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2023 (5) TMI 544
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....ther and are being disposed off by way of this consolidated order. ITA no.401/Mum./2018 Assessee's Appeal - A.Y. 2013-14 3. In this appeal, the assessee has raised the following grounds:- "Aggrieved by the order passed by the Deputy Commissioner of Income-tax (International Taxation)-2(3)(2) Mumbai (AO) dated 15 November 2017, under section 143(3) read with section 144C(13) of the Act, pursuant to the directions of the Hon'ble Dispute Resolution Panel-1 (DRP), Mumbai, Goldman Sachs & Co [the Appellant] respectfully submits that the learned AO has erred in passing the order on the following grounds: 1. The learned AO erred in making an addition of Rs 180,083,986 in respect of project administration costs such as courier, binding, stationery, reprogra-phics, etc. reimbursed to the Appellant by Goldman Sachs Services Private Limited (GSSPL) in connection with the Campus" being built by the latter in Bangalore on the ground that these reimbursements are in the nature of Fees for Included Services (FIS) as per Article 12 of the India- US Double Taxation Avoidance Agreement (DTAA) and makes available technical knowledge, skills, processes, etc. ....
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....SPL"), its associated enterprise in India, which was offered to tax as Fees for Technical Services ("FTS") under section 115A of the Act @ 10.30%. During the year under consideration, the assessee also received certain amounts as reimbursements from its various associated enterprises in India, including GSSPL, in respect of salary, corporate service charges, and miscellaneous expenses. However, these receipts were not offered to tax on the basis that they are in the nature of reimbursement of expenses incurred on behalf of the Indian entities. In this case, pursuant to the reference made to the Transfer Pricing Officer for computation of arm"s length price in relation to the international transaction detailed in Form No.3ECB, no adjustment was proposed to the transactions reported by the assessee. During the assessment proceedings, on the basis of details filed by the assessee, it was noticed that only an amount of Rs.42,54,10,671 from the head of "Recovery of Campus Charges" has been offered to tax, even though the total amount received under the head "Campus Charges" was Rs.60,54,94,657. In response thereto, the assessee submitted that, during the year, it has earned income amoun....
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....lated to development and transfer of technical designs or make available technical knowledge, skill, experience or process to the parties in India executing the campus project. The learned DRP further held that receipts comprising of the reimbursable items cannot be separated from other expenses for the purpose of deciding their character. In conformity with the DRP directions, the AO passed the impugned final assessment order under section 143 (3) read with section 144C(13) of the Act on this issue. Being aggrieved, the assessee is in appeal before us. 7. We have considered the submissions of both sides and perused the material on record. In the present case, the assessee is a tax resident of the United States of America and therefore is entitled to the benefit of the India-US DTAA. The assessee's associated enterprise in India, i.e. GSSPL decided to expand its premises by setting up a new campus in Bangalore, and in this connection, GSSPL entered into an agreement with a developer for the development of a new campus. With effect from 01/04/2012, the assessee entered into Campus Project Services Agreement with GSSPL, whereby the assessee agreed to render the following Campus Pr....
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....esaid Agreement, the parties agreed that GSSPL will pay service fees, including the cost of employees engaged in providing the Campus Project Service; and the cost of services provided by 3rd parties to enable the assessee to provide the Campus Project Services, with a mark-up of 7%. It is not in dispute that during the year under consideration, the assessee received an amount of Rs.60,54,94,657, from GSSPL for services provided in relation to the development of the campus. Out of the aforesaid amount, Rs.42,54,10,671, was offered to tax by the assessee as FTS/FIS, and taxes were withheld by GSSPL. However, the balance amount of Rs.18,00,83,986, was not offered for taxation on the basis that the same is mere reimbursement of expenses, which were initially incurred by the assessee on behalf of GSSPL and were subsequently cross-charged to GSSPL. In this regard, the assessee furnished the following details of services before the learned DRP:- Name of the Vendor Description of the services rendered Amount (Rs.) Reasons A. Esteben Co. Inc. Document handling charges (such as archiving documents, scanning the hard copies, etc.) and printing charges. 8,68,437 Mere d....
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....f development and transfer of any technical plan or technical design nor does it make available technical knowledge, skill, know how or processes Economic Project Solutions Inc. Project administration services. 4,86,888 These services do not consist of development and transfer of any technical plan or technical design nor does it make available technical knowledge, skill, know how or processes. Copy of the invoices enclosed as Annexure 8. URS Corporation Procurement services, Project controls, financial controls. 38,41,233 These services do not consist of development and transfer of any technical plan or technical design nor does it make available technical knowledge, skill, know how or processes. Copy of the invoices enclosed as Annexure 9. Tishman Speyer Project pre-development management 12,01,96,707 Not taxable as FIS under the India US tax treaty, as would not make available any technical knowledge, skill etc and deliverables do not include any technical plan or technical design. Copy of the agreement enclosed as Annexure 10. Hines Interests Limited Partnership Project Management Service, Administration Management services 4,36,115 ....
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....ed personnel, processes, and resources in real estate administration that can be used to provide Campus Project Services, therefore, entire payment of Rs.60,54,94,657 received by the assessee under the Campus Project Services Agreement is in nature of FTS/FIS and thus is liable to be taxed in India. Further, since the income amounting to Rs.42,54,10,671 was already offered to tax as FTS/FIS by the assessee, the balance amount of Rs.18,00,83,986 is also taxable as FTS/FIS in India. 10. It is pertinent to note that in order to determine whether the income received by the assessee falls within the ambit of FTS/FIS, it is relevant to examine the services rendered by the assessee in respect of which said income is received and whether the said service satisfies the conditions laid down under the provisions of the Act/DTAA. We are of the considered view that merely because the assessee has accepted the amount of Rs.42,54,10,671 to be in nature of FTS/FIS, the other payment for Campus Project Services cannot be treated as FTS/FIS without the examination of each and every service, particularly when the details pertaining to same are available on record. Adoption of such a broad brush ap....
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....tions of 'make available' clause in the treaty, this issue is no longer res integra. There are at least two non-jurisdictional High Court decisions, namely Hon'ble Delhi High Court in the case of DIT v. Guy Carpenter & Co Ltd. [2012] 346 ITR 504 and Hon'ble Karnataka High Court in the case of CIT v. De Beers India (P.) Ltd. [2012] 346 ITR 467/208 Taxman 406/21 taxmann.com 214 in favour of the assessee, and there is no contrary decision by Hon'ble jurisdictional High Court or by Hon'ble Supreme Court. In De Beers India (P.) Ltd. case (supra), their Lordships posed the question, as to "what is meaning of 'make available'", to themselves, and proceeded to deal with it as follows: '......The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making....
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....Article 13 (of Indo-UK tax treaty, which is in pari materia with the treaty provision before us) unlike many other treaties". We are in considered agreement with the views so expressed by the Authority for Advance Ruling. On the same lines are various decisions of this Tribunal in the cases of ICICI Bank Limited v. Dy. CIT [2008] 20 SOT 453 (Mum.) and McKinsey & Co. Inc v. Asstt. DIT [2006] 99 ITD 549 (Mum.). What essentially follows, therefore, is that as long as the services rendered by the assessee are managerial or consultancy services in nature, which do not involve or transmit the technology, the same cannot be brought to tax as fees for technical services." 13. Therefore, only when the recipient of the services, by virtue of the rendition of services by the assessee, is enabled to provide the same services without recourse to the service provider, the services can be said to have been "made available" to the recipient of services. A mere incidental advantage to the recipient of service is not sufficient to fall under the category of "make available". Therefore, the technical knowledge and skill must remain with the person receiving the services even after the particular c....
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....o Rs.17,84,29,474) represents payment for access to various specialised online information portals like Bloomberg, Reuters, Platts, Moody"s Analytics, etc. These amounts were shown under the head "market data expenses". As per the assessee, these payments were cost allocations done to Indian parties with respect to the usage/allocation with respect to these accesses. The AO vide draft assessment order passed under section 143(3) r/w section 144C(1) of the Act treated these amounts as being in the nature of Royalty under Article 12(4) of the India-US DTAA on the basis that the receipts will be for the use of information concerning the industrial, commercial scientific experience. The assessee filed detailed objections before the learned DRP against the aforesaid addition made by the AO. The DRP vide its directions issued under section 144C(5) of the Act held that the amount represents the payment made for access to various online databases, and corresponding costs have been allocated to various associated enterprises. The learned DRP further held that the nature of fee paid to these entities from whom data access right has been obtained are such that they fall within the ambit of Ro....
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....ional 269 Market Axess 184 Prospect News Inc. 147 Average LIBOR.com 77 Options Price Reporting Authority 17 Total 32,85,994 18. As per the assessee, firstly, this receipt is in the nature of reimbursement of expenditure incurred on behalf of the associated enterprise, and secondly, in any case, the contract with third-party vendors is on a principal-to-principal basis, and for the usage of the database, which does not involve any transfer of technology or making available any technology either to the assessee or to the associated enterprise. Further, neither the assessee nor the associated enterprise has control or physical access to the server of the vendors, and therefore, the said payments cannot qualify as the use of or right to use of software nor for making available technical knowledge, experience, skill, etc. Thus, the receipt is not in the nature of Royalty in accordance with the India-US DTAA. However, the Revenue treated the receipts are for the use of information concerning industrial, commercial, scientific experience and therefore taxable as Royalty under Article 12(4) of the India US DTAA. We find that while dealing with the issue ....
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....Court, in the case of DIT Vs Dun and Breadstreet Information Services India Pvt Ltd[(2012) 20 taxmann.695 (Mum)] has, while approving and concurring with the approach of Authority for Advance Ruling in the case of this very assessee, observed as follows: "The assessee had imported business information reports from Dun and Bradstreet, USA, and made remittances in respect thereof without deducting tax at source. The Assessing Officer held that the assessee was liable to deduct tax at source and accordingly passed an order under section 195 read with section 201 of the Act. The appeal filed by the assessee was dismissed by the Commissioner of Income-tax (Appeals). On further appeal, the Income-tax Appellate Tribunal set aside the order passed under section 195 read with section 201 of the Act by following its decision in the assessee's own case for the assessment year 2002-03 in I.T.A. No. 1773/Mum/2006 and the decision of the Authority for Advance Rulings on identical facts in the case of Dun and S.A. Bradstreet Espana In re Authority for Advance Rulings No. 615 of 2003 [2005] 272ITR 99 (AAR)), D and B Europe Authority for Advance Rulings No. 657 of 2005, dated October 2....
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....and in fact some clients, such as Expert credit guarantee corporation, in fact, access the server themselves to download BIR. The applicant does not have any server in India for the use of DBIS. Indeed the applicant has specifically averred that the copyright in the BIR would neither be licensed nor assigned to either the DBIS or the Indian customer. From these aspects it is clear that the aforementioned ruling of the Authority is distinguishable on facts. If a group of companies collects information about the historical places and places of interest for tourists in each country and all informations are maintained on a central computer which is accessible to each constituent of the Group in each country, can a supply of such information electronically on payment of price be treated as royalty or fee for technical services ? We think not. The next case relied upon by the Commissioner is also a ruling of the Authority in Ericsson Telephone Corpn. India AB, In re [ 1997] 224ITR 2031. In that case the applicant was a company incorporated in Sweden. It provided, inter alia, services within radio and telecommunication. It entered into contracts with three Indian companies for th....
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....trary view expressed by any other Hon'ble High Court. No decision from Hon'ble jurisdictional High Court, contrary to the above decision of Hon'ble jurisdictional High Court, was brought to our notice. 9. In view of the above discussions, as also bearing in mind entirety of the case, we delete the impugned addition of Rs 23,01,00,058 as royalty in the hands of the assessee. The assessee gets the relief accordingly." 19. We find that the term "Royalty" as defined in the India-US DTAA is worded similarly to India-Swiss DTAA, which was under consideration in the aforesaid decision. From the record, it is evident that the payment is in respect of usage of the database of the third-party vendors, which was later on recovered by the assessee from the associated enterprises. Therefore, in view of the aforesaid decision, once the payment made for the usage of the database does not fall within the ambit of Royalty, recovery of costs by the assessee from the associated enterprises for the usage of the database cannot also result in Royalty in the hands of the assessee. In any case, in the present case, it has not been disputed by the Revenue that the payment received ....
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....ether and not in segmentation. 3. The learned AO has erred in making an addition in respect of recovery of market data charges amounting to Rs 237,564,324 on the basis that the same qualifies as Royalty under the section 9(1)(vi) of the Act and Article 12 of the India-US DTAA as well, without appreciating the fact that these constitute expenses allocated by the Appellant to its Associated Enterprises (AEs) in India as reimbursement of expenses incurred on behalf of the AEs in India. 4. In levying interest under section 234A of the Act amounting to Rs 1,969,784 on the basis that Appellant has filed its return of income after the due date prescribed under the provisions of the Act. 5. In initiating penalty proceedings under section 271(1)(c) of the Act. The Appellant craves leave to add, alter, vary, omit, substitute or amend any or all of the above grounds of appeal, at any time before or at the time of the appeal, so as to enable the Hon'ble Income-tax Appellate Tribunal to decide this appeal according to law." 23. The issue arising in grounds no.1-2, raised in assessee's appeal, is pertaining to the addition in respect of project administration costs ....
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.... technical knowledge, skills, processes, etc. 2. Without prejudice to the above, the learned AO has erred in holding that the Appellant is not correct in bifurcating the various components of the overall activity of rendering technical services, for the purpose of its characterization and accordingly, the entire cost of Rs 11.48,96,557 (including the amount of Rs 3,55,79,013) incurred in connection with the Campus" is to be examined together and not in segmentation. 3. The learned AO has erred in making an addition in respect of recovery of market data charges amounting to Rs 29,18,25,488 on the basis that the same qualifies as Royalty under the section 9(1)(vi) of the Act and Article 12 of the India-US DTAA as well, without appreciating the fact that these constitute expenses allocated by the Appellant to its Associated Enterprises (AES) in India as reimbursement of expenses incurred on behalf of the AEs in India. 4. In granting short credit of withholding taxes amounting to Rs 3,50,947. 5. In levying interest under section 234A of the Act amounting to Rs 19,63,868 on the basis that Appellant has filed its return of income after the due date pre....
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....ppeal is pertaining to not allowing carried forward to next year of the brought forward short-term capital loss. This issue is restored to the file of the AO to be decided afresh, in accordance with the law, after conducting the necessary verification. As a result, ground no.7 raised in assessee's appeal is allowed for statistical purposes. 35. Ground no.8 is pertaining to the initiation of penalty proceedings, which is premature in nature and therefore is dismissed. 36. In the result, the appeal by the assessee is partly allowed for statistical purposes. ITA no.1264/Mum./2021 Assessee's Appeal - A.Y. 2017-18 37. In this appeal, the assessee has raised following grounds:- "Aggrieved by the order passed by the Deputy Commissioner of Income-tax (International Taxation)-2(3)(2) Mumbai (learned AO), under section 143(3) read with section 144C(13) of the Act, pursuant to the directions of the Hon'ble Dispute Resolution Panel-1 (West Zone) ("DRP"), Mumbai, Goldman Sachs & Co. [the Appellant] respectfully submits that the learned AO has erred in passing the order on the following grounds: 1. The learned AO erred in making an addition of Rs 43,1....