TaxTMI 
TaxTMI 
2020 (12) TMI 1157
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....nal, Mumbai for the A.Y 2009-10 in appellant's own case. Taxability of Management service fees of Rs. 21,27,77,100/- 3. erred in not appreciating that the management service fees received by the appellant constitute pure allocation of cost without any make-up and hence, the same being reimbursement of cost, is neither taxable as Royalty nor taxable as Fees for Technical services under the Act as well as under the Double taxation avoidance agreement between India and Netherlands. 4. erred in treating the management service fees received by the appellant as Royalty under Article 12(4) of India - Netherlands DTAA as well as fee for technical services under Article 12(5) of India - Netherlands DTAA, thereby making an addition of Rs. 21,27,77/- to the income of the Appellant. 5. erred in not appreciating that for the services rendered by the Appellant to qualify as royalty, the same should provide know-how to the recipient. 6. erred in not appreciating that the services provided by the appellant are in the nature of business support and administration services and are not in the nature of sharing information concerning industrial, commercial and scientif ic experience. 7. er....
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....India Netherland Treaty and the assessee was granted relief. But the revenue has filed an appeal u/s 260A of the Act for the A.Y.2009-10 and regarding other Asst years still no information is available on record. But the A.O has calculated the total income of Rs. Nil after setting of brought forward loss. Whereas, the management service fees is treated as royalty income and taxed at treaty rate and passed the draft assessment order u/s 144 C(1) r.w.s 143(3) of the Act dated 28.12.2017. 4. Aggrieved by the draft assessment order the assessee has filed objections in Form - 35A with the Hon'ble DRP, DRP considering the grounds of objections and additional grounds raised on the disputed issue with respect to management service fees and set off of management fees treated as a royalty and the brought forward business loss of the earlier years A.Y 2013-14, the DRP has directed the A.O to verify the claim. Whereas, in respect of taxability and treatment of the management service fees as Royalty income, the DRP has upheld the view of the A.O and rejected the grounds of objections and passed the order u/s 144C(5) of the Act on 16.08.2018. Subsequently, A.O has passed the order under 144C(1....
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....scussed above elaborately. The revenue's case is that, the VOIPL is completely dependent on assessee (VODMC) for its experience in industrial, commercial and scientif ic field. The Indian entity is engaged in highly technical business of dredging activities for which it requires the information and experience of the VODMC right from the pre-bidding stage till the post project completion stage. Thus, the payment received by the assessee-f irm for rendering such kind of services falls wi thin the realm and ambit of 'royalty' as defined in para (4) of Article 12 of the DTAA. The relevant def inition of 'royalty' as given in Article 12(4) of India-Netherlands-DTAA reads as under:- "The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of , or the right to use, any copyright of literary, artistic or scientif ic work including cinematograph f ilms, any patent, trade mark design or model, pan secret formula or process, or for information concerning industrial, commercial or scientif ic experience". Here, the main emphasis of the Revenue is on the term "for information concerning industrial, commercial or scientific experience....
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.... concern the supply of that type of information after its development or creation and include specific provisions concerning the confidentiality of that information. In the case of contracts for the provision of services, the supplier undertakes to perform services which may require the u se, by that supplier, of special knowledge, skill and expertise but not the transfer of such special knowledge, skill or expertise to the other party. In most cases involving the supply of know-how, there would generally be very little more which needs to be done by the supplier under the contract other than to supply existing information or reproduce existing material. On the other hand, a contract for the performance of services would, in the majority of cases, involve contractual obligations. For instance, the supplier, depending on the nature of the services to be rendered, may have to incur salaries and wages for employees engaged in researching, designing, testing, drawing and other associated activities or payments to subcontractors for the performance of similar services. Examples of payments which should therefore not be considered to be received as consideration for the provision o....
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....mmercial or scientific experience" and after referring to various commentaries, observed and held as under: "The royalty payment received as consideration for information concerning industrial, commercial, scientific experience alludes to the correct of knowhow. There is an element of imparting of knowhow to the other, so that the other person can use or has right to use such knowhow. In case of industrial, commercial and scientific experience, if services are being rendered simply as an advisory or consultancy, then it cannot be termed as "royalty", because the advisor or consultant is not imparting his skill or experience to other, but rendering his services from his own knowhow and experience. All that he imparts is a conclusion or solution that draws from his own experience. The eminent author Klaus Vogel I his book "Klaus Vogel On Double Tax Convention" has reiterated this view on differenced between royalty and rendering of services The thin line distinction which is to be taken into consideration while rendering the services on account of information concerning industrial, commercial and scientific experience is, whether there is any imparting of knowhow or not. If there....
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....services, the assessee merely conducts internal audits on regular intervals so that proper adherence to such quality standard and procedures are valid/ should remain valid. Similarly, in the estimating an 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 of any "knowhow" or there is transfer of any knowledge, skill or experience. Thus, in our opinion, 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. 6. The Coordinate Bench of Tribunal has dealt with the payment received by the assessee pursuant to the agreement dated 01.04.2004. In the years under consideration also, the assessee received payments pursuant to very same agreement. The Ld. AR submitted that there is no change in facts between both the years. Before us, the revenue could not bring any material in order to compel us not to follow the order passed by the coo....