TaxTMI 
TaxTMI 
2018 (6) TMI 359
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....Rule 29 of the ITAT, Rules, 1963. It has been stated in the application that the issue for consideration for the year under appeal related to taxability of Executive Search Services fees received by the assessee from Spencer Stuart India Limited(SSIPL)under the head Fees for Technical Services(FTS), that SSIPL had entered into an APA with the on 30/08/2016, that the international transaction of receipt/payment of executive service fee and payment of licence fee between SSIPL and its AE would be governed as per the APA, that the document was very important to adjudicate the issue, that same did not require fresh investigation of the facts. During the course of hearing before us, the authorised representative(AR)reiterated the arguments that are part of the application. The departmental representative(DR)left the issue to the discretion of the bench. We have gone through the APA, submitted by the assessee. In our opinion the APA along with its annextures is crucial to decide the issue. Therefore, we admit the same. 3. First effective ground of appeal(Gs. OA2-2. 2)is about Executive Search Fees (ESF), amount -ing to Rs. 5. 39 crores. During the assessment proceedings, the AO found t....
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....confirmation of the referral fees on search assignments which had been mandate -ed in the license agreement, that the amount of fees payable on account of search assign - ments had been provided in the LA itself, that the mutually agreed costs for certain services provided in Article (2) (a) (iv) of the SA was a confirmation of the costs for the same services enshrined in Article 3(bb) (iii) of the LA, that the terms and conditions in the SA relating to education of search assignment and payment of such fees to the assessee was part and parcel of the LA, that the same were ancillary and subsidiary to the application or enjoyment of the right/property/information for which royalty was received by the assessee, that the arrange - ments under the LA and SA were not separate arrangements as claimed by the assessee, that the SA merely confirmed and elaborated what was provided in the LA, that the SA flowed out of the LA that the Indian company had no liberty with regard making payment of licence fee in form of royalty to the assessee, that the LA and the SA were nothing but a set of related contracts that the person performing the services was the same person receiving the licence fee w....
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.... search, that receipt of search fee by the assessee was independent of license fees, that the assessee could continue to earn search fees, even in the absence of license fees, that the services which were ancillary and subsidiary to the use of license/trademark/software were provided for in the LA and had no correlation with the SA, that the inclusion of the sharing clause in the LA merely reinforced the nature of services being rendered and modality adopted for sharing such revenue, that in no way it would change the character of the services, . He referred to Advance Pricing Agreement(APA) entered between SSIPL and the Government of India. He referred to recitals of service agreement and contended that it was principle to principle basis, that it had no relation with licence agreement. He made a reference to pages 240 and 241 of the paper book and Article 12(4)of India Netherland tax treaty. He stated that one agreement was about granting licence and the other talked of head hunting and technology transfer, that the DRP had wrongly mixed the two agreements, that the assessee would receive service fee based on royalty, that arrangement was other way round and that the same was not....
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....te 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/software are provided for in the LA and same had no correlation with the SA. It is safe to say that the DRP had wrongly held that SA was originating from LA. Core business of the group was to identify, to evaluate and to recruit of senior personnel for a fee. If is found that to carry out the search function, SSIPL would employ consultants, who were supported by researchers, knowledge managers and support staff. As per the Memorandum of Assoc....
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....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. 4. Next ground of appeal is about treating a sum of Rs. 70. 36 lakhs reimbursed to the assessee by the Indian entity for expenses incurred on its behalf at cost as taxable. It was found that the assessee had claimed to have received reimbursement of expenses of Rs. 70, 36, 915/-from SSIPL under the heads marketing services(Rs. 15. 02 lakhs), insurance coverage(Rs. 26. 27 lakhs), software license expenses(Rs. 5. 95 lakhs), fixed assets purchased (Rs. 16. 58 lakhs)IT support services(Rs. 6. 2 lakhs), postseason delivery charges and miscellaneous expenses (Rs. 28, 506/-). It was claimed that the amounts received by it were purely in the nature of reimbursement of expenses and could not be treated as income. However, the AO after receiving the directions of the DRP held that search fees were to be treated as fees for technical services under Article I2(5)(a....
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....fered to tax as royalties. , that a confirmation letter dated 6/3/2014 submitted to the AO by SSIPL pertaining to purchase of fixed assets amounting to Rs. 16, 58, 018 is part of the PB. In our opinion, reimbursement of expenses would not constitute FTS as per Article 12 of the tax treaty. Here, we would also like to refer to the judgment of AP Mollar(supra). Facts of that case were that the assessee was a foreign company engaged in shipping business and was a tax resident of Denmark, that it had agents working for it, who booked cargo and acted as clearing agents for the assessee, that in order to help all its agents across the globe, the assessee had set up and maintained a global telecommunication facility called Maersk net system which was a vertically integrated communication system. The agents would pay for the system on pro rata basis. According to the assessee, it was merely a system of cost sharing and the payments received by the assessee from its agents in India were in the nature of reimbursement of expenses. The AO, however, did not accept this contention and held that the amounts paid by these three agents to the assessee were FTS rendered by the assessee and held th....