2023 (5) TMI 540 - AT - Income Tax

Income deemed to accrue or arise in India - taxability of Management Service Fees received by the assessee - Royalty receipt - assessee is a company incorporated in the Netherlands and is an international dredging contractor and has executed several contracts in India - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case in Van Oord Dredging and Marine Contractors BV vs ADIT 2016 (11) TMI 1249 - ITAT MUMBAI , decided the similar issue in favour of the assessee and held that none of the services provided by the assessee in terms of the Service Agreement dated 01/04/2004 falls within the scope and ambit of Royalty as defined in Article 12(4) of the India Netherlands DTAA. The coordinate bench of the Tribunal also held that since the allocation of costs represents the actual expenditure, there cannot be any reason to hold that reimbursement of the cost can be reckoned as payment towards Royalty . The issue arising in the present appeal is recurring in nature and has been decided by the coordinate bench of the Tribunal in the preceding assessment years. Decided in favour of assessee. Short grant of credit of TDS - This issue is restored to the file of the AO with the direction to grant TDS credit, in accordance with the law, after conducting the necessary verification. As a result, grounds no.9-10 raised in assessee s appeal are allowed for statistical purposes. Levy of interest u/s 234A - As we deem it appropriate to remand this issue to the file of the Assessing Officer for de novo adjudication after the necessary examination of the fact whether the return of income was filed by the assessee within the prescribed time under the Act. Accordingly, ground no.11, raised in assessee s appeal is allowed for statistical purposes.

Summary

Issues Involved:
1. Taxability of Management Service Fees.
2. Set-off of Management Service Fees with current year business loss and brought forward business loss.
3. Short grant of Tax Deducted at Source (TDS).
4. Erroneous levy of interest under section 234A and 234B.
5. Erroneous levy of surcharge and education cess.
6. Initiation of penalty proceedings under section 270A.

Summary:

1. Taxability of Management Service Fees:
The assessee, a company incorporated in the Netherlands, challenged the addition of Management Service Fees as "Royalty" under Article 12(4) of the India-Netherlands DTAA. The Tribunal noted that the coordinate bench in the assessee's own case for previous years had held that the services provided did not fall within the ambit of "Royalty" and were mere reimbursements of costs. The Tribunal reiterated that there was no imparting of know-how or transfer of knowledge, skill, or experience that would qualify the payments as "Royalty." Consequently, the Tribunal upheld the assessee's plea and deleted the addition, allowing grounds no. 2-6.

2. Set-off of Management Service Fees:
Given the findings on the taxability of Management Service Fees, the issues regarding the set-off of these fees with current year business loss and brought forward business loss were rendered academic and required no separate adjudication.

3. Short grant of Tax Deducted at Source (TDS):
The Tribunal restored the issue of short grant of TDS to the file of the Assessing Officer (AO) for necessary verification and directed the AO to grant TDS credit in accordance with the law. Grounds no. 9-10 were allowed for statistical purposes.

4. Erroneous levy of interest under section 234A and 234B:
The Tribunal remanded the issue of interest under section 234A to the AO for de novo adjudication to verify if the return was filed within the prescribed time. The issue of interest under section 234B was deemed consequential and allowed for statistical purposes.

5. Erroneous levy of surcharge and education cess:
In light of the Tribunal's findings on the taxability of Management Service Fees, the issues concerning the levy of surcharge and education cess were rendered academic and required no separate adjudication.

6. Initiation of penalty proceedings under section 270A:
The Tribunal found the initiation of penalty proceedings premature and dismissed ground no. 14.

Conclusion:
Both appeals by the assessee for the assessment years 2018-19 and 2019-20 were partly allowed for statistical purposes, with the Tribunal following its previous rulings on similar issues in the assessee's own case.