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TMI Blog2023 (5) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2018-19 is taken up as a lead case. ITA no.672/Mum./2022 Assessee's Appeal - A.Y. 2018-19 3. In its appeal, the assessee has raised the following grounds:- "On the facts and in the circumstances of the case and in law, Van Oord Dredging and Marine Contractors BV (hereinafter referred to as the Appellant) craves leave to prefer appeal against the order passed by the Assistant Commissioner of Income-tax, (International taxation), Range 4(3)(1), Mumbai (hereinafter referred to as the 'learned AO') under section 144C(13) read with section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act) pursuant to the directions of the Dispute Resolution Panel (DRP) on the following grounds, each of which are without prejudice to one another. General Ground On the facts and in the circumstances of the case and in law, the learned AO, based on directions of DRP- 1. Erred in making addition of Management service fees of Rs. 18,20,94,912/- to the loss claimed by the Appellant in the return of income. Taxability of Management service fees of Rs. 18,20,94,912/- On the facts and in the circumstances of the case and in law, the learned AO/DRP: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the amount of interest received during AY 2018-19 on the income tax refund pertaining to AY 2015-16. Erroneous levy of interest under section 234A of Rs.14.717 On the facts and in the circumstances of the case and in law, the learned AO/ DRP: 11. Erred in computing interest of Rs. 14,717 under section 234A of the Act on the income assessed despite the fact that the return of income was filed well before the due date prescribed under section 139(1) of the Act; Erroneous levy of interest under section 234B of Rs. 6,91,699 On the facts and in the circumstances of the case and in law, the learned AO/ DRP: 12. Erred in computing interest of Rs. 6,91,699 under section 234B of the Act on the income assessed; Erroneous levy of surcharge of Rs. 9,10,475 and education cess of Rs. 5,73.599 on tax computed as per rates prescribed under the India-Netherland DTAA On the facts and in the circumstances of the case and in law, the learned AO/ DRP: 13. Erred in computing surcharge of Rs. 9,10,475 and education cess of Rs. 5,73,599 on the tax computed as per rates prescribed under the India-Netherlands DTAA; Penalty Without prejudice to the above, and on the facts and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of allocation of the services to the Indian entity and was asked as to why the same is not taxable in India. The assessee was also asked to show cause as to why the assessment proceedings on the issue of taxability of Management Services Fees, received during the year, should not be completed on the basis of the stand taken by the Revenue in earlier years and in accordance with the directions given by the learned DRP in earlier years. In response thereto, the assessee, inter-alia, submitted that the Tribunal has decided the issue in favour of the assessee in earlier years. The Assessing Officer ("AO") vide draft assessment order dated 28/04/2021 passed under section 144C of the Act after taking into consideration the provisions of the Service Agreement dated 01/04/2004 held that the payments made by the Indian company to the assessee are clearly for the use of information concerning industrial, commercial or scientific experience in India. Thus these payments are specifically covered under Article 12(4) of the India Netherlands DTAA and taxable as Royalty. The AO also noted that the issue is of recurring in nature and during the assessment proceedings in earlier years, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging and Marine Contractors BV vs ADIT, ITA no.7589/Mum/2012, for the assessment year 2009-10, vide order dated 07/10/2016, 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 relevant findings of the coordinate bench of the Tribunal, in the aforesaid decision, are as under:- "14. We have heard the rival submissions, perused the relevant finding given in the impugned orders as well as material referred and relied upon before us. The first issue for our adjudication is, whether the fees received by the assessee from its Indian entity, VIOPL for management and support services is to be treated as "royalty" under Article 12(4) of India-Netherland-DTAA or not. The entire gamut of facts and nature of services provided by the assessee to VOIPL i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Since the definition relates to information concerning previous experience, the Article does not apply to payments for new information obtained as result of performing services at the request of the payer; In the know-how contract, one of the parties agrees to impart to the other, so that he can use them for his own account, his special knowledge and experience which remain unrevealed to the public. It is recognized that the grantor is not required to play any part himself in the application of the formulas granted to the licensee and that he does not guarantee the result thereof. This type of contract thus differs from contracts for the provision of services, in which one of the parties undertakes to use the customary skills of his calling to execute work himself for the other party. Payments made under the latter contracts generally fall under Article 7. The need to distinguish these two types of payments, i.e. payments for the supply of know-how and payments for the provision of services, sometimes gives rise to practical difficulties. The following criteria are relevant for the purpose of making that distinction: - Contracts for the supply of know-how concern informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that, to qualify as payment towards information concerning industrial, commercial or scientific experience, person must provide knowhow to the recipient, that is, a strong emphasis has been given to concept of "knowhow". There is an element of imparting of knowhow to the other so that other can use or has right to use such "knowhow". In case of industrial, commercial or scientific experience, if services are being rendered simply as an advisory or consultancy then it cannot be reckoned as "royalty" because the advisory or assistance does not connotes imparting of the skill or experience to other albeit the person is rendering the services from his own knowhow and what he is imparting is his conclusion based on his own skill and experience. The imparting of "knowhow" envisages that the recipient should be able to make use of such knowhow independently on its own account without recourse of the provider of the knowhow in future. For being regarded as "royalty" there has to be alienation or use of or right to use of any knowhow and without any transfer of any knowledge, experience or skill, it cannot be termed as "royalty". In the case of GECC Asia Ltd. vs. DDIT (supra) had occasion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to various streams of services like providing of information technology; operational support; marketing; quality, health, safety and environment; estimating and engineering; and personal and organization, administration and legal services, there is no imparting of any kind of knowledge, skill or experience by way of information concerning industrial, commercial or scientific which is made available to VOIPL. For instance, information technology services are provided for use of group companies" computer system where IT teams providing manual general information without providing any information or method to design or create a computer system. It is mainly kind of help desk and trouble-shooting services which are required on regular basis. For operational support system also, it mainly provides for check-list for project plans, safety work and inspection plans etc. Similarly, for marketing, the assessee provides for emarketing through its website and maintaining it, printing and publishing brochures which can be distributed to its potential clients. It also helps VOIPL to obtain the certificate of approval from the concerned organizations and obtained the contracts on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are refraining ourselves from going into the aspect of FTS qua the services rendered in terms of the service agreement." 11. We further find that the coordinate bench of the Tribunal in assessee's own case in Van Oord Dredging and Marine Contractors BV vs DCIT, ITA no. 2029/Mum./2016, for the assessment year 2011-12, vide order dated 31/05/2019, rendered similar findings following the aforesaid decision rendered in the assessment year 2009-10. Similarly was held in assessment years 2012-13, 2013-14, 2014-15 and 2015-16 by the coordinate bench of the Tribunal in assessee's own case in ITA no.1382/Mum./2017, ITA no.6140 /Mum./2017, ITA no.6141/Mum./2017 and ITA no.6726/Mum./2018 vide orders dated 15/07/2022, 10/11/2017, and 24/12/2020, respectively. 12. The learned DR could not show us any reason to deviate from the aforesaid decisions rendered in assessee's own case and no change in facts and law was alleged in the relevant assessment year. 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. Thus, respectfully following the orders passed by the coordinate bench of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned AO / DRP has: 2. erred in not appreciating the fact that the Management Service Fees received by the Appellant constitute pure allocation of cost without any mark-up and hence, the same being reimbursement of cost, is not taxable as Royalty under the Act as well as under the Double Taxation Avoidance Agreement (DTAA') between India and the Netherlands. 3. erred in treating the management service fees received by the Appellant as "Royalty" under Article 12(4) of India Netherlands DTAA, thereby making an addition of INR 73,00,01,323/- to the income of the Appellant. 4. erred in not appreciating that for the services rendered by the Appellant to qualify as royalty, the same should provide know-how to the recipient. 5. erred in not appreciating that the services provided by the Appellant are in the nature of business support and administration services and are not in the nature of sharing information concerning industrial, commercial and scientific experience. 6. erred in not following the order of the Hon'ble jurisdictional Income-tax Appellate Tribunal (ITAT'), Mumbai for the AY 2009-10 in Appellant's own case and also on various orders passed by ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputed as per rates prescribed under the India-Netherlands DTAA; Penalty Without prejudice to the above, and on the facts and in the circumstances of the case and in law, the learned AO has: 14. erred in initiating penalty proceeding under section 270A of the Act, which is applicable in cases of Underreporting or misreporting of income, without considering the full and true disclosures made by the Applicant, both, in the Return of Income as well as during the assessment proceedings. The above grounds of objections are distinct and separate and without prejudice to each other. The appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of appeal, so as to enable the Hon'ble Tribunal to decide the appeal in accordance with the law. 21. Ground No. 1 is general in nature and therefore the same need no separate adjudication. 22. The issue arising in grounds no. 2-6, raised in assessee's appeal, is pertaining to the taxability of Management Service Fees received by the assessee. Since a similar issue has been decided in assessee's appeal for the assessment year 2018-19, the decision rendered th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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