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Sum received under Research & Development Cooperation agreement couldn’t be classified as royalty

November 1, 2018[2018] 99 taxmann.com 23 (Kolkata - Trib.)

IT/ILT : Assessee was a tax resident of the Netherlands and was engaged in the business of lighting, consumer electronics, medical systems, etc. The assessee did not have a permanent establishment in India. The assessee had entered into Research and Development Cooperation agreement (RDCA) with Philips India (PEIL). The assessee had took the position that the said receipts are not taxable in India in view of Article 12 of the India-Netherlands Double Taxation Avoidance Agreement (DTAA)

• The Tribunal noted that research and development services are being provided to the Philips group companies with an access to the benefits and information, existing and future resulting from undertaking, and held that the services under RDCA provides various types of information and results arising and emanating from various research, programs and laboratories, and the same does not result in the assessee imparting any of its industrial, commercial or scientific experience. Hence, the payments under RDCA cannot be classified as Royalty as defined under Article 12(4) of the India-Netherlands DTAA and accordingly, the same is not taxable under Article 12. Further, the assessee does not transfer right to use. By way of research and development, the PEIL is entitled to enjoy certain services, such as product developments, maintenance of product quality, uniform handling, packing, storage and marketing methods, therefore these services by itself did not result in any use of or right to use and there is no transfer of copy right therefore, there cannot be any occasion to hold it as royalty. In any event, it is simply in the nature of reimbursement of expenses incurred by assessee on behalf of the PEIL and it is not an income for the assessee. Hence, the payment received by the assessee-company are in the nature of reimbursement.

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