIDING THE SERVICES HEREUNDER ..WHL. HMIS USE OF SUCH NAME WI LL BE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH BELOW. ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 9 ( C) ALL MATERIALS DELIVERED TO WHL BY OR O BEHALF OF HMI IN CONNECTION WITH PROVIDING SERVICES TOGETHER WITH ALL COPYRIGH T TRADEMARK TRADE DRESS TRADE SECRET PATENT AND OTHER PROPRIETARY RIGHTS THEREIN (INTELLECTUAL PROPERTY) SHALL BELONG EXCLUSIVELY TO HMI. DURING THE TERM OF THIS MOA HMI HEREBY GRANTS TO WHL AND THE FACILITIES RIGHTS TO USE THE WHOLE (NOT INDIVIDUAL PIECES ALONE) OF S UCH INTELLECTUAL PROPERTY (OTHER THAN THE NAME HARVARD OR ANY OF ITS LOGOS AND DESIGNS WHICH IS GOVERNED BY THE PROVISIONS OF SEC TION 3(A) ABOVE) FREE OF ANY ROYALTY OR ANY RELATED ECONOMIC CONSI DERATION. NOTWITHSTANDING THE FOREGOING HMI SHALL ALSO RETA IN ALL RIGHTS TO USE THE INTELLECTUAL PROPERTY SUBJECT TO THE TERMS OF THIS MOA. 9. CASE OF THE ASSESSING OFFICER: ACCORDING TO THE AO THE ASSESSEE BY VIRTUE OF THE AFORESAID AGREEMENTS GAVE A RIGHT TO USE COPY RIGHTED ITEMS DELIVERABLES NA ME LOGO ETC. THE INTELLECTUAL PROPERTY RIGHTS IN THE MATERIALS DELIV ERED BY THE ASSESSEE TO MAX AND WHL REMAINED EXCLUSIVE PROPERTY OF THE ASSESSEE . ACCORDING TO THE AO THE USE OF THE NAME HARWARD CARRIES IMMENSE VALUE A S IT IS ASSOCIATED WITH QUALITY. THE ASSESSEE HAD DULY PROTECTED ITS INTEL LECTUAL PROPERTY RIGHTS TO ITS NAME AND ITS LOGO IN THE AGREEMENT AND HAS GIVE N ONLY LIMITED RIGHTS TO MAX AND WHL TO USE THEM. THUS THE CONSIDERATION RE CEIVED BY THE ASSESSEE TO THE EXTENT OF 90% CAN BE ATTRIBUTED TO THE RIGHT TO USE THE LOGO AND THEREFORE 90% OF THE PAYMENTS RECEIVED BY THE A SSESSEE HAS TO BE CONSTRUED AS ROYALTY. THE REMAINING 10% WAS TO BE CONSIDERED AS FIS. THE SUMS RECEIVED BY THE ASSESSEE AS AFORESAID WERE ACC ORDINGLY BROUGHT TO TAX BY THE AO. 10. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD THA T THE 100% OF THE RECEIPTS BY THE ASSESSEE FROM MAX HAS TO BE CONSIDE RED AS FIS AND IN THIS REGARD FOLLOWED THE ORDER OF HIS PREDECESSOR IN A.Y . 01-02. AS FAR AS RECEIPTS FROM WHL IS CONCERNED THE CIT(A) HELD AS FOLLOWS: 5. I HAVE GONE THROUGH THE FACTS OF THE CASE VERY CAREFULLY. THE SERVICES RENDERED TO WHL IS ENTIRELY DIFFERENT FROM SERVICES RENDERED TO ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 10 MAX. IN THE CASE OF WHL THE MAIN EMPHASIZE IS ON E DUCATION & TRAINING. THE EXHIBIT A AND EXHIBIT B CLEARLY S HOWS THAT THE MAIN EMPHASIS IS ON EDUCATION AND TRAINING. FURTHER THE APPELLANT HAS ALSO BROUGHT OUT THE SUMMARY OF CERTAIN EDUCATIONAL ACTI VITIES UNDERTAKEN BY HMI FOR WHL. FURTHER UNDOUBTEDLY HMI IS AN EDUC ATIONAL INSTITUTION. AS POINTED OUT BY THE APPELLANT THE C IT(A)XXXI IN HIS ORDER NO.CIT(A)XXXIIDDIT/(IT)2(1)/IT-256/03-04/04-0 5 DATED 4.2.05 IN THE CASE WHL (WOCKHARDT HOSPITALS LTD) FOR THE F .Y. 03-04 HAS HELD THAT 50% OF THE PAYMENT MADE BY WHL TO HARVARD MEDICAL INSTITUTION (HMI) IS FOR TEACHING IN BY EDUCATIONA L INSTITUTION AND HENCE CANNOT BE CONSIDERED A FEES FOR INCLUDED SERV ICES (FIS) AND SO NOT TAXABLE. HE HAS ALSO HELD THAT THE REMAINING 50 % SHOULD BE TREATED AS ROYALTY. THE RELEVANT PARA 9 & 10 OF THE ORDER IS EXTRACTED BELOW: 9. 1 HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND THE SUBMISSION MADE BY THE APPELLANT. THE MEMORANDUM OF AGREEMENT ENTERED INTO BY THE APPELLANT (WHL) WITH HARVARD ME DICAL INTERNATIONAL (HMI) PROVIDES FOR RENDERING OF CERTA IN SERVICES BY HMJ TO WHL. THE SERVICES TO H RENDERED ARE BROADLY AS U NDER: A. ACCORDING OF ASSOCIATE INSTITUTION STATUS TO W HL AT CORPORATE LEVEL. B. TWO HMI S EXECUTIVES WILL PARTICIPATE ON THE WH L HEALTH CARE ADVISORY BOARD WITH 1 -2 DAYS MEETINGS BEING HELD T WICE IN INDIA. C. HMI WILL PROVIDE WHL EXECUTIVES TRAINING AT BOST ON IN THE AREAS OF PHARMACY MANAGEMENT AND EDUCATION INFECTION CONTRO L AND EDUCATION BIO MEDICAL ENGINEERING AND EDUCATION C LINICAL NUTRITION AND EDUCATION AND ENVIRONMENTAL SERVICES AND EDUCA TION. (D) TRAINING OF A WHL NURSE MANAGERS AT BOSTON. (E) HMJ WILL PROVIDE WHL EDUCATIONAL RESOURCES AN D REFERENCE MATERIAL. QJ HMJ WILL PROVIDE TRAINING NURSING EDUCATIONAL PROGRAMS IN INDIA AND THIS TRAINING PRO GRAM IS LIMITED TO WHL STAFF (G) HMI WILL PROVIDE THE SERVICES OF CONSULTANTS TO WHL HOSPITAL TO TEACH OR CONDUCT EDUCATIONAL WORKSHOPS. (H) HMI WILL PROVIDE THE EDUCATIONAL PROGRAMS TO AS SIST WHL IN DEVELOPING PROCESSES TO MONITOR THE OVERALL PROGRES S OF THE PROJECT. (I) HMJ PROVIDES EDUCATIONAL PROGRAMES AND RECOMMEN DATIONS IN RESPECT OF PANNED PATIENT CARE DELIVERY SYSTEM. (J) HMI WILL PROVIDE TRAINING PROGRAMS IN DEVELO PING A COMPREHENSIVE HOSPITAL COMMISSIONING PLAN. THE APPELLANT HAS CONTENDED THAT SOME SERVICES WILL NOT FORM PART OF FEES FOR INCLUDED SERVICES BECAUSE UNDER ARTICLE 1 2(5) OF THE DTAA AMOUNTS PAID FOR TEACHING IN OR BY EDUCATION INSTIT UTIONS IS EXCLUDED FROM FEES FOR INCLUDED SERVICES. COPY OF ARTICLES OF ORGANIZATION HAS BEEN FILED TO SHOW THAT HMJ IS AN EDUCATIONAL INSTI TUTION ENGAGED IN CHARITABLE AND EDUCATIONAL FUNCTIONS INTERNATIONALL Y. NOTIFICATION FROM ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 11 INTERNAL REVENUE SERVICE USA HAS ALSO BEEN; FILED WHICH HAS GRANTED EXEMPTION TO HMI FOR TAXES AS CHARITABLE AND EDUCAT IONAL INSTITUTION. 10. HOWEVER APART FROM THE ABOVE THE POINT; WHICH IS TO BE NOTED IN THE FACTS OF THE CASE THAT THE IMPUGNED AGREEMENT A LSO PROVIDES THAT WHL FOR THE EXISTING CARDIAC HOSPITAL AND THE EXIST ING KIDNEY HOSPITAL AND THE PROPOSED CARDIAC HOSPITAL AND WOMEN S HOSP ITAL MAY REFER ITSELF AS RECEIVING EDUCATION AND TRAINING SERVICES FROM HMI AND DESIGNATE THEMSELVES AS A HARVARD MEDICAL INTERNAT IONAL ASSOCIATED INSTITUTION (REFER PARA 3 (A) OF THE AGREEMENT). F URTHER WHL HAS NOT ONLY BEEN AUTHORISED TO USES THE NAME AND LOGO OF H MJ BUT THERE IS ALSO A PROVISION IN THE AGREEMENT WHEREBY HMI IS PR OHIBITED TO GRANT ANY SUCH RIGHT AND FACILITY TO ANY OTHER ENTITY OTH ER THAN WHL IN THE INDIAN TERRITORIES AS SPECIFIED IN THE AGREEMENT ( SEE PARA 5(A) OF THE AGREEMENT). THUS IT BECOMES EVIDENT THAT THE IMPUG NED PAYMENT BY WHL TO HMI IS NOT MERELY FOR RENDERING OF EDUCATION AL AND TRAINING SERVICES BUT I ALSO FOR ALLOWING USAGE OF HMIS BRA ND NAME AND LOG. THE ARGUMENT THAT CLAUSE (C) OF PARA 3 OF THE AGREE MENT STATES THAT RIGHT TO USE THE INTELLECTUAL PROPERTY IS PROVIDED BY HMI TO WHL FREE OF ANY ROYALTY OF ANY RELATED ECONOMIC CONSIDERATION I S ONLY A MISNOMER. IN FACT CLAUSE (C) OF PARA 3 OF THE AGREEMENT ITSEL F EXCLUDES THE USAGE OF THE NAME HARVARD AND ITS LOGOS AND DESIGNS FROM T HE DECLARATION THAT USAGE OF INTELLECTUAL PROPERTY IS ALLOWED FREE OF CHARGE. THEREFORE IN THESE CIRCUMSTANCES THE WHOLE OF THE PAYMENT MAD E BY WHL TO HMI CANNOT BE ASCRIBED TOWARDS EDUCATIONAL AND TRAI NING SERVICES WHICH IS SPECIFICALLY EXCLUDED FROM FEES FOR INCL UDED SERVICES UNDER ARTICLE 12(5)(C) OF THE DTAA. IN THE CIRCUMSTANCES OF THE CASE I CONSIDER THAT IT WILL BE APPROPRIATE TO HOLD 50% OF THE IMPUGNED PAYMENTS TOWARDS TEACHING IN A EDUCATIONAL INSTITUT ION WHICH WILL NOT QUALIFY AS FEES FOR INCLUDED SERVICES AND BALANCE 50% TOWARDS USE OF THE NAME HARVARD AND ITS LOGOS AND DESIGNS WHICH WILL BE LIABLE TO TAX AS ROYALTY IN THE HANDS OF HM UNDER ARTICLE 12 OF THE DTAA AT 15%. SINCE THE TAX IS STATED TO BE BORNE BY WHL IT WILL HAVE TO BE GROSSED UP. THE ASSESSING OFFICER IS DIRECTED TO GI VE EFFECT ACCORDINGLY. 5.1 IN VIEW OF ALL THE ABOVE I HOLD THAT 50% OF T HE PAYMENTS SHOULD BE CONSIDERED AS PAYMENT MADE FOR TEACHING IN BY E DUCATIONAL INSTITUTION AND HENCE THIS 50% OF THE AMOUNT CANNO T BE CONSIDERED AS FIS AND HENCE NOT LIABLE TO TAX IN INDIA. THIS CAN NOT BE ALSO TAXED UNDER ARTICLE 7 OF DTAA AS THE APPELLANT IS NOT HAV ING PE IN INDIA. THE REMAINING 50% IS TO BE TAXED AS ROYALTY TOWARDS THE USE OF THE NAME HARVARD AND ITS LOGOS AND DESIGNS. IN THIS REGARD I ENTIRELY AGREE WITH THE ORDER OF THE CIT(A)XXXI MENTIONED ABOVE 11. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSE SSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL ON THE GROUNDS WH ICH HAVE ALREADY BEEN SET OUT IN THE EARLIER PART OF THIS ORDER. ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 12 12. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE SHALL FIRST TAKE UP FOR CONSIDERATION THE RECEIPTS BY THE ASSESSEE FROM MAX . AS FAR AS THESE RECEIPTS ARE CONCERNED THE FACTS ARE IDENTICAL TO THE FACTS AS IT EXISTED IN AY 01-02 WHICH THE TRIBUNAL HAS ALREADY DECIDED. THE LEARNED D.R. ATTEMPTED TO PUT FORTH BEFORE US SUBMISSIONS TO THE EFFECT TH AT THE ASSESSEE WAS NOT IMPARTING EDUCATION AND HAD PROFIT MOTIVE IN ALL IT S DEALING WITH MAX. THESE SUBMISSIONS WERE MADE IN THE CONTEXT OF ARTICLE 12( 5)(C) OF THE DTAA BETWEEN INDIA AND USA. THESE SUBMISSIONS ARE NOT RELEVANT IN RESPECT OF PAYMENTS RECEIVED BY THE ASSESSEE FROM MAX BECAUSE IT WAS NOBODYS CASE THAT THESE RECEIPTS ARE FOR TEACHING IN OR BY EDUCA TIONAL INSTITUTIONS AND THEREFORE NOT IN THE NATURE OF FIS BECAUSE OF ARTIC LE 12(5)(C ) OF DTAA BETWEEN INDIA AND USA. THE CASE OF THE AO WAS THAT 90% OF THESE RECEIPTS ARE TO BE TREATED AS ROYALTY AND 10% FIS. THE CIT( A) HELD THAT THE ENTIRE RECEIPTS HAS TO BE CONSIDERED AS FIS. THE REVENUE IS NOT IN APPEAL AGAINST THE ORDER OF THE CIT(A). THEREFORE WHAT REMAINS FO R CONSIDERATION IS AS TO WHETHER THE PAYMENTS ARE ROYALTY TO THE EXTENT OF 9 0% AND 10% FIS OR THE ENTIRE PAYMENT IS TO BE CONSIDERED AS FIS. ON THIS ASPECT THE TRIBUNAL ON IDENTICAL FACTS IN THE CASE OF THE ASSESSEE FOR AY 00-01 AND 01-02 HELD AS FOLLOWS: 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ISSUE FOR CONSIDERATION IS AS TO WHETHER THE RECEIPT BY THE A SSESSEE FROM MAX CAN BE SAID TO BE IN THE NATURE OF FIS. WE HAVE ALR EADY SET OUT THE DETAILS OF ACTIVITIES WHICH THE ASSESSEE WAS TO PRO VIDE MAX INDIA LTD. THE RELEVANT ARTICLES IN THE TREATY ARE AS FOLLOWS: ARTICLE 12: ROYALTIES AND FEES FOR INCLUDED SERVIC ES : 1) ROYALTIES AND FEES FOR INCLUDED SERVICES ARISING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTH ER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 3) THE TERM ROYALTIES AS USED IN THIS ARTICLES ME ANS : (A) PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FO R THE USE OF OR THE RIGHT TO USE ANY COPYRIGHT OF A LITERARY ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPHY FILMS OR WORK ON FILM TAPE OR OTHER ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 13 MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RA DIO OR TELEVISION BROADCASTING ANY PATENT TRADEMARK DESIGN OR MODEL PLAN SECRET FORMULA OR PROCESS O R FOR INFORMATION CONCERNING INDUSTRIAL COMMERCIAL OR SCIENTIFIC EXPERIENCE INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY USE OR DISPOSITION THEREOF AND ; (B) PAYMENT OF ANY KIND RECEIVED AS CONSIDERATION FOR T HE USE OF OR THE RIGHT TO USE THE INDUSTRIAL COMMERC IAL OR SCIENTIFIC EQUIPMENT OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE IN PARAGRAPH 1 OF ARTICLE 8 (SHIPPING AND AIR TRANSPORT) FROM ACTIVITIES DESCRIBED IN PARAGRA PH 2(C) OR 3 OR ARTICLE 8. 4) FOR THE PURPOSES OF THIS ARTICLE FEES FOR INCLU DED SERVICES MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDE RATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVI CES (INCLUDING THROUGH THE PROVISIONS OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES : A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARA 3 IS RECEIVED; OR B) MAKE AVAILABLE TECHNICAL KNOWLEDGE EXPERIENCE SKILL KNOW-HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. 11. A PLAIN READING OF THE ABOVE CLAUSE MAKES IT C LEAR THAT ONLY SUCH TECHNICAL AND CONSULTANCY SERVICES ARE COVERED BY A RTICLE 12(4) AS EITHER (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPL ICATION OR ENJOYMENT OF THE RIGHT PROPERTY OR INFORMATION REFERRED TO I N ARTICLE 12(3) OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE EXPERIENCE S KILL KNOW-HOW ETC. THE LEARNED CIT(A) HAS APPLIED PROVISIONS OF ARTICL E 12(4)(B) TO THE ENTIRE RECEIPTS BY THE ASSESSEE. THE ASSESSING OFFI CER SOUGHT TO INVOKE ARTICLE 12(3) FOR A PORTION OF THE RECEIPT AND ARTI CLE 12(4) FOR THE REMAINDER. WE ARE OF THE VIEW THAT THERE IS NO SCOP E FOR APPLYING ARTICLE 12(3) TO THE RECEIPTS BY THE ASSESSEE IN TH E PRESENT CASE. IT IS NOT EVEN REVENUES CASE BEFORE US THAT THE ASSESSEE S CASE HAS ANYTHING TO DO WITH ARTICLE 12(3). THE CASE OF THE REVENUE THEREFORE HINGES ON THE APPLICABILITY OF ARTICLE 12(4)(B) WHI CH APPLIES TO RENDERING OF ONLY SUCH TECHNICAL OR CONSULTANCY SER VICES AS MAKE AVAILABLE TECHNICAL KNOWLEDGE EXPERIENCE SKILL O R KNOW-HOW ETC. IN OTHER WORDS IN ORDER TO ATTRACT THE TAXABILITY OF AN INCOME UNDER ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 14 ARTICLE 12(4)(B) NOT ONLY THE PAYMENT SHOULD BE IN CONSIDERATION FOR RENDERING OF TECHNICAL OR CONSULTANCY SERVICES BUT IN ADDITION TO THE PAYMENT BEING CONSIDERATION FOR RENDERING OF TECHNI CAL SERVICES. THE SERVICES SO RENDERED SHOULD ALSO BE SUCH THAT MAKE AVAILABLE TECHNICAL KNOWLEDGE EXPERIENCE SKILL KNOW-HOW O R PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNI CAL PLAN OR TECHNICAL DESIGN. 12. THE LEARNED CIT(A) HAS REFERRED TO THE DEFINIT ION OF FEES FOR TECHNICAL SERVICES AS GIVEN IN EXPLANATION 2 TO SE CTION (1)(VII) OF THE I.T. ACT 1961 WHICH IS AS FOLLOWS :- EXPLANATION 2 : FOR THE PURPOSES OF THIS CLAUSE FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUD ING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGER IAL TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PR OVISIONS OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR NAY CONSTRUCTION ASSEMBLY MININ G OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATIO N WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER T HE HEAD SALARIES. HE CONCLUDED THAT THE ASSESSEE WAS RENDERING A TECH NICAL SERVICES AND HELD THAT THE ENTIRE RECEIPTS BY THE ASSESSEE HAS T O BE CONSIDERED AS FEES FOR TECHNICAL SERVICES. THE LEARNED CIT(A) HAS OVERLOOKED THE POSITION THAT SECTION 9(1)(VII) EXPLANATION 2 STOP S WITH THE RENDERING OF TECHNICAL SERVICES THE DTAA GOES FURTHER AND QU ALIFIES SUCH RENDERING OF SERVICES WITH WORLDS TO THE EFFECT THA T THE SERVICES SHOULD ALSO MAKE AVAILABLE TECHNICAL KNOWLEDGE EXPERIENCE SKILL ETC. TO THE PERSON UTILIZING THE SERVICES. THESE WORLDS ARE WH ICH MAKE AVAILABLE. THE MEANING OF THE EXPRESSION MAKE AVAILABLE WERE C ONSIDERED BY THE TRIBUNAL IN THE CASE OF RAYMOND LTD. VS. DCIT (200 3) 80 TTJ (MUM) 120. THE TRIBUNAL AFTER ELABORATE ANALYSIS OF ALL T HE RELATED ASPECTS OBSERVED THAT :- THE WORDS MAKING AVAILABLE IN ARTICLE 13.4 REFER S TO THE STAGE SUBSEQUENT TO THE MAKING USE OF STAGE. THE QUALIF YING WORDS IS WHICH THE USE OF THIS RELATIVE PRONOUN AS A CONJU NCTION IS TO DENOTE SOME ADDITIONAL FUNCTION THE RENDERING THE SERVICES MUST FULFIL. AND THAT IS THAT IT SHOULD ALSO MAKE AVAILABLE TECHNICAL KNOWLEDGE EXPERIENCE SKILL ETC. THE WOR D WHICH OCCURRING IN THE ARTICLE AFTER THE WORD SERVICES AND BEFORE THE WORDS MAKE AVAILABLE NOT ONLY DESCRIBED OR DEFINE S MORE CLEARLY THE ANTECEDENT NOUN (SERVICES) BUT ALSO GIVES ADD ITIONAL INFORMATION ABOUT THE SAME IN THE SENSE THAT IT REQ UIRES THAT THE SERVICES SHOULD RESULT IN MAKING AVAILABLE TO THE U SER TECHNICAL ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 15 KNOWLEDGE EXPERIENCE SKILL ETC. THUS THE NORMAL PLAIN AND GRAMMATICAL MEANING OF THE LANGUAGE EMPLOYED IS THA T A MERE RENDERING OF SERVICES IS NOT ROPED IN UNLESS THE PE RSON UTILIZING THE SERVICES IS ABLE TO MAKE USE OF THE TECHNICAL K NOWLEDGE ETC. BY HIMSELF IN HIS BUSINESS OR FOR HIS OWN BENEFIT A ND WITHOUT RECOURSE TO THE PERFORMER OF THE SERVICES IN FUTURE . THE TECHNICAL KNOWLEDGE EXPERIENCE SKILL ETC. MUST REMAIN WITH THE PERSON UTILIZING THE SERVICES EVEN AFTER THE RENDERING OF THE SERVICES HAS COME TO AN END. A TRANSMISSION OF THE TECHNICAL KNO WLEDGE EXPERIENCE SKILL ETC. FROM THE PERSON RENDERING S ERVICES TO THE PERSON UTILIZING THE SAME IS CONTEMPLATED BY THE AR TICLE. SOME SORT OF DURABILITY OR PERMANENCY OF THE RESULT OF T HE RENDERING SERVICES IS ENVISAGED WHICH WILL REMAIN AT THE DIS POSAL OF THE PERSON UTILIZING THE SERVICES. THE FRUITS OF THE SE RVICES SHOULD REMAIN AVAILABLE TO THE PERSON UTILIZING THE SERVIC ES IN SOME CONCRETE SHAPE SUCH AS TECHNICAL KNOWLEDGE EXPERIE NCE SKILL ETC. 13. IN THE RAYMONDS CASE (SUPRA) THE TRIBUNAL AL SO HELD THAT RENDERING OF TECHNICAL SERVICES CANNOT BE EQUATED W ITH MAKING AVAILABLE THE TECHNICAL SERVICES. IN THE CASE OF CE SC LTD. VS. DCIT (2003) 80 TTJ (CAL) (TM) 806: (2003) 87 ITD 653 (CA L)(TM) ALSO THE QUESTION REGARDING THE SCOPE OF EXPRESSION MAKING A VAILABLE CAME UP FOR THE CONSIDERATION OF THE TRIBUNAL. IN THAT CASE THE TRIBUNAL WAS DEALING WITH THE SCOPE OF ARTICLE 13(4)(C) OF THE I NDO-UK TAX TREATY WHICH IS ADMITTEDLY IN PARI MATERIA WITH ARTICLE 12 (4) OF THE INDIA-USA TAX TREATY WITH WHICH WE ARE PRESENTLY CONCERNED. T HE MAJORITY VIEW WAS THAT IN ORDER TO BE ATTRACTED BY THE PROVISIONS OF THE SAID ARTICLE OF THE TAX TREATY NOT ONLY THE SERVICES SHOULD BE TEC HNICAL IN NATURE BUT SHOULD BE SUCH AS TO RESULT IN MAKING THE TECHNOLOG Y AVAILABLE TO PERSON RECEIVING THE TECHNICAL SERVICES IN QUESTION . THE TRIBUNAL ALSO REFERRED TO WITH APPROVAL THE EXTRACTS FROM PROTOCO L TO THE INDO-US TAX TREATY TO THE EFFECT THAT GENERALLY SPEAKING TECH NOLOGY WILL BE CONSIDERED MADE AVAILABLE WHEN THE PERSON ACQUIRIN G THE SERVICE IS ENABLED TO APPLY THE TECHNOLOGY. 14. WE HAVE ALREADY SET OUT THE NATURE OF SERVICES TO BE RENDERED BY THE ASSESSEE TO MAX INDIA LTD. A PERUSAL OF THE CL AUSES OF AGREEMENT DATED 1.3.1999 BETWEEN THE ASSESSEE AND MAX INDIA L TD. CLEARLY SHOWS THAT THEY ARE PURELY IN THE NATURE OF ADVISORY SERV ICES. NOTHING IS MADE AVAILABLE TO MAX INDIA LTD. BY THE ASSESSEE. A S TO WHETHER OR NOT GIVING ADVISORY SERVICES CAN BE CONSIDERED TO BE MA KING AVAILABLE INCLUDED SERVICES EXAMPLE NO. 7 GIVEN IN THE MOU B ETWEEN INDIA AND USA ON THE DTAA THROWS SOME MORE LIGHT ON THE UNDER STANDING OF THE GOVERNMENT S OF INDIA AND THE USA ON THE SUBJECT. T HIS EXAMPLE IS AS FOLLOWS :- ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 16 FACTS : THE INDIA VEGETABLE OIL MANUFACTURING FIRM HAS MASTERED THE SCIENCE OF PRODUCING CHOLESTEROL FREE OIL AND W ISHES TO MARKET THIS PRODUCT WORLDWIDE. IT HIRES AN AMERICAN MARKETING CONSULTANCY FIRM TO DO COMPUTER SIMULATION OF THE W ORLD MARKET FOR SUCH OIL AND TO ADVISE IT ON MARKETING STRATEGI ES. ARE THE FEES PAID TO THE US COMPANY FOR INCLUDED SERVICES ? ANALYSIS : THE FEES WOULD NOT BE FOR INCLUDED SERVI CES. THE AMERICAN COMPANY IS PROVIDING A CONSULTANCY WHICH I NVOLVES THE USE OF SUBSTANTIAL TECHNICAL SKILL AND EXPERTIS E. IT IS HOWEVER MAKING AVAILABLE TO THE INDIAN COMPANY ANY TECHNICAL EXPERIENCE KNOWLEDGE OR SKILL ETC. NOR IS IT TRANS FERRING A TECHNICAL PLAN OR DESIGN. WHAT IS TRANSFERRED TO TH E INDIAN COMPANY THROUGH THE SERVICE CONTRACT IS COMMERCIAL INFORMATION. THE FACT THAT TECHNICAL SKILLS WERE RE QUIRED BY THE PERFORMER OF THE SERVICE IN ORDER TO PERFORM THE CO MMERCIAL INFORMATION DOES NOT MAKE THE SERVICE A TECHNICAL S ERVICE WITHIN MEANING OF PARA (4)(B). THIS EXAMPLE SET OUT IN THE MOU BETWEEN THE INDIAN AND US GOVERNMENTS ALSO MAKES IT CLEAR THAT CONSIDERATION FOR ADVISORY SERVICES RENDERED CANNOT BE TREATED AS FEES FOR INC LUDED SERVICES UNDER ARTICLE 12(4)(B). 15. WE WILL NOW DEAL WITH THE DECISIONS REFERRED T O BY LEARNED CIT(A) IN SUPPORT OF HIS CONCLUSIONS. THE DECISION IN THE CASE OF ADVANCE RULING PETITION NO. P-6 OF (1995) 234 ITR 371 WAS A CASE WHERE ADMITTEDLY THERE WAS A SITUATION WHERE TECHNOLOGY W AS MADE AVAILABLE. SO ALSO IN THE CASE OF ADVANCE RULING P.NO. 13 OF 1 995 228 ITR 487. THE DECISION IN THE CASE OF CESC LTD. (SUPRA) ACTUA LLY SUPPORTS THE PLEA OF THE ASSESSEE. FOR THE REASONS SET OUT ABOV E WE ARE OF THE VIEW THAT LEARNED CIT(A) INDEED ERRED IN HOLDING THAT TH E MONIES RECEIVED BY THE ASSESSEE FROM MAX INDIA LTD. CONSTITUTE FEES F OR INCLUDED SERVICES WITHIN THE MEANING OF ARTICLE 12(4) OF THE INDIA-US TREATY AND ARE ACCORDINGLY LIABLE TO BE TAXED IN INDIA. SINCE THE ASSESSEE DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA THE INCO MES SO ARISING TO THEM IN INDIA CANNOT BE TAXED UNDER ARTICLE 7 AS B USINESS PROFITS EITHER. THEREFORE WE DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITIONS. 13. THE LEARNED D.R. SUBMITTED BEFORE US THAT ONCE THE ASSESSEE GIVES MATERIAL IN THE FORM OF STANDARD OPERATING PROCEDUR ES TECHNICAL ADVICE ETC. IT MAKES AVAILABLE TO MAX KNOWLEDGE EXPERIENCE SK ILL KNOW-HOW AND IN THIS REGARD BROUGHT TO OUR NOTICE CERTAIN CLAUSES OF THE AGREEMENT. IN THIS REGARD ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 17 OUR ATTENTION WAS DRAWN TO EXHIBIT-A OF THE AGREEME NT DT.1.3.2000. HE LAID EMPHASIS ON THE FACT THAT THERE WAS REFERENCE TO OB JECTIVE OF ENSURING THAT MAX ENJOYS CONTINUED STATUS AS AN HMI ASSOCIATED IN STITUTION. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE ABOVE SUBMISSI ON OF THE LEARNED D.R. AND ARE OF THE VIEW THAT THE SAME IS WITHOUT ANY ME RIT. EXHIBIT A REFERRED TO BY THE LEARNED D.R. IS PLAN ENVISAGED IN DIFFERENCE PHASES. ALL THE PHASES ONLY REFERS TO ADVISE GIVEN BY THE ASSESSEE TO MAX TO ACHIEVE EXCELLENCE IN HOSPITAL MANAGEMENT LIKE MEDICAL EQUIPMENT TO BE US ED NUMBER OF MEDICAL STAFF REQUIRED ON-SITE TRAINING REQUIRED ETC. THE SE SERVICES DO NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE EXPERIENCE SKIL L KNOW-HOW AS EXPLAINED IN THE DECISIONS REFERRED TO IN THE ORDER OF THE TR IBUNAL IN ASSESSEES CASE FOR AY 00-01 AND 01-02. WE THEREFORE REJECT THE CONTEN TIONS OF THE LEARNED D.R. BEFORE US AND RESPECTFULLY FOLLOWING THE DECISION O F THE TRIBUNAL IN ASSESSESS OWN CASE FOR AY 00-01 AND 01-02 HOLD THAT LEARNED CIT(A) INDEED ERRED IN HOLDING THAT THE MONIES RECEIVED BY THE ASSESSEE FR OM MAX INDIA LTD. CONSTITUTE FEES FOR INCLUDED SERVICES WITHIN THE MEANING OF ARTICLE 12(4) OF THE INDIA-US TREATY AND ARE ACCORDINGLY LIABLE TO BE TAXED IN INDIA. SINCE THE ASSESSEE DOES NOT HAVE ANY PERMANENT ESTABLISHM ENT IN INDIA THE INCOMES SO ARISING TO THEM IN INDIA CANNOT BE TAXED UNDER ARTICLE 7 AS BUSINESS PROFITS EITHER. THEREFORE WE DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITIONS. THE RELEVANT GROUNDS OF CR OSS OBJECTION OF THE ASSESSEE ARE ALLOWED. 14. WE SHALL NOW TAKE UP FOR CONSIDERATION THE FEE RECEIVED BY THE ASSESSEE FROM WHL. ON THIS RECEIPT WE SHALL FIRST DEAL WIT H THE QUESTION WHETHER THE RECEIPTS IN QUESTION ARE ROYALTY TO THE EXTENT OF 9 0% AND FIS TO THE EXTENT OF 10% OR WHETHER THEY ARE IN THE NATURE OF BUSINESS P ROFITS. THE QUESTION WHETHER THE RECEIPTS ARE FOR TEACHING IN OR BY EDUC ATIONAL INSTITUTION IN THE LIGHT OF THE ARTICLE 12(5)(C ) OF THE DTAA BETWEEN INDIA AND USA WILL ARISE FOR CONSIDERATION ONLY IF IT IS HELD TO BE FIS UNDER AR TICLE 12(4) OF THE DTAA BETWEEN INDIA AND USA. ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 18 15. WE HAVE ALREADY SEEN THE NATURE OF SERVICES R ENDERED BY THE ASSESSEE TO WHL. FROM A PERUSAL OF THE NATURE OF SERVICES R ENDERED BY THE ASSESSEE TO THE WHL IT IS CLEAR THAT NOTHING IS MADE AVAILAB LE BY THE ASSESSEE TO WHL. THE EMPHASIS OF THE LD. D.R BEFORE US WAS THAT THE USE OF THE NAME HARWARD MEDICAL INTERNATIONAL INC. GIVEN IN CLAUSE (3) OF THE AGREEMENT DATED 14/12/2000 IS THE ESSENCE OF THE AGREEMENT AND ALL THE OTHER SERVICES RENDERED ARE ONLY INCIDENTAL. ACCORDING TO HIM I T IS ONLY THE USE OF THE ASSESSEES NAME AND LOGO THAT GIVES BENEFIT TO WHL AND THEREFORE THE PROVISIONS OF ARTICLE 12(3)(A) AND ARTICLE 12(4)(A) WILL MAKE IT EITHER A ROYALTY OR A FEES FOR INCLUDED SERVICES. IN THIS REGARD I T WAS ALSO SUBMITTED BY THE LD. D.R THAT THE ASSESSEE IN CLAUSE 5 OF THE AGREEM ENT HAS AGREED NOT TO ESTABLISH ANY ALLIANCE SIMILAR TO THE ONE ENTERED I NTO WITH WHL. THIS CLAUSE ACCORDING TO THE LD. D.R ALSO SHOWS THAT IT IS ONLY THE RIGHT TO USE THE LOGO AND NAME OF THE ASSESSEE WAS THE PRIME CONSIDERATIO N FOR THE PAYMENT OF CONSIDERATION TO THE ASSESSEE BY WHL. 16. THE LD. COUNSEL FOR THE ASSESSEE IN THIS REGARD SUBMITTED THAT THE RIGHT TO USE THE LOGO AND NAME OF THE ASSESSEE BY WHL WAS ONLY INCIDENTAL. IN THIS REGARD HE DREW OUR ATTENTION TO CLAUSE 3(C) OF THE AGREEMENT DATED 14/12/2000 WHEREIN IT HAS BEEN MADE CLEAR THAT THE RE ARE NO ECONOMIC CONSIDERATION FOR RIGHT TO USE THE NAME OR LOGO OF THE ASSESSEE. OUR ATTENTION WAS ALSO DRAWN TO THE DECISION OF HONBLE DELHI BENCH OF THE ITAT IN THE CASE OF SHERATON INTERNATIONAL INC. VS. DDIT 107 ITD 120 (DEL) WHEREIN IT WAS HELD THAT WHERE MAIN PURPOSE OF THE AGREEMENT WAS TO RENDER SERVICES AND USE OF TRADEMARK OR TRADE NAME WAS ONL Y INCIDENTAL THEN THE ENTIRE PAYMENT OR EVEN A PART OF IT CANNOT BE CONSI DERED AS ROYALTY. THE TRIBUNAL ALSO HELD THAT WHERE THE AGREEMENT BETWEEN THE PARTIES SPECIFICALLY PROVIDE USE OF TRADEMARK FREE OF COST NO PART OF T HE CONSIDERATION PAID FOR SERVICES RENDERED CAN BE TREATED AS ROYALTY. THE AFORESAID DECISION WAS ALSO ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 19 CONFIRMED BY THE HONBLE DELHI HIGH COURT REPORTED IN (2009) TIOL-57-HC- DEL- IT. OUR ATTENTION WAS ALSO DRAWN TO THE DECIS ION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF MOTOROLA INC. VS. DCIT 95 ITD 269(DEL)(SB) WHEREIN IT WAS HELD THAT WHERE A LUMPSUM CONSIDERATION WAS PAID IT WAS NOT OPEN TO THE INCOME TAX AUTHORITIES TO SPLIT THE SAME AND TR EAT A PART OF THE SAME AS ROYALTY. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE A RE OF THE VIEW THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE CAN NEITHER BE SAID TO BE ROYALTY NOR FIS. THE PAYMENT IN QUESTION WAS PURELY FOR THE PU RPOSE OF ADVISING RECOMMENDING AND ASSISTING IN RELATION TO HEALTHCAR E PROJECTS. IT WAS ALSO FOR CONDUCTING EDUCATION AND TRAINING PROGRAMMES. IT WAS ALSO FOR THE PURPOSE OF REVIEW AND GIVING FEED BACK OF VARIOUS A SPECTS AND NEW CARDIAC HOSPITAL TO BE SET UP RECOMMENDATION ON PLANNED PA TIENT CARE DELIVERY SYSTEM. IN PAGE 15A TO 15D OF THE CIT(A)S ORDER A SUMMARY OF THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE FOR WHL HAVE BEEN GIVEN. A PERUSAL OF THE SAME SHOWS THAT THE CONSIDERATION RECEIVED BY THE ASSESS EE CANNOT BE SAID TO BE ROYALTY AS THEY WERE NOT A PAYMENT FOR USE OF ORDER THE RIGHT TO USE ANY COPY RIGHT TRADEMARK OR INDUSTRIAL COMMERCIAL OR SCIEN TIFIC EXPERIENCE. SIMILARLY THE ASSESSEE DID NOT MAKE AVAILABLE ANY TECHNICAL K NOWLEDGE EXPERIENCE SKILL KNOWHOW OR PROCESS. THE DECISION OF THE DELH I BENCH OF THE ITAT IN THE CASE OF SHERATON INTERNATIONAL INC.(SUPRA) SUPPORTS THE PLEA OF THE ASSESSEE THAT WHERE THE AGREEMENT BETWEEN THE PARTIES PROVID ES THAT THERE WAS NO ECONOMIC CONSIDERATION FOR RIGHT TO USE THE NAME IT CANNOT BE SAID THAT ANY PAYMENT CAN BE CALLED ROYALTY. SO ALSO THE CONSIDE RATION PAID IN A LUMPSUM CANNOT BE SPLIT AS A PART BEING IN THE NATURE OF RO YALTY AND ANY PART BEING IN THE NATURE OF FIS AS LAID DOWN IN THE CASE OF MOTOR OLA INC.(SUPRA). THE PAYMENT CANNOT BE SAID TO BE FIS FOR THE REASON THA T NOTHING IS MADE AVAILABLE BY THE ASSESSEE TO WHL AND IN THIS REGARD THE OBSERVATIONS WHILE DECIDING PAYMENTS RECEIVED BY THE ASSESSEE FROM MAX WOULD BE EQUALLY APPLICABLE TO THE PAYMENTS RECEIVED FROM WHL ALSO. WE ARE OF THE VIEW THAT ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 20 THE ENTIRE PAYMENT RECEIVED BY THE ASSESSEE FROM WH L IS IN THE NATURE OF BUSINESS PROFITS AND SINCE THE ASSESSEE DOES NOT HA VE A PE IN INDIA THE SAME CANNOT BE BROUGHT TO TAX IN INDIA. CONSEQUENTLY G ROUND NO.2 & 3 OF THE CROSS OBJECTION OF THE ASSESSEE ARE ALLOWED. 18. GROUND NO.2 RAISED BY THE REVENUE IN ITS APPEAL READS AS FOLLOWS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUN T OF REIMBURSEMENT OF EXPENSES OF RS. 45 34 096/-. 19. THE MATERIAL FACTS IN RESPECT OF THIS GROUND OF APPEAL ARE AS FOLLOWS: DURING THE PREVIOUS YEAR THE ASSESSEE RECEIVED A SU M OF US$ 93 371 FROM WHL MAX AND SHRI RAMACHANDRA MEDICAL COLLEGE AND R ESEARCH INSTITUTE (SRMCRI). ACCORDING TO THE ASSESSEE THIS PAYMENT W AS REIMBURSEMENT OF ACTUAL EXPENSES INCURRED BY THE ASSESSEE ON BEHALF OF WHL MAX & SRMCRI. ACCORDING TO THE ASSESSEE REIMBURSEMENT OF EXPENSES WAS TOWARDS AIR FARE LODGING FOOD ETC. INCURRED BY THE ASSESSEES PERS ONNEL DURING THEIR VISITS TO INDIA. IT WAS ALSO SUBMITTED THAT AS PER THE AGREE MENT BETWEEN WHL AND MAX AND THE ASSESSEE WHL AND MAX WERE REQUIRED TO BEAR THE COST OF EXPENSES THAT MAY BE INCURRED IN RELATION TO THE PR OVISION OF SERVICES. THE ASSESSEE SUBMITTED BEFORE THE AO THAT SINCE THE R ECEIPT WAS REIMBURSEMENT OF EXPENSES THE SAME CANNOT BE TREATED AS INCOME. THE AO HOWEVER WAS OF THE VIEW THAT THE REIMBURSEMENT OF EXPENSES WERE AL SO PART OF THE CONSIDERATION PAID FOR RENDERING SERVICES AND THE S AME WERE BROUGHT TO TAX TREATING 90% OF THE SAME AS ROYALTY AND 10% AS FIS. 20. ON APPEAL BY THE ASSESSEE THE CIT(A) FOLLOWING THE ORDER IN ASSESSEES OWN CASE FOR A.Y 2001-02 HELD THAT THE SUMS IN QUES TION WERE REIMBURSEMENT OF EXPENSES AND THE SAME CANNOT BE BR OUGHT TO TAX IN THE HANDS OF THE ASSESSEE. ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 21 21. IT IS NOT IN DISPUTE BEFORE US THAT IN A.Y 2001 -02 IN ITA NO.4426/M/05 SIMILAR ISSUE WAS CONSIDERED BY THIS T RIBUNAL AND THE TRIBUNAL HELD AS FOLLOWS: 16. GROUND NO. 4 RAISED BY THE ASSESSEE READS AS F OLLOWS :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW LEARNED CIT(A) THOUGH AGREEING IN PRINCIPLE THAT REIMBURSEM ENT OF EXPENSES RECEIVED IN CONNECTION WITH THE SERVICES R ENDERED DOES NOT CONSTITUTE INCOME HOWEVER ERRED IN CONFIRMING T HE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF THE REI MBURSEMENT OF ACTUAL EXPENDITURE OF US$ 94 875 ON THE GROUND T HAT THE APPELLANT FAILED TO FURNISH THE DETAILS OF THE SAME WITHOUT GIVING AN OPPORTUNITY TO THE APPELLANT TO SUBSTANTIATE ITS CLAIM. 17. WE HAVE ALREADY NOTICED THAT THE ASSESSEE WAS P ROVIDING EDUCATION AND TRAINING PROGRAMMES TO HOSPITALS MED ICAL SCHOOLS IN INDIA. THE ASSESSEE HAD ENTERED INTO AGREEMENTS FOR PROVIDING THOSE FACILITIES WITH MAX. THE ASSESSEE HAD ALSO ENTERED INTO AN AGREEMENT FOR PROVIDING SERVICES TO WOCKHARDT HOSPITALS LIMIT ED (WHL). THE ASSESSEE RECEIVED A SUM OF US$ 75 000/- DURING THE PREVIOUS YEAR. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT FOR REND ERING EDUCATIONAL SERVICES TO WHL DATED 14.12.2002. EARLIER THERE WAS A LETTER OF INTENT DATED 28.2.2000 SIGNED BETWEEN THE ASSESSEE AND WOC KHARDT LIFE SCIENCES LTD. (WLSL)(ERSTWHILE NAME OF WHL). IN TER MS OF THE ABOVE LETTER OF INTENT THE ASSESSEE WAS TO ASSEMBLE A TE AM OF PROFESSIONALS TO VISIT WOCKHARDT HEALTH CARE TEAM FOR THE PURPOSE OF DEFINING THE WORKING RELATIONSHIP ROLE OF THE ASSESSEE AND TO C REATE COMPREHENSIVE PROGRAMMES FOR ACHIEVING PROVISION OF SERVICES BY T HE ASSESSEE. WLSL AGREED TO REIMBURSE THE ASSESSEE FOR ALL DIRECT AND INDIRECT COST RELATING TO SUCH VISITS BY THE TEAM OF PROFESSIONAL OF THE ASSESSEE. A SUM OF US$ 75 000 RECEIVED BY THE ASSESSEE DURING T HE PREVIOUS YEAR FROM WHL WAS REIMBURSEMENT OF SUCH EXPENSES. THE AF ORESAID SUM OF US$ 75 000 WAS IN THE NATURE OF AN INTERIM PAYMENT AND IN THE EVENT OF REGULAR AGREEMENT BEING ENTERED INTO BETWEEN WOC KHARDT AND THE ASSESSEE THE SAME HAS TO BE ADJUSTED TOWARDS CONSI DERATION PAYABLE BY THE WOCKHARDT TO THE ASSESSEE UNDER THE AGREEMEN T FOR PROVIDING VARIOUS SERVICES. IT APPEARS THAT LATER ON THE ASS ESSEE AND WOCKHARDT ENTERED INTO A CONTRACTUAL AGREEMENT AND THIS SUM O F US$ 75 000 WAS ADJUSTED AGAINST TRAVEL RELATED AND ADMINISTRATIVE DIRECT EXPENSES INCURRED BY THE ASSESSEE PRIOR TO THE DATE OF AGREE MENT. IN COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER WROTE TO WHL REGARDING ABOVE PAYMENT. IT APPEARS THAT THE PAYMENT WAS MADE BY WOCKHARDT ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 22 PHARMACEUTICAL DIVISION OF WOCKHARDT GROUP AND SUBS EQUENTLY MADE OVER BY WOCKHARDT REPRESENTING HOSPITAL DIVISION OF THE GROUP. PAYMENT WAS NOT THUS REFLECTED IN WHL BOOKS; BUT WA S ACTUALLY BORNE BY THE WOCKHARDT. 18. THE ASSESSEE ALSO RECEIVED ANOTHER SUM OF US$ 1 9 874.91 FROM MAX. THIS WAS ALSO CLAIMED TO BE REIMBURSEMENT OF E XPENSES BY THE ASSESSEE. AS PER THE AGREEMENT TO PROVIDE SERVICES BETWEEN THE ASSESSEE AND MAX EXPENSES OF MAX RELATED TO THE AG REEMENT ON ACCOUNT OF TRAVEL BOARDING LODGING ETC. OF ASSESS EES PERSONNEL HAVE TO BE BORNE BY MAX. IT IS FURTHER PROVIDED THAT SUC H PAYMENT IS NOT PART OF THE CONSIDERATION PAYABLE BY MAX TO THE ASS ESSEE. 19. AFORESAID RECEIPTS WAS BROUGHT TO TAX AS INCOME OF THE ASSESSEE BY THE ASSESSING OFFICER AND THE SAME WAS CONFIRMED BY LEARNED CIT(A). THE STAND OF THE ASSESSEE BEFORE THE ASSESS ING OFFICER AS WELL AS LEARNED CIT(A) WAS THAT SINCE THE AFORESAID PAY MENTS WERE REIMBURSEMENT OF ACTUAL EXPENSES THEY COULD NOT BE CONSIDERED AS INCOME OF THE ASSESSEE. LEARNED CIT(A) AGREED WITH THE STAND OF THE ASSESSEE THAT REIMBURSEMENT OF EXPENSES CANNOT BE C ONSIDERED AS INCOME; BUT HELD THAT THE ASSESSEE HAS NOT FILED DE TAILS OF REIMBURSEMENT OF ACTUAL EXPENSES INCURRED; AND THER EFORE CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED. 20. BEFORE US LEARNED COUNSEL FOR THE ASSESSEE BRO UGHT TO OUR NOTICE INVOICE RAISED BY THE ASSESSEE ON WOCKHARDT LTD. WH ICH IS AT PAGE NO. 96-97 OF THE ASSESSEES PAPER BOOK AND THE INVOICE RAISED ON MAX INDIA LTD. WHICH AT PAGE NO. 98 OF THE ASSESSEES P APER BOOK. PERUSAL OF THESE INVOICES SHOWS THAT THE PAYMENT OF US$ 75 000 BY WOCKHARDT LTD. IS RELATED TO TRAVEL AND ADMINISTRATIVE DIRECT EXPENSES AND LEGAL EXPENSES. AS FAR AS PAYMENT OF MAX IS CONCERNED IT HAS DESCRIPTION OF TRAVEL COST BILL AS PER THE AGREEMENT. IN OUR VIEW AFORESAID DOCUMENTS PRIMA FACIE SHOWS THAT THEY WERE REIMBURSEMENT OF E XPENSES. WE ARE HOWEVER OF THE VIEW THAT THESE DOCUMENTS WOULD NOT BE SUFFICIENT TO ESTABLISH CASE OF THE ASSESSEE. THE ASSESSEE HAS TO ESTABLISH THAT THESE WERE EXPENSES INCURRED BY THE ASSESSEE WHICH WERE A CTUALLY TO BE INCURRED BY WOCKHARDT LTD. AND MAX RESPECTIVELY. IT HAS TO BE FURTHER ESTABLISHED THAT THESE RECEIPTS ARE NOT ADJUSTED AG AINST ANY PAYMENT WHICH THE ASSESSEE HAS TO RECEIVE UNDER AGREEMENT T O PROVIDE SERVICES. SUBJECT TO THE ASSESSEE ESTABLISHING THAT THESE REC EIPTS HAS NOTHING TO DO WITH THE RECEIPTS FOR RENDERING VARIOUS SERVICES UNDER THE AGREEMENT WITH WOCKHARDT LTD. & MAX AND SUBJECT TO FURTHER PROOF THAT THESE EXPENSES WERE INCURRED BY THE ASSESSEE; BUT WERE TO BE INCURRED BY WOCKHARDT & MAX THE ASSESSEE WILL BE E NTITLED TO CLAIM DEDUCTION. WE DEEM IT FIT AND APPROPRIATE TO RESTOR E THIS ISSUE TO THE ASSESSING OFFICER WITH LIBERTY TO THE ASSESSEE TO L ET IN APPROPRIATE ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 23 EVIDENCE IN THIS REGARD BEFORE THE ASSESSING OFFICE R. FOR STATISTICAL PURPOSES GROUND NO. 4 OF THE ASSESSEE IS TREATED AS ALLOWED. IN THE RESULT APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. 22. THE LD. D.R SUBMITTED BEFORE US THAT NEITHER TH E AO NOR THE CIT(A) HAS GIVEN ANY FINDING ABOUT THE NATURE OF REIMBURSEMENT OF EXPENSES AND THE AGREEMENT BETWEEN THE PARTIES AS TO HOW AND WHEN WH L MAX OR SRMCRI HAS TO REIMBURSE THE EXPENSES TO THE ASSESSEE. IN THIS REGARD LD. D.R DREW OUR ATTENTION TO AN INVOICE RAISED BY THE ASSESSEE ON SRMCRI WHEREIN THE DESCRIPTION OF THE EXPENSES WAS IN RELATION TO AIR FARE OF THE ASSESSEES PERSONNEL TO VISIT THE 3 RD CONVOCATION OF SRMCRI IN CHENNAI INDIA. ACCORDING TO HIM THE NATURE OF EXPENSES CANNOT BE C ONSIDERED AS HAVING BEEN INCURRED IN THE COURSE OF RENDERING SERVICES T O SRMCRI. HIS PLEA WAS THAT THIS ASPECT MUST BE DIRECTED TO BE LOOKED INTO BY THE AO IN RESPECT OF ALL THE INVOICES IN RESPECT OF WHICH REIMBURSEMENT EXPE NSES WERE CLAIMED BY THE ASSESSEE. 23. THE LD. COUNSEL FOR THE ASSESSEE HOWEVER SUBMIT TED THAT THE AGREEMENT BETWEEN THE PARTIES SPECIFICALLY PROVIDES FOR REIMBURSEMENT OF EXPENSES INCURRED IN THE COURSE OF RENDERING SERVIC ES TO THE PARTIES IN INDIA. 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AR E OF THE VIEW THAT NEITHER THE AO NOR THE CIT(A) HAVE LOOKED INTO THE TERMS OF THE AGREEMENT TO POINT OUT WHETHER THE RECEIPTS IN QUESTION ARE REIM BURSEMENT OF EXPENSES AND AS TO WHETHER THEY ARE NOT PART OF THE AGREEMEN T TO PROVIDE SERVICES. EVEN ASSUMING THAT THESE RECEIPTS WERE TO BE CONSID ERED AS PART OF PAYMENT FOR SERVICES RENDERED THEY WILL NOT BE TAXABLE IN INDIA AS THEY WOULD BE IN THE NATURE OF BUSINESS INCOME. IF THEY ARE CONSIDE RED AS OTHER INCOME THEY CANNOT BE BROUGHT TO TAX IN VIEW OF THE ARTICLE 23( 1) OF THE DTAA BETWEEN INDIA AND USA. PRIMA FACIE THE PAYMENTS ARE IN THE NATURE OF REIMBURSEMENT OF EXPENSES. IN THE ABSENCE OF ANY F INDING BY THE AO TO THE CONTRARY THE REQUEST OF THE D.R. TO REMAND THE ISSU E FOR FRESH CONSIDERATION ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 24 CANNOT BE ACCEDED. IN THAT VIEW OF THE MATTER WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). CONSEQUENTLY GROUND NO.2 RAISED BY THE REVENUE IS ALSO DISMISSED. 25. GROUND NO.4 RAISED BY THE ASSESSEE IN THE CROSS OBJECTION READS AS FOLLOWS: 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A)) ERRED IN NOT ADJUDICATING UPON THE GROUND R ELATING TO INCORRECT FOREIGN CURRENCY EXCHANGE RATE APPLIED BY THE LEARN ED AO FOR CONVERSION OF THE FEES RECEIVED BY THE RESPONDENT INTO INDIAN RUPEES. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO APP LY THE EXCHANGE RATES AS PER PROVISO TO RULE 115 READ WITH RULE 26 OF THE INCOME TAX RULES 1962. 26. IN OUR VIEW THIS GROUND HAS BECOME ACADEMIC IN VIEW OF THE CONCLUSION THAT NONE OF THE RECEIPTS BY THE ASSESSE E FROM MAX & WHL WERE TAXABLE IN INDIA. THOUGH THE CIT(A) HAS NOT DECIDE D THIS GROUND ON APPEAL DESPITE A SPECIFIC GROUND RAISED BY THE ASSESSEE BE FORE HIM NO PURPOSE WILL BE SERVED BY REMANDING THE SAME TO CIT(A) FOR FRES H CONSIDERATION. CONSEQUENTLY WE DISMISS GROUND NO.4 RAISED BY THE A SSESSEE IN THE CROSS OBJECTION. 27. IN THE RESULT THE APPEAL BY THE REVENUE IS DIS MISSED WHILE THE CROSS OBJECTION BY THE ASSESSEE IS PARTLY ALLOWED. ITA 1559/M/07 & CO NO.146/M/07: 28. ITA NO.1559/M/07 IS AN APPEAL BY THE REVENUE AG AINST THE ORDER DATED 26/10/2006 OF CIT(A) 33 MUMBAI RELATING TO A .Y 2003-04 AND C.O NO.146/M/07 IS A CROSS OBJECTION BY THE ASSESSEE AG AINST THE VERY SAME ORDER OF THE CIT(A). THE GROUND RAISED BY THE REVE NUE IN ITS APPEAL AND GROUND NO.1 TO 3 RAISED BY THE ASSESSEE IN ITS CROS S OBJECTION ARE IDENTICAL ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 25 TO THE GROUNDS 1 & 2 RAISED BY THE REVENUE IN ITS A PPEAL ITA 1558/M/07 AND GROUND NO.1 TO 3 IN THE CROSS OBJECTION NO.145 /M/07 RAISED BY THE ASSESSEE IN TIS CROSS OBJECTION FOR A.Y 2002-03. F OR THE REASONS GIVEN WHILE DECIDING IDENTICAL GROUNDS IN A.Y 2002-03 WE DISMI SS THE GROUNDS RAISED BY THE REVENUE AND ALLOW GROUND NO.1 TO 3 RAISED BY TH E ASSESSEE IN ITS CROSS OBJECTION. BOTH THE PARTIES AGREED THAT THE FACTS AND CIRCUMSTANCES PREVAILING IN BOTH THE A.YS ARE IDENTICAL. GROUND NO.4 RAISED BY THE ASSESSEE IN CROSS OBJECTION NO.146/M/07 RELATING TO CHARGING OF INTEREST IS ACADEMIC AND DOES NOT REQUIRE ANY ADJUDICATION. ITA NO.3610/MUM/2005- REVENUESS APPEAL: 29. THIS IS AN APPEAL BY THE REVENUE AGAINST THE O RDER DATED 4/2/2005 OF CIT(A)-31 MUMBAI PASSED IN AN APPEAL AGAINST THE ORDER UNDER SECTION 195(2) OF THE ACT. WE HAVE ALREADY SEEN THAT WHL MADE PAYMENTS TO HARVARD MEDICAL INTERNATIONAL INC. IN CONNECTION WI TH THE SERVICES RENDERED BY THE LATER IN INDIA. M/S. WHL APPLIED FOR ISSUE OF NIL DEDUCTION OF TAX AT SOURCE U/S.195 OF THE ACT ON THE GROUND THAT HARVA RD MEDICAL INTERNATIONAL INC. WAS A NON-RESIDENT AND THAT PAYMENT BY M/S. WH L TO HARVARD MEDICAL INTERNATIONAL INC. WAS BUSINESS PROFITS AND SINCE H ARVARD MEDICAL INTERNATIONAL INC. DID NOT HAVE A PE IN INDIA THE R ECEIPTS CANNOT BE BROUGHT TO TAX IN INDIA AND CONSEQUENTLY A CERTIFICATE OF N O DEDUCTION OF TAX AT SOURCE BEFORE MAKING PAYMENT TO HARVARD MEDICAL INTERNATIO NAL INC. SHOULD BE ISSUE. THE AO TREATED THE PAYMENT IN QUESTION AS R OYALTY AND FIS AND DIRECTED THE ASSESSEE TO DEDUCT TAX AT SOURCE TREAT ING 90% OF THE PAYMENT AS ROYALTY AND 10% AS FIS. 30. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE AO BUT HOWEVER HELD THAT ONLY 50% OF THE PAYMENT SHOUL D BE TREATED AS FIS AND TAX DEDUCTED AT SOURCE ACCORDINGLY. WE HAVE ALR EADY SEEN WHILE DECIDING ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 26 THE APPEAL ON HARVARD MEDICAL INTERNATIONAL INC. TH AT THE PAYMENTS BY M/S. WHL TO HARVARD MEDICAL INTERNATIONAL INC. ARE BUSIN ESS PROFITS AND SINCE HARVARD MEDICAL INTERNATIONAL INC. DOES NOT HAVE A PE IN INDIA THE SAME CANNOT BE BROUGHT TO TAX IN INDIA FOR THE REASONS S TATED THEREIN. WE HOLD THAT M/S. WHL HAS NO OBLIGATION TO DEDUCT TAX AT SO URCE ON THE PAYMENT MADE TO HARVARD MEDICAL INTERNATIONAL INC. ACCORDI NGLY THIS APPEAL IS DISMISSED. 31. IN THE RESULT ITA NO.1558/M/07 & 1559/M/07 AR E DISMISSED CROSS OBJECTIONS NO.145/M/07 & 146/M/07 ARE PARTLY ALLOWE D AND ITA NO.3610/M/05 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 18 TH DAY OF NOV . 2011. SD/- SD/- (B.RAMAKOTAIAH ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED. 18 TH NOV. 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RL BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA 1558&1559/M/07 & CO 145&146/M/07 ITA 3610/M/05 27 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 15/11/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 16/11/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COM ES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER