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2016 (11) TMI 1249 - AT - Income TaxTaxability of “Management Service Fees” - whether amount received by the assessee from its Indian entity as “royalty” under Article 12(4) of Indian- Netherlands Treaty - Held that:- As highlighted above, 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 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. We ourselves have analyzed each and every aspect of services rendered by the assessee in terms of the “service agreement” and also analyzed the definition of “royalty” as given in Article 12(4) and have reached to a conclusion that the said services and reimbursement of cost does not fall under the realm of “royalty”. Moreover here in this case, the revenue’s main thrust is that the payment received by the assessee from VOIPL is “royalty” and here it is not the case of FTS by the department and, therefore, we are refraining ourselves from going into the aspect of FTS qua the services rendered in terms of the service agreement. Taxability of reimbursement of salary as FTS under Article 12(5) - Held that:- Assessee has given the employee-wise break-up of salary along with respective days of stay in India for the crew members on Volvox Atlanta and it is amply evident that stay of none of the crew members in India has exceeded 90 days. Similarly, with respect to reimbursement of salary of crew members Volvox Delta also it is seen that the days of stay again does not exceed 90 days. Rather it is only for the period of 35 days. This is evident from the certificate issued by the ‘Director General of Shipping’ dated 10th September, 2009 given to VOIPL. Once that is so, then in terms of section 10(6)(viii) the salary paid to such non-resident cannot be taxed in India. Once the salary cannot be taxed in India the same cannot be brought in the ambit of FTS under Article 12(5). Thus, on this ground alone, we are of the opinion that the reimbursement of salary paid to the non-resident is exempt from taxability in India by virtue of section 10(6)(viii) and, therefore, same cannot be held to be FTS. Accordingly, the addition made by the Assessing Officer on this score stands deleted. Set off of unabsorbed depreciation and losses - Held that:- In light of our finding given above, we direct the Assessing Officer to follow the provision of section 115A(3) and 32(2) after giving the effect to our decision as above.
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