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TMI Blog2022 (9) TMI 1403X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(vi) of the Act. Taxability of reimbursement of expenses - HELD THAT:- Issue decided in favour of assessee in immediately preceding Assessment Years i.e., A.Y.2014-15 and 2015-16 [ 2019 (8) TMI 979 - ITAT MUMBAI ] held that payments were in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems. Neither the Assessing Officer nor the Commissioner (Appeals) had stated that there was any profit element embedded in the payments received by the assessee from its agents in India. Once the character of the payment was in the nature of reimbursement of the expenses, it could not be income chargeable to tax. Moreover, freight income generated by the assessee in the assessment years in question was accepted as not chargeable to tax as it arose from the operation of ships in international waters in terms of article 9 of the DTAA. Once that was accepted and was also found that the Maersk net system was an integral part of the shipping business which was allowed to be used by the agents of the assessee as well in order to enable them to discharge their role more effectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and under Articles 12(5)(a) and / or 12(5)(b) of the India-Netherlands tax treaty. 4. In spite of the learned DRP accepting that the material facts and circumstances have not undergone any change when compared to the earlier years, the learned DRP/Assessing Officer erred in not following the orders of the Hon'ble Income-tax Appellate Tribunal, Mumbai Bench [ITAT] in Appellant's own case for Assessment years 2011-12, 2014-15 and 2015-16 wherein the issue of taxability of search fees is decided in favour of the Appellant and the Hon'ble ITAT has held that search fees are not taxable in India under Article 12(4), 12(5)(a) as well as 12(5)(b) of the India-Netherlands tax treaty. 5. The learned DRP/Assessing Officer ought to have followed the order of the Hon'ble ITAT passed in case of Spencer Stuart (India) Private Limited [SS India] for Assessment years 2012-13, 2013-14 and 2014-15. The Hon'ble ITAT has upheld the order of Commissioner of Income-tax (Appeals) [CIT(A)] for the said years wherein the CIT(A) has held that search fees remitted by SS India to the assessee company do n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer erred in not appreciating the fact that the Hon'ble ITAT has decided the issue of taxability of reimbursement of expenses in favour of the Appellant's own case for assessment years 2011-12, 2014-15 and 2015-16 and the Hon'ble ITAT applied the principles laid down by the Hon'ble Supreme Court in the case of DIT (International Taxation) v. A.P. Moller Maersk AS 392 ITR 186 (SC). 13. Each one of the above grounds of appeal is without prejudice to the other. 14. The appellant prays leave to add, amend, alter, delete or forego any of the grounds either before or during the course of hearing. 4. At the outset, with regard to Ground No. 1 which is in respect of Taxability of Search Fees, Ld. AR of the assessee brought to our notice that the issue in appeal has been considered by the Co-ordinate Bench of this Tribunal in assessee s own case for the A.Ys. 2014-15 2015-16 and decided the issue in favour of the assesse and against the department. 5. On the other hand, Ld. DR has fairly accepted the submissions of the Ld.AR. 6. Considered the submissions and material placed on record, we observe from the record that identical issue is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot true for licence fee. The assessee had not to pay anything to SSIPL as licnece fee. ESF were independent services and were not provided for the purpose of enjoyment/application of right, property etc. governed by the LA. Services, ancillary and subsidiary to the use of license/ trademark/software are provided for in the LA and same had no correlation with the SA. It is safe to say that the DRP had wrongly held that SA was originating from LA. Core business of the group was to identify, to evaluate and to recruit of senior personnel for a fee. If is found that to carry out the search function, SSIPL would employ consultants, who were supported by researchers, knowledge managers and support staff. As per the Memorandum of Association (MOA) of SSIPL (Pg. 288-293 of the PB.), the principal business of SSIPL was to carry out or execution of executive searches and therefore, the ESF cannot be treated as ancillary/subsidiary to the LA. In fact, license fees was a percentage of the search fees earned by SSIPL from the executive searches done during the year. We also hold that for a service to be categorised as FTS it should make available technical knowledge, experience, skill, kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rning of Royalty income (which has since been offered to tax) and the Service Agreement (which results in earning of Executive search fee) have been held to be separate and distinct agreements thereby constituting different sources of income. Our coordinate bench analysed the entire activities between assessee and SS India and observed that the principal business of SS India was to carry out or execute the mandate of Executive searches and thus the Executive search fee generating activities cannot be treated as ancillary and/or subsidiary to the Licence Agreement. Our coordinate bench has noted a pertinent fact that the licence fee payable in terms of the Licence Agreement was a percentage of search fee, which was earned by the Indian subsidiary, i.e. SS India, from the execution of Executive search mandate during a particular year. It is notable that in the context of Article 12(5)(b) of the India Netherlands Tax Treaty, our coordinate bench noted that the Executive search fee earned by the assessee was independent of the Royalty earned in terms of the Licence Agreement and was not taxable in India as 'fee for technical services' in terms of Article 12(5)(a) or 12(5)(b) In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years also. The transactions covered by the APA, inter-alia, involve payment of licence fee by SS India to the assessee before us as well as the Executive search transactions between SS India and the assessee before us, inter-alia, involving the impugned earning of 28,37,57,880/- by the assessee as Executive search fee from SS India. We are only trying to point out the aforesaid to say that the APA entered into by the Competent Authority with SS India covers the instant transactions, which are a mirror image in the hands of the assessee before us. In fact, the proposition that the Licence Agreement (resulting in payment of licence fee offered to tax as Royalty) and the Service Agreement (resulting in payment of Executive search fee to the assessee) between the assessee and SS India are separate and distinct also found favour with the Competent Authority in the APA. In fact, the detailed discussion in the APA reveals an analysis of the functions performed, assets employed and risks undertaken by the assessee before it, i.e. SS India qua its transactions with the assessee before us. In fact, in the context of the arm's length price of the transactions, the APA makes a distinctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing authority of the present assessee. Ostensibly, it does not need any more emphasis that the nature and characterisation of the amount in the hands of the present assessee has to correspond to what has been accepted by the income-tax authorities in the case of the payer of the same, i.e. SS India. In fact, at the time of hearing, the learned representative for the assessee referred to the modified return of income under Section 92CD of the Act filed by SS India subsequent to the APA dated 30.12.2017 as also the order passed by the TPO under Section 92CA(3) dated 09.06.2017 and the assessment order under Section 143(3) dated 30.12.2017 in the case of SS India for Assessment Year 2014-15. The aforesaid orders give effect to the APA dated 30.08.2016 and it, inter-alia, reflects that the stated value of the payment of Executive search fee to the assessee before us has been found to be at an arm's length price. Similar is the situation for Assessment Year 2015-16. 12. At this stage, we may specifically take-up the stand of the Revenue that the Executive search fee is to be characterised as 'Royalty' in terms of clause (iv) of Explanation-2 to Sec. 9(1)(vi) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abase, Spencer Stuart's Knowledge Management Resources Pages, Spencer Stuart's Board of Director's Database and other data base as per schedule B to the agreement which SSI has procured from SSI BV as part of Licence Agreement (supra) . Notably, the fee which is earned by the assessee for allowing use of its trademark, trade name and software, etc. owned by it is a matter of contract in terms of the Licence Agreement dated 01.01.2006 for which the assessee receives Royalty. The payment of said Royalty has been factually found to be at arm's length price for the period under consideration as would be borne out of the order of TPO dated 09.06.2017 in the case of SS India. Therefore, once the payments in terms of the Licence Agreement, i.e. Royalty, has been found to be at arm's length price, no further amount can be attributable for using the Spencer Stuart's Worldwide Client List Database, Spencer Stuart's Mailing List Database, Spencer Stuart's Knowledge Management Resources Pages, Spencer Stuart's Board of Director's Database and other data base as per schedule B to the agreement which SSI has procured from SSI BV as part of Licence Agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of reimbursement of expenses amounting to 1,24,43,236/- received by the assessee. The Assessing Officer and thereafter the DRP have held that the reimbursement of expenses received by the assessee in question are liable to be treated as 'fee for technical services' within the meaning of Article 12(5)(a) of the India-Netherlands Tax Treaty. 17. In this context, we notice that the DRP relied upon the directions of its predecessor DRP in Assessment Year 2011-12 in concluding that the said amount is liable to be taxed in India as 'fee for technical services'. At the time of hearing, it was a common ground between the parties that the said stand of the DRP for Assessment Year 2011-12 has since been negated by the Tribunal in assessee's own case vide order dated 01.06.2018 (supra) and the said order continues to hold the field. In this context, the relevant discussion contained in the order of Tribunal dated 01.06.2018 is as under : 4.2. We find the assessee had received payments from SSIPL towards reimbursement of expenses amounting to Rs.70,36,912, that the expenses reimbursed to the assessee by SSIPL were mainly towards travel and stay, video confer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was an automated software based communication system which did not require the assessee to render any technical services, that it was merely a cost sharing arrangement between the assessee and its agents to efficiently conduct its shipping business, that it was part of the shipping business and could not be captured under any other provisions except under the DTAA. The Hon'ble Supreme Court, dismissing the appeal held as under: the facts that the assessee had its information technology system, that the assessee had appointed agents in various countries for booking of cargo and servicing customers in those countries, preparing documentation, etc., through these agents, that for the sake of convenience of all these agents, a centralised system was maintained to avoid unnecessary cost, that the system comprised booking and communication software, hardware and a data communications network and was, thus, an integral part of the international shipping business of the assessee and ran on a combination of mainframe and non-mainframe servers located in Denmark, that the expenditure incurred for running this business was shared by all the agents and that the systems enabled the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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