The Director Of Income Tax v. Hindalco Industries Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL (L) NO. 1468 OF 2005 ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL (L) NO. 1468 OF 2005 The Director of Income Tax ... Appellant Versus Hindalco Industries Ltd. ... Respondent Mr. P.S. Sahadevan for the Appellant. Mr. P.R. Toprani for the Respondent. CORAM: F.I.REBELLO&R.S. MOHITE, JJ.DATED: APRIL 07, 2008 CORAM: F.I. R.S. MOHITE, JJ. DATED: APRIL 07, 2008 P.C. P.C. . This is an appeal preferred by the Revenue against the Judgment of ITAT holding that the payments received by the assessee are not royalty under article 12 of the agreement between the Government of Republic of India and the Government of Australia for avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income. The Assessee had made payment of US # 72,000/- to M/s. Standard and Poor’s (Australia) Pvt. Ltd. (hereinafter referred to as "S&P") for corporate credit rating of the appellant company. It was the contention of the appellant that what was paid was towards royalty. The learned Tribunal on hearing the parties was pleased to record a finding as under : "That is not the case here because the payment for credit rating, in our considered view, cannot be treated as a payment for the supply of scientific, technical, industrial, or commercial knowledge or information. It is not a payment for any knowledge or information but a payment for the professional services rendered which is to decide credit rating of a company. It follows that these services can only be taxed in India when the company rendering services has a permanent establishment in India and in terms of Article 7 of the DTAA. It is an admitted position that S&P does not have a PE in India. In this view of the matter the credit rating fees received by S&P was not liable to be taxed in India." . It is against this order that the Revenue has preferred this appeal. The questions of law as formulated read as under : "(a) Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that the services rendered by Standard & Poor are not of such a nature as to fall within Article 12 of the Tax Treaty between India and Australia? (b) Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that in absence of a permanent establishment in India, the said fees can not be subjected to tax in India?" . To answer the issue, we may gainfully refer to the relevant provisions of the DTAA which are as under : "Article 12 : Royalties : 1. Royalties arising in one of the Contracting State, being royalties to which a resident of the other Contracting State is beneficially entitled, may be taxed in that other State. 2. Such royalties may also be taxed in the contracting State in which they arise, and according to the law of that State, but the tax so charged shall not exceed: (a)............... ............... 3. The term "royalties" in this article means payments or credits, whether periodical or not, and, however described or computed, to the extent to which they are made as consideration for : (a) the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trade mark, or other like property or right; (b) the use of, or the right to use, any industrial, commercial or scientific equipment. (c) the supply of scientific, technical, industrial or commercial knowledge or information. ....................... ..................................." . It would thus be clear that considering the tax so charged shall not exceed: (a)............... ............... 3. The term "royalties" in this article means payments or credits, whether periodical or not, and, however described or computed, to the extent to which they are made as consideration for : (a) the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trade mark, or other like property or right; (b) the use of, or the right to use, any industrial, commercial or scientific equipment. (c) the supply of scientific, technical, industrial or commercial knowledge or information. ....................... ..................................." . It would thus be clear that considering the contentions advanced on behalf of the Revenue, the payments have to be in respect of the supply of scientific, technical,industrial or commercial knowledge or information. In the instant case, have respondent assessee received any scientific, technical, industrial or commercial knowledge or information. The respondents asked S&P to give them what is known as ‘credit rating certificate’ by employing the professional knowledge which S&P had. S&P by applying their professional knowledge has given to the assessee what is described as credit rating certificate. In other words, there has been no supply of scientific, technical,industrial or commercial knowledge or information. What has been parted by S&P to the assessee is their opinion based on the expertise which S&P had. There has been no supply or parting of the knowledge as envisaged under Article 3(c) of the DTAA. For that matter, there has been no parting of any information except the application by S&P of their professional expertise in giving to the assessee the opinion in the form of certificate disclosing the credit rating. . We may mention that while considering the Indo-Singapore DTAA, a question had arisen before us, of the grading report prepared by the Gemmological Institute of America (GIA) and whether such report can be said to be parting of knowledge or information in favour of a person who seeks the specialised knowledge of GIA in Diamond rating, in W.P. No. 2062 of 2007 decided on 12.12.2007. Considering the definition of "Royalty" in Article 12(3) of that DTAA, we have held that the person who seeks information of a specialized agency in the form of grading certificate would not be receiving any information or knowledge and consequently income received thereof would not be royalty. The same principle would have to be applied to the facts also of this case. . In our opinion, therefore, the finding of fact recorded by the Tribunal can not be faulted. In the light of that there is no merit in this appeal. The question of law as framed would not arise and consequently the appeal dismissed. (R.S. MOHITE, J.) (R.S. MOHITE, J.)(F.I.REBELLO, J.)