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TMI Blog2024 (11) TMI 1292X X X X Extracts X X X X X X X X Extracts X X X X ..... the Dispute Resolution Panel ('DRP') on the following grounds, each of which is without prejudice to one another: General Ground On the facts and in the circumstances of the case and in law, the learned AO, based on directions of DRP - 1. Erred in making addition of Management service fees amounting to INR 38,90,57,080/- as against loss claimed by the Appellant in the return of income filed for A.Y. 2020-21. Taxability of Management Service Fees of INR 38, 90, 57,080/- On the facts and in the circumstances of the case and in law, the learned AO / DRP have: 2. erred in not appreciating the fact that the Management Service Fees received by the Appellant constitute pure allocation of cost without any mark-up and hence, the same being reimbursement of cost, is not taxable as Royalty under the Act as well as under the Double Taxation Avoidance Agreement ('DTAA') between India and the Netherlands. 3. erred in treating the management service fees received by the Appellant as "Royalty" under Article 12(4) of India Netherlands DTAA, thereby making an addition of INR 38,90,57,080/- to the income of the Appellant. 4. Erred in not appreciating that for the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have: 12. Erred in computing consequential interest of INR 16, 99,400/- under section 234A of the Act on the income assessed; Consequential levy of interest under section 234B of INR 1, 69, 94,000/- On the facts and in the circumstances of the case and in law, the learned AO/ DRP have: 13. Erred in levying consequential interest of INR 1, 69, 94,000/- under section 234B of the Act on the income assessed; Erroneous levy of surcharge of INR 19, 45,285/- and education cess of INR 16, 34,040/- on tax computed as per rates prescribed under the India-Netherland DTAA On the facts and in the circumstances of the case and in law, the learned AO/ DRP have: 14. erred in computing surcharge of INR 19,45,285/- and education cess of INR 16,34,040/- on the tax computed as per rates prescribed under the India-Netherlands DTAA; Penalty Without prejudice to the above, and on the facts and in the circumstances of the case and in law, the learned AO has: 15. erred in initiating penalty proceeding under section 270A of the Act, which is applicable in cases of Underreporting or misreporting of income, without considering the full and true disclosures made by the Applicant, both, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its books of accounts. For the above services, VODMC has charged Rs. 38, 90, 57,080/- on VOIPL". The assessee's main contention had been that, the services rendered in pursuance of the 'service agreement' are not in the nature of 'FTS' under the DTAA, because there is no "make available" of any technical knowledge, experience, skill, know how or process, etc. That apart, it was stated that VODMC's project office has not played any role in rendering of any of the above services, therefore, same are not attributable to its project office also and thus, on this ground also the same is not taxable in India. The assessee was required to furnish the details and the nature of business management services provided and the basis of allocation of cost of services to the Indian entity and was further required to justify, as to why the same should not be held taxable in India. In response to the same, the assessee filed its detailed reply, the content of which has produced by the Ld. Assessing Officer from his order. The Assessing Officer examined the content of the 'Service Agreement' entered by the VODMC and VOIPL on 1st April, 2004 and noted the following relevant portion:- * "Service to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Pre-bid stage; (ii) Bidding stage; (iii) Project operation/Execution stage; (iv) Post project completion stage. It was further contended that, the cost of rendering the services is accounted by VODMC and is subsequently allocated to various group entities based on the turnover of each entity vis-à-vis the total turnover of Van Oord Group. It was thus stated that the 'services fees' are charged as a percentage of turnover carried out by VOIPL during the year without any mark up. 4. The Ld. Assessing Officer after analyzing the 'Service Agreement' and the submissions of the assessee, observed that, the Indian entity/VIOPL is totally dependent upon the foreign enterprise for its experience in industrial, commercial and scientific field. In fact, starting from the pre-bid stage the assessee company is providing full support services till the post project completion stage. The Indian company is engaged in a highly technical business of dredging activities for which it is completely dependent on the parent company i.e. the assessee company from pre-bid stage till the post-project completion stage. The assessee company is a world leader in this business of dredging an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee are without any mark-up and represents pure allocation of cost, the same have not been considered as taxable by the assessee. 10. However, the ld. AO in its draft assessment order dated 27/12/2019 has considered the said payments to be for the use of Information concerning industrial, commercial or scientific experience in India and has accordingly, held the same to be taxable as Royalty in India. The ld. AO held that the said issue is recurring in nature and on verification of the documents provided in the earlier years, it was held that the same evidence the fact that assessee was doing nothing but sharing of experience of Industrial, Commercial and scientific in nature. The ld. DRP following its own direction in case of the assessee for earlier years, approved the draft assessment order passed by the ld. AO vide its directions dated 19/03/2021. The ld. AO in conformity with the directions of the ld. DRP and relying on its decision of the earlier years where the issue is pending adjudication before the Hon'ble High Court for earlier years, passed order dated 28/04/2021 holding that the receipt of MSF fees amounts to Royalty in India. The case of the assessee before us i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are valid/ should remain valid. Similarly, in the estimating and engineering services and other services also, the assessee is mainly providing tender process, helping and preparing (estimates) and bids and plan consisting in local performance and other guarantees to the client of VOIPL etc. For rendering of these services, there is no element of imparting any "know how or there is transfer of any knowledge, skill or experience. Thus, in our opinion, we hold that none of the services provided by the assessee in the term of "service agreement" falls within the scope and ambit of "royalty" as defined in Article 12(4) of the DTAA. 16. Here again, Management services fees charged is an allocation of cost which is without mark-up, hence it has been stated that the same being in nature of reimbursements do not constitute Royalty as per India-Netherlands Double taxation avoidance agreement (DTAA'). We find that the aforementioned decision of the ITAT in assessee's own case for AY 2009-10 has also held that the payments received by the assessee are in nature of reimbursement without any mark-up and thereby, such reimbursements cannot be held to be royalty. In any case, it is an admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee in terms of service agreement falls within the scope of Royalty as defined in Article 12(4) of the India Netherlands DTAA and also that the payments received by the assessee are in the nature of reimbursement without any mark-up and therefore, the same cannot be held to be 'Royalty' and not taxable in India. Further, Management Services if represents the allocation of the actual cost incurred which has been certified by the auditors and the Tribunal has held that Management Services Fee are not taxed in India. Accordingly, this issue is decided in favour of the assessee." 7. In view of above findings of coordinate benches, we respectfully followed the same ratio as laid down (supra) and ground no. 1 raised by the assessee is allowed. 8. In so far as set off of management service fee treated as royalty with current year business loss, brought forward business loss and brought forward unabsorbed depreciation is concerned, since this issue has been decided in favour of the assessee, therefore, it is purely academic in nature and hence, dismissed. 9. Coming to the issue of short grant of tax deducted at source, it has been stated that in the return of income filed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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