TaxTMI 
TaxTMI 
2026 (7) TMI 1722
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....resident corporate entity incorporated in Netherlands and is a tax resident of Netherlands. As stated, the assessee is engaged in the business of head counting business, meaning thereby it provides executive search services and related support services to its group companies and third party franchisees. In the year under consideration, the assessee had rendered executive search services to M/s. Spencer Stuart (India) Private Limited in respect of multi-country assignments and received fees, including expenses, totaling to Rs. 26,72,12,061/-. The assessee had not offered the said amount to tax, stating that it is not in the nature of FTS but business receipt and in absence of a permanent establishment (PE), is not taxable in India. The Assessing Officer, however, was not convinced with the submission of the assessee. Ultimately, he concluded that the fees received would qualify as FTS under Article 12(5)(a) and 12(5)(b) of the Treaty. Without prejudice, he held that the amount received would qualify as royalty under Article 12(4) of the Treaty. Accordingly, he brought the amount in dispute to tax. Challenging such addition, the assessee raised objections before learned DRP. 4. Fo....
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.... 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. 6666/MUM/2017 dated 01.04.2019 held as under: - "8. Before us, the learned representative for the assessee referred to the following discussion in the order of Tribunal dated 01.06.2018 (supra) pertaining to Assessment Year 2011-12: "3.2. We have heard the rival submissions and perused the material on record. We find that the assessee had entered into a LA with SSIPL whereby it granted license to SSIPL to use trade-name, trademark, lagos of 'Spencer Stuart' and the rights to use software owned by it as well as certain other support services, that in lieu of the rights provided to SSIPL it was entitled to a license fee computed at 13.5% of the net revenues of SSIPL, that the license fee amounting to Rs. 3,85,47,171/- received by the assessee from SSIPL, as per the LA, was offered to tax as royalty as per the provisions of the Act r.w.Article 12(4) of 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 ....
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....ansfer of a technical plan or a technical design, in terms of Article 12(5)(b)of the DTAA. It is also observed that that the DRP had relied on the inclusion of the sharing clause (clause (bb) to Article 3) in the LA to arrive at the conclusion that the terms and conditions of the SA are part and parcel of the LA. But, we find that the departmental officers have not given any reasoning that could lead to the fact that SA was ancillary in nature to the LA. We find that the FAA his orders, dated 16/09/2016, for the AY.s. 2012-2013 to 2014-15, in context of the proceedings u/s 201 of the Act, has decided the identical issue in favour of SSIPL and has held that search fees remitted by SSIPL to the assessee did not represent fees for technical services under Article 12(5)(a) of the India-Netherlands DTAA and was not subject to TDS u/s. 195 of the Act. We find that the FAA has referred to the APA entered between SSIPL and the Government of India. As per the APA, a separate benchmarking has been laid down for the international 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 Spi....
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....ues to hold the field and, therefore, we do not find any reasons to distract from the aforesaid precedent. At this point, we may also note an undisputed fact which has been brought out by the learned representative for the assessee. It has been pointed out that the first assessment order relevant to the arrangement was Assessment Year 2007-08 wherein the return of income filed by the assessee was accepted as such, as no scrutiny assessment was made. For Assessment Years 2008-09 and 2009-10, scrutiny assessments were made and issue was raised with regard to the assessee's stand of non-taxability of Executive search fee as 'fee for technical services' in terms of either Article 12(5)(a) or 12(5)(b) of the India-Netherlands Tax Treaty. In this context, reference has been made to the orders passed by the Assessing Officer for Assessment Years 2008-09 and 2009-10 dated 09.12.2011 and 08.12.2010 respectively, wherein after considering the submissions of the assessee, earnings by way of Executive search fee 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 Assess....
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....ve search transactions. So far as the Executive search transactions are concerned, the APA states that the 'Profit Split Method' is the most appropriate method for benchmarking the transactions. We are only highlighting the aforesaid features of the APA to point out that there is a complete dichotomy between the nature and characterisation of the transactions accepted in the APA in the context of SS India vis-a-vis the assessing authority of the present assessee. Ostensibly, it does not need any more emphasis that the nature and characterisation of the amount in the hands of the present assessee has to correspond to what has been accepted by the income-tax authorities in the case of the payer of the same, i.e. SS India. In fact, at the time of hearing, the learned representative for the assessee referred to the modified return of income under Section 92CD of the Act filed by SS India subsequent to the APA dated 30.12.2017 as also the order passed by the TPO under Section 92CA(3) dated 09.06.2017 and the 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 ....
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....nds 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 agreement which SSI has procured from SSI BV as part of Licence Agreement (supra)". This stand of the Assessing Officer is starkly in contrast to the position emerging in the APA dated 30.08.2016. If the Revenue was to contend that the Executive search fee is nothing but licence fee (i.e. Royalty), then even in the APA proceedings, the Revenue was to have re characterised such Executive search fee as licence fee' and to tax it as "Royalty' under the APA. However, as we have noted the features emerging from the APA, the Executive search fee has been identified 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 Assessin....
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....by the Assessing Officer in order to invoke clause (iv) of Explanation-2 to Sec. 9(1)(vi) of the Act read with Article 12(4) of the India-Netherlands Tax Treaty. Therefore, in our view, the said action of the Assessing Officer is completely misconceived and is liable to be set-aside and we hold that no charge can be made out under Section 9(1)(vi) read with Article 12(4) of the India-Netherlands Tax Treaty qua the impugned sum of Executive search fee. 14. In the result, we conclude by holding that the Assessing Officer erred in holding that the Executive search fee was in the nature of 'fee for technical services' under Article 12(5)(a) as well as 12(5)(b) of the India Netherlands Tax Treaty and also erred in his alternative conclusion that the same was taxable as 'Royalty' under Article 12(4) of the India- Netherlands Tax Treaty read with clause (iv) of Explanation-2 to Sec. 9(1)(vi) of the Act. 15. Thus, so far as the Ground of appeal nos. 3 to 8 is concerned, the same are allowed, 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 ....
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..... 11. Briefly, the facts are, in the year under consideration, the assessee received an amount of Rs. 14,05,62,308/- from Spencer Stuart (India) Private Limited towards certain services provided under the Shared Services Agreement (SCA). The bundle of services provided under the said agreement, include financial services, firm-wide marketing services, oversight, control and management services, administrative services, legal and tax services, information technology services, and worldwide database services. After verifying nature of services, the Assessing Officer was of the view that since services are in the nature of technical, consultancy and managerial services, the fee received would qualify as FTS. Accordingly, he brought the same to tax. While deciding the issue, learned DRP followed its direction in assessee's case in Assessment Year 2019-20 and upheld the decision of the Assessing Officer. 12. Before us, learned counsel appearing for the assessee submitted that while deciding the appeal in Assessment Year 2019-20, the Tribunal in order dated 4.11.2022, had remitted the issue to the Assessing Officer with a direction to examine the nature of each and every servic....
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.... 16 In ground no. 3 with its sub-grounds, the assessee has challenged the taxability of reimbursement service charges amounting to Rs 3,02,63,622/- as FTS under section 9(1)(vii) of the Act as also Article 12(5)(a) and 12(5)(b) of the Treaty. 17. Having considered rival submissions and perused the materials on record, we find that this is a legacy issue arising in assessee's case in Assessment Years 2011-12 to 2019-20. In the latest order passed in assessment year 2019-20 vide ITA no 514/Mum/2022 dated 4-11-2022, the Coordinate Bench, while deciding identical issue, had held as under: "14. We find that, in aforesaid case, the coordinate bench of Tribunal vide its order dated 06/09/2022 allowed the appeal filed by the assessee on this issue, by observing as under: "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. 6666/MUM/2018 dated 01.04.2019 held as under: - "16.....
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....d 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 appeal. The Hon'ble High Court dismissed the Departme....
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....used by the agents of the assessee as well in order to enable them to discharge their role more effectively as agents, and the business could not be conducted without it, it could not be treated as any technical services provided to the agents." Considering the above, we decide second ground of appeal in favour of the assessee." Since the facts and circumstances are similar in this year, as noted by the DRP in the impugned order, following the precedent in assessee's own case dated 11.06.2018 (supra), the said issue is decided in favour of the assessee and the Assessing Officer is directed to delete the addition. Thus, so far as Ground of appeal nos. 9 and 10 are concerned, the same are allowed." 11. Respectfully following the above decision and following the 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." 15. This issue is recurring in nature and has been decided in favour of the assessee by the decision of the coordinate bench of Tribunal for preceding assessment years. Thus, respectfully following the order passed by the coor....