ORDER
V.K. Gupta, A.M.
1. This appeal filed by the assessee is directed against the order of CIT(A)-XXV, Mumbai, confirming the order passed by the AO under Section 195 of the IT Act, 1961 (hereinafter referred to as the Act). The assessee has raised following grounds in this appeal:
1.1 The CIT(A) has erred in confirming the view of the Asstt. CIT (TDS) that the credit rating fees paid by the appellant to Standard & Poors (Australia) (P) Ltd. (S&P) is liable to tax in India.
1.2 The CIT(A) has erred in confirming the view of the AO that the credit rating fees paid by the appellant to S&P is ‘fees for technical services’ as defined as per Expln. 2 to Section 9(1)(vii) of the IT Act.
1.3 The CIT(A) has erred in confirming the view of the AO that the credit rating fees paid by the appellant to S&P would also fall within the purview of the term ‘royalty’ as defined in Article 12 of the Indo-Australian Double Taxation Avoidance Agreement.
1.4 The appellant submits that considering the facts and circumstances of its case and the law on the subject the payment made by it to S&P is not in the nature of ‘fees for technical services’ nor in the nature of ‘royalty’ as defined in Article 12 of the Indo-Australian DTAA and hence not taxable in India and the CIT(A) ought to have directed the AO to hold the same.
1.5 The appellant further submits that considering the facts and circumstances of its case the service rendered by S&P is a part of its (S&P) normal business activities and operations and the payment so made would fall within the purview and scope of its (S&P) ‘business income’ and he same is not taxable in India.
1.6 The appellant submits that the AO be directed to hold that the payment made by it to S&P is not taxable in India.
1.7 Without prejudice to the foregoing the appellant submits that in case the payment made by it to S&P is considered as ‘fees for technical services’ as defined in Expln. 2 to Section 9(1)(vii) of the IT Act, 1961, then having regard to the facts and circumstances of its case and the law on the subject, it be held that the fees paid to S&P falls outside the purview of Section 9 of the IT Act, 1961.
Through above grounds the assessee has raised basically only one grievance that the learned CIT(A) was not justified in holding that remittance to S&P was in the nature of fees for technical services as per Expln. 2 to Section 9(1)(vii) of the IT Act and was also falling within the ambit of term ‘royalty’ as per Article 12 of DTAA between India and Australia and, therefore, assessee was liable to deduct tax under Section 195 of the IT Act.
2. Ground No. 2 is general and no specific decision is, therefore, called for on this ground.
3. We have heard both the parties and have also perused the materials on record.
4. Briefly stated, the facts of the case are that the assessee applied for a permission of the AO to remit the annual surveillance fee of USD 25,000 to M/s Standard & Poors (Australia) (P) Ltd. (herein after referred to S&P) without deduction of tax. The fee had to be paid to S&P in connection with the annual surveillance of credit rating certificate issued by them to the assessee. The learned Asstt. CIT treated the annual surveillance fee payable to M/s S&P as “fees for technical services” under Section 9(i)(vii) of the Act and also held that these services were covered under the term “royalty” as per Articles 12(iii)(c) and 12(iii)(d) of the agreement between the Government of Republic of India and Government of Australia, and accordingly applied for deduction of tax at source as per rate prescribed under the provisions of the said DTAA. Aggrieved by this decision of the AO, the assessee preferred an appeal before the learned CIT(A) and claimed before him that such services were in the nature of professional services rendered by S&P in the ordinary course of their business activities and were to be treated as business profits in their hands. Since S&P did not have any permanent establishment in India such profits were taxable only in Australia as per the provisions of Article 7(1) of DTAA and, therefore, assessee was not required to deduct withholding tax. The CIT(A) after considering the case law cited by the assessee and provisions of Act and of DTAA held that such services were in the nature of services prescribed under Article 12 of the DTAA; and accordingly, upheld the decision of the AO.
5. Learned Authorised Representative of the assessee, besides reiterating the submissions made before the lower authorities, contended that the credit rating was given by S&P to the assessee based upon the information supplied by the assessee and hence, cannot be construed as technical “services or consultancy services within the meaning of Section 9(1)(vii) r/w Expln. 2 thereof to the Act. He further contended that the assessee obtained only opinion from S&P, which does not fall within the definition of “royalty” as per Article 12 of DTAA. In support of his contention, he referred to the decision of the Tribunal in the matter of Raymond Ltd. v. Dy. CIT (2003) 80 TTJ (Mumbai) 120 : (2002) 86 ITD 791 (Mumbai), wherein the issue involved was the interpretation of scope of technical services as per Article 13 of DTAA between India and UK and the Tribunal held that the words “make available” imply a status where the user had all rights to use technical knowledge, experience, etc. on its own and without any condition to revert back to the supplier. He contended that the words “supply of” used in Article 12(3)(c) of DTAA with Australia were analogous to the words “make available” used in the DTAA with UK and, therefore, should be construed similarly. He also referred to the decision of the Tribunal in the matter of NOA Quality Systems Registrar Ltd. v. Dy. CIT (2005) 92 TTJ (Del) 946.
6. On the other hand, learned Departmental Representative argued that the services rendered by S&P to the assessee were utilized in the business of the assessee carried out in India and, therefore, tax was chargeable as per the provisions of the Act subject to the beneficial provisions of DTAA between the two countries, and since the AO found that the services rendered by S&P were coming within the meaning of Article 12(3)(d) of the DTAA, the AO correctly asked the assessee to deduct the tax at appropriate rate mentioned in DTAA. His arguments mainly focused on the nature of services rendered by S&P. In this regard, learned Departmental Representative submitted that S&P supplied the commercial information to the assessee by processing the information given to them by the assessee in a scientific manner through their research models and statistical techniques. The credit rating certificate, thus, issued by the S&P enabled the assessee-company to comply with the pre-requisite condition connected with raising of resources, by the assessee from international markets at appropriate cost for the purposes of the business carried on by the assessee in India. He further contended that in the matter of remittance to be made to the foreign parties, the assessee should take maximum possible precaution because the tax deducted at source does not adversely affect the rights of the parties in any manner and for this proposition, he relied on the decision of the Tribunal in the matter of Dy. CIT v. Arthur Andersen & Co. as per ITA No. 9125/Mum/1995, dt. 29th July, 2003.
7. We have considered the rival submissions with reference to the facts of the case, material placed before us and also applicable legal provisions. It is not in dispute that S&P issued initial rating certificate to the company for a sum of USD 55,000 and remittance in question pertains to annual surveillance fee in connection therewith as per the terms of agreement between the assessee and S&P, S&P is world recognized credit rating institution and they have developed certain models based upon the empirical research done by them. S&P’s rating is greatly recognized in the global financial markets and on the basis of rating category the company’s resource raising capacity is affected, on the one hand and the cost of such resources is also affected, on the other hand. Once, a credit rating certificate is issued by S&P they themselves disseminate and circulate the same amongst the capable and desiring investors. The company as well can utilize that credit rating certificate in raising resources independently. As per the agreement the company is required to pay annual surveillance fee to S&P because such rating certificate is issued by S&P for a specified period and during that period S&P keeps a track of all developments happening in that company and based upon such developments S&P reviews the credit rating assigned by S&P to the company. If S&P finds it necessary, S&P can withdraw or downgrade or upgrade the credit rating depending upon such developments subject to a prior information and dialogue with the client company.
8. It is a settled legal proposition that taxability of any sum payable by the assessee in India has to be first looked into with respect to the provisions of the Act and thereafter to the provisions of DTAA, if any, between the countries. This is because of the provisions of Section 90(2) of the Act, which provides that provisions of DTAA shall override the provisions of the Act if the provisions of DTAA are more beneficial to the assessee. In the instant case, there exists a treaty between the Government of India and Government of Australia, therefore, it is necessary to examine the taxability of impugned payments in hands of S&P. The necessary test in this regard as to whether such services fall within the definition, of royalty as per the Article 12 of the DTAA or not. To appreciate the matter in the right perspective, the relevant portion of Article 12 of the treaty is reproduced as under:
Article 12–Royalties
1.;; …
2. …
3. The term “royalties” in this article means payments or credits, whether periodical or lump sum, 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, trademark, or other like property or right;
(b) the use of, or the right of use, any industrial, commercial or scientific equipment;
(c) the supply of scientific, technical, industrial or commercial knowledge or information;
(d) the rendering of any technical or consultancy services (including those of technical or other personnel) which are ancillary and subsidiary to the application or enjoyment of any such property or right as is mentioned in sub-para (a) may such equipment as its mentioned in sub-para (b) or information as is mentioned in sub-para (c).
9. From the perusal of Article 12(3)(c), it is noticed that if payment is made for the supply of commercial knowledge or information, then such payment would fall within the meaning of term “royalty”. Article 12(3)(d) provides that rendering of any technical or consultancy services which are ancillary and subsidiary to the application or enjoyment of information as mentioned in sub-para (c), such payment would also fall within the term “royalty”. The moot question before us is whether credit rating certificate is “commercial information or not” and if it is held to be so, then the impugned payment would be covered under sub-para (d). The word “commercial information” has not been defined in the treaty and, therefore, it has to be interpreted as it is understood in general sense. In general, the term information means the act or process of informing, communication or reception of knowledge and any information which has got a commercial value for the user can be termed as “commercial information”. It is not necessary that such commercial information by itself should be an immediate source of earning for the user. What is important is that the user of such information should derive some commercial benefit therefrom. The assessee has contended that services rendered by S&P are in the nature of professional services because credit rating exercise requires specialized knowledge and expertise. We do not dispute this but we have to consider the end-result of such service and if the end-result of this service is in the shape of supply of commercial information for the user then the transaction as a whole would be of supply of commercial information and not merely of rendering of professional services, In a given situation a particular commercial transaction or assignment may have elements both of professional services and supply of commercial information and to characterize it as a transaction of rendering of professional services only or as a transaction of supply of commercial information, a threshold limit or border line would have to be drawn. In the present case, such threshold limit or border line is the opinion of S&P in the form of issuance of credit rating certificate to the assessee. To put it in other way, if after doing whole exercise, S&P does not assign any credit rating to the company or on the basis preliminary processing suggests the ways and means to the client so that a suitable credit rating can be given and if the transaction is completed at that point only, then any amount paid by assessee to S&P for this exercise would be treated as payment for professional services. A line of distinction is available between professional services and supply of commercial information. One of the distinctions is that scope of professional services is narrow in a sense that such services are confined between two or more entities while information generally affects large public, directly or indirectly”. The other distinction can be drawn on the basis of objective or necessity of such exercise, i.e., if such services are taken for mandatory compliance with some statutory rules/regulations and if so then payments made to professional organizations authorised to carry out such exercise would be in the nature of payment for legal services or professional services, even if, as a result of such exercise, some information is given to the public at large; for example, payment to statutory auditors for carrying out audit as per the provisions of the Companies Act, 1956, would be of the nature of payment for professional services even though such auditors express an opinion on the affairs of the company and their report being a public document, provides statutory information to public at large. If the same firm of chartered accountants renders tax consulting, that would also tantamount to rendering of professional services but if such firm of chartered accountants, if permitted by regulations, prepares a research report on the company and disseminates this report to financial institutions on its own and/or company also circulates such report amongst desirous investors then any payment made by the company to the firm of chartered accountants for preparation of such report would be payment for the supply of commercial information irrespective of the fact that professional skills and expertise are used by them in the preparation of research report. To sum up, for the purpose of determining the taxability of such transaction, the nature of transaction should be analysed and considered in totality having regard to facts and circumstances of each case. In the present case, no material has been placed on record (to show) that obtaining of credit rating was required under some statute and payment was made to statutorily authorized organization, and, therefore, such services, being taken for commercial objectives are in the nature of services for the supply of commercial information.
10. The assessee has also contended that it has taken only “opinion” from S&P for the purposes of raising of resources for its business from international markets. This aspect also supports our view that credit rating certificate is a commercial information because the assessee wants to inform the prospective investors through such certificate, its financial status, capability and other credentials so that they may make investment in the assessee- company. In the present scenario, the investors may even know nothing about the company and its management and past performance, therefore, they rely on the credit rating assigned by an internationally recognized independent specialized credit rating institutions like S&P and “opinion” of S&P enjoys great respect and is given due weightage in arriving at investment decisions. Thus, on this count also, “opinion” of S&P can be termed as supply of commercial information both from the angle of the company and the potential investors. It is pertinent here to mention that even S&P independently circulates its opinion to various financial institutions, intermediaries, high networth individuals to facilitate the objects of its client, therefore, such opinion is necessarily an information having commercial value which also makes it as commercial information. The assessee placed reliance on the decision of Tribunal in the case of Raymond Ltd. (supra) and drew our attention to para 92 of the order placed at p. 51 of the paper book which reads as under:
We hold that the word “which” occurring in the article after the word “services” and before the words “make available” not only describes or defines more clearly the antecedent noun (services) but also gives additional information about the same in the sense that it requires that the services should result in making available to the user technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services is not roped in unless the person utilizing the services is able to make use of the technical knowledge, etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill, etc. must remain with the person utilizing the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skill, etc. from the person rendering the services to the person utilizing the same is contemplated by the article. Some sort of durability or permanency of the result of the “rendering of services” is envisaged which will remain at the disposal of the person utilizing the services. The fruits of the services should remain available to the person utilizing the services in some concrete shape, such as, technical knowledge, experience, skill, etc.
11. On the basis of above, it was contended by the learned Counsel for the assessee that the assessee was not engaged in the profession of credit rating activities, therefore, no technical experience, expertise, know-how was made available to assessee which could be used by assessee in future without having recourse to the performer of services in future. We find no force in this contention of the assessee as Tribunal, in that matter, was concerned, with the Article 13(4)(c) of treaty between India & UK in different context. .The said article reads as under:
Make available technical knowledge, experience, skill, know-how or process or consist of the development and transfer of a technical plan or technical design.
12. From the bare perusal of above it is clear that this is worded in an entirely different manner as compared to Article 12(3) of Indo-Australian treaty, therefore, is not relevant for the issue on hand. Secondly, if phrase “making available” is treated as similar to phrase “the supply of” thereby implying vesting of some right in the user without having recourse to supplier, this also supports our view because during the validity period of credit rating certificate, the assessee is free to circulate it to potential investors. Further, S&P cannot change its rating without prior discussion and explaining reasons, therefor, which means the assessee acquires certain dominant rights under the agreement so that it can enjoy the fruits of commercial information supplied by S&P in the form of credit rating certificate.
13. The case of NOA Quality Systems Registrar v. Dy. CIT (supra) relied on by the assessee also does not help the cause of the assessee because in that case there were three parties namely, foreign company, Indian consultancy firm and client and payments were made by Indian consultancy firm to their foreign associates and not by the client.
14. Thus, on the basis of above discussion it can be safely concluded that the credit rating certificate is a commercial information because it is mandatorily required in raising resources from the international markets. It indicates the level of safety for the potential investors, thus facilitates the marketing/resource mobilisation exercise of the rated company. It also enables the company to reduce its cost of borrowing. For the period for which it is issued the company has got absolute rights to utilize it for the intended purposes unless such rating is changed by the rating institution depending upon developments subsequent to the issue of credit rating certificate. Thus, credit rating certificate can also be viewed as rights acquired by the company which can be used for mobilisation of higher resources at an appropriate cost. The assessee has also pleaded that if payment made by it to S&P is considered as fees for technical services as per Expln. 2 to Section 9(1)(vii) of the IT Act, 1961, even then it would not be taxable in India as it would fall outside the purview of Section 9 of the Act. We find no merit in this contention of the assessee as the payment has been made in respect of business carried on in India and squarely falls within the ambit of Section 9(1)(vii)(b) of the Act. Accordingly, in the instant case, the annual surveillance fee falls within the category of ancillary services under sub-para (d) provided in connection with the supply of commercial information under sub-para (c) of para (3) of the Article 12 of DTAA and accordingly, the assessee-company is liable to deduct the tax under Section 195 of the Act. We order accordingly.
15. In the result, the appeal filed by the assessee is dismissed.