VAN OORD DREDGING AND MARINE CONTRACTORS BV, MUMBAI V. DDIT (IT) 2(2), MUMBAI

ITA 4136/MUM/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5583 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 16-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment; Set aside
• Section: 143(3); 250; 201

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL L BENC H MUMBAI BEFORE SHRI G.S. PANNU, VICE- PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 4136/MUM/2016 FOR (ASSESSMENT YEAR 2010-11) VAN OORD DREDGING AND MARINE CONTRACTORS BV, 201, 2 ND FLOOR, CENTRAL PLAZA, 166, CST ROAD, KALINA, MUMBAI-400098. PAN: AAACH3500M VS. DY.CIT (INTERNATIONAL TAXATION)- 4(3)(1), 1 ST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, MUMBAI-400038. APPELLANT RESPONDENT APPELLANT BY : SHRI NISHANT THAKKAR (AR) RESPONDENT BY : SHRI SAMUEL DAISE (CIT-DR) AND SH. MANOJ KUMAR SINGH SR DR DATE OF HEARING : 04.09.2019 DATE OF PRONOUNCEMENT : 05.09.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-58 [FOR SHORT THE LD. CIT(A)], MUMBAI DATED 28.03.2016 WHICH ARISES FROM ASSESSMENT ORDER PASSE D ON 03.04.2014 UNDER SECTION 44C READ WITH SECTION 143(3) FOR ASSESSMENT YEAR 2010-11. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, VAN OORD DREDGING AND MARINE CONTRACTORS BV (HEREINAFTER REFERRED TO AS THE 'APPELLANT') CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE CO MMISSIONER OF INCOME TAX (APPEALS) ['CIT(A)'] DATED 28 MARCH 2016 UNDER SECT ION 250 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED 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 CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ADDITION OF RS 34,49,00,936 ON ACCOUNT OF MANAGEMENT ITA NO. 4136/MUM/2016-VAN OORD DREDGING AND MARINE CONTRACTORS BV 2 SERVICE FEES MADE BY THE LEARNED ASSESSING OFFICER, TO THE TOTAL INCOME OF THE APPELLANT. TAXABILITY OF MANAGEMENT SERVICE FEES OF RS 34,49,0 0,936 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFI CER: 2. IN TREATING THE MANAGEMENT SERVICE FEES RECEIVED BY THE APPELLANT AS 'ROYALTY' UNDER ARTICLE 12(4) OF THE DOUBLE TAXATION AVOIDANC E AGREEMENT ('DTAA') BETWEEN INDIA AND THE NETHERLANDS AS WELL AS FEES F OR 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 RENDER ED BY THE APPELLANT DOES NOT PROVIDE ANY KNOW-HOW TO THE RECIPIENT AND HENCE, TH E SAME DOES NOT QUALIFY AS ROYALTY. 4. IN NOT APPRECIATING THAT THE SERVICES PROVIDED B Y THE APPELLANT ARE IN THE NATURE OF BUSINESS SUPPORT AND ADMINISTRATION SERVICES AND AR E NEITHER IN THE NATURE OF SHARING INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL AND S CIENTIFIC EXPERIENCE NOR IN THE NATURE OF TECHNICAL OR CONSULTANCY SERVICES; 5. IN NOT APPRECIATING THAT THE SERVICES RENDERED B Y THE APPELLANT DO NOT 'MAKE AVAILABLE' ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKI LL, KNOW-HOW OR PROCESSES AND HENCE, IS NOT TAXABLE EVEN AS FEES FOR TECHNICAL SE RVICES IN VIEW OF ARTICLE 12(5) OF THE INDIA - NETHERLANDS DT AA. 6. IN NOT APPRECIATING THAT THE MANAGEMENT SERVICE FEES RECEIVED BY THE APPELLANT ARE WITHOUT ANY MARK UP AND CONSTITUTE PURE ALLOCAT ION OF COST WHICH IS NEITHER TAXABLE AS ROYALTY NOR TAXABLE AS FEES FOR TECHNICA L SERVICES UNDER THE ACT AS WELL AS UNDER THE INDIA - NETHERLANDS DTAA. TAXABILITY OF THE REIMBURSEMENTS OF SALARY RECEIVED OF RS 22,43,552 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A): 7. ERRED IN GIVING OBSERVATIONS WHICH ARE NOT IN CO NNECTION WITH THE DETERMINATION OF THE TOTAL INCOME OF THE APPELLANT. 8. ERRED IN HOLDING THAT THE DREDGER VOLVOX DELTA I S NOT A FOREIGN SHIP BY THE VIRTUE OF THE SAME BEING UNDER THE CONTROL OF VAN OORD IND IA PRIVATE LIMITED (,VOIPL') AND THEREFORE, ERRED IN HOLDING THAT SALARY PAID BY THE APPELLANT TO THE EMPLOYEES WHICH WAS SUBSEQUENTLY REIMBURSED BY VOIPL IS NOT C OVERED BY THE PROVISIONS OF SECTION 10(6)(VIII) OF THE ACT. ITA NO. 4136/MUM/2016-VAN OORD DREDGING AND MARINE CONTRACTORS BV 3 9. ERRED IN HOLDING THAT THE TAXABILITY OF SALARY P AID BY THE APPELLANT TO THE EMPLOYEES SUBSEQUENTLY REIMBURSED BY VOIPL UNDER SE CTION 10(6)(VIII) OF THE ACT NEEDS TO BE EXAMINED, AS THE EMPLOYEES ARE WORKING UNDER THE CONTROL AND MANAGEMENT OF VOIPL. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COMP ANY INCORPORATED IN NETHERLANDS AND IS ELIGIBLE FOR BENEFIT OF INDIA-NE THERLANDS DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). THE ASSESSEE IS ENGAGED IN DREDGING ACTIVITIES FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2010 -11 ON 15.10.2010 DECLARING LOSS OF RS. 38,15,40,242/-. THE ASSESSMEN T WAS COMPLETED ON 03.04.2014 UNDER SECTION 143(3) R.W.S. 144C(3) OF T HE ACT. THE ASSESSING OFFICER NOTED THAT DURING THE RELEVANT PERIOD THE A SSESSEE EXECUTED DREDGING CONTRACT WITH MARG LTD., ESSAR BULK TERMINAL LTD. A ND L&T SHIP BUILDING LTD. IN INDIA. THE ASSESSEE PROVIDED BUSINESS SUPPO RT SERVICES TO VAN OORD INDIA PVT. LTD. (VOIPL) UNDER A MANAGEMENT SUPPORT AGREEMENT DATED 01.04.2004. PURSUANT TO THE SAID AGREEMENT ON GOING ASSISTANCE AND SUPPORT IS PROVIDED TO VOIPL BY ASSESSEE IN THE FIELD OF INFOR MATION TECHNOLOGY, OPERATION, QUALITY, HEALTH AND SAFETY, ESTIMATING A N ENGINEERING, MARKETING, ADMINISTRATION PERSONNEL ETC. THE ASSESSEE CLAIMED IN ASSISTING THE VOIPL IN ACHIEVING ECONOMIES OF THE SCALE AND MAINTAINED UNI FORMITY WITHIN THE VAN OORD GROUP. THE ASSESSEE CLAIMED THAT THE PROJECT O FFICE 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 R ENDERED OUTSIDE INDIA AND ITA NO. 4136/MUM/2016-VAN OORD DREDGING AND MARINE CONTRACTORS BV 4 NO ROLE WAS PLAYED BY ASSESSEE PROJECT OFFICE IN RE NDERING 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 P ER INDIA-NETHERLANDS TAX TREATY (TREATY). THE ASSESSING OFFICER ASKED THE AS SESSEE 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 SAM E IS NOT TAXABLE IN INDIA. THE ASSESSEE FILED ITS REPLY DATED 15.01.2014. THE ASSE SSEE PROVIDED THE DETAIL OF NATURE OF SERVICES CONSISTING OPERATIONAL SUPPORT, INFORMATION TECHNOLOGY, QUALITY HEALTH SAFETY AND ENVIRONMENT, MARKETING, E STIMATING AND ENGINEERING AND PERSONNEL AND ORGANISATION ADMINISTRATION AND L EGAL. THE ASSESSEE ALSO PROVIDES OPERATIONAL DETAIL AND COST BREAK-UP. THE ASSESSEE ALSO CONTENDED THAT THE SERVICES RENDERED ARE NOT TAXABLE AS FEES FOR T ECHNICAL SERVICES (FTS) UNDER TREATY, THE SAME COULD BE TAXED IN INDIA AS BUSINES S PROFIT OF A PERMANENT ESTABLISHMENT (PE) CONSTITUTED IN INDIA. THESE SERV ICES HAVE BEEN RENDERED DIRECTLY BY ASSESSEE HEAD OFFICE TO VOIPL AND ITS D OES NOT HAVE ANY PE IN INDIA TO RENDER SUCH SERVICES. THE PROJECT OFFICE O F ASSESSEE IN INDIA DID NOT PERFORM ANY ACTIVITY/FUNCTION IN RENDERING THE SAID SERVICES. ACCORDINGLY, THE CONSIDERATION DIRECTLY RECEIVED BY ASSESSEE HEAD OF FICE FOR PROVIDING MANAGEMENT SERVICES, CANNOT BE ATTRIBUTED TO ITS IN DIAN OPERATION I.E. ASSESSEES PROJECT IN INDIA. THE PROJECT OFFICE OF ASSESSEE HAS NOT PLAYED ANY ROLE IN RENDERING THE ABOVE SERVICES. THE AMOUNT CH ARGED TO VOIPL HAS NOT ITA NO. 4136/MUM/2016-VAN OORD DREDGING AND MARINE CONTRACTORS BV 5 BEEN INCLUDED IN ITS BOOKS OF ACCOUNT. THE MANAGEME NT FEEDS RECEIVED BY ASSESSEE HEAD OFFICE IS WITHOUT ANY MARK UP AND CON STITUTED FOR PURE ALLOCATION OF COST WHICH IS NOT TAXABLE AS FEES FOR TECHNICAL SERVICES. FOR RENDERING MANAGEMENT SERVICES, THE ASSESSEE HEAD OFFICE HAD A SPECIFIC PERCENTAGE OF COST INCURRED BY IT FOR RENDERING AFORESAID SERVICE S TO VOIPL. THE SAID COST IS ALLOCATED TO ALL GROUP COMPANIES OF ASSESSEE BASED ON TURNOVER OF EACH COMPANY. A COPY OF CERTIFICATE FROM NETHERLANDS AUD ITOR OF ASSESSEE STATING THAT COST ALLOCATED TO VOIPL IS VERIFIED AND NOT MA RK UP IS CHARGED BY ASSESSEE. THE CONTENTION OF ASSESSEE WAS NOT ACCEPT ED BY ASSESSING OFFICER HOLDING THAT PAYMENT MADE BY INDIA COMPANY TO ASSES SEE ARE CLEARLY FOR THE USE OF INFORMATION CONCERNING INDUSTRIAL COMMERCIAL OR SCIENTIFIC EXPERIENCE IN INDIA. THESE PAYMENTS ARE SPECIFICALLY COVERED UNDE R CIRCULAR-4 OF ARTICLE-12 OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWE EN INDIA AND NETHERLANDS AND ARE TAXABLE AS ROYALTY. THE PAYMENT S RECEIVED BY ASSESSEE- COMPANY ARE NOTHING BUT A ROYALTY AS PER ARTICLE-12 OF TREATY. THERE IS NO DISPUTE THAT THESE SERVICES ARE UTILIZED IN INDIA B Y INDIAN ENTITY. THE CONTENTION OF ASSESSEE THAT THE SERVICES HAVE BEEN RENDERED OU TSIDE INDIA DOES NOT HOLD GOOD AND SAME IS TAXABLE IN INDIA. THE ASSESSING OF FICER BY TREATING THE SERVICES RENDERED BY ASSESSEE IN THE NATURE OF ROYA LTY AND TAXED @ 10%. ON APPEAL BEFORE THE LD. CIT(A), THE ACTION OF ASSESSI NG OFFICER WAS CONFIRMED. THE LD. CIT(A) WHILE CONFIRMING THE ACTION OF ASSES SING OFFICER HOLD THAT THE CONCEPT OF ROYALTY AND MAKE AVAILABLE OF TECHNICAL KNOWLEDGE ARE SIMILAR TO ITA NO. 4136/MUM/2016-VAN OORD DREDGING AND MARINE CONTRACTORS BV 6 SOME EXTENT. ALTHOUGH THE REQUIREMENT OF ARE MORE S TRINGENT THAN THE CONCEPT OF MAKE AVAILABLE. IN ROYALTY, A TRANSFER OF KNOWL EDGE 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 AVAILA BLE IS SUFFICIENT, NO RIGHT IS CREATED WHILE MAKE AVAILABLE ANY TECHNICAL KNOWLEDG E, SKILL, EXPERIENCE OF PROCESS IN FAVOUR OF THE RECIPIENT OF SERVICE BUT T HE TECHNICAL KNOWLEDGE IS SHARED AND THE RECIPIENT BECOME MORE INFORMED IN TH E AREA IN WHICH KNOWLEDGE IS SHARED TO THE BENEFIT OF RECIPIENT. TH E CONCEPT OF MAKE AVAILABLE CAN BE TAKEN TO THE SOMEWHERE BETWEEN TH E CONCEPT OF ROYALTY AND CONCEPT OF FEES FOR TECHNICAL SERVICES AS PROVIDED UNDER SECTION 9(1)(VII). THUS, THE CONCEPT OF MAKE AVAILABLE IS WIDER THAN THE R OYALTY, SO FAR AS REQUIREMENT OF TRANSFER OF TECHNOLOGY IS CONCERNED. A MERE SHA RING OF TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL OR PROCESS WHICH ENABL E THE RECIPIENT TO APPLY THIS KNOWLEDGE, EXPERIENCE LIKE SKILL OR PROCESS SU BSEQUENTLY WILL BE SUFFICIENT TO CONCLUDE THAT THE KNOWLEDGE, SKILL, PROCESS OR S KILL HAS BEEN MADE AVAILABLE. THE LD. CIT(A) ALSO CONCLUDED IN NOMENCLATURE CANNO T BE RELIED TO CHARACTERISE A TRANSACTION. A REIMBURSEMENT MAY BE ACTUALLY ROYA LTY OR FTS OR ACTUAL REIMBURSEMENT DEPENDING ON THE NATURE OF SERVICES R ENDERED. THE CLAIM OF ASSESSEE THAT AMOUNT REPRESENT REIMBURSEMENT OF EXP ENDITURE AND DOES NOT HAVE ELEMENT OF INCOME IS NOT ACCEPTABLE. THUS, FUR THER AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED THE PRESENT A PPEAL BEFORE US. ITA NO. 4136/MUM/2016-VAN OORD DREDGING AND MARINE CONTRACTORS BV 7 3. WE HAVE HEARD THE SUBMISSION OF LD. AUTHORIZED REPR ESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) F OR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. GROUND NO .1 IS GENERAL. GROUND NO.2 TO 6 RELATES TO TAXABILITY OF MANAGEMENTS FEES OF R S. 34.49 CRORE AS ROYALTY. THE LD. AR OF THE ASSESSEE SUBMITS THAT VIDE AGREEM ENT DATED 1 ST APRIL 2004 THE ASSESSEE ENTERED INTO SERVICE AGREEMENT WITH VO IPL WHICH IS SUBSIDIARY OF ASSESSEE IN INDIA. PURSUANT TO THE SAID AGREEMENT, THE ASSESSEE PROVIDED SERVICES IN THE FIELD OF INFORMATION TECHNOLOGY, OP ERATION, QUALITY, HEALTH SAFETY AS PROVIDED IN THE AGREEMENT. COPY OF SERVICE AGREE MENT IS FILED AT PAGE NO. 52 TO 55. THE ASSESSEE PROVIDED STANDARD SERVICES TO E NSURE THE CONSISTENCY IN THE APPROACH WORLDWIDE. THE PAYMENT RECEIVED BY ASSESSE E WAS TREATED AS ROYALTY. THE LD. AR FURTHER SUBMITS THAT ON THE BASIS OF THE SAME SERVICE AGREEMENT DATED 1 ST APRIL 2004 SIMILAR PAYMENT WAS TREATED AS ROYALTY IN ASSESSMENT FOR A.Y. 2009-10, WHICH WERE CONFIRMED BY DRP, HOWEVER, ON APPEAL BEFORE THE LD. CIT(A), THAT THE PAYMENTS RECEIVED BY ASSESSEE ARE REIMBURSEMENT OF COST AND DOES NOT FALL UNDER THE REALM OF ROYALTY. THE LD. AR FURTHER SUBMITS THAT BY FOLLOWING THE DECISION OF A.Y. 2009-10, SIMILAR RELIEF WAS GRANTED TO ASSESSEE IN APPEAL FOR A.Y. 2013-14 & 2014-15. THE LD. AR FURTHER SUBMITS THAT AFTER TREATING THE MANAGEMENT SERVICE FEES AS ROYALTY IN A.Y. 2009-10, THE ASSESSMENT FOR A.Y. 2005-06 & 2007-08 WAS RE-OPENED . HOWEVER, ON APPEAL BEFORE THE TRIBUNAL, THE TRIBUNAL BY FOLLOWING THE ORDER OF A.Y. 2009-10, 2013-14 & 2014-15 HELD THAT THE MANAGEMENT SERVICES FEES RECEIVED CANNOT BE ITA NO. 4136/MUM/2016-VAN OORD DREDGING AND MARINE CONTRACTORS BV 8 ASSESSED AS ROYALTY IN TERM OF ARTICLE-12(4) INDIA- NETHERLANDS TREATY. THE LD. AR OF THE ASSESSEE FILED THE COPY OF DECISION OF TR IBUNAL FOR A.Y. 2005-06, 2007-08, 2009-10, 2013-14 & 2014-15. 4. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED 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 RECEIV ED ON ACCOUNT OF VARIOUS SERVICES BY ASSESSEE ARE IN THE NATURE OF ROYALTY. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES 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 BET WEEN THE ASSESSEE AND VOIPL, THE ASSESSING OFFICER FOR A.Y. 2009-10 TREAT ED THE AMOUNT RECEIVED ON ACCOUNT OF VARIOUS SERVICES RENDERED BY ASSESSEE AS ROYALTY, HOWEVER, ON APPEAL BEFORE THE TRIBUNAL, THE SAME WAS HELD AS RE IMBURSEMENT OF COST VIDE ORDER DATED 07.10.02016 IN ITA NO. 7589/MUM/2012. W E HAVE FURTHER NOTED THAT THE CO-ORDINATE BENCH OF TRIBUNAL FOR A.Y. 201 3-14 & 2014-15 BY FOLLOWING THE DECISION OF TRIBUNAL FOR A.Y. 2009-10 , THE CO-ORDINATE BENCH PASSED THE FOLLOWING ORDER: 5. WE HEARD THE PARTIES AND PERUSED THE RECORD. WE NOTICE THAT THE ASSESSING OFFICER HAD MADE IDENTICAL DISALLOWANCE IN ASSESSMENT YEAR 2009 -10 AND THE TRIBUNAL, VIDE ITS ORDER REFERRED SUPRA, HAS HELD THAT NONE OF THE SERVICES PROVIDED BY THE ASSESSEE IN THE TERMS OF 'SERVICE AGREEMENT' FALLS UNDER THE SCOPE AND AM BIT OF 'ROYALTY' AS DEFINED IN ARTICLE 12(4) OF THE DTAA. FOR THE SAKE OF CONVENIENCE, WE EXTRA CT BELOW THE OPERATIVE PORTION OF THE ORDER PASSED BY THE CO-ORDINATE BENC H OF TRIBUNAL IN AY 2009-10:- ITA NO. 4136/MUM/2016-VAN OORD DREDGING AND MARINE CONTRACTORS BV 9 14. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AS WELL AS MATERIAL REFERRED AND RE LIED UPON BEFORE US. THE FIRST ISSUE FOR OUR ADJUDICATION IS, WHETHER THE FEES REC EIVED BY THE ASSESSEE FROM ITS INDIAN ENTITY, VIOPL FOR MANAGEMENT AND SUPPORT SER VICES 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 ASSESS EE TO VOIPL IN THE TERMS OF SERVICE AGREEMENT DATED 1ST APRIL, 2004 HAS ALREADY BEEN DISCUSSED ABOVE ELABORATELY. THE REVENUE'S CASE IS THAT, THE VOIPL IS COMPLETELY DEPENDENT ON ASSESSEE (VODMC) FOR ITS EXPERIENCE IN INDUSTRIAL, COMMERCIAL AND SCIENTIFIC FIELD. THE INDIAN ENTITY IS ENGAGED IN HIGHLY TECHNICAL BU SINESS OF DREDGING ACTIVITIES FOR WHICH IT REQUIRES THE INFORMATION AND EXPERIENCE OF THE VODMC RIGHT FROM THE PRE- BIDDING STAGE TILL THE POST PROJECT COMPLETION STAG E. THUS, THE PAYMENT RECEIVED BY THE ASSESSEE-FIRM FOR RENDERING SUCH KIND OF SERVIC ES FALLS WITHIN THE REALM AND AMBIT OF 'ROYALTY' AS DEFINED IN PARA (4) OF ARTICLE 12 OF THE DTAA. THE RELEVANT DEFINITION OF 'ROYALTY' AS GIVEN IN ARTICLE 12(4) OF INDIA-NETHERLANDS-DTAA READS AS UNDER:- 'THE TERM 'ROYALTIES' AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADE MARK DESIGN OR MODEL, PAN SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE'. HERE, THE MAIN EMPHASIS OF THE REVENUE IS ON THE TE RM 'FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE'. T HIS 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 INDUST RIAL, 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 EXP ERIENCE, PARAGRAPH 2 IS REFERRING TO THE CONCEPT OF 'KNOW-HOW'. VARIOUS SPECIALIZED BODIES AND AUTHORS HAVE FORMULA TED DEFINITIONS OF KNOW-HOW. THE WORDS 'PAYMENTS ... FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE' ARE USED IN THE CONTEXT OF T HE TRANSFER OF CERTAIN INFORMATION THAT HAS NOT BEEN PATENTED AND DOES NOT GENERALLY F ALL WITHIN OTHER CATEGORIES OF INTELLECTUAL PROPERTY RIGHTS. IT GENERALLY CORRESPO NDS TO UN-DIVULGED INFORMATION OF AN INDUSTRIAL, COMMERCIAL OR SCIENTIFIC NATURE ARIS ING FROM PREVIOUS EXPERIENCE, WHICH HAS PRACTICAL APPLICATION IN THE OPERATION OF AN ENTERPRISE AND FORM THE DISCLOSURE OF WHICH AN ECONOMIC BENEFIT CAN BE DERI VED. 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 KNOWL EDGE AND EXPERIENCE WHICH REMAIN UNREVEALED TO THE PUBLIC. IT IS RECOGNIZED T HAT THE GRANTOR IS NOT REQUIRED TO PLAY ANY PART HIMSELF IN THE APPLICATION OF THE FOR MULAS GRANTED TO THE LICENSEE AND THAT HE DOES NOT GUARANTEE THE RESULT THEREOF. THIS TYPE OF CONTRACT THUS DIFFERS FROM CONTRACTS F OR THE PROVISION OF SERVICES, IN WHICH ONE OF THE PARTIES UNDERTAKES TO USE THE CUST OMARY SKILLS OF HIS CALLING TO ITA NO. 4136/MUM/2016-VAN OORD DREDGING AND MARINE CONTRACTORS BV 10 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 THE SUPPLY OF KNOW-HOW CONCERN INFORM ATION OF THE KIND DESCRIBED IN PARAGRAPH 11 THAT ALREADY EXISTS OR CONCERN THE SUP PLY OF THAT TYPE OF INFORMATION AFTER ITS DEVELOPMENT OR CREATION AND INCLUDE SPECI FIC PROVISIONS CONCERNING THE CONFIDENTIALITY OF THAT INFORMATION. IN THE CASE OF CONTRACTS FOR THE PROVISION OF SERVI CES, THE SUPPLIER UNDERTAKES TO PERFORM SERVICES WHICH MAY REQUIRE THE U SE, BY THA T SUPPLIER, OF SPECIAL KNOWLEDGE, SKILL AND EXPERTISE BUT NOT THE TRANSFER OF SUCH SP ECIAL KNOWLEDGE, SKILL OR EXPERTISE TO THE OTHER PARTY. IN MOST CASES INVOLVING THE SUPPLY OF KNOW-HOW, THE RE WOULD GENERALLY BE VERY LITTLE MORE WHICH NEEDS TO BE DONE BY THE SUPPLIER UNDER T HE CONTRACT OTHER THAN TO SUPPLY EXISTING INFORMATION OR REPRODUCE EXISTING MATERIAL . ON THE OTHER HAND, A CONTRACT FOR THE PERFORMANCE OF SERVICES WOULD, IN THE MAJORITY OF CASES, INVOLVE CONTRACTUAL OBLIGATIONS. FOR INSTANCE, THE SUPPLIER, DEPENDING ON THE NATURE OF THE SERVICES TO BE RENDERED, MAY HAVE TO INCUR SALARIES AND WAGES FOR EMPLOYEES ENGAGED IN RESEARCHING, DESIGNING, TESTING, DRAWING AND OTHER ASSOCIATED ACTIVITIES OR PAYMENTS TO SUBCONTRACTORS FOR THE PERFORMANCE OF SIMILAR SE RVICES. EXAMPLES OF PAYMENTS WHICH SHOULD THEREFORE NOT BE CONSIDERED TO BE RECEIVED AS CONSIDERATION FOR THE PROVISION OF KNOW-HOW BUT, RA THER, FOR THE PROVISION OF SERVICES, INCLUDE: - PAYMENTS OBTAINED AS CONSIDERATION FOR AFTER-SALE S 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 AVAILAB LE INFORMATION (A) PAYMENT FOR THE CONFIDENTIAL LIST OF CUSTOMERS TO WHICH THE PAYEE H AS PROVIDED A PARTICULAR PRODUCT OR SERVICE WOULD, HOWEVER, CONSTITUTE A PAYMENT FOR KN OW-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 NETW ORKS, A TROUBLE-SHOOTING DATABASE SUCH AS A DATABASE THAT PROVIDES USERS OF SOFTWARE NON=CONFIDENTIAL INFORMATION IN RESPONSE TO FREQUENTLY ASKED QUESTIO NS OR COMMON PROBLEMS ARISE FREQUENTLY' ITA NO. 4136/MUM/2016-VAN OORD DREDGING AND MARINE CONTRACTORS BV 11 FROM THE ABOVE CLARIFICATION, IT CAN BE OSTENSIBLY INFERRED THAT, TO QUALIFY AS PAYMENT TOWARDS INFORMATION CONCERNING INDUSTRIAL, COMMERCI AL OR SCIENTIFIC EXPERIENCE, PERSON MUST PROVIDE KNOWHOW TO THE RECIPIENT, THAT IS, A S TRONG EMPHASIS HAS BEEN GIVEN TO CONCEPT OF 'KNOWHOW'. THERE IS AN ELEMENT OF IMPART ING OF KNOWHOW TO THE OTHER SO THAT OTHER CAN USE OR HAS RIGHT TO USE SUCH 'KNOWHO W'. IN CASE OF INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE, IF SERVICES ARE BEING REN DERED 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 EXPERIE NCE TO OTHER ALBEIT THE PERSON IS RENDERING THE SERVICES FROM HIS OWN KNOWHOW AND WHA T HE IS IMPARTING IS HIS CONCLUSION BASED ON HIS OWN SKILL AND EXPERIENCE. T HE 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 ALIENAT ION OR USE OF OR RIGHT TO USE OF ANY KNOWHOW AND WITHOUT ANY TRANSFER OF ANY KNOWLEDGE, EXPERIENCE OR SKILL, IT CANNOT BE TERMED AS 'ROYALTY'. IN THE CASE OF GECC ASIA LTD. VS. DDIT (SUPRA) HAD OCCASION TO DEAL WITH THE TERM 'INFORMATION CONCERNING TO INDUS TRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE' AND AFTER REFERRING TO VARIOUS COMMENTA RIES, OBSERVED AND HELD AS UNDER: 'THE ROYALTY PAYMENT RECEIVED AS CONSIDERATION FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL, SCIENTIFIC EXPERIENCE ALLUD ES TO THE CORRECT OF KNOWHOW. THERE IS AN ELEMENT OF IMPARTING OF KNOWHOW TO THE OTHER, SO THAT THE OTHER PERSON CAN USE OR HAS RIGHT TO USE SUCH KNOWHOW. IN CASE OF INDUSTRIAL, COMMERCIAL AND SCIENTIFIC EXPERIENCE, IF SERVICES A RE BEING RENDERED SIMPLY AS AN ADVISORY OR CONSULTANCY, THEN IT CANNOT BE TERMED A S 'ROYALTY', BECAUSE THE ADVISOR OR CONSULTANT IS NOT IMPARTING HIS SKILL OR EXPERIENCE TO OTHER, BUT RENDERING HIS SERVICES FROM HIS OWN KNOWHOW AND EXP ERIENCE. ALL THAT HE IMPARTS IS A CONCLUSION OR SOLUTION THAT DRAWS FROM HIS OWN EXPERIENCE. THE EMINENT AUTHOR KLAUS VOGEL I HIS BOOK 'KLAUS VOGEL ON DOUBL E TAX CONVENTION' HAS REITERATED THIS VIEW ON DIFFERENCED BETWEEN ROYALTY AND RENDERING OF SERVICES. THE THIN LINE DISTINCTION WHICH IS TO BE TAKEN INTO CON SIDERATION WHILE RENDERING THE SERVICES ON ACCOUNT OF INFORMATION CONCERNING INDUS TRIAL, COMMERCIAL AND SCIENTIFIC EXPERIENCE IS, WHETHER THERE IS ANY IMPA RTING OF KNOWHOW OR NOT. IF THERE IS NO 'ALIENATION' OR THE 'USE OF' OR THE 'RI GHT 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 PERSO N AS THE PERSON RETAINS THE EXPERIENCE AND KNOWLEDGE OR KNOWHOW WITH HIMSELF, W HICH 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 O F 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, THE N IT CANNOT BE HELD TO BE TAXABLE AS ROYALTY' 15. THUS, WHAT WE HAVE TO SEE IS, WHETHER THE VARIO US SERVICES PROVIDED BY ASSESSEE TO VOIPL CAN BE RECKONED AS PROVIDING OF A NY KIND OF IMPARTING OF KNOWHOW OR INFORMATION CONCERNING INDUSTRIAL, COMME RCIAL OR SCIENTIFIC EXPERIENCE OR NOT. AS HIGHLIGHTED ABOVE, WITH REGAR D TO VARIOUS STREAMS OF SERVICES LIKE PROVIDING OF INFORMATION TECHNOLOGY; OPERATIONAL SUPPORT; MARKETING; QUALITY, HEALTH, SAFETY AND ENVIRONMENT; ESTIMATING AND ENGINEERING; ITA NO. 4136/MUM/2016-VAN OORD DREDGING AND MARINE CONTRACTORS BV 12 AND PERSONAL AND ORGANIZATION, ADMINISTRATION AND L EGAL SERVICES, THERE IS NO IMPARTING OF ANY KIND OF KNOWLEDGE, SKILL OR EXPERI ENCE BY WAY OF INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC WHI CH IS MADE AVAILABLE TO VOIPL. FOR INSTANCE, INFORMATION TECHNOLOGY SERVICE S ARE PROVIDED FOR USE OF GROUP COMPANIES' COMPUTER SYSTEM WHERE IT TEAMS PRO VIDING MANUAL GENERAL INFORMATION WITHOUT PROVIDING ANY INFORMATION OR ME THOD TO DESIGN OR CREATE A COMPUTER SYSTEM. IT IS MAINLY KIND OF HELP DESK AND TROUBLE-SHOOTING SERVICES WHICH ARE REQUIRED ON REGULAR BASIS. FOR OPERATIONA L SUPPORT SYSTEM ALSO, IT MAINLY PROVIDES FOR CHECK-LIST FOR PROJECT PLANS, S AFETY WORK AND INSPECTION PLANS ETC. SIMILARLY, FOR MARKETING, THE ASSESSEE PROVIDE S FOR EMARKETING THROUGH ITS WEBSITE AND MAINTAINING IT, PRINTING AND PUBLISHING BROCHURES WHICH CAN BE DISTRIBUTED TO ITS POTENTIAL CLIENTS. IT ALSO HELPS VOIPL TO OBTAIN THE CERTIFICATE OF APPROVAL FROM THE CONCERNED ORGANIZATIONS AND OBTAI NED THE CONTRACTS ON THE REGULAR BASIS. REGARDING QUALITY HEALTH AND SAFETY ENVIRONMENT SERVICES, THE ASSESSEE MERELY CONDUCTS INTERNAL AUDITS ON REGULAR INTERVALS SO THAT PROPER ADHERENCE TO SUCH QUALITY STANDARD AND PROCEDURES A RE VALID/ SHOULD REMAIN VALID. SIMILARLY, IN THE ESTIMATING AN ENGINEERING SERVICE S AND OTHER SERVICES ALSO, THE ASSESSEE IS MAINLY PROVIDING TENDER PROCESS, HELPIN G AND PREPARING (ESTIMATES) AND BIDS AND PLAN CONSISTING IN LOCAL PERFORMANCE A ND OTHER GUARANTEES TO THE CLIENT OF VOIPL ETC. FOR RENDERING OF THESE SERVICE S, THERE IS NO ELEMENT OF IMPARTING OF ANY 'KNOWHOW' OR THERE IS TRANSFER OF ANY KNOWLEDGE, SKILL OR EXPERIENCE. THUS, IN OUR OPINION, NONE OF THE SERVI CES PROVIDED BY THE ASSESSEE IN THE TERM OF 'SERVICE AGREEMENT' FALLS WITHIN THE SC OPE AND AMBIT OF 'ROYALTY' AS DEFINED IN ARTICLE 12(4) OF THE DTAA. 6. THE CO-ORDINATE BENCH OF TRIBUNAL HAS DEALT WITH THE PAYMENT RECEIVED BY THE ASSESSEE PURSUANT TO THE AGREEMENT DATED 01-04-2004 . IN THE YEARS UNDER CONSIDERATION ALSO, THE ASSESSEE RECEIVED PAYMENTS PURSUANT TO VERY SAME AGREEMENT. THE LD A.R SUBMITTED THAT THERE IS NO CHANGE IN FAC TS BETWEEN BOTH THE YEARS. BEFORE US, THE REVENUE COULD NOT BRING ANY MATERIAL IN ORD ER TO COMPEL US NOT TO FOLLOW THE ORDER PASSED BY THE CO-ORDINATE BENCH IN AY 2009-10 . SINCE A PARTICULAR VIEW HAS ALREADY BEEN TAKEN BY THE TRIBUNAL ON IDENTICAL PAY MENTS RECEIVED BY THE ASSESSEE, FOLLOWING THE SAME, WE HOLD THAT THE PAYMENTS RECEI VED BY THE ASSESSEE IN TERMS OF 'SERVICE AGREEMENT DATED 01-04- 2004' DO NOT FALL U NDER THE DEFINITION OF 'ROYALTY' AS DEFINED IN ARTICLE 12(4) OF INDIA-NETHERLANDS DT AA. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE ASSESSING OFFICER IN BOTH T HE YEARS ON THIS ISSUE. 6. CONSIDERING THE DECISION OF CO-ORDINATE BENCH OF A. Y. 2009-10 (ITA NO. 7589/MUM/2012 DATED 07.10.2016), WHICH WAS FOLLOWED IN A.Y. 2013-14 & 2014-15 (ITA NO. 6140 & 6141/MUM/2017 DATED 11.10.2 017) WHEREIN THE SIMILAR PAYMENTS RECEIVED PURSUANT TO THE SAME AGRE EMENT WAS TREATED THAT PAYMENT RECEIVED BY ASSESSEE ARE ON ACCOUNT OF REIM BURSEMENT AND DOES NOT FALL UNDER THE DEFINITION OF ROYALTY AS DEFINED I N ARTICLE-12(4) OF THE INDIA- ITA NO. 4136/MUM/2016-VAN OORD DREDGING AND MARINE CONTRACTORS BV 13 NETHERLANDS TAX TREATY. FURTHER, BY FOLLOWING THE D ECISION FOR A.Y. 2009-10, 2013-14 AND 2014-15 SIMILAR PAYMENT WAS TREATED AS MANAGEMENT SERVICE FEES IN APPEAL FOR A.Y. 2005-06 & 2007-08 IN ITA NO . 495 & 496/MUM/2016 DATED 28.02.2018. THEREFORE, WE FIND THAT THE GROUN D OF APPEAL RAISED BY ASSESSEE IS COVERED IN FAVOUR OF ASSESSEE AND AGAIN ST THE REVENUE. THEREFORE, GROUND NO.1 TO 6 OF THE APPEAL IS ALLOWED IN FAVOUR OF ASSESSEE. 7. GROUND NO. 7 TO 9 RELATES TO REIMBURSEMENT OF SALAR Y. DURING THE HEARING, THE LD. AR OF THE ASSESSEE MADE STATEMENT THAT HE IS NO T PRESSING THESE GROUNDS OF APPEAL. CONSIDERING THE SUBMISSION OF LD. AR OF TH E ASSESSEE, GROUND NO. 7 TO 9 ARE DISMISSED AS NOT PRESSED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/09/2019. SD/ SD/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER MUMBAI, DATE: 05.09.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR L BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI