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TMI Blog2022 (8) TMI 1531X X X X Extracts X X X X X X X X Extracts X X X X ..... ee . Thus, in view of our above observations we hold that network fee received by the assessee from Damco India is neither in the nature of Royalty nor FTS. Consequently, the aforesaid amount received by the assessee is not exigible to tax under the provisions of the Act or India Netherlands DTAA. As argued Damco India is DAPE of the assessee - The aforesaid contention raised by the ld. Departmental Representative is not in coherence with the directions of the DRP or findings of the AO. AO during assessment proceedings never raised a question of Damco India being a PE/DAPE of the assessee. The ld. Departmental Representative cannot make out a new case or improve the case of Assessing Officer at second appellate stage specially when it is the appeal by the assessee. Even otherwise, the role of the ld. Departmental Representative is to support the findings of Lower Authorities and not build a new case by raising arguments not emanating from the assessment order. Decided in favour of assessee. - Shri Vikas Awasthy, Judicial Member And Shri M. Balaganesh, Accountant Member For the Appellant : Shri Poras Kaka, Sr. Advocate with Shri Manish Kanth. For the Respondent : S/Shri B.K. Bagch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2 The ld. Counsel for the assessee submitted that network model was adopted w.e.f. 01/01/2013. Prior to 01/01/2013 the business model was different whereby Damco India had entered into an agreement with Damco International AS, Denmark. Prior to January, 2013 part of the cost of the central entity [Damco International AS] was being allocated to all local entities throughout the world including Damco India for the Indian region. The assessment order under appeal is in respect of transactions between the assessee and Damco India is for the period starting from 01/01/2013 to 31/03/2013 i.e. for a period of three months. A separate assessment order has been passed for the transactions for the period from 01/04/2012 to 31/12/2012 i.e. the period of nine months, wherein transactions were in terms of agreement between Damco International AS, Denmark and Damco India. The terms and conditions of the agreement between Damco International AS, Denmark and Damco India effective upto 31/12/2012 and the subsequent agreement between the assessee and Damco India effective from 01/01/2013 are similar. The facilities/infrastructure provided by assessee under the new network agreement are largely sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the DRP have observed that the nature of services in the assessee s case are similar to the services in the case of Damco International AS. The ld. Counsel for the assessee further pointed that the Assessing Officer in impugned order has extensively reproduced the findings from the assessment order in the case of Damco International AS and has even incorrectly referred to the treaty between India and Denmark despite the fact that the treaty relevant to the impugned assessment year is India-Netherland DTAA, as the assessee is tax resident of Netherlands. 3.6 The ld. Counsel for the assessee further submits that the assessee is rather in a more advantageous position as in India Netherland DTAA, the definition of FTS includes rendering of technical or consultancy services only. There is no mention of any services in the nature of managerial or any other services forming part of FTS. The ld. Counsel for the assessee further points that Article -5(5) of the treaty refers to make available clause which is not there in India- Denmark DTAA. The ld. Counsel for the assessee in support of his contentions placed reliance on the decisions in the case of Raymonds Ltd. vs. DCIT, 86 ITD 791( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces mentioned under clause 5 of the present agreement are similar to the services mentioned in clause 4 of the earlier agreement. The ld. Counsel for the assessee reiterated that there is no payment of royalty by Damco India. The payment is made by Damco India on profit sharing model. The ld. Counsel for the assessee further referred to US Protocol to contend that managerial services does not form part of technical services. 5.1 The ld. Counsel for the assessee anxiously rebutted the argument raised by the ld. Departmental Representative that Damco India is a Dependent Agency Permanent Establishment (DAPE). The ld. Counsel for the assessee stated that in the first instance this objection was never raised by the Assessing Officer or the DRP. Further, the transaction between the assessee and Damco India is accepted at arm s length, therefore, no further profits can be attributed to DAPE. To support his submissions the ld. Counsel referred to the decisions in the case of DIT vs. Morgan Stanley 292 ITR 416 (SC ); ADIT v. EFunds IT Solution Inc. (2017) 399 ITR 34(SC); Honda Motors Co Ltd vs. ADIT [2018] 255 Taxman 72 (SC); DIT (IT) v. B4U Holdings Ltd. [2015] 374 ITR 453 (Bom HC); Set S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer based on the observations made by DRP finally concluded that the amount of Rs. 8,46,91,990/- is taxable as Royalty and Fee for Technical Services under the provisions of the Act as well as under Indo-Netherland Tax Treaty. 7. We find that in the case of Damco International AS vs. DCIT in ITA No. 933 6465/Mum/2017 for assessment years 2012-13 and 2013-14, decided on 20/07/2020 the Tribunal has held that business support charges paid by Damco India are not taxable as FTS/Royalty under the Act or the relevant DTAA as the same is purely in the nature of reimbursement of cost. 8. We have thoroughly examined network agreement dated 01/01/2013. The remuneration clause for the services and obligation of Damco India is contained in Clause -7 read with Appendix-3 of the agreement. As per the terms of Appendix 3, Damco India shall pay to the assessee network fee calculated as under: Network Fee = CMI (Company Costs+ Mark up) CM1 has been defined in the Definitions clause of the Network Agreement as under: 1.2 CM1 OR GROSS MARGIN is the result of the Company computed by deducting carriage and consolidation charges, including direct labour cost and related costs, from sales revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 2012-13 are similar. This fact has not been rebutted by the Revenue. In fact, as pointed earlier, the DRP and the Assessing Officer has admitted this fact. The Ld.Counsel for the assessee has drawn our attention to the order passed under section 93CA(3) of the Act by the TPO for assessment year 2014-15 and 2015-16 in the case of Damco India, where Damco India has received minimum guaranteed network income of Rs. 32.41 crores in assessment year 2014-15 and Rs. 4.71 crores in assessment year 2015-16 from the assessee. 9. It has been further submitted that network fees received by the assessee does not fall within the meaning of FTS or Royalty under Article -12 of India Netherland DTAA. For the sake of ready reference the relevant extract of Article -12 is reproduced herein below:- 4. 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, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. 5. For purposes of this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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