TaxTMI 
TaxTMI 
2025 (4) TMI 2028
X X X X Extracts X X X X
X X X X Extracts X X X X
.... On the facts and in the circumstances of the case and in law, the learned AO/DRP has 2 erred in not appreciating the fact that the Management Service Fees received by the Appellant constitute pure allocation of cost without any markup and hence, the same being reimbursement of cost, is not taxable as Royalty under the Act as well as under the Double Taxation Avoidance Agreement ('DTAA') between India and the Netherlands. 3. erred in treating the management service fees received by the Appellant as "Royalty" under Article 12(4) of India Netherlands DTAA, thereby making an addition of INR 12,55,12,930/- to the income of the Appellant. 4. erred in not appreciating that for the services rendered by the Appellant to qualify as royalty, the same should provide know-how to the recipient. 5. erred in not appreciating that the services provided by the Appellant are in the nature of business support and administration services and are not in the nature of sharing information concerning industrial, commercial and scientific experience. 6. erred in not following the order of the Hon'ble jurisdictional Income-tax Appellate Tribunal ('....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her. The appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds" 2. Rival submissions of both the parties have been heard and record perused. The ld. Authorised Representative (AR) of the assessee submits that assessee is a company incorporated in Netherland, engaged in the business of international dredging contract. During the relevant financial year under consideration, the assessee provided certain business / management support services to its Indian subsidiary i.e. Van Oord India Pvt. Ltd. The assessing officer treated payment of such services as payment of 'Royalty'. The similar treatment is made by lower authorities from past several years. However, on further appeal before Tribunal, the assessee succeeded. For the year under consideration, the DRP while confirming the action of assessing officer in draft assessment in treating such management support services as payment of royalty on the basis of their direction in A.Y. 2021-22. Such finding of DRP is recorded in para 4.9.2 of their direction. Against the addition made in pursuance of direction of DRP in A.Y. 2021-22, the assessee filed appeal before Tribunal vide ITA No. 4533/Mu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Contractors BV vs ADIT, ITA no. 7589/Mum/2012, for the assessment year 2009-10, vide order dated 07/10/2016, decided the similar issue in favour of the assessee and held that none of the services provided by the assessee in terms of the Service Agreement dated 01/04/2004 falls within the scope and ambit of "Royalty" as defined in Article 12(4) of the India Netherlands DTAA. The coordinate bench of the Tribunal also held that since the allocation of costs represents the actual expenditure, there cannot be any reason to hold that reimbursement of the cost can be reckoned as payment towards "Royalty". The relevant findings of the coordinate bench of the Tribunal, in the aforesaid decision, are as under:- "14. We have heard the rival submissions, perused the relevant finding given in the impugned orders as well as material referred and relied upon before us. The first issue for our adjudication is, whether the fees received by the assessee from its Indian entity, VIOPL for management and support services is to be treated as "royalty" under Article 12(4) of India-Netherland-DTAA or not. The entire gamut of facts and nature of services provided by the assessee to VOIPL in the te....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be derived. Since the definition relates to information concerning previous experience, the Article does not apply to payments for new information obtained as result of performing services at the request of the payer; In the know-how contract, one of the parties agrees to impart to the other, so that he can use them for his own account, his special knowledge and experience which remain unrevealed to the public. It is recognized that the grantor is not required to play any part himself in the application of the formulas granted to the licensee and that he does not guarantee the result thereof. This type of contract thus differs from contracts for the provision of services, in which one of the parties undertakes to use the customary skills of his calling to execute work himself for the other party. Payments made under the latter contracts generally fall under Article 7. The need to distinguish these two types of payments, i.e. payments for the supply of know-how and payments for the provision of services, sometimes gives rise to practical difficulties. The following criteria are relevant for the purpose of making that distinction: - Contracts for t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n problems arise frequently". From the above clarification, it can be ostensibly inferred that, to qualify as payment towards information concerning industrial, commercial or scientific experience, person must provide knowhow to the recipient, that is, a strong emphasis has been given to concept of "knowhow". There is an element of imparting of knowhow to the other so that other can use or has right to use such "knowhow". In case of industrial, commercial or scientific experience, if services are being rendered simply as an advisory or consultancy then it cannot be reckoned as "royalty" because the advisory or assistance does not connotes imparting of the skill or experience to other albeit the person is rendering the services from his own knowhow and what he is imparting is his conclusion based on his own skill and experience. The imparting of "knowhow" envisages that the recipient should be able to make use of such knowhow independently on its own account without recourse of the provider of the knowhow in future. For being regarded as "royalty" there has to be alienation or use of or right to use of any knowhow and without any transfer of any knowledge, experience or ski....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng of knowhow or information concerning industrial, commercial or scientific experience or not. As highlighted above, with regard to various streams of services like providing of information technology; operational support; marketing; quality, health, safety and environment; estimating and engineering; and personal and organization, administration and legal services, there is no imparting of any kind of knowledge, skill or experience by way of information concerning industrial, commercial or scientific which is made available to VOIPL. For instance, information technology services are provided for use of group companies" computer system where IT teams providing manual general information without providing any information or method to design or create a computer system. It is mainly kind of help desk and troubleshooting services which are required on regular basis. For operational support system also, it mainly provides for check-list for project plans, safety work and inspection plans etc. Similarly, for marketing, the assessee provides for emarketing through its website and maintaining it, printing and publishing brochures which can be distributed to its potential clients. It also....