Payments towards workshop conducted for dissemination of information which is a part of study course cannot be termed as FIS

Facts

• The applicant, Federation of Indian Chambers of Commerce and Industry (“FICCI”) is a company registered under the Indian Companies Act, 1956.
• The applicant has received a job contract from Indo-US Science and Technology Forum, New Delhi (“IUSSTF”) for administering DST-Lockheed Martin India Innovation Growth Programme 2009 (“IIGP”) as joint partners with IC² Institute of University of Texas (IC² Institute) and IUSSTF. IUSSTF was appointed as coordinating agency on behalf of Department of Science and Technology, Government of India (“DST”).
• The objective of the programme is to identify, award and accelerate innovative new Indian technologies into the market space.
• The applicant had to make payment to the IC² Institute to meet their expenses incurred in technology assessment and for travel of their personnel to India to participate in commercialisation workshop.
• It is stated that the participants of the program can look forward to receiving training in technology commercialisation strategies and entrepreneurship, analysis of commercial potential of their technology by US and Indian experts and participation in a technology competition judged by an international panel of experts. The programme finalists will receive additional benefits like professional business development assistance and access to US and global markets.
• The project is said to be non-commercial and not for profit, having the goal of making innovators reach global markets.

Issues before the AAR

The following broad issues were examined by the AAR:

• Whether on the facts and circumstances of the case, the IC² Institute is covered by the tax treaty between the India and USA and therefore the provisions of the Income-tax Act, 1961 (“the Act”) will not be applicable?
• Whether on the facts and circumstances of the case IC² Institute is not liable to pay income-tax in India in respect of the payments received from FICCI?
• Whether FICCI is required to deduct tax under the provisions of section 195 of the Act in respect of the payments made to IC² Institute for execution of the agreement?

Contention of the applicant

• The IC² Institute did not make over any know-how to the Indian innovators by organizing a short session of entrepreneurship workshop; but the instructors from IC² Institute only provided, explained and disseminated information on the subjects which were already a part of the study course available on the website of IC² Institute and other Universities.
• The exposure to the innovators simulating class-room teaching module is of a general nature, the source of which is the University curriculum found on the websites.
• The payments made to IC² Institute would not constitute “fees for included services” under the India – US tax treaty

Ruling of the AAR

• As IC²Institute is located in the USA and it is liable to pay tax by reason of place of incorporation and place of management, it has to be treated as a resident of the USA under the Article 4 of India-US tax treaty. The fact that the University is exempt from payment of tax under the Internal Revenue Code of the USA does not affect the residential status of the applicant in the USA.
• IC²Institute does not have a PE in India. Therefore, the Authority examined the issue of whether the payment made by the applicant to IC²Institute could be regarded as ^„fees for included services^? as defined in Article 12(4) of the India-US tax treaty.
• None of the technical / consultancy services and related activities undertaken by IC² Institute would amount to making available the technical knowledge, experience, skill, know-how or processes possessed by IC² Institute. Acting as a facilitator and technical consultant for the purpose of commercialisation of identified technologies, screening and assessment of technologies by deploying the expertise and resources which IC² Institute has, and preparing technical reports including market analysis cannot be legitimately brought within the purview of FIS under the India-US tax treaty.
• With regard to the entrepreneurial workshop, having regard to the short duration of the course, the contents and pattern of the modules presented, it is difficult to infer that any technical knowledge, experience, or skills were shared with and made available to the participant innovators, much less it can be said that there was a transfer of technical know-how / knowledge. The contents of the modules and topics presented in the course of the workshop were sourced by and large from the University^?s study for post graduation in technology. It does not involve sharing trade secrets or imparting skills in a practical manner. Orientation towards business and inculcation of entrepreneurial outlook does not really amount to making available the technical knowledge, experience, or skills of the experts of IC² Institute.
• No income-tax is liable to be paid by IC² Institute on the payments received from FICCI. In view of the above, FICCI is not required to deduct tax at source on the payments made to IC² Institute under the agreement.

Conclusion

Payments towards workshops and learning programmes conducted by institutes, where no technical knowledge, experience or skills were shared or made available to the participants, could not be termed as “fees for included services”.

Source: Federation of Indian Chambers of Commerce and Industry / AAR No. 812 of 2009 dated 5 March 2010