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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 ..... oordinate 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. - ITA no.672/Mum./2022 And ITA no.1980/Mum./2022 - - - Dated:- 31-3-2023 - Shri G.S. Pannu, President, And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : Shri Nishant Thakkar a/w Shri Sapan Choksi For the Revenue : Ms. Surabhi Sharma ORDER PER BENCH The present appeals have been filed by the assessee challenging the separate impugned final assessment orders dated 27/02/2022 and 15/06/2022, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by relying on AY 2009-10 order for AY 2005-06, 2007- 08, 2010-11, 2011-12, 2013-14, 2014-15 and 2015-16. Set-off of management service fees treated as royalty with current year business loss as well as brought forward business loss not allowed Without prejudice to the above, and on the facts and in the circumstances of the case and in law the learned AO/ DRP: 7. Erred in not setting off the current year business losses as well as the brought forward business losses against the addition of management service fees. Set-off of management service fees treated as royalty w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 4. Ground No. 1 is general in nature and therefore the same need no separate adjudication. 5. 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. 6. The brief facts of the case pertaining to this issue are: The assessee is a company incorporated in the Netherlands and is an international dredging contractor and has executed several contracts in India. For the year under consideration, the assessee filed its return of income on 09/10/2018 declaring a total loss of Rs.13,56,780. During the year, the assessee has not executed any dredging contracts in India. During the assessment proceedings, from the notes to the computation of income, it was observed that the assessee provided certain business support services to Van Oord India Private Ltd. For the above services, the assessee charged Rs.18,20,94,912 to the Indian entity and the Indian entity has remitted the amount a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the DTAA as well as the Act. 7. The assessee filed detailed objections before the learned DRP against the addition made by the AO. Vide directions dated 13/01/2022, issued under section 144C(5) of the Act, the learned DRP following its directions rendered in assessee s own case for the assessment year 2017-18, wherein the learned DRP followed its directions rendered in the assessment year 2015-16, rejected the objections filed by the assessee on this issue, after noting that there is no change in the material facts and circumstances as well as the applicable law when compared to the earlier assessment years, where the learned DRP had an occasion to decide the issue under consideration. In conformity with the directions issued by the learned DRP, the AO passed the impugned final assessment order treating the Management Service Fees as Royalty taxable at the rate of 10%. Being aggrieved, the assessee is in appeal before us. 8. During the hearing, the learned Authorised Representative ( learned AR ) submitted that this issue has been decided in favour of the assessee by the decision of the coordinate bench of the Tribunal in assessee s own case for preceding asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion stage. Thus, the payment received by the assessee-firm for rendering such kind of services falls within the realm and ambit of royalty as defined in para (4) of Article 12 of the DTAA. The relevant definition of royalty as given in Article 12(4) of India-Netherlands-DTAA reads as under:- The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark design or model, pan secret formula or process, or for information concerning industrial, commercial or scientific experience . Here, the main emphasis of the Revenue is on the term for information concerning industrial, commercial or scientific experience . This term mainly alludes to concept of use of or right to use of providing of knowhow , where one party agrees to impart the information on knowhow concerning industrial, commercial or scientific experience to the other. OECD in its commentary has explained these terms in para 11 in the following manner:- The classifying as royalties payments received as consideration for info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of such special knowledge, skill or expertise to the other party. - In most cases involving the supply of know-how, there would generally be very little more which needs to be done by the supplier under the contract other than to supply existing information or reproduce existing material. On the other hand, a contract for the performance of services would, in the majority of cases, involve contractual obligations. For instance, the supplier, depending on the nature of the services to be rendered, may have to incur salaries and wages for employees engaged in researching, designing, testing, drawing and other associated activities or payments to subcontractors for the performance of similar services. Examples of payments which should therefore not be considered to be received as consideration for the provision of know-how but, rather, for the provision of services, include: - payments obtained as consideration for after-sales service; - payments for services rendered by a seller to the purchaser under a warranty; - payments for pure technical assistance; - payments for a list of potential customers, when such a list is developed specifically for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can use or has right to use such knowhow. In case of industrial, commercial and scientific experience, if services are being rendered simply as an advisory or consultancy, then it cannot be termed as royalty , because the advisor or consultant is not imparting his skill or experience to other, but rendering his services from his own knowhow and experience. All that he imparts is a conclusion or solution that draws from his own experience. The eminent author Klaus Vogel I his book Klaus Vogel On Double Tax Convention has reiterated this view on differenced between royalty and rendering of services. The thin line distinction which is to be taken into consideration while rendering the services on account of information concerning industrial, commercial and scientific experience is, whether there is any imparting of knowhow or not. If there is no alienation or the use of or the right to use of any knowhow, then it cannot be termed as royalty . The services may have been rendered by a person from own knowledge and experience but such a knowledge and experience has not been imparted to the other person as the person retains the experience and knowledge or knowhow with him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and plan consisting in local performance and other guarantees to the client of VOIPL etc. For rendering of these services, there is no element of imparting of any knowhow or there is transfer of any knowledge, skill or experience. Thus, in our opinion, none of the services provided by the assessee in the term of service agreement falls within the scope and ambit of royalty as defined in Article 12(4) of the DTAA. 16. In any case, as pointed by Mr. Porus Kaka, it is an admitted fact that, only actual mark-up has been charged by the assessee and the payment has been received purely on allocation of actual costs and the working of cost allocation as reproduced above has not been disputed either by the Assessing Officer or by the Ld. DRP. The assessee has charged the specified percentage of cost incurred by it for rendering aforesaid services which is based on turnover of each entity and the turnover of Van Oord Group as highlighted above which has been certified by the Auditors as given in the paper book from pages 9 to 11. Once the auditors have certified that, such allocation of costs represents the actual expenditures then, we do not find any reason to hold that reimburs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... require no separate adjudication. 14. Grounds no.9-10, raised in assessee s appeal is pertaining to 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. 15. Insofar as the levy of interest under section 234A of the Act is concerned, 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. 16. Insofar as ground no.12, raised in assessee s appeal is concerned, the same relates to the charging of interest under section 234B of the Act, which is consequential in nature. Therefore, ground no.12 is allowed for statistical purposes. 17. In view of our findings rendered in respect of grounds no.2-6, the issues arising in ground no.13 are rendered academic in nature and hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case and in law the learned AO/DRP has: 7. erred in not setting off the current year business losses as well as the brought forward business losses against the addition of Management Service Fees. Set-off of management service fees treated as royalty with brought forward unabsorbed depreciation not allowed Without prejudice to the above grounds, and on facts and in circumstances of the case and in in law the learned AO/DRP has: 8. erred in not setting off the brought forward depreciation against the addition of Management Service Fees. Non-grant of Tax Deducted at Source (TDS) of INR 7.30.00.132/- On the facts and in the circumstances of the case and in law, the learned AO/ DRP has: 9. failed to grant full credit of TDS amounting to INR 7,30,00,132 as claimed by the Appellant in its return of income for AY 2019-20. 10. failed to provide any cogent reasons for not granting full credit of TDS amount to INR 7,30,00,132 despite the same amount appearing in the Form 26AS (ie. Tax credit statement) for the relevant assessment year. Erroneous levy of interest under section 234A of INR 7.97.161/- On the facts and in the circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd hence require no separate adjudication. 24. Grounds no.9-10, raised in assessee s appeal is pertaining to 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. 25. Insofar as the levy of interest under section 234A of the Act is concerned, 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. 26. Insofar as ground no.12, raised in assessee s appeal is concerned, the same relates to the charging of interest under section 234B of the Act, which is consequential in nature. Therefore, ground no.12 is allowed for statistical purposes. 27. In view of our findings rendered in respect of grounds no.2-6, the issues arising in ground no.13 are rendered academic in nature a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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