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TMI Blog2018 (7) TMI 2031X X X X Extracts X X X X X X X X Extracts X X X X ..... ense agreement with Spencer Stuart (India) Pvt. Ltd. (SSIPL) under section 201(1) and 201(1A) of the Act, read with section 195 of the Act. For this Revenue has raised the identical grounds in all the three appeals and the grounds raised in ITA No. 217/Mum/2017 for AY 2014-15 reads as under:- "1. Whether on the facts and circumstances of the case and in law, the 1d. CIT(A) erred in holding that there was no tax withholding obligation on the assessee as the search fee paid was not in the nature of F1'S within the meaning of Article 12(5)(a) of the DTAA with Netherlands. The CIT(A) failed to appreciate that the search services rendered by the assessee to its client was based on utilization of the database received by the assessee under the separate License Agreement with SSIBV and hence they were ancillary and subsidiary to enjoyment of right, property under the licence agreements? 2. Whether on the basis of the facts and circumstances the case and in law, the Ld. CIT(A) while holding that the search fee paid was not in the nature of FF5 within the meaning of Article 12(5)(a) of the DTAA with Netherlands, erred in relying upon the para 3 of the APA to conclude that the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cense agreement. He has also concluded that the person performing the services is the same person receiving the license fee which is admitted to be in the nature of royalty. He has concluded that the service fee, being related to the license agreement, constitutes payment for a service which is related to application or enjoyment of the right, property or information. He has concluded that it is only on account of the obligation cast upon SS India under the License Agreement that it is bound to execute all crosscountry search assignments through SSIBV and it is only on account of such assignments that SSIBV earns the search fees. The facts on record and the discussion hereinabove clearly show that search fee by assessee to SSIBV is ancillary and subsidiary to royalty i.e. license fees. It is not relevant whether the search fee received by the non-resident company i.e. SSIBV is higher than the license fees. In reality, both the license fee and search fee earned by the non-resident company i.e. SSIBV under the license Agreement (the Service Agreement merely being a confirmation and elaboration of the License Agreement) are in the nature of "royalty" which is taxable in India as per p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts- i. In cases where the order originates from the appellant and revenue is received by the assessee but the work pertains to another jurisdiction where the entire execution is carried out. This happens, for instance, in cases where an Indian company wants to appoints an employee in its overseas office. The work is given to the Indian party but the execution is carried out by a group member in that jurisdiction. ii. In cases where the candidates belong to multiple jurisdiction and hence, for the purpose of verification or collection of details, consultants in multiple jurisdiction are utilised. 7.2 It is seen that in the first instance, the entire execution is carried out by associates in coordination with the assessee and the final result is communicated to the client. In the second case, the associates carry out the work assigned to them and share the final details with the assessee company so as to enable the assessee to take a call on the selection. 7.3 It is seen that the License Agreement between the assessee and SSIBV dated 1. 1.2006 relates to access to the database maintained by SSIBV and a host of other rights including right to use the brand name and trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These may include services relating to selection of a candidate in another territory, conducting search in another territory with reference to a candidate being finalised by the assessee, seeking information for a consultant in another territory with reference to candidates handled by the assessee and so on. These services are in no way connected with the assets or rights for which royalty payment is being made by the assessee company. Hence, in my view, the services do not represent services which would fall within the provisions of Article 12(5)(a) of the DTAA. 7.7 As regards the other limb of Article 12(5) is concerned, the AO has not made out a case that services have resulted in making available of technical knowledge, experience, skill, know-how or processes and hence, these services cannot be held to be falling under this clause. 7.8 There is another reason for not subjecting these amounts to tax. It is seen that the assessee has also received amounts from other group members on account of rendering such services. The assessee has entered into an APA with the Indian Government with respect to these two payments. The payment under the present period is covered by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed that the search fee was in the nature of business income and was not taxable in India in the absence of a PE in India. that it also claimed that the search fee was not taxable as FTS in view of Article 12(5) of the DTAA,that the AO in his draft assessment order proposed to tax the search fees under Article 12(5)(a) of the DTAA,that the DRP upheld the draft assessment order. In our opinion,license fees and search fees are governed by separate and distinct agreements entered into by the assessee and SSIPL and they would constitute different sources of its income for the year under consideration.In other words,receipt of search fee by the assessee was independent of earning the license fee.As per the SA search fees was to be determined on the basis of relative contribution of each party,which menas in a given situation, SSIPL could also receive search fees from the assessee.But,same was not true for licence fee.The assessee had not to pay anything to SSIPL as licnece fee.ESF were independent services and were not provided for the purpose of enjoyment/application of right,property etc. governed by the LA. Services, ancillary and subsidiary to the use of license / trademark/so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cense fee were distinct from each other and that the search fee received under the SA was independent of the LA and was not taxable in India as FTS under Article 12(5)(a)of the DTAA.It is a fact that in earlier years the AO himself had held that fees under the both the agreements were separate and that only licence fees was taxable. So,we have no hesitation in holding that the search fee could not be treated to be ancillary and subsidiary to LA,that the same did not in any way aid, promote or supplement the application or enjoyment of the right, property, or information, that the search fee received under the SA was independent of the LA and was not taxable in India. First effective ground of appeal is decided in favour of the assessee." 6. In view of the above, the learned Counsel for the assessee stated that the issue is fully and squarely covered in favour of assessee, similar is the position in other years also. On the other hand, the learned Sr. Departmental Representative heavily relied on the order of the Assessing Officer. 7. We have gone through the facts and circumstances. We have also gone through the tribunals order in the case of Spencer Stuart International ..... X X X X Extracts X X X X X X X X Extracts X X X X
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