TaxTMI 
TaxTMI 
2022 (9) TMI 1403
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....owing grounds in its appeal: - "The appellant objects to the order dated 16 March 2021 (received on 17 March 2021) passed under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [Act] by the Assistant Commissioner of Income-tax, (International Taxation) - 4(2)(2), Mumbai [Assessing Officer] on the basis of the directions of the Dispute Resolution Panel [DRP] for the aforesaid assessment year on the following among other grounds: A. Taxability of Search Fees 1. That on the facts and circumstances of the case the impugned assessment completed vide order dated 16.03.2021 passed under section 143(3) read with section 144C of the Act, is illegal and bad in law. 2. That on the facts and circumstances of the case, the impugned assessment having been completed on the basis of directions issued by the DRP under section 144C(5) of the Act, without judiciously and independently considering the factual and legal objections to the draft assessment order, is illegal and bad in law. 3. The learned DRP/Assessing Officer erred in holding that a sum of Rs.6,29,16,235 received by the appellant from Spencer Stuart India Private Limited [SS India] t....
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....ed Assessing Officer erred in making the following observation at page 13 of the final assessment order which are without any basis and contrary to the facts of the case and the appellant objects to the same. "Hence, the search fees is nothing but an ancillary and to the application or enjoyment of the right, property or information for which a payment described in paragraph 4 of this Article is received" B. Reimbursement of Expenses 10. The learned DRP/ Assessing Officer erred in treating a sum of Rs.69,22,763 reimbursed to the appellant by SS India for expenses incurred on its behalf at cost (without any mark-up) as taxable as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 as well as under Articles 12(5)(a) and 12(5)(b) of the India Netherlands tax treaty. 11. The learned DRP/Assessing Officer erred in stating that the appellant has not proved that there is no profit element without appreciating that the appellant had provided all the supporting third-party invoices at the time of assessment proceedings and DRP proceedings. 12. In spite of the learned DRP accepting that the material facts and circumstan....
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....f the India-Netherelands DTAA, that it had also entered into a SA whereby, both SSIPL and the assessee agreed to provide, on a principal to principal basis, support and services to each other in relation to executive search assignments (Pg.123A-123F of the PB), that the assessee, also received Rs.5.39 crores towards ESF provided by the it to the Indian AE, as per the SA, that it claimed that the search fee was in the nature of business income and was not taxable in India in the absence of a PE in India. that it also claimed that the search fee was not taxable as FTS in view of Article 12(5) of the DTAA, that the AO in his draft assessment order proposed to tax the search fees under Article 12(5)(a) of the DTAA, that the DRP upheld the draft assessment order. In our opinion, license fees and search fees are governed by separate 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,....
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....tional transaction of License fee and ESF. As per paragraph 5 & 6 of the APA, the Most Appropriate Transfer Pricing Methods for the covered transactions shall be Profit Spirt Method (PSM) for payment and receipt in relation to Cross border executive search transact-tion and Comparable Uncontrolled Price (CUP) method for Payment of License fees transact-tion. Considering the above, we are of the opinion that the search fee and license fee were distinct from each other and that the search fee received under the SA was independent of the LA and was not taxable in India as FTS under Article 12(5)(a)of the DTAA. It is a fact that in earlier years the AO himself had held that fees under the both the agreements were separate and that only licence fees was taxable. So, we have no hesitation in holding that the search fee could not be treated to 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." ....
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....ee have been held to be not taxable in India. It is pointed out that in Assessment Years 2010-11, 2012-13 and 2013-14, no scrutiny assessments were carried out and for Assessment Year 2011-12, the stand of the assessee has already been upheld by the Tribunal vide order dated 01.06.2018 (supra). 10. The aforesaid background shows that in Assessment Year 2008-09 as well as in Assessment Year 2009-10, the assessing authority itself accepted the stand of the assessee that the Executive search fee was not taxable in India. Factually speaking, the aforesaid stand of the Assessing Officer is manifested in the scrutiny assessments finalised under Section 143(3) of the Act continues to hold the field. Thus, in this background it was all the more incumbent upon the Revenue in this year to discharge its onus as to why a different stand is being adopted, especially considering the fact that the nature and the sources of income in question remains the same. Therefore, on this aspect also, we are not inclined to uphold the stand of the assessing authority. 11. At this stage, we may also briefly touch upon the APA dated 30.08.2016 (supra) with the Indian subsidlary, l.e. SS Indi....
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.... assessment order under Section 143(3) dated 30.12.2017 in the case of SS India for Assessment Year 2014-15. The aforesaid orders give effect to the APA dated 30.08.2016 and it, inter-alia, reflects that the stated value of the payment of Executive search fee to the assessee before us has been found to be at an arm's length price. Similar is the situation for Assessment Year 2015-16. 12. At this stage, we may specifically take-up the stand of the Revenue that the Executive search fee is to be characterised as 'Royalty' in terms of clause (iv) of Explanation-2 to Sec. 9(1)(vi) of the Act r.w. Article 12(4) of the India-Netherlands Tax Treaty. As noted by us earlier, the aforesaid is a 'without prejudice' stand by the Assessing Officer whereby it is asserted that the said fee is earned by the assessee "for using the Spencer Stuart's Worldwide Client List Database, Spencer Stuart's Mailing List Database, Spencer Stuart's Knowledge Management Resources Pages, Spencer Stuart's Board of Director's Database and other data base as per schedule B to the highlighting the aforesaid features of the APA to point out that there is a complete dicho....
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....fied and held to be a separate and distinct transaction as compared to the licence fee, which flows from the Licence Agreement. Ostensibly, if the present stand of the Assessing Officer, which in any case was not preferred in the earlier year of 2011-12, is to prevail, then it would jeopardise the entire APA. We concur with the assertion of the learned representative for the assessee that such a situation would render the APA redundant, a situation which deserves to be avoided. 13. Apart from the aforesaid, if the stand of the Assessing Officer that the Executive search fee is to be taken as 'Royalty' is accepted, it would open up another anomalous situation, as our subsequent discussion would show. The functional analysis of the Executive search transactions, which have been detailed in the APA, clearly bring out that it encompasses a whole range of services for performing the Executive search and can by no stretch of imagination be characterised as 'Royalty'. Apart therefrom, we find that there is no reasoning made out by the Assessing Officer as to why the Executive search services activity is in the nature of 'Royalty'. Pertinently, it is stated....
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....lowed, as above. 7. Respectfully following the above decision and following the rule of "principle of consistency", the view taken by the Tribunal in A.Y. 2014-15 & 2015-16 is respectfully followed, ground raised by the assessee is accordingly allowed. 8. Coming to Ground No. 2 which is in respect of taxability of reimbursement of expenses, Ld. AR of the assessee submitted that the issue in appeal has been squarely covered in assessee's own case in ITA.No. 6666/Mum/2017 dated 01.04.2019. Copy of the order is placed on record. Ld. AR brought to our notice Para No. 16 and 17 of the above order and submitted that the issue in appeal has been considered by the Coordinate Bench of this Tribunal and decided the issue in favour of the assesse and against the department. 9. On the other hand, Ld. DR has fairly accepted the submissions of the Ld.AR. 10. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee by the common order dated 01.04.2019 for the immediately preceding Assessment Years i.e., A.Y.2014-15 and 2015-16. While deciding the issue, the Coordinate Bench of the Tribunal in ITA.No.....
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....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 them taxable in India under Article 13(4) of the Double Taxation Avoidance Agreement (DTAA) between India and Denmark and brought them to tax at 20% u/s.115A of the Act. FAA dismissed the assessee's appeal, but the Tribunal allowed its further....