TMI Blog2020 (7) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... of business support charge is not taxable as fees for technical services/royalty under the Act or the relevant DTAA as the same is purely in the nature of reimbursement of cost. 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. 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 business support services related to procurement and issuance are also reimbursement of cost incurred for the benefit of the group companies and not technical, managerial or consultancy in nature. Similarly, reimbursement of cost towards administrative services cannot be held to be in the nature of technical, managerial and consultancy in nature. Thus we hold that the receipt of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Private Limited. The above conclusion is unreasonable, unsubstantiated and contrary to submission of facts on record. 2. On the facts and in circumstances of the case and in law, the AO erred and DRP further erred in upholding / confirming the action of AO in holding that the Business Support Charges of ₹ 26,25,81,349/- received during the year by the Company are in nature of Royalty/ FTS under the DTAA. 3. On the facts and circumstances of the case and in law, the AO / DRP erred in holding that the entire Business Support Charges of ₹ 26,25,81,349/- are in the nature of Royalty/ FTS by disregarding various submissions filed by the Appellant showing the actual nature of Business Support Charges and its bifurcation along with the respective allocation keys for each cost component being allocated to/ reimbursed by Damco India Private Limited. The DRP further erred in noting that No bifurcation is available in respect of payment towards each of these items..... which is factually incorrect and contrary to submissions on record. 4. On the facts and circumstances of the case and in law, the AO / DRP erred in holding that the Business Support Charges of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that under the IT support services, DIPL was getting access to the group IT network systems as well as related maintenance and support services. As per the AO, the systems to which DIPL was getting access included Logistics Information Systems; Ocean, Air and Supply Management Products ; Outlook as Services ; Maersk Line IT ; INTTRA FACT etc. Thus the AO observed that the payment received by the appellant was towards IT Network Systems (Software) as well as related maintenance and support services. As the support services were ancillary and subsidiary to providing access to IT Network Systems of the group, the AO by following the order of the Dispute Resolution Panel-1, Mumbai ( DRP ) held the amount of ₹ 26,25,81,349/- received by the appellant as fees for technical services and royalty under the IT Act as well as under Article 13 of the India Denmark DTAA. The AO also followed the order of the DRP and held that (i) the appellant had no direct business interest in India and all Indian business is to be looked after by DIPL, (ii) as per sub-clause (a) of clause 4.1 of the Management Service Agreement between the appellant and DIPL, it is the responsibility of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us it is explained that the total receipt of ₹ 26,25,81,349/- could not be termed as managerial/technical/consultancy services. Reliance is placed on the decision by the Hon ble Supreme Court in the case of DIT v. A.P. Moller Maersk AS (2017) 392 ITR 186 (SC). Also it is explained that reimbursement of cost of a similar nature, related to FACT, is also specifically covered in the above case. Stating that the services provided by the appellant are basically in the nature of administrative/procurement of products/coordinating services and not managerial, technical or consultancy in nature, the Ld. counsel relies on the decision in the case of TUV Bayren (India) Ltd. v. DCIT (2012) 23 taxmann.com 127 (Mum). Further stating that the services are provided to other group entities as well and the pooling of cost is for benefit of all and Privity of Contract is therefore absent in this case, which is otherwise required in any contract for managerial/technical/consultancy services, the Ld. counsel relies on the decision the Hon ble Supreme Court in CIT v. Kotak Securities Ltd . (2016) 383 ITR 1 (SC). Regarding procurement cost of BPO services, the Ld. counsel explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement which reads as under : 1. Develop and communicate the global strategy, global business plans per product and targets aligned with the overall Damco strategic objectives. 2. Provide and arrange access to Information technology systems and related maintenance and support services, on the terms and as set out in clause 5.1(a). 3. Arrange certain liability insurance for the company, on the terms and as set out in clause 5.1(b), unless otherwise agreed from time to time. Referring to above clause, it is stated by him that under the IT support services, DIPL is getting access to the group IT network Systems (Software) as well as related maintenance and support services. Elaborating further, it is stated by him that the Systems to which DIPL is getting access include Logistics Information System; Ocean, Air and Supply Chain Management Products; Outlook as Services; Maersk Line IT ; INTTRA FACT etc. Thus the Ld. DR submits that the payment received by the appellant is towards IT Network Systems (Software) as well as related maintenance and support services and no bifurcation is available in respect of payment towards each of these items and a composite bill is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces Centre and is in the nature of low end BPO and hence cannot come in the field of managerial, technical and consultancy. Similarly, the business support services related to procurement and issuance are also reimbursement of cost incurred for the benefit of the group companies and not technical, managerial or consultancy in nature. Similarly, reimbursement of cost towards administrative services cannot be held to be in the nature of technical, managerial and consultancy in nature. Having said so, we shall now proceed to delve into the legal aspects below. In the case of A.P. Moller Maersk AS (supra), the assessee was a foreign company engaged in the shipping business and was a tax resident of Denmark. It had agents in India working for it, those agents booked cargo and acted as clearing agents for the assessee. In order to help all its agents, across the globe, the assessee had set up and was maintaining a global telecommunication facility called Maersk Net System which was a vertically integrated communication system. The agents were paying for said system on pro rata basis. According to the assessee, it was merely a system of cost sharing and the payments received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 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 and spares required for setting up of a plant. These purchases were charged from the Indian concern at cost plus 4% charges as mentioned in the agreement. The assessee claimed that said receipt was industrial and commercial profit within the meaning of DTAA between West Germany and India and the same was not taxable under DTAA. The AO treated the receipt of 4% procurement fee as royalty stating that procurement requires industrial and scientific experience and the assessee was imparting information concerning industrial and scientific experience by assisting the Indian concern and procuring these materials. He, therefore, assessed it as royalty by invoking section 9(1)(vii). On appeal, the CIT(A) held that the said receipt was fees for technical services to the extent of 50% being related to inspection etc. and 50% as industrial and commercial profit. On further appeal, the ITAT held that : The assessee was remunerated for its efforts and time spent in making these simple purchases on behalf of the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il 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 consulting, functional advice, administrative, technical, professional and other support services since foreign company had not made available any technical knowledge, experience, skill, know-how, or process which enable the assessee to apply technology contained therein on its own, payment made by assessee could not be considered as fees for technical services as defined under Article 12(4)(b) of India-Singapore DTAA . In Yash Raj Films (P.) Ltd. (supra), the Tribunal has held that services provided by overseas entity in connection with making logistic arrangement for shooting of different films of assessee outside India were in nature of commercial services and amount received for such services constituted business profit of service provider which could not be taxed in India in absence any PE in India of said service providers . In view of the factual scenario and position of law narrated hereinabove, we hold that the receipt of business support charge of ₹ 26,25,81,349/- is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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