TaxTMI 
TaxTMI 
2018 (1) TMI 983
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.... 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 Rs. 60,85,841 to the returned income by treating the actual reimbursements received under the Cost Sharing Agreement ('the Agreement) on account of shared Corporate IT related services from its Indian group entity - Cargill India Private Limited ('CIPL') as Royalty under Article 12 of the Double Taxation Avoidance Agreement between India and USA ('the treaty'). 2.1 That the learned AO and Hon'ble DRP have erred on facts and circumstances of the case and in law in trea....
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..../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 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 Rs. 52,82,359 to the returned income by treating the actual reimbursements received under the Cost Sharing Agreement ('the Agreement) on account of shared Corporate IT related services from its Indian group entity - Cargill India Private Limited ('CIPL') as Royalty under Article 12 of the Double Taxation Avoidance Agreement between India and USA ('the treaty'). 2.1 That the le....
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.... 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 opinion without any change in the material facts and circumstances on record giving rise to any valid reasons to believe that any income has escaped assessment. Accordingly, initiation of the re-assessment proceedings for the subject year is bad in law. 2. That the Learned AO and Hon'ble DRP has erred in facts and in law in making addition amounting to Rs. 57,42,882 to the returned income by treating the actual reimbursements received under the Cost Sharing Agreement on account of shared Corporate IT related services from Indian group entity as Royalty / Fees for Included services under Article 12 of the Double Taxation Avoidance Agreement between India and USA ('the treaty'). 2.1 That the learned AO ....
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.... New Delhi [hereinafter referred as Ld CIT(A)] has erred in facts and in law in making addition amounting to Rs. 9,849,797 to the returned income of Rs. 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 the Double Taxation Avoidance Agreement between India and USA ('the treaty'). The order passed by the Ld AO and CIT(A) was based on conjectures and surmises, thus, bad in law. 1.1 That theLd AO and CIT(A) has erred onfacts and 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 Rs. 95,16,056....
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....ompany (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 mentioned herein above at or before the time of hearing. 2.6 Grounds of appeal raised in ITA No.5503/Del/2010 for assessment year 2007-08: 1. That the learned Assistant Director of Income Tax, Circle 1(1), International Taxation, New Delhi (hereinafter referred to as 'Learned AO")/Hon'ble Dispute Resolution Panel ("DRP") has erred in facts and in law in making addition amounting to Rs. 19,294,953 to the returned income by treating the actual reimbursement charges on account of shared IT related services from Indian group entities as Royalty/Fee for Included Services under Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and USA. 1.1 That the learned AO/Hon'ble DRP has erred on facts and circumstances of the case and in law in treating the cost reimbursements received from its Indian group entities on actual basis as income chargeable to tax under the pr....
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....idance 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 the cost reimbursements received from the Indian group entities 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, the learned AO and the Hon'ble DRP has erred in facts and in law in holding that the payment received by the appellant from the Indian group entities are not for services and thus provisions of Article 12(4)(b) of the Treaty are not applicable in the present case. 1.2 That the learned AO and Hon'ble DRP has erred in facts and in law in holding that the cost reimbursements are charges for allowing the use of commercial and industrial information, use of secret processes and use of equipment/ system containing hard equipments and soft equipments (software) based on the assessment order for AY 2007-08 and has further erred in law in not applying the ruling of Hon'ble Delhi High Court in case of Asia Satellite (2011) (ITA 131, 134 of 2003). 2 That without prejudice to above, the learned AO/Hon'ble DRP have ....
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....05. The Assessing Officer also made additions in subsequent assessment years from 2006-07 to 2008-09 following his finding on the issue in assessment year 2005-06. 3.1 The assessee challenged or objected the addition made on merit in all the assessment years involved as well as the reassessment proceeding in assessment year 2002-03 to 2004-05 before either the Ld. Commissioner of Income-tax (Appeals) or the Ld. DRP. 4. The Grounds in raised in different appeals related to the issue of holding reimbursement of charges as royalty/FIS on merit, are summarized as under: ITA No. Assessment year Ground Nos. 491/Del/2012 2002-03 2,2.1,2.2,3 492/Del/2012 2003-04 2,2.1.2.2,3 5647/Del/2011 2004-05 2,2.1,2.2,3 446/Del/2012 2005-06 1,1.1,1.2,1.3 447/Del/2012 2006-07 1,1.1,1.2,1.3 5503/Del/2010 2007-08 1,1.1,1.2,1.3,1.4 5648/Del/2011 2008-09 1,1.1,1.2,2 5. Before us, the Ld. counsel of the assessee in respect of the above ground submitted that issue in dispute has been allowed by the Ld. CIT- (A) in subsequent assessment years from 2009-10 to 2014-15 and the Revenue has not filed any appeal against the said finding of the Ld. CIT- (A) in those years. T....
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....ii) A certificate from the management to the effect that corporate IT charges are mere reimbursement of costs without any mark up and summary of corporate IT charges received from various Indian group companies. In view of this, it was submitted that as no secret information was passed on to the Indian subsidiaries and the appellant provided for only arranging the corporate IT services, the payment received by it for such services was not for the right to use of equipment (hardware or software). Accordingly, it was pleaded that on the same grounds, such payment cannot be held as royalty in the hands of the appellant company. Without prejudice, the appellant pleaded that even if, such payment is treated as FIS, in view of the fact that in terms of Article 12 of the Indo- US treaty read with its MOU, it cannot be held as a taxable FIS, since there was no 'make available' of technoiogy by such payment. In view of this, it was submitted that the action of the AO of treating such payments as royaity was without any reasonable basis, it was also submitted that as such payments were merely reimbursement of the proportionate costs attributed to the appellant for the use of corpor....
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....stration and support, NT server backup and recovery, shared applications and databases, and NT web hosting (xx) File and Print services (xxi) Directory services (xxii) Corporate software devices (Novell MLA) (xxiii) Operations Planning and Management Center of Expertise, including consulting services, cost/profitability analysis, planning/scheduling optimization, production, inventory and warehouse management. (xxiv) Publication services (xxv) Remote access (xxvi) Strategic IT planning services (xxvii) Unix technical service, including system administration, backup environment, MCservice guard, database hosting service (xxviii) Video conference service (xxix) Telephone toll voice communication system (xxx) Virtual private network (xxxi) Remote Lan management and integration, including support of trunks, switch ports, shared ports, wireless bridges, support enhanced services, special projects, consulting, and expediting. (xxxii) Systems Management Environment (SME) Technical Services, including Norton Anti-virus installation and monitoring (xxxiii) Electronic Data Interchange (EDI) service." In terms of para 2.4 of the said agreement, it is seen that &#....
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....l cost. 6.3 It is further evident that 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. The Id. AO could not bring out any adverse evidence on record that may suggest that the appellant had passed on any commercial or industrial information or secret processes to the Indian group companies that may be treated as royalty. Further, it is also seen that t....
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.... In view of this, the appellant gets relief on grounds no. 2 to 5." 7. In subsequent assessment years from 2010-11 to 2014-15, the Ld. CIT-(A) has followed his finding in assessment year 2009-10 and allowed the appeal in favour of the assessee. The finding of the learned CIT-(A) in assessment year 2010-11 is extracted as under: "7.3 I respectfully concur with the findings of my predecessor. Keeping in view the above, in my considered view, the action of AO of treating such payment as royalty in nature is held as misplaced. Further, such payment cannot be treated as fee for included services as well in the absence of "make available" provision of such process/technology. The said payments were in the nature of reimbursement of actual direct and indirect costs recovered by the appellant company from its group companies without any element of profit in it. In view of the above, and following the settled law in the light of various judicial pronouncements cited by the appellant in its submissions, namely, the decision of Delhi High Court in the case of CIT vs Industrial Engineering Projects Pvt. Ltd. 202 ITR 1014 (Del.) and of ITAT Delhi in the case of ACIT vs Modicon Network (P) Ltd....