The Income Tax Appellate Tribunal (ITAT), Mumbai Bench has held that payments made to Deloitte Global Holdings Ltd under the Shared Services Agreement are not taxable as royalty.
The appellants, Deloitte Touche Tohmatsu India LLP (DTTI) and Deloitte Haskins & Sells LLP(DHS) are engaged in rendering professional services to large domestic as well as multinational corporations and are part of the Deloitte network worldwide.DTTI, also known as “Global Network” of various member firms, is incorporated in, and a taxresident of, the United Kingdom and it do not per se carry out any income earning activity and has no stream of income. It has been stated before us that, Deloitte Global Holding Services Ltd. (“Holdings”) is a company limited by a guarantee organized and existing under the laws of England and Wales.
Deloitte Global Holdings is a special purpose vehicle created by Global Network to facilitate the attainment of objectives, inter alia, to further international alignment, cooperation, cohesion, and professional standards of the highest quality among its Member Firms.
While deciding the application filed by the appellant for issuance of a certificate under Section 195(2) for remittance of amounts under the “Shared Services Agreement” to Holdings without deduction of tax at source, the Assessing Officer held that the payments were liable for deduction of tax at source and worked out the withholding tax liability by applying a proportion of 3/10 to the total remittance of Rs. 95,49,00,000/-, since 3 out of 10 services were held by him to be like royalty. Accordingly, the Assessing Officer authorised the remittances after deduction of tax at 3% on the overall remittances made by appellants to Holdings. The CIT(A) upholds the assessment order.
The appellant counsel further submitted that the payment is purely for providing common policies, guidance relating to brand, communications, and other aspects, and collaboration with other member firms cannot be considered as use of or right to use any copyright of literary, artistic or scientific work. Payments for use of Global Technology/ Knowledge Management cannot be regarded as the provision ofcopyright in computer software or any literary work as no right to use copyright is given by Holdings to the appellants.
The Tribunal observed that the Assessing Officer has heavily relied upon the same judgment of AAR in the case of EY Global Services Ltd., which now stands reversed by the Delhi High Court. Thus, the payments made to Holdings are not taxable as Royalty under Article 13(3) of the India-UK DTAA.
The Coram of Mr. Pramod Kumar, Vice President, and Mr. Amit Shukla, Judicial Member while allowing the appeal has held that “we hold that in all the appeals the payments made to Deloitte Global Holdings Ltd. do not fall in the scope and definition of Royalty under Article 13(3) of India UK DTAA and consequently appellants were not required to deduct TDS while making the payment”.
Mr. P.J. Pardiwala and Mr. Milind Chavan appeared on behalf of the appellant and respondent respectively.
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