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TMI Blog2020 (7) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... the Business Support Charges of Rs. 26,25,81,349/- received during the year by the Appellant are in the nature of Royalty/ Fees for Technical Services under the Act. 1.1 The AO / DRP failed to appreciate that what has been recovered from DIPL is the general maintenance and running cost of various global systems which does not amount to the definition of Royalty as prescribed under Explanation 2 to Section 9(1)(vi) of the Act. 1.2 The AO/ DRP failed to appreciate that the Appellant is a central coordinator for various support services to all Damco entities across the globe and does not render any technical, managerial or consultancy services to Damco India Private Limited ('DIPL') as mentioned in the definition of Fees for Technical services under Explanation 2 to Section 9(1)(vii) of the Act. 1.3 The AO / DRP erred in taking reference to the visit in India of Appellant's personnel without appreciating that such visit has no link to the recovery of business support charges. 1.4 The AO / DRP erred in concluding on the basis of various erroneous surmises that the personnel of the Appellant visiting India rendered managerial and technical services to Damco India Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PL') was formed having full fledged board for earning its business. During the year under consideration, the appellant received reimbursement of cost towards business support charges of Rs. 26,25,81,349/- which was claimed as not liable to tax due to absence of a Permanent Establishment (PE) in India. The appellant had incurred certain costs towards procurement of insurance, accounting software, travel, fixed assets (computer servers) etc. at group level which were subsequently recovered from various group entities. The above breakup of costs were categorized into the following : i. Costs related to running and maintaining Maersk Line IT, Operational IT & FACT ii. Procurement of various products (fixed assets etc.) and services (travel, insurance etc.) iii. BPO processing iv. Administrative cost However, the AO arrived at a finding from examination of the 'Management & Service Agreement' entered into by the appellant with DIPL that the services provided by the appellant were in the nature of technical services. Accordingly, the AO brought to tax the same as royalty and fees for technical services. The reasons given by the AO are that under the IT support services, DIPL w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ravel, fixed assets (computer servers) etc. at group level which were subsequently recovered from various group entities including DIPL without any mark-up, (vi) the BPO processing are low end services outsourced by the appellant and done through Maersk Global Service Centre India (P.) Ltd. ('Maersk GSC') in India which included processing of bill of lading, customs documents etc., (vii) the administrative costs are basically salary cost of administrative employees of the appellant who are coordinating for procurement of various products and services. Thus the Ld. counsel submits that the abovementioned services/procurement rendered by the appellant are in the nature of coordinating services, whereby various costs incurred are pooled together and charged/recovered as reimbursement of costs on the basis of various allocation keys like number of Headcount/Headcount usage/Number of users/Country operational cost/Country revenue etc. which is uniformly applied across the group. It is stated that the Independent Auditor's Report shows the various allocation fees for each category of costs reimbursed to the appellant. Thus it is explained that the total receipt of Rs. 26,25,81,349/- co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p, the Ld. counsel draws our attention to the certificate obtained from an Independent Auditor. Relying on the decision in A.P. Moller Maersk AS (supra), it is explained that in the above judgment, which is in the case of appellant's group company, similar case of reimbursement of cost related to IT systems was dealt, whereby prior to 2009 i.e. before the separation of logistic business, costs in relation to procurement were reimbursed to A.P. Moller Maersk and on these similar facts, the Hon'ble Supreme Court held that reimbursement of cost cannot be taxable in India being devoid of any profit element/income. Thus stating that all receipts in relation to business support charges being in the nature of reimbursement of cost, devoid of any income element/profit embedded into it, the Ld. counsel concludes that the receipt of business support charge of Rs. 26,25,81,349/- ought not to be taxable as fees for technical services/royalty under the Act or relevant DTAA. 5. On the other hand, the Ld. Departmental Representative (DR) refers to clause 4.1 of the "Management & Service Agreement' which reads as under : 1. Develop and communicate the global strategy, global business plans per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntities across the globe. The appellant enters into 'MSA' with Damco operating entities and therefore, recovers the cost of procurement/provision from these entities. We find that all these costs are only reimbursed to the appellant and there is no mark-up. The costs comprise of (i) costs related to running and maintaining Maersk Line IT, Operational IT and FACT, (ii) procurement of various products (fixed assets etc.) and services (travel, insurance etc.), (iii) BPO processing and (iv) administrative cost. We find that the abovementioned services/procurement rendered by the appellant are in the nature of coordinating services whereby various costs incurred are pooled together and charged/recovered as reimbursement costs on the basis of various allocation keys like number of Headcount/Headcount usages/Number of users/Country operational cost/Country revenue etc., which is uniformly applied across the group. We also observe that reimbursement of cost related to Global Service Centre is in effect provided to the group by Maersk Global Services Centre and is in the nature of low end BPO and hence cannot come in the field of managerial, technical and consultancy. Similarly, the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification would not come within the realm of fees for technical services u/s 9(1)(vii) and under Article 12(4) of Indo- German DTAA". In Kotak Securities Ltd. (supra), the Hon'ble Supreme Court explained that : "Technical services' like 'Managerial and Consultancy service' would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would, therefore, stand out in distinction to the former." In the case of Maersk Global Service Centres (India) Pvt. Ltd. (supra), the Special Bench of the Tribunal has held the nature of services/activities performed by Maersk GSC to be in the nature of low-end BPO. In the case of Linde AG (supra), in Indian concern entered into an agreement with the assessee, a West German company, for establishing a new fertilizer project in India. Under the said agreement, the assessee purchased bulk material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly supported by vouchers and certified by the Certified Public Accountant of USA as well as CA of India, certifying the said expenses were in fact reimbursement. Further CII had no business activity or PE in India. The Hon'ble High Court held that provision of section 9(1)(vi)/(vii) would not have any implication as amount paid was neither royalty nor fees for technical services but simple reimbursement of expenses. In Ernst & Young (P.) Ltd. (supra), the assessee-company was a member of an international organization. Two foreign group concerns developed and provided administrative and management support services in connection with technology updates, system and methodology and upgrades, training through webs etc. The assessee reimbursed its share of cost for services utilized in its business. The Tribunal held that assessee was not liable to deduct TDS u/s 195 on amount paid to foreign group concerns towards reimbursement of cost of administrative and management support services. In Exxon Mobil Company India (P.) Ltd. (supra), the Tribunal held that "where assessee paid certain amount to a Singapore based company for providing global support services which included management c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad of Covid-19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial work all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon'ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that "In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown". Hon'ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, "It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for whi ..... 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