The agreement was not only for the purchase of machine but it was also for the purchase of the technology, and the technology was made available to the taxpayer exclusively.

Bajaj Holdings & Investments Ltd vs ADIT

Dated: 16^th Jan 2013

 

Assessee filed an application u/s.195 requesting AO to issue a no objection certificate for making payment of 25,000 British Sterling Pound to Xennia, a company based in United Kingdom, without any deduction of tax.

 

AO observed that agreement between Assessee and Xennia for developing inkjet printers and four specific inks for the purpose of printing directly on two opposite sides of painted metallic petrol tank. The printer as per the specification of Bajaj were to be developed at Xennia and thereafter were to be shipped to India for  commissioning at Bajaj plant in India and Bajaj was required to make payment of 25,000 British Sterling Pound being start up fees to procuring inkjet printing solution.

 

AO held that technical design and drawing and Plans were also being made available by Xennia, that payment was in the nature of fees for technical services, that same was to be taxed at 15% of the gross amount in terms of clause 2 Article 13 of the DTAA between India and UK. Assessee on appeal before CIT(A) held that

 

The assessee had utilised the technical services of the Xennia for the development of a technical plan / design in a sophisticated printer. It had also utilised the technical services of Xennia to develop four different inks and the assessee  was specifically charged by Xennia for the technical services rendered with regard to designing the printer. The manufacturing cost of the printer was separately paid and 25,000 British Sterling Pound were paid only for the technical services.The IP developed from the technical services was owned by the assessee  and the contract was not only for purchase of machinery, it was also for acquiring the technology from Xennia. The agreement was for services of a technical nature consisting of the development and transfer of a technical design and therefore, the payment would fall within the purview of Royalty or FTS under Section 9(1)(vi) or 9(1)(vii) respectively of the Act as well as Article 13(4)(c)3 of the tax treaty.

 

Assessee on appeal before ITAT

 

ITAT observed that, the basic question to be answered by us is whether the agreement entered into by the assessee and Xennia was about purchase for machinery only or it dealt with something more than that? After going through the agreement, we are of the opinion that it was not about purchase of printer alone. Assessee-company had purchased a particular technology form the Xennia.

 

The agreement clearly proves that Xennia had supplied the technology to the assessee. Not only the assessee was using it, it had the right over the Intellectual Property also. Agreement entered in to by the assessee-company allowed it ‘to file patent application, design application or any such application for intellectual property rights arising out of foreground IP’. In these circumstances, we agree with the CIT(A) that the transaction was not for sale of printer only-it included the technology also. When a particular technology was made available to the assessee by Xennia exclusively, it cannot be said that the agreement was only for sale of printer. Therefore, upholding the order of the CIT(A).

 

Further also held that, as per Section 115A(1)(b)(BB) of the Act, tax on dividends, royalty and technical service fees in case of foreign companies has to be computed in a particular manner, if it is entered in to after a particular date. Neither the AO nor the CIT(A) had dealt with the issue. Therefore, the matter was restored to the file of the AO for deciding the question of applicability of lower rate of tax for the transaction.