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2019 (9) TMI 1698 - AT - Income TaxTaxability of managements fees as Royalty - India-Netherlands Treaty - whether payment received by assessee are on account of reimbursement? - HELD THAT - We have noted that on almost similar set of fact and on the basis of same service agreement between the assessee and VOIPL, the Assessing Officer for A.Y. 2009-10 treated the amount received on account of various services rendered by assessee as royalty, however, on appeal before the Tribunal, the same was held as reimbursement of cost vide order 2016 (11) TMI 1249 - ITAT MUMBAI . Considering the decision of co-ordinate bench of A.Y. 2009-10 2016 (11) TMI 1249 - ITAT MUMBAI , which was followed in A.Y. 2013-14 2014-15 2017 (11) TMI 1912 - ITAT MUMBAI wherein the similar payments received pursuant to the same agreement was treated that payment received by assessee are on account of reimbursement and does not fall under the definition of Royalty as defined in Article-12(4) of the India- Netherlands Tax Treaty. Decided in favour of assessee.
Issues Involved:
1. Taxability of management service fees of Rs. 34,49,00,936 as "Royalty" under Article 12(4) of the India-Netherlands DTAA. 2. Reimbursement of salary received of Rs. 22,43,552. Detailed Analysis: 1. Taxability of Management Service Fees as "Royalty": The primary issue revolves around whether the management service fees of Rs. 34,49,00,936 received by the assessee, a company incorporated in the Netherlands, from its Indian subsidiary, Van Oord India Pvt. Ltd. (VOIPL), should be classified as "Royalty" under Article 12(4) of the India-Netherlands Double Taxation Avoidance Agreement (DTAA). The Assessing Officer (AO) treated the management service fees as "Royalty" under Article 12(4) of the DTAA, asserting that the payments were for the use of information concerning industrial, commercial, or scientific experience. The AO argued that these payments are taxable as royalty since the services were utilized in India by the Indian entity, despite the assessee's claim that the services were rendered outside India and were not taxable as fees for technical services. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the concept of "make available" in Article 12(5)(b) of the DTAA is broader than the concept of royalty. The CIT(A) emphasized that sharing technical knowledge, experience, or skill, which enables the recipient to apply this knowledge, is sufficient to qualify as "make available" and thus taxable. Upon appeal, the Tribunal noted that in previous assessments (A.Y. 2009-10, 2013-14, and 2014-15), similar payments under the same service agreement were treated as reimbursements of cost and not as royalty. The Tribunal cited its earlier decisions, where it was established that the services provided did not involve the transfer of any knowledge, skill, or experience that could be classified as "royalty" under Article 12(4) of the DTAA. The Tribunal reiterated that the services provided by the assessee, such as information technology, operational support, marketing, quality health safety, and environment, did not involve imparting any "know-how" or transfer of technical knowledge, thus not falling under the definition of "royalty." Therefore, the Tribunal concluded that the payments received by the assessee for management services do not qualify as "royalty" under Article 12(4) of the DTAA and should be treated as reimbursements of cost. Consequently, the Tribunal allowed grounds 1 to 6 of the appeal in favor of the assessee. 2. Reimbursement of Salary Received: The second issue pertains to the taxability of the reimbursement of salary amounting to Rs. 22,43,552 received by the assessee. The CIT(A) had held that the dredger Volvox Delta was not a foreign ship and that the salary paid by the assessee to its employees, subsequently reimbursed by VOIPL, was not covered under the provisions of section 10(6)(viii) of the Income Tax Act. The CIT(A) stated that the taxability of the salary paid needed to be examined since the employees were working under the control and management of VOIPL. During the hearing, the Authorized Representative (AR) of the assessee stated that they were not pressing these grounds of appeal. Consequently, the Tribunal dismissed grounds 7 to 9 as not pressed. Conclusion: The appeal of the assessee was allowed by the Tribunal, with grounds 1 to 6 being decided in favor of the assessee, thereby ruling that the management service fees were not taxable as "royalty" under the DTAA. Grounds 7 to 9 were dismissed as not pressed. The order was pronounced in the open court on 05/09/2019.
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