Sum paid to access commercial information for further transmission to principal isn’t a ‘royalty’

Where assessee made remittance for procurement of commercial information for onward transmission to its principal, remittance made was not for availing technical services and did not amount to royalty

In the instant case the assessee had entered into a master clinical services agreement with its principal 'BHAG' for clinical trials. Assessee had arrangement with CSPL to provide information on clinical trial test undertaken by CTU of University of Kelmia, Sri Lanka. It applied for issue of certificate for non-deduction of tax on remittances made to CSPL which had no PE in India. The AO held that remittance for clinical services was in nature of royalty and was liable to be taxed in India. On appeal, the CIT (A) reversed the order of AO.

The Tribunal held in favour of assessee as under:

1) The services in question were services for supply of information which assessee was not using for any technical know-how but it was working as a conduit for supply of this information further to its principal;

2) Thus, the assessee was making remittance for procurement of commercial information for onward transmission to its principal;

3) The remittance made by the assessee was not for availing of technical services and did not amount to royalty. It was not liable for withholding taxes. Thus, the order of CIT (A) was to be upheld – ITO, TDS V. KENDLE INDIA (P.) LTD (2013) 37 taxmann.com 140 (Delhi - Trib.)