AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (8) TMI 1531
X X X X Extracts X X X X
X X X X Extracts X X X X
....e contentions to the primary submissions in respect of the aforesaid addition. The ld. Counsel for the assessee further submits that in ground No. 8 to 10 of appeal, the assessee has assailed levy of interest charges u/s. 234A, 234B and 234D of the Act. In ground No. 11 of appeal, the assessee has assailed recovery of interest u/s. 244A of the Act and finally in ground No. 12 of appeal, the assessee has assailed initiation of penalty proceedings u/s. 271(1)(c) of the Act. 3. The ld. Counsel for the assessee narrating the facts of case submitted that the assessee /appellant company is incorporated in Netherlands. The assessee is engaged in the business of Freight Forwarding and Supply Chain Management. In the course of its business, the assessee entered into various network agreements with its local Damco entities (DE) in different countries. Each local DE becomes a member of such network in their respective countries. For business in India the assessee has its entity incorporated in India i.e. Damco India Pvt. Ltd. [in short 'Damco India']. 3.1 The ld. Counsel for the assessee submitted that Damco India under its network agreement is remunerated by way of guarantee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amco India gets guaranteed profit of 10% with no risk. The ld. Counsel for the assessee submits that as per the new agreement effective from 01/01/2013 between assessee and Damco India, the entire risk is taken over by the assessee. The ld. Counsel for the assessee pointed that in assessment year 2014-15 the assessee had paid approximately Rs. 32.41 crores to Damco India under Network agreement. Similarly, in assessment year 2015-16 the assessee paid Rs. 4.71 crores to Damco India. The ld. Counsel for the assessee referred to order of TPO in the case of Damco India Pvt. Ltd. for assessment year 2014-15 and 2015-16 at pages 76 and 79 of the paper book. The TPO has accepted that the transaction between the assessee and Damco India are at arm's length during the impugned assessment year as well. The Assessing Officer has erred in recharacterization of the transfer pricing method and the business profit sharing model after the order by TPO. 3.5 The ld. Counsel for the assessee submits that the Tribunal in an appeal by Damco International AS, Denmark in ITA No. 993 & 6465/Mum/2017 for the assessment years 2012-13 and 2013-14 (For the period 01/04/2012 to 31/12/2012) deci....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... show that the nature of services are managerial and technical, therefore, the payment for the same clearly falls within the meaning of FTS or royalty. The ld. Departmental Representative further submits that the agreement under which payments are made to the assessee by Damco India is the first agreement between Damco India and the assessee. The said agreement is different from the earlier agreement between Damco India and Damco International AS. The ld. Departmental Representative finally submits that from the nature of transactions and the Network Agreement it emanates that Damco India is Agency PE of the assessee. 5. Rebutting the arguments made by ld. Departmental Representative, the ld. Counsel for the assessee submits that clauses and covenants detailing nature of services provided under both agreements are similar in nature. The only difference between the agreements is the method of remuneration. The current agreement is more favourable to Damco India as it guarantees cost + 10% income on profit sharing basis with no risk. The risk under new agreement shifts from Damco India to the assessee being central entity. Now, Damco India is risk insulated with guaranteed profits. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Netherland DTAA. And by virtue of Article-7 of India - Netherland DTAA, network fees earned by the assessee is not taxable in India. At the outset it would be pertinent to mention that the network fee which is subject matter of dispute in the present appeal was earned by the assessee for the period starting from 01/03/2013 to 31/03/2013. For the period starting from 01/04/2012 to 31/12/2012 falling under the same assessment year i.e. assessment year 2013-14, Damco India had agreement with Damco International AS, a Danish entity. Both the agreements i.e. agreement between Damco International AS - Damco India and assessee - Damco India are stated to be similar. A perusal of the directions of DRP dated 11/09/2017 would show that the DRP has placed heavy reliance on the directions of the DRP for assessment year 2012-13, wherein instead of present assessee, Damco International AS, a Danish entity was the assessee. In para 4.2 of the DRP directions, the DRP has categorically mentioned that the only change in the impugned assessment year is that instead of Damco International AS, the Damco India has entered into new agreement w.e.f. 01/01/2013 with Damco International BV (the assessee). T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o item (d) of Appendix 3 of the Network Agreement, Parties agree that the Mark-Up for the Territory will be set at 10% for 2013 and onwards- until otherwise agreed. In another addendum network agreement "Network Fee Payment" has been explained, the same is reproduced herein below: "NETWORK FEE PAYMENT Thus, Parties declare and confirm that in the event the calculation of Network Fee results in a negative figure, Company shall be entitled to receive from INTERNATIONAL a payment as compensation for damages for not having been able to obtain the committed results. By virtue of the foregoing, if the calculation of Network Fee is negative, INTERNATIONAL shall pay compensation as indemnity for damages to Company. Such compensation is valued in advance by the parties, as penalty clause, in an amount such as to enable the Company to obtain EBT based on Cost Company, equivalent to the agreed Mark Up, as defined in the Network Agreement." From above clauses in the Network Agreement it is ambiguously clear that Damco India remunerates the assessee only in the event of surplus profits. In the event of insufficient receipts Damco India is entitled to retain "Cost + 10% Mark Up". In ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r technical design. A bare perusal of Article -12 of the DTAA defining the term 'Royalty' would show that the nature of payment received by the assessee does not fall within the meaning of Royalty. The clause -5 of Article 12 defines FTS. A reading of clause -5 shows that FTS is with respect to rendering of any technical or consultancy services. It does not include managerial services. Further, sub-clause (b) to clause (5) refers to "make available" condition. In the present case nothing has been brought on record by the Revenue to substantiate that any technical knowhow has been "made available" to Damco India by the assessee . 10. Thus, in view of our above observations we hold that network fee received by the assessee from Damco India is neither in the nature of Royalty nor FTS. Consequently, the aforesaid amount received by the assessee is not exigible to tax under the provisions of the Act or India - Netherlands DTAA. 11. The ld. Departmental Representative raised an argument that Damco India is DAPE of the assessee. The aforesaid contention raised by the ld. Departmental Representative is not in coherence with the directions of the DRP or findings of the Assessing Office....