TMI Blog2018 (1) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment years from 2002-03 to assessment year 2008-09 respectively. In all these appeals, common grounds are involved; accordingly, we have heard these appeals to whether and disposed of by this consolidated order. 2. The grounds raised in various appeals are reproduced as under: 2.1 Grounds of appeal in ITA No. 491/Del/2012 for assessment year 2002-03 1. That the learned Assistant Director of Income Tax, Circle- 1(1), International Taxation, New Delhi (hereinafter referred to as Learned AO ) and the Hon ble Dispute Resolution Panel ( the Hon ble DRP ) have erred on the facts and in circumstances of the case and in law in initiating assessment/re-assessment proceedings under section 147 of the Act for the subject year based on mere change of opinion, without change in the material facts and circumstances on record giving rise to any valid reasons to believe that any income has escaped assessment. Thus, initiation of the assessment/re-assessment proceedings for the subject year is bad in law and void ab initio. 2. That the Learned AO and the Hon ble DRP have erred in facts and in law in making addition amounting to ₹ 60,85,841 to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and in law in initiating penalty under section 271AA and 271 BA of the Act for non-compliance of various provisions of Chapter X of the Act in connection with the aforesaid international transaction which is not taxable in the hands of the assessee. The above grounds are independent and without prejudice to each other. The Appellant craves leave to add, alter, supplement, amend, vary, withdraw or otherwise modify the ground mentioned herein above at or before the time of hearing. 2.2 Grounds of appeal raised in ITA No. 492/Del/2012 for assessment year 2003-04: 1. That the learned Assistant Director of Income Tax, Circle- 1(1), International Taxation, New Delhi (hereinafter referred to as Learned AO ) and the Hon ble Dispute Resolution Panel ( the Hon ble DRP ) have erred on the facts and in circumstances of the case and in law in initiating assessment/re-assessment proceedings under section 147 of the Act for the subject year based on mere change of opinion, without change in the material facts and circumstances on record giving rise to any valid reasons to believe that any income has escaped assessment. Thus, initiation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in facts and in law in initiating the penalty proceedings u/s 271(l)(c) of the Act against the appellant for concealing the particulars of income or for furnishing inaccurate particulars of income. Further, he has also erred in facts and in law in initiating penalty under section 271AA and 271 BA of the Act for non-compliance of various provisions of Chapter X of the Act in connection with the aforesaid international transaction which is not taxable in the hands of the assessee. The above grounds are independent and without prejudice to each other. The Appellant craves leave to add, alter, supplement, amend, vary, withdraw or otherwise modify the ground mentioned herein above at or before the time of hearing. 2.3 Grounds of appeal raised in ITA No. 5647/Del/2011 for assessment year 2004-05: 1. That the learned Assistant Director of Income Tax, Circle- 1(1), International Taxation, New Delhi (hereinafter referred to as Learned AO ) and the Hon ble Dispute Resolution Panel ( Hon ble DRP ) have erred on the facts and in circumstances of the case and in law in initiating re-assessment proceedings for the subject year based on mere change of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned AO has erred in facts and in law in initiating penalty under section 271A A and 271 BA of the Act for noncompliance of various provisions of Chapter X of the Act in connection with the aforesaid international transaction which is not taxable in the hands of the assessee. The above grounds are independent and without prejudice to each other. The Appellant craves leave to add, alter, supplement, amend, vary, withdraw or otherwise modify the ground mentioned herein above at or before the time of hearing. 2.4 Grounds of appeal raised in ITA No. 446/Del/2012 for assessment year 2005-06: 1. That the Learned Assistant Commission of Income Tax, Cir 1(1), International tax, New Delhi (hereinafter referred as Ld AO) and Learned Commissioner of Income Tax (Appeals)-XI, New Delhi [hereinafter referred as Ld CIT(A)] has erred in facts and in law in making addition amounting to ₹ 9,849,797 to the returned income of ₹ 64,25,861 by treating the actual reimbursements received under the Cost Sharing Agreement on account of shared Corporate IT and other services from its Indian group company, Cargill India Private Limited (CIPL) as Royalty/FIS under Article 12 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case and in law in treating the cost reimbursements received from CIPL on actual basis as income chargeable to tax under the provisions of Income Tax Act, 1961 ( the Act ) and the treaty. Without prejudice to above, if the same is treated as services, the Ld AO and CIT(A) has erred in facts and in law in holding that the same is not covered by the provisions of Article 12(4)(b) of the treaty. 1.2 That the Ld AO and CIT(A) has erred in facts and in law in holding that the cost reimbursements for corporate IT recharges amounting to ₹ 121,88,501 are charges for allowing use of commercial and industrial information, accordingly, chargeable as Royalty as per Article 12(3)(a) of the treaty. 1.3 That the Ld AO and CIT(A) has erred in facts and in law in holding that the difference amounting to ₹ 3,24,398 in the Form 3CEB of Indian group company (CIPL) and Appellant is chargeable as Fee for included services (FIS) as per Article 12(4)(b) of the treaty. The above grounds are independent and without prejudice to each other. The Appellant craves leave to add, alter, supplement, amend, vary, withdraw or otherwise modify the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating penalty under section 271AA and 271BA of the Act for noncompliance of various provisions of Chapter X of the Act relating to international transaction. The above grounds are independent and without prejudice to each other. The Appellant craves leave to add, alter, supplement, amend, vary, withdraw or otherwise modify the ground mentioned herein above at or before the time of hearing. 2.7 Grounds of appeal raised in ITA No. 5648/Del/2011 for assessment year 2008-09: 1 That the Learned Assessing Officer ( AO ) and the Hon ble Dispute Resolution Panel ( Hon ble DRP ) have erred in facts and in law in making addition amounting to ₹ 21,386,979 to the returned income of the appellant based on the assessment order for AY 2007-08 by treating the actual reimbursements received under the Cost Sharing Agreement on account of shared Corporate IT related services from its Indian group entities as Royalty under Article 12 of the Double Taxation Avoidance Agreement between India and USA ( the treaty ). 1.1 That the learned AO and the Hon ble DRP have erred on facts and circumstances of the case and in law in treating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s group of companies and for this purpose, the assessee company entered into an agreement on 01/06/2001 with Indian group entity i.e. Cargill India Private Limited (CIPL) to provide a range of services including corporate (IT) related services like email box services, global core services, Internet web browsing, instant messaging services, storage services and mobility services etc. and other services. According to the assessee, the corporate IT charges received by the assessee pursuant to the agreement were, mere reimbursement of cost and therefore not taxable either under the domestic law or under the Double Tax Avoidance Agreement (DTAA). During assessment proceedings for assessment year 2005-06, the Assessing Officer rejected the contention of the assessee and held the charges received from services rendered under said agreement as income in the nature of Royalty/Fee for Included Services (FIS), under relevant articles of the DTAA. In view of the finding in assessment year 2005-06, the Assessing Officer reopened the assessment for assessment year 2002-03 to 2004- 05. The Assessing Officer also made additions in subsequent assessment years from 2006-07 to 2008-09 following his f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was preferred by the Revenue against the order of the Ld. CIT-(A) in assessment year 2009-10 to assessment year 2014-15. The Ld. CIT(DR) verified from the field authorities and confirmed the fact that no appeal has been filed by the Revenue against the said orders of the learned CIT-(A). He also concurred with the fact that services in assessment year 2009-10 to assessment year 2014-15 have been rendered under the same agreement, which was in existence in the assessment years 2002-03 to assessment year 2008-09, i.e. assessment years involved in appeals before us. 6. We have heard the rival submission and perused the relevant material on record. The issue involved in grounds mentioned above is whether the payment received by the assessee on providing corporate IT services etc. to group entities, which is claimed by the assessee as reimbursement on cost basis, is 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. In assessment year 2009- 10 in appeal No. 96/13-14/CIT(A)-42, the Ld. CIT-(A) after considering the submission of the assessee in details; held as under: 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structure Delivery Organization (IDO) provides a menu of numerous services as follows: ( i) Application Integration ( ii) AS/400 server administration, technical consulting and processing services ( iii) Audio Conferencing capabilities ( iv) Call accounting ( v) Action Request System (ARS), an internal helpdesk service ( vi) Dedicated and shared servers for Cargill Global Office ( vii) Dedicated and shared servers for Cargill Cargili Group Environment ( viii) Telephone wireless services ( ix) Cargill-net and router support ( x) Local Area Network (LAN) facilities and management services ( xi) Corporate backbone ( xii) Corporate calling cards ( xiii) Desktop fax capabilities ( xiv) Development Architecture and Tools ( xv) Electronic commerce communication service and support, mapping and setup, development and project management ( xvi) Global database technical service, implementation and integration ( xvii) Internet Applications, including consulting, intranet (Webster) hosting, basic service, site set-up, specialized verity development, web logic application servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e management of the company was also filed to the effect that in order to facilitate globalization and maintain standardlization together with cost effectiveness, the appellant and its group companies had decided to have a centralized information technology system based on the business needs of the 'Cargill group' as a whole. It was also certified that all direct and indirect costs incurred by the appellant on the centralized facility is recovered from the group entities in the form of corporate IT recharge on cost to cost basis, without any profit margin. 6.2.2 On careful consideration of the above facts, it is seen 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The Id. 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. 6.3.2 Without prejudice, even if such services are to be treated as FIS, in view of the MOU to India-US treaty [Article 12(4)], in view of the fact that no technology was 'made available' to the appellant that can be independently made use of by the Indian group companies, in the absence of 'make available' provision of such processes/technology, such payment cannot be treated as FIS as well. In view of the above, I am of the considered view that such payment cannot be treated as royalty or FIS. 6.3.3 As I have already held that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat no appeal has been filed against the order of the Ld. CIT-(A) in assessment year 2009-10 to 2014-15, is also not disputed by the Ld. CIT(DR). The issue before us is that following the Rule of Consistency, whether the Revenue should still object these grounds of the assessee. On this issue, we take guidance from the decision of the Hon ble Supreme Court in the case of RADHASOAMI SATSANG vs. COMMISSIONER OF INCOME TAX reported in 193 ITR 321. The relevant finding of the Hon ble Supreme Court is reproduced as under: 9. We are aware of the fact that, strictly speaking, res judicata does not apply to IT proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. One these reasonings, in the absence of any material change justifying the Revenue to take a different view of the matter - and, if there was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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