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TMI Blog2019 (9) TMI 1698X X X X Extracts X X X X X X X X Extracts X X X X ..... 016 - - - Dated:- 5-9-2019 - Shri G.S. Pannu, Vice-President And Shri Pawan Singh, Judicial Member For the Appellant : Shri Nishant Thakkar (AR). For the Respondent : Shri Samuel Daise (CIT-DR). ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee is directed against the order of ld. Commissioner of Income-Tax (Appeals)-58 [for short the ld. CIT(A)], Mumbai dated 28.03.2016 which arises from assessment order passed on 03.04.2014 under section 44C read with section 143(3) for Assessment Year 2010-11. The assessee has raised the following grounds of appeal: On the facts and in the circumstances of the case and in law, Van Oord Dredging and Marine Contractors by (hereinafter referred to as the 'Appellant') craves leave to prefer an appeal against the order passed by the Commissioner of Income Tax (Appeals) ['CIT(A)'] dated 28 March 2016 under section 250 of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') on the following grounds, each of which are without prejudice to one another: 1. On the facts and in the circumstances of the case and in law, the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OIPL is not covered by the provisions of section 10(6)(viii) of the Act. 9. erred in holding that the taxability of salary paid by the Appellant to the employees subsequently reimbursed by VOIPL under section 10(6)(viii) of the Act needs to be examined, as the employees are working under the control and management of VOIPL. 2. Brief facts of the case are that assessee is a company incorporated in Netherlands and is eligible for benefit of India-Netherlands Double Taxation Avoidance Agreement (DTAA). The assessee is engaged in dredging activities filed its return of income for Assessment Year 2010-11 on 15.10.2010 declaring loss of Rs. 38,15,40,242/-. The assessment was completed on 03.04.2014 under section 143(3) r.w.s. 144C(3) of the Act. The Assessing Officer noted that during the relevant period the assessee executed dredging contract with Marg Ltd., Essar Bulk Terminal Ltd. and L T Ship Building Ltd. in India. The assessee provided business support services to Van Oord India Pvt. Ltd. (VOIPL) under a management support agreement dated 01.04.2004. Pursuant to the said agreement on going assistance and support is provided to VOIPL by assessee in the field of informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is not taxable as fees for technical services. For rendering management services, the assessee head office had a specific percentage of cost incurred by it for rendering aforesaid services to VOIPL. The said cost is allocated to all group companies of assessee based on turnover of each company. A copy of certificate from Netherlands Auditor of assessee stating that cost allocated to VOIPL is verified and not mark up is charged by assessee. The contention of assessee was not accepted by Assessing Officer holding that payment made by India company to assessee are clearly for the use of information concerning industrial commercial or scientific experience in India. These payments are specifically covered under Circular-4 of Article-12 of Double Taxation Avoidance Agreement (DTAA) between India and Netherlands and are taxable as royalty. The payments received by assessee-company are nothing but a royalty as per Article-12 of Treaty. There is no dispute that these services are utilized in India by Indian entity. The contention of assessee that the services have been rendered outside India does not hold good and same is taxable in India. The Assessing Officer by treating the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement, the assessee provided services in the field of information technology, operation, quality, health safety as provided in the agreement. Copy of service agreement is filed at page no. 52 to 55. The assessee provided standard services to ensure the consistency in the approach worldwide. The payment received by assessee was treated as royalty. The ld. AR further submits that on the basis of the same service agreement dated 1st April 2004 similar payment was treated as royalty in assessment for A.Y. 2009-10, which were confirmed by DRP, however, on appeal before the ld. CIT(A), that the payments received by assessee are reimbursement of cost and does not fall under the realm of royalty . The ld. AR further submits that by following the decision of A.Y. 2009-10, similar relief was granted to assessee in appeal for A.Y. 2013-14 2014-15. The ld. AR further submits that after treating the management service fees as royalty in A.Y. 2009-10, the assessment for A.Y. 2005-06 2007-08 was re-opened. However, on appeal before the Tribunal, the Tribunal by following the order of A.Y. 2009-10, 2013-14 2014-15 held that the management services fees received cannot be assessed as roy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on assessee (VODMC) for its experience in industrial, commercial and scientific field. The Indian entity is engaged in highly technical business of dredging activities for which it requires the information and experience of the VODMC right from the prebidding stage till the post project completion 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 providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts development or creation and include specific provisions concerning the confidentiality of that information. In the case of contracts for the provision of services, the supplier undertakes to perform services which may require the u se, by that supplier, of special knowledge, skill and expertise but not the transfer 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 serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entific experience and after referring to various commentaries, observed and held as under: The royalty payment received as consideration for information concerning industrial, commercial, scientific experience alludes to the correct of knowhow. There is an element of imparting of knowhow to the other, so that the other person 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 alie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, the assessee merely conducts internal audits on regular intervals so that proper adherence to such quality standard and procedures are valid/ should remain valid. Similarly, in the estimating an engineering services and other services also, the assessee is mainly providing tender process, helping and preparing (estimates) and bids 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. 6. The co-ordinate bench of Tribunal has dealt with the payment received by the assessee pursuant to the agreement dated 01-04-2004. In the years under consideration also, the assessee received payments pursuant to very same agreement. The Ld A.R submitted that there is no change in facts between both the years. Before us, the revenue could not bring any material in order to compel us not to follow the order passed by the co-ordi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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