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2018 (1) TMI 983 - AT - Income TaxPayment received on providing corporate IT services etc. to group entities - receipts claimed by the assessee as reimbursement on cost basis - receipts liable to be taxable in the hands of the assessee either as royalty or fee for included services under the relevant articles of the DTAA between India and USA - PE in India - Held that:- The appellant, being the ultimate holding company, maintains a centralized IT centre for its group companies across the globe. Such a system enables the appellant to achieve uniformity, confidentiality and economies of scale. For providing such services, the Appellant has entered into an Agreement dated 1 June 2001 with various group companies. The terms of the Agreement (Clause 1.2 and 2.4) clearly provide that all direct and indirect costs for providing Corporate IT services would be charged from the group companies. Further, the Agreement provides for allocation key by which the total cost (direct and indirect) would be recovered from the group companies. Accordingly, the Agreement itself substantiates that only cost of providing Corporate IT services is recovered from the Indian group companies. From the invoice it is seen wherever there is extra charge on the basis of allocation key, the same is adjusted by way of reversal in the invoice to ensure the recovery is made only for actual cost. The appellant company itself is not having its core activity in the nature of providing corporate IT services. The entire "Cargill group" is engaged in the business of International marketer, processor and distributor of agricultural food and industrial products. The company does not have its core strength in providing corporate IT related services, which is evident by the fact that no such corporate IT services have been provided to any outside entities. Thus, neither the company has the core strength nor is in possession of any secret processes or commercial and industrial information, which it could be held to be passing on to its group entities in India and worldwide. The group has decided to have a centralized corporate IT system to facilitate globalization, for cost effectiveness and synergy in the working of various group entities of the appellant company across the world. AO could not bring out any adverse evidence on record that may suggest that the appellant had passed on any commercial or industrial information or secret processes to the Indian group companies that may be treated as royalty. The appellant company's globalised corporate IT system facility is also developed by its vendors and in fact it is the appellant, which has received the services for setting up the globalised corporate IT system. Qua its group companies, the appellant has only facilitated use of the common facility in its own business interest, for which the proportionate direct and indirect cost have been recovered. The appellant is merely arranging Corporate IT services. The payments are received for such services and not for the right to use of equipment (hardware or software). The payer is using their services through leased line/internet/internet services providers. The appellant had categorically stated that no amount of profit was embedded in such payments. AO has not brought out any evidence on record that may question this averment of the appellant. Under the circumstances, the very basis of the Ld. AO of treating such payment as royalty in nature is held as misplaced. Such payments were not in the nature of royalty or FIS, the natural corollary of the this observation is that such payment was in the nature of reimbursement of actual direct and indirect costs recovered by the appellant company from its group companies, which does not have any element of profit embedded therein. Also following decision of Delhi High Court in the case of CIT vs Industrial Engineering Projects Pvt. Ltd. [1992 (7) TMI 38 - DELHI High Court] such payment cannot be held as taxable under the domestic law as well - Decided in favour of assessee.
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