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2022 (8) TMI 1531 - AT - Income TaxTaxability of income in India - Royalty and Fee for Technical Services (FTS) receipts - network fee received by the assessee from Damco India - assessee, a company incorporated in the Netherlands, engaged in Freight Forwarding and Supply Chain Management, entered into a network agreement with its Indian entity, Damco India Pvt. Ltd. - HELD THAT - A bare perusal of Article -12 of the DTAA defining the term Royalty would show that the nature of payment received by the assessee does not fall within the meaning of Royalty. The clause -5 of Article 12 defines FTS. A reading of clause -5 shows that FTS is with respect to rendering of any technical or consultancy services. It does not include managerial services. Further, sub-clause (b) to clause (5) refers to make available condition. In the present case nothing has been brought on record by the Revenue to substantiate that any technical knowhow has been made available to Damco India by the assessee . Thus, in view of our above observations we hold that network fee received by the assessee from Damco India is neither in the nature of Royalty nor FTS. Consequently, the aforesaid amount received by the assessee is not exigible to tax under the provisions of the Act or India Netherlands DTAA. As argued Damco India is DAPE of the assessee - The aforesaid contention raised by the ld. Departmental Representative is not in coherence with the directions of the DRP or findings of the AO. AO during assessment proceedings never raised a question of Damco India being a PE/DAPE of the assessee. The ld. Departmental Representative cannot make out a new case or improve the case of Assessing Officer at second appellate stage specially when it is the appeal by the assessee. Even otherwise, the role of the ld. Departmental Representative is to support the findings of Lower Authorities and not build a new case by raising arguments not emanating from the assessment order. Decided in favour of assessee.
Issues Involved:
1. Addition of Network Transportation Charges (NTC) as Royalty and Fee for Technical Services (FTS) 2. Levy of interest charges under sections 234A, 234B, and 234D of the Income Tax Act 3. Recovery of interest under section 244A of the Income Tax Act 4. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act Detailed Analysis: 1. Addition of Network Transportation Charges (NTC) as Royalty and Fee for Technical Services (FTS): The primary issue in this appeal is the addition of Network Transportation Charges (NTC) amounting to Rs. 8,46,91,990/- earned by the assessee and treated as Royalty and Fee for Technical Services (FTS). The assessee, a company incorporated in the Netherlands, engaged in Freight Forwarding and Supply Chain Management, entered into a network agreement with its Indian entity, Damco India Pvt. Ltd. Under this agreement, Damco India was guaranteed a profit of 10% on its cost, with any excess profit shared with the assessee as network fee. The Transfer Pricing Officer (TPO) made no adjustments regarding this transaction, but the Assessing Officer and the Dispute Resolution Panel (DRP) classified the receipts as FTS/Royalty. The Tribunal found that the network fee received by the assessee from Damco India does not fall within the definition of Royalty or FTS under Article 12 of the India-Netherlands Double Taxation Avoidance Agreement (DTAA). The Tribunal noted that the services provided did not "make available" any technical know-how to Damco India, a requirement under the DTAA for the payment to be considered FTS. Consequently, the Tribunal held that the network fee is not taxable in India under the provisions of the Act or the India-Netherlands DTAA. 2. Levy of Interest Charges under Sections 234A, 234B, and 234D of the Income Tax Act: The assessee challenged the levy of interest charges under sections 234A, 234B, and 234D of the Act. The Tribunal stated that the charging of interest is mandatory and consequential. Therefore, the grounds of appeal related to the interest charges were dismissed. 3. Recovery of Interest under Section 244A of the Income Tax Act: The assessee also contested the recovery of interest under section 244A of the Act. Since the primary grounds of appeal concerning the addition of NTC were allowed, the Tribunal considered this ground as consequential and allowed it. 4. Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act: The assessee challenged the initiation of penalty proceedings under section 271(1)(c) of the Act. The Tribunal found that challenging penalty proceedings at this stage is premature and dismissed this ground of appeal. Conclusion: In conclusion, the Tribunal allowed the appeal in part. The addition of NTC as Royalty and FTS was dismissed, and the recovery of interest under section 244A was allowed as consequential. However, the levy of interest charges under sections 234A, 234B, and 234D was upheld, and the challenge to the initiation of penalty proceedings under section 271(1)(c) was dismissed as premature.
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