TaxTMI 
TaxTMI 
2019 (9) TMI 1698
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....erred to as the 'Act') on the following grounds, each of which are without prejudice to one another: 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the addition of Rs 34,49,00,936 on account of management service fees made by the learned Assessing Officer, to the total income of the Appellant. Taxability of Management service fees of Rs 34,49,00,936 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the Assessing Officer: 2. in treating the management service fees received by the Appellant as "Royalty" under Article 12(4) of the Double Taxation Avoidance Agreement ('DTAA') between India and the Netherlands as well as fees for technical services under Article 12(5) of India - Netherlands DTAA, thereby making an addition of Rs 34,49,00,936 to the income of the Appellant. 3. in not appreciating that for the services rendered by the Appellant does not provide any know-how to the recipient and hence, the same does not qualify as royalty. 4. in not appreciating that the services provided by the Appellant are in the nature of business sup....
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....ated 01.04.2004. Pursuant to the said agreement on going assistance and support is provided to VOIPL by assessee in the field of information technology, operation, quality, health and safety, estimating an engineering, marketing, administration personnel etc. The assessee claimed in assisting the VOIPL in achieving economies of the scale and maintained uniformity within the Van Oord group. The assessee claimed that the project office of assessee does not have any role to play in rendering these services. The assessee charged from VOIPL a consideration of Rs. 34,49,00,396/- for the services rendered by assessee. The assessee claimed that services were rendered outside India and no role was played by assessee project office in rendering the said services. The amount charged to VOIPL has not included in the books of account. The assessee also claimed that the services are not in the nature of 'make available' and not taxable as fees for technical services as per India-Netherlands Tax Treaty (Treaty). The Assessing Officer asked the assessee to submit the detail and nature of business management services and the basis of allocation to the services to the Indian entity and as to why the....
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....he services have been rendered outside India does not hold good and same is taxable in India. The Assessing Officer by treating the services rendered by assessee in the nature of royalty and taxed @ 10%. On appeal before the ld. CIT(A), the action of Assessing Officer was confirmed. The ld. CIT(A) while confirming the action of Assessing Officer hold that the concept of royalty and make available of technical knowledge are similar to some extent. Although the requirement of are more stringent than the concept of make available. In royalty, a "transfer of knowledge" or "transfer of right to use" is contemplated. In the term "make available" as used in Article-12(5)(b), transfer is not contemplated but mere making available is sufficient, no right is created while make available any technical knowledge, skill, experience of process in favour of the recipient of service but the technical knowledge is shared and the recipient become more informed in the area in which knowledge is shared to the benefit of recipient. The concept of "make available" can be taken to the somewhere between the concept of royalty and concept of fees for technical services as provided under section 9(1)(vii). ....
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....bunal by following the order of A.Y. 2009-10, 2013-14 & 2014-15 held that the management services fees received cannot be assessed as royalty in term of Article-12(4) India-Netherlands Treaty. The ld. AR of the assessee filed the copy of decision of Tribunal for A.Y. 2005-06, 2007-08, 2009-10, 2013-14 & 2014-15. 4. On the other hand, the ld. DR for the revenue supported the order of lower authorities. The ld. DR submits that order for A.Y. 2009-10 was passed on 07.10.2016 and the impugned order was passed by ld. CIT(A) on 28.03.2016. The ld. DR further submits that the payments received on account of various services by assessee are in the nature of royalty. 5. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have noted that on almost similar set of fact and on the basis of same service agreement between the assessee and VOIPL, the Assessing Officer for A.Y. 2009-10 treated the amount received on account of various services rendered by assessee as royalty, however, on appeal before the Tribunal, the same was held as reimbursement of cost vide order dated 07.10.02016 in ITA No. 7589/Mum/2012. We have further noted tha....
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....ndustrial, commercial or scientific experience". This term mainly alludes to concept of use of or right to use of providing of "knowhow", where one party agrees to impart the information on knowhow concerning industrial, commercial or scientific experience to the other. OECD in its commentary has explained these terms in para 11 in the following manner:- "The classifying as royalties payments received as consideration for information concerning industrial, commercial or scientific experience, paragraph 2 is referring to the concept of "know-how". Various specialized bodies and authors have formulated definitions of know-how. The words "payments ... for information concerning industrial, commercial or scientific experience" are used in the context of the transfer of certain information that has not been patented and does not generally fall within other categories of intellectual property rights. It generally corresponds to un-divulged information of an industrial, commercial or scientific nature arising from previous experience, which has practical application in the operation of an enterprise and form the disclosure of which an economic benefit can be derived. Since the defin....
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.... be received as consideration for the provision of know-how but, rather, for the provision of services, include: - payments obtained as consideration for after-sales service; - payments for services rendered by a seller to the purchaser under a warranty; - payments for pure technical assistance; - payments for a list of potential customers, when such a list is developed specifically for the payer out of generally available information (a) payment for the confidential list of customers to which the payee has provided a particular product or service would, however, constitute a payment for know-how as it would relate to the commercial experience of the payee in dealing with these customers), - payments for an opinion given by an engineer, an advocate or an accountant, and - payments for advice provided electronically, for electronic communications with technicians or for accessing, through computer networks, a trouble-shooting database such as a database that provides users of software non=confidential information in response to frequently asked questions or common problems arise frequently" From the above clarification, it can be ostensibly inferred that, to qualify....
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....is, whether there is any imparting of knowhow or not. If there is no "alienation" or the "use of" or the "right to use of" any knowhow, then it cannot be termed as "royalty". The services may have been rendered by a person from own knowledge and experience but such a knowledge and experience has not been imparted to the other person as the person retains the experience and knowledge or knowhow with himself, which are required to perform the services to its clients. Hence, in such a case, it cannot be held that such services are in nature of "royalty". Thus, in principle we hold that if the services have been rendered de-hors the imparting of knowhow or transfer of any knowledge, experience or skill, then such services will not fall within the ambit of Article -12. .... If such services do not involve imparting of knowhow or transfer of any knowledge, experience or skill, then it cannot be held to be taxable as royalty" 15. Thus, what we have to see is, whether the various services provided by assessee to VOIPL can be reckoned as providing of any kind of imparting of knowhow or information concerning industrial, commercial or scientific experience or not. As highlighted above, wi....