The ruling of the Authority was pronounced by
Sirpurkar J.-This application is made by UC Berkeley Center for Executive Education also known as CEE (for short), which is claimed to be a California based non-profit public benefit corporation formed for the purpose of operating executive education progammes. It is claimed in the application that CEE develops and delivers open enrolment and customs programmes for business executives in United States of America and also internationally. It is pointed out that the application was originally incorporated under the name of “Newco Executive Education” on 26th November, 2012 with the sole objective to “provide executive education’ by offering a broad array of programmes for corporates and institutional clients seeking professional development and to carry on other charitable and educational activities allowed by the law:”
2. It is then pointed out, subsequently vide certificate of amendment dated 19.2.2013 the name of the corporation was changed to UC Berkeley Center for Executive Education. The copy of the articles of incorporation of Newco Executive Education is filed as Exhibit-I by the applicant.
3. The applicant is a tax resident of the United States of America and it is an admitted position that there is a Double Taxation Avoidance Agreement (DTAA) between India and United States of America.
4. It is pointed out that the applicant has entered into an agreement dated 6.5.2014 titled as “Programme Delivery Agreement” with Northwest Universal Education Private Limited which is a company incorporated under the laws of India to launch management programme for a duration of 11 months for senior executives of the companies/corporations which have the minimum working experience of 10 years. Thus, the applicant was to launch a programme under this agreement dated 6th May, 2014 for the senior executives in the corporate sector.
5. The applicant was, under the agreement, to develop the entire content and material for delivery of programme which was to be delivered by the applicant as per the schedule laid out in clause 1 of the Agreement. A look at that schedule suggests that 4 Modules were to be provided them from Module-1 to Module-4. They were to be executed in different manners for a limited period.
6. The applicant was also to develop the instructional material including work sheets etc. and was to arrange its faculty whereas the Northwest had agreed to market the programme in India. The intellectual property rights were to remain with the applicant. It is further clarified in the agreement that the inter se relationship between the applicant and Northwest was that of independent contractor and not a joint venture. A consideration was to be passed by the applicant. On this backdrop, the applicant raised the following questions:-
(i) Whether programme fee received by the applicant in terms of clause 2 of the Programme Delivery Agreement is chargeable to tax in India as fees for included services within the meaning of the said term under Article 12 of India-US Double Tax Avoidance Agreement (DTAA for short) and/or the provisions of Section 9(1)(vii) of the Income Tax Act and, therefore, subject to withholding tax under Section 195 of the Income Tax Act, 1961?
(ii) Whether in facts and circumstances of the case, activities undertaken by CEE/the Applicant in India namely teaching for 5 days would constitute a Permanent Establishment (PE) of the applicant in India in terms of Article 5 of the India-US Double Tax Avoidance Treaty?
7. In short, the whole question revolves around Article 12(5) of the India-USA DTAA under which according to the applicant, there is a clear exemption from taxation. The relevant Article would be Article 12(5) (C) read in proper context, it would be as under:-
“Notwithstanding paragraph 4, fees for included services does not include amount spent for teaching in or by educational institutions.”
8. Thus, the whole question revolves around the taxability of the consideration paid by Northwest in favour of the applicant for the services which it provides or as agree to provide.
9. The Revenue has opposed this application on the sole ground that the applicant is not an educational institution. The Revenue further contends that unless the services are provided by an educational institution the consideration for those services would not be exempted from the tax liability. We have gone through the lengthy submissions by the Revenue. However, we do not find any substantial opposition in their contentions, shortly stated the contentions can be viewed as under:-
(a) That the applicant has not submitted any evidence establishing it to be an educational institution. It is reiterated by the Revenue that there is no evidence on record to establish that the corporation is operating as an educational institution. The Revenue is viewing the applicant to be a mere facilitating agent.
(b) The second objection raised by the Revenue is that the applicant does not have the faculty of its own for running the programmes and the entire faculty is being provided by University of California, Berkeley. The Revenue, therefore, claims that the applicant is not directly involved in the activity of teaching. Again it is reiterated by the Revenue that it is not the applicant but the Berkeley University whose faculty offers the programmes to Northwest. There are some other insignificant contentions raised by the Revenue. However we have paraphrased the main objections of the Revenue.
10. The applicant heavily relied on the earlier Ruling of this Authority in AAR No.1037 of 2011 dated 20th September 2013 in Eruditus Educational Private Limited Vs. DIT International Taxation, Chennai. In this Ruling, in the identical set of facts, this Authority had taken a view in favour of the applicant holding that the Article in concerned DTAA with Singapore is 12.5(c) which is virtually in identical terms with the present under Article 12.5(c). The fees for technical services would fall under the exclusive clause and any consideration from such services would be exempt from the taxability. We have seen the said Ruling very carefully. From the Ruling, it is clear that one INSEAD had entered into a program partnership with the applicant i.e Eruditus Education Private Limited which was an Indian taxpayer. The INSEAD was to provide the services of each for 11 days, 5 days, 6 days and 8 days and these services were to be provided by INSEAD Singapore, France, the teaching in India and teaching through Singapore. After consideration all the aspects, the Authority took the view that these were the educational services provided by an educational institution and as such are exempted from tax under article 12(5)(C) by the Indo-Singapore DTAA. We have already pointed out that the clause 12(5)(C) in Singapore Treaty and 12.5(C) in US Treaty are identical.
11. In fact, according to us, the question is clearly covered in the aforementioned Ruling by this Authority. However, we must consider the serious objections raised by the Revenue Department to the effect that the applicant is not an educational institution and that it is merely a facilitating institution.
12. We do not see any basis for these objections. The applicant has provided all certificates including the certificate of its incorporation and has filed them as Exhibit-1 before us. From the certificate, it is clear that it is an educational institution for carrying on charitable and educational activities allowed by law. These Articles of incorporation were in respect of Newco Executive Education institution which ultimately transformed into UC Berkeley Centre for Executive Education. We, therefore, do not have any doubt that the applicant is an educational institution. Shri Sachit Jolly the learned counsel appearing for the applicant also invited our attention to page No. 5, which has been issued by the Department of the Treasury Internal Revenue Service, Philadelphia PA-19255 which is the certificate issued showing that the applicant is an exempt organization under Section 501(C)(3) of US Internal Revenue Code, or a religious or apostolic organization under Section 501(d). The learned counsel points out that this will be clear to support his contention that the applicant is an educational cum charitable institution. These certificates are countered by the Revenue.
13. The other objection of the Revenue was that all the faculties provided for educating is provided by Berkeley University and not by the applicant. The learned counsel points out that in fact the applicant is a child of Berkeley University and is created and owes its existence to that University but for which the faculty of the Berkeley University would not be available in India on its behalf. We are quite convinced by this argument and we would choose to reject the objections by the Revenue. The other insignificant objection by the Revenue was that these professors who come for a short period are well accommodated by Northwest India which creates a Permanent Establishment of the applicant in India. We have mentioned this objection only for being rejected. The Authority in its Ruling in Eruditus had also held that there not be a Permanent Establishment even if the Faculty is provided by the non-tax resident INSEAD. We would choose to go by that finding.
14. In short, the answers to question No. 1 would be that the programme fee received by the applicant from Northwest would be governed by Article 12 of the India-US Double Taxation Avoidance Agreement (DTAA) and would be free from the taxability. There would, therefore, be no necessity to withhold the tax under Section 195 of the Income Tax Act, 1961. The answer to question No. 2 is that there would be no Permanent Establishment in India. The application is disposed of.