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Partners Hardvard Medical International Inc. v/s Assistant Director of Income-tax (International Taxation)-3 (1), Mumbai

    IT Appeal Nos. 5835 & 5976 (Mum.) of 2009, 7425 (Mum.) of 2010, 7870 (Mum.) of 2011 and 7185 (Mum.) of 2012

    Decided On, 03 July 2015

    At, Income Tax Appellate Tribunal Mumbai


    For the Appellant: Kanchan Kaushal, Dhanesh Bafna and Arpit Agrawal, Advocate. For the Respondent: Vandana Sagar, Advocate.

Judgment Text

1. The assessee has filed four appeals for AY 2006-07 to 2009-10 and the Revenue has filed appeal for AY 2006-07. The Cross-appeals filed for the assessment year 2006-07 are directed against the order dated 17.8.2009 passed by the ld. CIT(A)-XXXIII, Mumbai. The other three appeals filed by the assessee are directed against the three separate orders passed by AO under sections 143(3) r.w.s.144C(13) of the Income Tax Act, 1961. Since identical issues are agitated in these appeals, all these appeals were heard together and they are being disposed of by this common order, for the sake of convenience.

2. In all these appeals, the solitary issue urged is whether the assessee is liable to pay tax on the amounts received from the persons mentioned below in respect of services provided to them:

(a) Wockhard Hospitals Ltd

(i) Consulting Agreement;

(ii) Award Agreement; and

(iii) Education and Teaching Agreem

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(b) Sri Ramchandra Medical College & Research Institution (SRMCRI)

(i) Education and Teaching Agreement

(c) Carol Info Services Ltd (CAROL)

(i) Consulting Agreement;

(d) Reimbursement of expenses

3. The assessee is a Non Profit educational entity incorporated in USA and is an educational and charitable organisation for the purposes of section 501(c)(3) of the US Internal Revenue Code. With effect from April 22, 2008 it has become subsidiary of Partners Healthcare System Inc. It has provided various educational and consultancy services under the agreements entered with various Indian entities. The assessee claimed that none of the receipt is taxable in India as per the provisions of Indo-US DTAA.

4. In assessment year 2006-07, the AO treated all the receipts as taxable. However, the AO held that 90% of the receipts are taxable Royalty and the balance 10% of the receipts is taxable as "Fee for included services". However the contention of the assessee is none of the receipt is liable for taxation in India as they do not fall in the category of Royalty or Fee for included services. It was further contended that these receipts fall in the category of business receipts and they are not taxable in India, since the assessee does not have permanent establishment in India.

5. Hence, the assessee challenged the order passed by the AO in AY 2006-07 by filing appeal before Ld CIT(A). In the appellate proceedings, the ld.CIT(A) held that

(a) the fees received under consulting agreement from Wokhard Hospitals and M/s Carol Info Services are taxable as "Fee for included services".

(b) the fees received from Wockhard Hospitals in pursuance of Award Agreement is not taxable.

(c) the receipts by way of reimbursement of expenses are not taxable.

(d) the fees received from Wockhardt Hospitals Ltd under the education and teaching agreement is partially taxable, i.e., 75% of the receipt is not taxable and balance 25% is taxable as Royalty for use of trade name.

(e) the fees received from SRMCRI under education and teaching agreement is partially taxable, i.e., 60% of the receipt is not taxable and the balance 40% is taxable as royalty for use of trade name. Both the parties have challenged the order of ld. CIT(A) on the points decided against each of them in AY 2006-07.

6. In the remaining three years, the AO held that 90% all receipts are taxable as royalty and 10% receipts are taxable as fee for included services. The same was confirmed by the Dispute Resolution Panel and hence the AO passed the order accordingly. The assessee has filed the appeals for the remaining three years challenging the order of the AO.

7. At the time of hearing, the ld. Counsel appearing for the assessee submitted that the identical issues have been considered by the Tribunal in various years and they have been decided in favour of the assessee by holding that they are not taxable as per the Indo USA treaty. The assessee has also furnished copies of orders passed by the Tribunal from assessment years 2000-01 to 2004-05. The order, if any, passed for AY 2005-06 was not available on record.

8. The Ld D.R also agreed with the submissions made by Ld A.R that identical amounts received in the years relevant to AY 2000-01 to 2004-05 have been held to be not taxable in India under Indo-US DTAA.

9. We notice that the co-ordinate bench of Tribunal has passed the order dated 22-02-2013 in the assessee's own case relating to AY 2004-05 in ITA No.791/Mum/2008 and ITA No.1020/Mum/2008 in [Harvard Medical International Inc. v. Dy. CIT (International Taxation) [2013] 58 SOT 329/33 taxmann.com 50 (Mum.)] wherein it has followed the orders passed by the co-ordinate benches from AY 2000-01 onwards. In assessment year 2004-05, the assessee had received fees from M/s Max India Ltd for identical services rendered by the assessee for advisory services rendered. Identical view was taken in the case of receipts from Wokhard Hospitals. The Tribunal in paragraph13 and 14 of its order has held as under:-

'13. Consistent with the aforesaid view taken by the Tribunal in Assessee's own case, we hold that the payments received from Max does not constitute FIS (Fee for Included Services) within the meaning of Article 12(4), as nothing is made available by the Assessee to Max and also the Assessee does not have any P.E in India. Therefore the income so arising to the Assessee in India cannot be taxed under Article 7 as "Business Profits".

14. In case of WHL (Wokhard Hospitals Ltd) also, we hold that it is neither taxable as FIS nor as royalty and also the Assessee does not have any P.E in India and, therefore, the payment received by it cannot be taxed in India. Accordingly, consistent with the view taken in earlier years in assessee's own case, we allow grounds no.1 and 2, raised by the assessee.'

The above said decision of the Tribunal shall be applicable to the fees received by the assessee in the current year under Consulting Agreement (Wockhard Hospitals and Carol Info Services Ltd) and under Award Agreement (Wockhard Hospitals).

10. The Tribunal also considered the issue relating fees received under Education and Teaching Agreement from SRMCRI. Since the assessee had allowed the SRMCRI to use its logo, the tax authorities had taken the view that the fee received also pertains to Royalty for use of Logo. In respect of this receipt also, the Tribunal held that they cannot be considered as Royalty or Fee for Included Services and further it cannot also be taxed as Business profits, since the assessee does not have P.E. Hence this decision is applicable to the fees received from Wockhard Hospitals and SRMCRI under Education and Teaching Agreement.

11. In respect of amount received by way of reimbursement of expenses also, the Tribunal in paragraph 31 of its order held that the same cannot be held to be taxable, since the main receipts have been held to be not taxable.

12. Thus, it is seen that the Tribunal has considered identical issues in AY 2004-05 and it has held that none of the receipts is taxable in India.

13. We notice that the tax authorities have examined only the agreements and have drawn conclusion against the assessee. They have not examined about the nature of services actually provided or delivered by the assessee to the Indian entities. In our considered view, one may not be able to come to a conclusion about the nature of services provided unless the actual services/deliverables are examined. Then one shall be in a position to ascertain as to whether the services or techniques provided was mere commercial information or a technique made available to the assessee. We may elucidate this point with an example. Let us assume that a financial consultancy firm provides consultancy services for "Cash management system". It may provide various techniques to be followed to achieve the objective of effective cash management. The said techniques may be followed by the recipient of services even in the absence of the financial consultancy firm. In that case, the question that requires to be examined is whether the financial consultancy firm has made available the technology related to Cash management system or not within the meaning of the provisions of Indo-USA DTAA.

14. In the absence of such kind of examination from the side of tax authorities, we notice that the Tribunal also has proceeded to adjudicate the issue by considering the agreements only. In the absence of such kind of intricate details, we are also not in a position to examine the nature of services vis--vis the products/package, if any, delivered by the assessee. Since the Tribunal has consistently taken a particular view in the earlier years and since there was no deeper examination done by the tax authorities, we are inclined to follow the decision rendered by the Tribunal in the earlier years. Accordingly, by following the order passed by the Tribunal in the earlier years, we set aside the orders of Ld CIT(A) in AY 2006-07 and the assessment orders passed on the above said issues in AY 2007-08 to 2009-10 and direct the AO to delete the addition of all the receipts discussed above.

15. Since we have held that all the receipts are not taxable, the question of charging interest u/s 234B does not arise and in any case it is consequential in nature.

16. In the result, the appeal filed by the Revenue for AY 2006-07 is dismissed and all the appeals of the assessee are allowed.