H.J. Heinz Company, USA, Mumbai V. ADIT, New Delhi

ITA 6252/DEL/2012

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4189 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 17-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G K DHALL CITA
• Keywords: Business income; Transfer pricing; Double taxation relief; Principle of natural justice; Initiation of penalty proceedings; TDS
• Section: 271(1)(c); 143(3); 234B; 205

Judgement Text

1 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBE R AND MS SUCHITRA KAMBLE, JUDIC IAL MEMBER ITA NO. 6252/DEL/2012 ( A .Y 2009-10) H. J. HEINZ COMPANY, USA 7 TH FLOOR, D-SHIVSAGAR ESTATE, DR. ANNIE BESANT ROAD, WORLI MUMABI AACCH2144P (APPELLANT) VS ADIT CIRCLE-1(2) INTERNATIONAL TAXATION NEW DELHI (RESPONDENT) ITA NO. 1991/DEL/2015 ( A .Y 2011-12) H. J. HEINZ COMPANY, USA 7 TH FLOOR, D-SHIVSAGAR ESTATE, DR. ANNIE BESANT ROAD, WORLI MUMABI AACCH2144P (APPELLANT) VS ACIT CIRCLE-2(1)(1), INTERNATIONAL TAXATION, ROOM NO. 410, 4 TH FLOOR, E- Z BLOCK, PRATYAKSH KAR BHAWAN NEW DELHI (RESPONDENT) APPELLANT BY SH. SALIL KAPOOR, ADV, MS. SOUMYA SINGH, ADV, MS. ANANYA KAPOOR, ADV RESPONDENT BY SH. G. K. DHALL, CIT(A) DR ORDER PER SUCHITRA KAMBLE, JM THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDER DATED 15/10/2012 PASSED BY ASSESSING OFFICER FOR A.Y. 200 9-10 AND ORDER DATED 21.01.2015 PASSED BY THE ASSESSING OFFICER FOR A.Y. 2011-12. DATE OF HEARING 27.05.2019 DATE OF PRONOUNCEMENT 23.08.2019 2 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO. 6252/DEL/2012 A.Y. 2009-10 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, M/S H. J. HEINZ COMPANY (HEREINAFTER REFERRED TO AS THE APPELLANT) CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE ASSISTANT DIRECTOR OF INCOME-TAX, (INTERNATIONAL TA X), CIRCLE 1(2), NEW DELHI (HEREINAFTER REFERRED TO AS THE LEARNED AO) UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE INCOME-TAX ACT, 1 961 (HEREINAFTER REFERRED TO AS THE ACT) ON THE FOLLOWING GROUNDS, EACH OF WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER: GROUND 1: GENERAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO/ DISPUTE RESOLUTION PANEL - I NEW DE LHI (HEREINAFTER REFERRED TO AS THE DRP) ERRED IN ASSESSING THE TO TAL INCOME AT RS 2,21,02,821 AS AGAINST INCOME OF RS 32,48,463 COMPU TED AND RETURNED BY THE APPELLANT; GROUND 2: TAXING OF REIMBURSEMENTS OF RS 1,88,54,35 8 AS FEES FOR TECHNICAL /INCLUDED SERVICE (FTS/FIS) AND ROYALTY UNDER THE ACT AND DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN IND IA AND USA (DTAA) 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO/ DRP ERRED IN HOLDING THAT THE COST REIMBURSEMENTS OF RS 1,88,54,358 RECEIVED BY THE APPELLANT TOWARDS PR OVIDING SUPPORT SERVICES TO ITS GROUP AFFILIATES ARE TAXABLE AS FTS BOTH UNDER SECTION 9(1)(VII) OF THE ACT AS WELL AS ARTICLE 12(4) OF TH E DTAA; 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO ERRED IN HOLDING THAT THE APPELLANT HAS MADE AVAILABLE TECHNICAL KNOWLEDGE, SKILL, EXPERIENCE, E TC. TO THE RECIPIENT OF SERVICES; 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO/DRP FURTHER ERRED IN HOLDING THAT TH E COST REIMBURSEMENTS ARE ALSO TAXABLE AS ROYALTY BOTH U NDER SECTION 3 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 9(1)(VI) OF THE ACT AS WELL AS ARTICLE 12 OF THE DT AA; 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEA RNED AO/ DRP FAILED TO APPRECIATE THAT THE AMOUNTS REPRESENT ED PURE REIMBURSEMENT OF COSTS AND HENCE DOES NOT RESULT IN TO ANY TAXABLE INCOME ACCRUING IN INDIA; 6. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO/ DRP FAILED TO APPRECIATE THAT THE INCOME, CANNOT BE BOTH ROYALTY AS WELL AS FTS AND HENCE THE ORDER PASSED ON ACCOUNT OF NON APPLIC ATION OF MIND, NEEDS TO BE QUASHED; GROUND 3: NOT GRANTING CREDIT OF TAXES DEDUCTED AT SOURCE (TDS) OF RS 44,43,786 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO ERRED IN NOT GRANTING CREDIT FOR TDS OF RS 44,43,786 CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME; GROUND 4: LEVY OF INTEREST UNDER SECTION 234B OF TH E ACT 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO ERRED IN LEVYING INTEREST UNDER SECT ION 234B OF THE ACT, WITHOUT APPRECIATING THAT ITS INCOME, IF ANY, IS SUBJECT TO TAX WITHHOLDING AND HENCE IT BEING A NON-RESIDENT, NO I NTEREST IS LEVIABLE; 9. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO FAIL ED TO CONSIDER THAT AFTER GRANTING CREDIT OF TDS AMOUNTIN G TO RS 44,43,786, NO TAX IS PAYABLE BY THE APPELLANT, AND ACCORDINGLY NO INTEREST IS LEVIABLE; GROUND 4: INITIATION OF PENALTY PROCEEDINGS UNDER S ECTION 271(1)(C) OF THE ACT 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO ERRED IN INITIATING PENALTY PROCEEDI NGS UNDER SECTION 271 (1 )(C) OF THE ACT FOR CONCEALMENT OF INCOME AN D FURNISHING OF INACCURATE PARTICULARS OF INCOME, WITHOUT APPRECIAT ING THE FACTS AND CIRCUMSTANCES OF THE CASE. 4 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 ITA NO. 1991/DEL/2015 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, M/S H. J. HEINZ COMPANY (HEREINAFTER REFERRED TO AS THE APPE LLANT) CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE AS SISTANT DIRECTOR OF INCOME-TAX, (INTERNATIONAL TAX), CIRCLE 2(1)(1), NE W DELHI (HEREINAFTER REFERRED TO AS THE LEARNED AO) UNDER SECTION 143( 3) READ WITH SECTION 144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER R EFERRED TO AS THE ACT) ON THE FOLLOWING GROUNDS, EACH OF WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER: GROUND 1: GENERAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO/ DISPUTE RESOLUTION PANEL - I, NEW DELHI (HEREINAFTER REFERRED TO AS THE DRP) ERRED IN ASSESSING THE TOTAL INCOM E AT RS 10,17,16,750 AS AGAINST AN INCOME OF INR 5,18,235 COMPUTED AND RETU RNED BY THE APPELLANT; GROUND 2: TAXING OF REIMBURSEMENTS OF RS 9,82,61,85 2 AS FEES FOR TECHNICAL I INCLUDED SERVICE (FTS/FIS) AND ROYALTY UNDER THE ACT AND DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN IND IA AND USA (DTAA) 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO/ DRP ERRED IN HOLDING THAT THE COST REIM BURSEMENTS OF RS 9,82,61,852 RECEIVED BY THE APPELLANT TOWARDS PROVI DING SUPPORT SERVICES TO ITS GROUP AFFILIATES ARE TAXABLE AS FTS BOTH UND ER SECTION 9(1 )(VII) OF THE ACT AS WELL AS ARTICLE 12(4) OF THE DTAA; 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO ERRED IN HOLDING THAT THE APPELLANT HAS MADE AVAILABLE TECHNICAL KNOWLEDGE, SKILL, EXPERIENCE, ETC. TO THE RECIPIENT OF SERVICES; 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO/ DRP FURTHER ERRED IN HOLDING THAT THE C OST REIMBURSEMENTS ARE ALSO TAXABLE AS ROYALTY BOTH UNDER SECTION 9( 1 )(VI) OF THE ACT AS WELL AS ARTICLE 12 OF THE DTAA; 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEA RNED AO/ DRP 5 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 FAILED TO APPRECIATE THAT THE AMOUNTS REPRESENTED P URE REIMBURSEMENT OF COSTS AND HENCE DOES NOT RESULT INTO ANY TAXABLE IN COME ACCRUING IN INDIA; 6. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO/ DRP FAILED TO APPRECIATE THAT THE INCOME, CANNOT BE BOTH ROYALTY AS WELL AS FTS AND HENCE THE ORDER PASSED ON ACCOUNT OF NON APPLICATIO N OF MIND, NEEDS TO BE QUASHED; GROUND 3: NOT GRANTING CREDIT OF TAXES DEDUCTED AT SOURCE (TDS) OF RS 1,19,35,314 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED A.O ERRED IN NOT GRANTING CREDIT FOR TDS OF RS.1,19,35,314/- CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME GROUND 4: LEVY OF INTEREST UNDER SECTION 234B OF TH E ACT, 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT, WITHOUT APPRECIATING THAT ITS INCOME, IF ANY, IS SUBJECT TO TAX WITHHOLDING AND HENCE IT BEING A NON-RESIDENT, NO INTEREST IS LEVIABLE; 9. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO FAI LED TO CONSIDER THAT AFTER GRANTING CREDIT OF TDS AMOUNTING TO RS 1 ,19,35,314, THERE IS NO TAX IS PAYABLE BY THE APPELLANT, AND ACCORDINGLY NO INTEREST IS LEVIABLE; GROUND 4: INITIATION OF PENALTY PROCEEDINGS UNDER S ECTION 271 (1 )(C) OF THE ACT 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT FOR CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME, WITHOUT APPRECIATING THE FAC TS AND CIRCUMSTANCES OF THE CASE. 3. H. J. HEINZ COMPANY IS A COMPANY IS A TAX-RESIDE NT OF THE UNITED STATES OF AMERICA (USA). IT IS A LEADING MANUFACTURER OF FOODS PRODUCTS WITH A PORTFOLIO OF GLOBAL BRANDS. IT IS STATED TO BE HEA DQUARTERED IN PITTSBURGH, USA LISTED ON THE NEW YORK STOCK EXCHANGE, WITH OPERATI ONS IN OVER 10 LOCATIONS 6 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 WORLD-WIDE. TOGETHER ALL THESE ENTITIES ARE FROM T HE HEINZ GROUP. THE ASSESSEE COMPANY STATED TO HAVE ENTERED INTO A GLOB AL AGREEMENT DATED 3 RD MAY 2007 WITH ITS GROUP ENTITIES INCLUDING HEINZ IN DIA PVT. LTD. AS PER THE AGREEMENT, THE ENTIRE COSTS INCURRED BY THE ASSESSE E FOR UNDERTAKING THE SUPPORT ACTIVITIES FOR AFFILIATES ARE ALLOCATED/SHA RED BETWEEN THE AFFILIATES BASED ON AN ALLOCATION KEY. NO MARK UP IS CHARGED BY THE ASSESSEE ON THE COST ALLOCATED OF ITS AFFILIATES. HEINZ INDIA, A P RIVATE LIMITED COMPANY, INCORPORATED UNDER THE INDIAN COMPANIES ACT, 1956 I S AN INDIRECT AND INDEPENDENT SUBSIDIARY OF THE ASSESSEE. PURSUANT T O THE AGREEMENT ENTERED INTO WITH HEINZ INDIA, THE ASSESSEE ALLOCATED COST OF $ 367,603 EQUIVALENT TO RS. 18,854,358/- WITHOUT ANY MARK UP TO HEINZ INDIA AND RECEIVED A REIMBURSEMENT TOWARDS THE SAME DURING THE SUBJECT Y EAR. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICE R TAXED RECEIPTS OF RS.18,854,358/- RECEIVED BY THE ASSESSEE UNDER THE AFORESAID AGREEMENT AS FTS. THE ASSESSEE COMPANY, RESIDENT OF USA FILED I TS RETURN OF INCOME ON 30/09/2009 DECLARING A TOTAL INCOME AT NIL. THE CA SE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED. IN RESP ONSE TO THE NOTICE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE COMPANY A PPEARED ON VARIOUS DATES AND FILED DETAILS BEFORE THE ASSESSING OFFICE R. DURING THE COURSE OF THE PROCEEDINGS, THE ASSESSEE COMPANY VIDE ORDER SHEET ENTRY DATED 25/11/2011 WAS GIVEN A SHOW CAUSE AND WAS ASKED WHY THE AMOUNT RECEIVED IN LIEU OF SUPPORT ACTIVITIES GIVEN BY THE ASSESSEE SHOULD NOT BE ADDED BACK TO THE INCOME OF THE ASSESSEE. THE ASSESSEE VIDE LETTER D ATED 2/12/2011 SUBMITTED ITS REPLY. THE ASSESSING OFFICER HAD TAKEN COGNIZA NCE OF THE REPLY OF THE ASSESSEE AND DRAFT ASSESSMENT ORDER WAS PASSED ON 1 3/12/2011. SUBSEQUENTLY, THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP VIDE ITS DIRECTION DATED 24/9 /2012, DIRECTED THE ASSESSING OFFICER TO TAX THE AMOUNT OF RS. 18,854,3 58/- AT THE RATE OF 10%. THE TAXABLE INCOME OF THE ASSESSEE WAS COMPUTED BY THE ASSESSING OFFICER VIDE ORDER DATED 15/10/2012 AS UNDER:- 7 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 PARTICULARS AMOUNT (RS.) GROSS AMOUNT RECEIVED BY THE ASSESSEE COMPANY AS ROYALTY (TAX PAYABLE @ 15%) GROSS AMOUNT RECEIVED BY THE ASSESSEE COMPANY AS FTS/ROYALTY (TAX PAYABLE @10%) TOTAL INCOME 32,48,463 1,88,54,358 2,2,1,02,821 THUS, THE ASSESSING OFFICER ASSESSED AN INCOME OF THE ASSESSEE AT RS. 2,21,02,821/-. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE US. 5. THE LD. AR SUBMITTED THAT THE RECEIPT OF RS. 1,8 8,54,358/- FROM HEINZ INDIA CONSTITUTE REIMBURSEMENT OF EXPENSES AND THE SAME IS NOT TAXABLE IN INDIA AS FEES FOR TECHNICAL SERVICES UNDER THE INC OME TAX ACT, 1961. THE LD. AR SUBMITTED THAT THE ACTIVITIES CARRIED OUT BY TH E ASSESSEE UNDER THE AGREEMENT IS BROADLY IN THE AREA OF HUMAN RESOURCES , STRATEGIC PLANNING AND MARKETING, FINANCE AND INFORMATION SYSTEMS. COST I NCURRED BY THE ASSESSEE IN TERMS OF TIME AND EFFORT OF ITS EMPLOYEES FOR CARRY ING OUT THE ACTIVITIES ARE SHARED AMONGST THE VARIOUS AFFILIATES ON A UNIFORM AND CONSISTENT BASIS USING APPROPRIATE ALLOCATION FACTOR IN THE MANNERS SPECIF IED IN THE AGREEMENT. CLAUSE 5.2 AGREEMENT SPECIFICALLY DEALS WITH ALLOCA TION OF COST AND PROVIDES FOR THE MECHANISM FOR THE SAME. THE LD. AR SUBMITTED T HAT AN ACCOUNTING METHOD CONSISTENT WITH US GENERALLY ACCEPTED ACCOUN TING PRINCIPLES AND ASSESSEES ACCOUNTING POLICIES WOULD BE USED TO IDE NTIFY ALL DIRECT AND INDIRECT COST ASSOCIATED WITH ACTIVITIES CARRIED OUT BY THE ASSESSEE FOR EACH AFFILIATE. FOR EACH COST CENTRE AN APPROPRIATE ALLOCATION FACTOR I S IDENTIFIED. THE ABOVE COSTS ARE ALLOCATED BY THE ASSESSEE TO ITS AFFILIATES WIT HOUT CHARGING ANY MARK 8 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 UP/PROFIT ELEMENT. THE COST CONTRIBUTION/PAYMENTS MADE BY HEINZ INDIA AS A PARTICIPANT TO THE AGREEMENT MERELY REPRESENTS A RE IMBURSEMENT OF THE COSTS INCURRED BY THE ASSESSEE TOWARDS THE ABOVE ACTIVITI ES. IN SUBSTANCE AND IN FORM THE PAYMENT CANNOT BE CONSIDERED AS INCOME EAR N BY THE ASSESSEE. THE SAME CAN BE SEEN FROM THE AGREEMENT ITSELF THAT THE RE IS A ZERO PERCENT MARK UP. EXPENSES INCURRED BY THE ASSESSEE AND REIMBURS EMENT BY HEINZ INDIA ARE MERE RECOUPMENT OF EXPENSES AND WOULD NOT CONSTITUT E INCOME OF THE ASSESSEE. THE ASSESSEE MERELY ALLOCATES THE COSTS AND DOES NO T CHARGE ANY MARK UP. IN VIEW OF THE ABOVE, THE LD. AR SUBMITTED THAT REIMB URSEMENT OF EXPENSES RECEIVED FROM HEINZ INDIA IS NOT TAXABLE IN THE HAN DS OF THE ASSESSEE IN INDIA UNDER THE PROVISIONS OF THE ACT. THE LD. AR FURTHE R SUBMITTED THAT THE ADDITION IS LIABLE TO BE DELETED ON THIS GROUND ALO NE AS THERE ARE VARIOUS JUDGMENTS ON THIS ISSUE WHERE IT IS HELD THAT WHEN THERE IS ONLY RECOUPMENT OF EXPENSES, THERE IS NO ELEMENT OF INCOME AND HELD TH E SAME CANNOT BE HELD TO BE TAXABLE IN INDIA. THE DECISIONS ON REIMBURSEMEN TS ARE AS UNDER:- DUNLOP RUBBER 142 ITR 493 KOLKATA HIGH COURT DECTA 237 ITR 190-AAR SIEMENS AKTIONGESELLSCHAFT 189 TAXMAN 422-AAR BOMBA Y HIGH COURT ABB LTD 189 TAXMAN 422-AAR ERNST & YOUNG PVT. LTD. 49 TAXMANN.COM 386 KOLKATA ITAT 6. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE D OES NOT MAKE AVAILABLE TECHNICAL SERVICES OF HEINZ INDIA AND HE NCE SHOULD NOT BE TAXABLE AS FEES FOR INCLUDED SERVICES (FIS) UNDER THE PROVISIO NS OF THE DTAA. THE LD. AR SUBMITTED THAT IN THE PRESENT CASE FACTUALLY NO TEC HNICAL KNOWLEDGE ETC. WAS EVER MADE AVAILABLE BY THE ASSESSEE TO HEINZ INDIA. THE FACT THAT THE ASSESSEE PERFORMS SUCH ACTIVITIES ON A YEAR ON YEAR BASIS AL SO SUPPORTS THE CONTENTION THAT NO TECHNICAL KNOWLEDGE ETC. WAS MADE AVAILABL E. HEINZ INDIA HAS NOT ACQUIRED ANY KNOWLEDGE WHICH CAN BE USED BY HEINZ I NDIA IN ITS OPERATIONS IN INDIA. THE LD. AR SUBMITTED THAT THE ASSESSEE DOE S NOT MAKE AVAILABLE ANY 9 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 TECHNICAL KNOWLEDGE, SKILL, ETC TO HEINZ INDIA, NO R DOES IT DEVELOP AND TRANSFER ANY TECHNICAL PLAN, DESIGN, ETC. THEREFORE, THE R EIMBURSEMENTS RECEIVED BY THE ASSESSEE CANNOT BE SAID TO BE COVERED WITHIN THE ME ANING OF FIS UNDER THE DTAA. HENCE, SUCH REIMBURSEMENT SHOULD NOT BE TAXA BLE IN INDIA UNDER THE DTAA. THE LD. AR SUBMITTED THAT IN LIGHT OF THE DEF INITION AND JUDICIAL PRONOUNCEMENTS OF VARIOUS COURTS FOR ANY PAYMENT TO QUALIFY AS FIS UNDER THE DTAA THE FOLLOWING CRITERIA ARE ESSENTIAL: (I) THE SERVICES NEED TO BE A TECHNICAL OR CONSULTA NCY NATURE AND (II) THE SERVICES NEED TO MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE SKILL, KNOW-HOW OR PROCESSED, ARE CONCERNED OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLANT OR TECHNICAL DESIGN. 7. THE LD. AR FURTHER SUBMITTED THAT A TECHNICAL OR CONSULTANCY SERVICES IS TAXABLE ONLY IF THE SERVICES MAKE AVAILABLE THE TEC HNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESS OR CONSIST OF DEVELOPMEN T AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN, THE TECHNOLOGY IS CONSIDE RED TO BE MADE AVAILABLE WHEN THE PERSON ACQUIRING THE SERVICE IS UNABLE TO APPLY THE TECHNOLOGY. THE FACT THAT THE PROVISION OF THE SERVICE MADE REQUIRE TECHNICAL INPUT BY THE PERSON PROVIDING THE SERVICE DOES NOT PER SAY MEAN THAT TE CHNOLOGY KNOWLEDGE, SKILLS, ETC ARE MADE AVAILABLE TO THE PERSON CHARGING SERVI CES. SIMILARLY THE USE OF PRODUCT WHICH EMBEDDED TECHNOLOGY IS NOT PART TO BE CONSIDERED TO MAKE THE TECHNOLOGY AVAILABLE FURTHER, EVEN IF THE SERVICES ARE CONSIDERED TO BE MANAGERIAL IN NATURE, THE SAME WOULD NOT BE TAXABLE IN INDIA US TAX TREATY BECAUSE UNDER THE US TAX TREATY, THE TREATMENT MANA GERIAL SERVICES IS NOT INCLUDED UNDER THE DEFINITION OF FEES OF INCLUDED S ERVICES. IN VIEW OF THE ABOVE, BY A DRAFT FEE FOR TECHNICAL KNOWLEDGE ETC IS MADE AVAILABLE TO A PURCHASER ANY FEES GENERATED WOULD NOT BE FIS UNDER ARTICLE 12(4) OF THE DTAA. SERVICES RENDERED MAY NOT MAKE AVAILABLE ANY TECHNICAL KNOWL EDGE SKILL KNOWHOW OR SERVICE PROCESSED IF THE SERVICE PROVIDER IS ABLE T O SHOW THAT; (I) SUCH SERVICES DO NOT ENABLE THE SERVICE RECIPIE NT TO APPLY THE TECHNOLOGY IF ANY CONTAINED THEREIN UNDER INDEPENDENT MANNER I N FUTURE. 10 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 (II) SUCH SERVICES ALSO DO NOT CONTEMPLATE DEVELOPM ENT OR TRANSFER OF A TECHNICAL PLANT OR TECHNICAL DESIGN. (III) THE PAYMENT TO THE SERVICE PROVIDER IS FOR SE RVICE SIMPLICTER AND NOT FOR MAKING AVAILABLE ANY TECHNOLOGY KNOWLEDGE, EXPERIEN CE ETC. ACCORDINGLY, THE SERVICE RECIPIENTS SHOULD BE ABLE TO MAKE USE OF SUCH TECHNICAL KNOWLEDGE, SKILL ETC BY MEANS IN HIS BUSINESS OR FO R HIS OWN BENEFIT WITHOUT RECOURSE TO THE SERVICE PROVIDER IN THE FUTURE. TH E AFORESAID PRINCIPLE HAS ALSO BEEN UPHELD IN THE FOLLOWING DECISIONS WHEREIN THE CONCEPT OF MAKING AVAILABLE HAS BEEN DISCUSSED IN DETAIL AND THE ISSUE IS RULED IN FAVOUR OF THE TAX PAYERS. I) US TECHNOLOGY RESOURCES (P) LTD. 407 ITR 327 II) GUY CARPENTER & CO. 346 ITR 504 (DEL HC) III) DE BEERS INDIA MINERALS (P) LTD. 346 ITR 467 IV) RAYMOND LTD. 86 ITD 791 V) KONINKLIJKE PHILIPS ELECTRONICS PVT. N. V. (2018) 9 9 TAXMANN.COM 23 VI) EXXON MOBIL COMPANY INDIA (P) LTD. (2018) 92 TAXMAN N.COM 5 VII) BOMBARDIER TRANSPORTATION INDIA (P) LTD. 162 ITD 58 6 VIII) TIMKEN COMPANY (2017) 88 TAXMANN.COM 21 IX) OUTOTEC OYJ (2017) 162 ITD 541 X) STERIA (INDIA) LTD. 386 ITR 390 XI) CUMMINS LTD. 381 ITR 44 XII) SANDVIK AB (2015) 61 TAXMANN.COM 31 XIII) MEASUREMENT TECHNOLOGY LTD. 376 ITR 340 AAR XIV) SANDVIK AUSTRALIA PTY. LTD. (2013) 31 TAXMANN.COM 2 56 XV) ENDEMOL INDIA PRIVATE LIMITED 361 ITR 340 XVI) INVENSYS SYSTEMS INC (2009) 183 TAXMAN 81 AAR XVII) KPMG LTD. (2013) 142 ITD 323 XVIII) RENAISSANCE SERVICES BV (2018) 94 TAXMANN.COM 465 XIX) VEEDA CLINIC RESEARCH (P) LTD. (2013) 144 ITD 297 XX) RELIANCE GENERAL INSURANCE CO. LTD. (2018) 97 TAXMA NN.COM 350 FURTHER, THE CASE LAWS MENTIONED HEREUNDER ARE SPEC IFICALLY ON THE PROPOSITION 11 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 THAT MANAGERIAL SERVICES ARE NOT COVERED UNDER FIS ARTICLE IN INDIA-USA DTAA: I) RAYMOND LTD. 86 ITD 791 II) KONINKLIJKE PHILIPS ELECTRONICS PVT. N. V. (2018) 9 9 TAXMANN.COM 23. III) STERIA (INDIA) LTD. 386 ITR 390 IV) CUMMINS LTD. 381 ITR 44 V) MEASUREMENT TECHNOLOGY LTD. 376 ITR 340 AAR VI) INVENSYS SYSTEMS INC (2009) 183 TAXMAN 81 AAR FURTHER, THE CASE LAWS MENTIONED HEREUNDER ARE SPEC IFICALLY ON THE PROPOSITION THAT SINCE SUPPORT SERVICES ARE RENDERED YEAR-ON-YE AR, THEY DO NOT SATISFY MAKE AVAILABLE TEST AND HENCE IS NOT TAXABLE AS FIS: I) EXXON MOBIL COMPANY INDIA (P) LTD. (2018) 92 TAXMAN N.COM 5 II) BOMBARDIER TRANSPORTATION INDIA (P) LTD. 162 ITD 58 6 III) OUTOTEC OYJ (2017) 162 ITD 541 IN LIGHT OF THE ABOVE SUBMISSIONS AND THE RELEVANT CASE LAWS IN FAVOUR OF THE ASSESSEE, THE LD. AR SUBMITTED THAT THE SAID SE RVICES CANNOT BE HELD TO BE FIS AND HENCE ARE NOT TAXABLE IN INDIA. 8. THE LD. AR SUBMITTED THAT THE RECEIPTS OF RS. 1, 88,54,358/- FROM HEINZ INDIA DO NOT FALL WITHIN THE AMBIT OF ANCILLARY AND SUBSIDIARY CLAUSE. THE AMOUNT RECEIVED IS NOT ANCILLARY AND SUBSIDIARY TO THE PAYMENT OF ROYALTY UNDER TTLA. AT THE OUTSET ITSELF, THE LD. AR SUBMI TTED THAT THE PARTIES OF BOTH THE AGREEMENTS, TTLA AND SA ARE ENTIRELY DIFFERENT. WHILE ONE AIMS TO PROVIDE LICENSE ON WHICH ROYALTY IS BEING EARNED, THE AIM O F THE ASSESSEE IS TO ENSURE UNIFORMITY, CONSISTENCY AND INTERNATIONAL STANDARD S ACROSS ALL GROUP COMPANIES, FOR THE PURPOSE OF WHICH THESE SERVICES AND ACTIVITIES HAVE BEEN IDENTIFIED AND SUPPORT SERVICES ARE ACCORDINGLY BEI NG PROVIDE WHICH ARE OF THE NATURE OF GENERAL MANAGEMENT, HUMAN RESOURCES, FINA NCE, DATA PROCESSED, QUALITY CONTROL, PURCHASE, BUSINESS DEVELOPMENT, LA W AND OTHER RELATED AREAS. MOREOVER, THE SERVICE CHARGES UNDER THE SA A RE NOT PAID ONLY FOR SALES 12 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 COVERED UNDER TTLA. LICENSE IS ONLY FOR SPECIFIED PRODUCTS AND ROYALTY UNDER TTLA IS PAID ONLY FOR LICENSED PRODUCTS. SERVICES UNDER THE SA ARE NOT PRODUCTS SPECIFIED AND CAUSES ARE ALLEGED ON SEVERA L DIVERSE CRITERIA. THE LD. AR POINTED OUT THE SALES BREAK UP CHART WHICH DEMON STRATE THAT THE SALE OF LICENSED PRODUCTS IS ONLY 1-2% OF THE TOTAL SALES. IF SERVICE CHARGES ARE PAYABLE FOR TOTAL SALES WITHIN THE SERVICES CHARGES CANNOT BE SAID TO BE ANCILLARY AND SUBSIDIARY. 9. THE LD. AR RELIED ON DECISION OF INTERNATIONAL T IRE ENGINEERING RESOURCES (LLC) 185 TAXMAN 209 AND SPENCER STUART INTERNATION AL VS. ACIT 94 TAXMAN.COM 380. THERE IS NO OVERLAP BETWEEN TTLA A ND SA AGREEMENT AND, THEREFORE, SA IN NO MANNER ASSISTS IN THE TTLA. THE LD. AR SUBMITTED THAT THE ASSISTANCE UNDER TTLA ARE SPECIFICALLY PROVIDED FOR TECHNOLOGY ASSISTANCE AS PROVIDED UNDER CLAUSE 3.4 AND 3.5 AT THE EXCLUSIVE COST OF HEINZ INDIA AND SERVICES UNDER SA WHICH DOES NOT COVER ANY PRODUCT SPECIFIC TECHNOLOGY ASSISTANCE OR PRODUCT SPECIFIC QUALITY CONTROL. THE VERY FACT THAT SA IS FOR THE BUSINESS AS A WHOLE AND NOT RESTRICTED TO THE LICEN SED PRODUCTS ESTABLISHES THAT SA IS IN THE ORDINARY COURSE OF BUSINESS. THE TOTAL SALES OF HEINZ INDIA ARE RS. 748.20 CRORES OUT OF WHICH SALES FROM TOMATO KE TCHUP IS ONLY RS. 13.43 CRORES. ACCORDINGLY, THE SALES FROM TOMATO KETCHUP CONSTITUTE ONLY 1-2% OF TOTAL SALES MADE BY HEINZE INDIA. THE SERVICE CHARG ES PAID ARE APPROXIMATELY 6 TIMES THE AMOUNT OF ROYALTY PAID AS THE SERVICES CH ARGES PAID RS. 1.88 CRORES AND THE ROYALTY RECEIVED IS RS. 32.48 LAKHS. MOREOV ER, THEY ARE ALTOGETHER SEPARATE AGREEMENT. IN INDIA- US DTAA, THERE IS A M EMORANDUM OF UNDERSTANDING (MOU) WHICH STATES 5 PARAMETERS TO DE TERMINE THE APPLICATION OF ANCILLARY AND SUBSIDIARY CLAUSE. IN ORDER FOR A SERVICE FEE TO BE CONSIDERED ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR EN JOYMENT OF SOME RIGHT, PROPERTY, OR INFORMATION FOR WHICH A PAYMENT DESCRI BED IN PARAGRAPH 3(A) OR (B) IS RECEIVED, THE SERVICE MUST BE RELATED TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY, OR INFORMATION. 13 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 10. THE LD. AR FURTHER SUBMITTED THAT THE RECEIPTS OF RS. 1,88,54,358/- FROM HEINZ INDIA DO NOT FALL WITHIN THE AMBIT OF ROYALTY AND HENCE IS NOT TAXABLE. ROYALTY HAS BEEN DEFINED UNDER THE INDIA-US DTAA AS PAYMENTS CONSIDERATION RECEIVED OF ANY KIND FOR THE USE OF OR RIGHT TO USE ANY INTELLECTUAL PROPERTY. A PERUSAL OF THE SERVICES COVERED UNDER THE SERVICE A GREEMENT SHOWS THAT THEY ARE IN THE NATURE OF GENERAL MANAGEMENT, HUMAN RES OURCES, FINANCE, DATA PROCESSING, QUALITY CONTROL, PURCHASING, BUSINESS D EVELOPMENT, LAW AND OTHER RELATED AREAS WHICH NOWHERE FALL WITHIN THE AMBIT OF ROYALTY HAS BEEN DEFINED UNDER ARTICLE 12. THE LD. AR RELIED UPON THE DECIS ION OF MARCK BIO SCIENCES LTD. (2017) 164 ITD 205 AHMEDABAD TRIBUNAL AND VAN OORD DREDGING & MARINE CONTRACTORS BV ITA 7589/MUM/2012, MUMBAI ITAT. THE LD. AR SUBMITTED THAT THE DECISIONS RELIED UPON BY THE ASSESSING OFF ICER ARE NOT APPLICABLE IN THE PRESENT CASE AS THE SAME ARE DISTINGUISHING IN THE FACTUAL ASPECT WITH THE PRESENT ASSESSEES CASE. 11. THE LD. DR SUBMITTED THAT THE ARGUMENTS OF THE LD. AR ARE FOCUSED ENTIRELY ON COVERAGE OF THE FEES PAID UNDER PARAGR APH 4(B) OF ARTICLE 12 WHICH IS NARROWER THAN THE CATEGORY DESCRIBED IN PARAGRAP H 4 (A) BECAUSE WHICH EXCLUDES ANY SERVICE THAT DOES NOT MAKE TECHNOLOGY AVAILABLE TO THE PRESENT ACQUIRING THE SERVICE. THE QUESTION IS WHETHER THE ASSESSEE IS COVERED UNDER PARAGRAPH 4(A) OF ARTICLE 12. THE LD. DR SUBMITTE D THAT THE DRP HELD THAT THE SERVICES PROVIDED ARE CLEARLY, ANCILLARY AND SUBSI DIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FO R WHICH ROYALTY IS PAID AND HENCE COVERED UNDER PARAGRAPH 4 (A) OF ARTICLE 12. THERE IS NO DISPUTE THAT THE NATURE OF ACTIVITIES ARE COVERED UNDER THE EXCLUSIO NS UNDER PARAGRAPH 5 OF ARTICLE 12. THUS, ONLY ISSUE TO BE DECIDED WHETHER THE SERVICE FEE IS TO BE CONSIDERED ANCILLARY & SUBSIDIARY. AS HAS BEEN ST ATED IN THE MEMORANDUM OF UNDERSTANDING CONCERNING FEES FOR INCLUDED SERVICES UNDER ARTICLE 12, THE MEMORANDUM ALSO IDENTIFIED SEVERAL FACTORS WHICH MA Y BE RELEVANT TO SUCH DETERMINATION SPECIALLY USING THE WORDS FACILITATE, CUSTOMARILY PROVIDED, THE AMOUNT PAID IS IN SUBSTANTIAL, SINGLE CONTRACT OR S ET OF RELATED CONTRACTS PERSON 14 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 PERFORMING THE SERVICES IS THE SAME PERSON AND THE PERSON RECEIVING THE ROYALTIES. THE LD. DR SUBMITTED THAT AS REGARDS THE RELATION TEST THE DRP HAS GIVEN A FINDING THAT SERVICES PROVIDER UNDER SA DAT ED 3/5/2007 FLOW FROM THE TERMS OF TTLA DATED 21/2/2005 AND THERE IS A CLEAR RELATION BETWEEN THE TWO. THE DRS OBSERVATION ESTABLISHED THAT NOT ONLY THE SERVICES PROVIDER UNDER SA ARE RELATED TO THE APPLICATION AND ENJOYMENT OF RIG HTS GRANTING UNDER TTLA BUT THE PREDOMINANT PURPOSE FOR THE PAYMENT OF SERVICE FEES UNDER SA IS FOR THE APPLICATION AND ENJOYMENT OF RIGHTS GRANTED UNDER T TLA. AS PER THE TTLA THE ASSESSEE LICENSED CERTAIN KNOW-HOW, TECHNOLOGY AND ONGOING TECHNICAL ASSISTANCE IN CONNECTION WITH THE MANUFACTURE, DIST RIBUTION, MARKETING AND SALE OF PRODUCTS MANUFACTURED BY THE MANUFACTURER. IT CAN BE SEEN THAT THE RESTRICTIONS/LIABILITY OF THE LICENSEE AND THE CONT ROL EXERCISE BY THE ASSESSEE IS IN RESPECT OF 3 AREAS I.E. USE OF TRADE MARK CLAUSE 2, USE OF TECHNOLOGY CLAUSE 3 AND QUALITY CONTROL, CLAUSE 4 TOWARDS THIS END, THE LICENSEE THAT TO MANUFACTURE IN ACCORDANCE WITH THE STANDARDS, SPECI FICATIONS, AND INSTRUCTIONS SUPPLIED BY OR APPROVED BY THE ASSESSEE AS PER CLAU SE 2.1. IT HAS TO ENSURE THE SECRECY AND CONFIDENTIALITY OF THE FORMULATION AND ACTUAL INGREDIENTS OF THE SUFFICE TAX AS PER CLAUSE 3.3.B AND FOR THIS PURPOS E THERE IS A PROVISION OF TRAINING OF THE EMPLOYEES OF THE LICENSEE BY THE AS SESSEE AS PER CLAUSE 3.4 AND THAT OF MAKING AVAILABLE OF TECHNOLOGY SPECIALIZED BY THE ASSESSEE FOR DEVELOPMENT OF EMPLOYEE TRAINING AND MANAGERIAL SKI LLS AND IN THE OPERATION OF FACTORY AND MANUFACTURE OF LICENSE PRODUCTS CLAUSE 3.5. QUALITY CONTROL IS RECOGNIZED AS ONE OF THE IMPORTANT ASPECTS OF THE T TLA. ITS IMPORTANCE CAN BE GAUGED FROM THE FACT THAT IT IS THE MOST ELABORATE AND EXHAUSTIVE OF THE ABOVE THREE CONTROL SYSTEMS. THE ENTIRE AGREEMENT PROVID ES FOR QUALITY CLAIM CONTROL MEASURES AND INCLUDES INSPECTION OF FACILITIES, EQU IPMENT AND MATERIALS USED FOR PREPARING, PROCESSING, PACKAGING, ADVERTISING, SELLING AND DISTRIBUTING THE PRODUCTS MANUFACTURED. THE OTHER CLAUSES OF THE AGREEMENT IDENTIFY THE AREAS WHERE THE LICENSE NEED TO BE CONFIRMED WITH T HE QUALITY CONTROL PROGRAMMES OF THE ASSESSEE. THESE ARE (I) PERSONNEL MANAGEMENT 15 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 (II) RESOURCES MANAGEMENT INCLUDING INTERNAL QUALIT Y AUDIT (III) DOCUMENTATION DATA CONTROL AND QUALITY SYSTEM MANAGEMENT (IV) PURCHASE MANAGEMENT (V) PRODUCTION PROCESS CONTROL (VI) HANDLING, STORAGE, PACKAGING, PRESERVATION AND DELIVERY (VII) MAINTENANCE OF QUALITY CONTROL RECORDS (VIII) TRAINING AND (VIII) AUDITING. THE LD. DR FURTHER SUBMITTED THAT AS AGAINST ABOVE SUPPORT SERVICES AS DEFINED UNDER ARTICLE 1.8 OF SA INCLUDE (BUT NOT LIMITED TO ) (1) GENERAL MANAGEMENT (2) HUMAN RESOURCES (3) FINANCE (4) DATA PROCESSING (5) QUALITY CONTROL (6) PURCHASING (7) BUSINESS DEVELOPMENT (8) LAW AND ORDER MOREOVER, WHILE ANALYZING THE RELATIONSHIP BETWEEN THE SERVICES PROVIDED WITH THE EARNING OF ROYALTY, THE LD. DR POINTED OUT THAT THE QUANTUM OF VALUE OF ROYALTY RECEIPTS IS DIRECTLY DEPENDENT UPON THE NET SALES VALUE OF LICENSED PRODUCTS. THUS, ANY SERVICES RESULTING IN ENHANCED SALES, MAXIMIZATION OF PROFITS, INCREASE IN THE EFFICIENCY AND BENEFITS OF ECONOMIES OF SCALE OF THE LICENSEE FACILITIES THE EFFECTIVE APPLICATION OR EN JOYMENT OF THE RIGHTS GRANTED UNDER TTLA AS WELL AS MECHANISM OF ROYALTY RECEIPTS IN THE HANDS OF THE ASSESSEE. THE LD. DR FURTHER SUBMITTED THAT QUALITY CONTROL IS CENTRAL TO THE TTLA. THE LICENSEE HAS BEEN ENTRUSTED WITH THE OBL IGATION OF MAINTAINING QUALITY AND ANY SHORTCOMINGS IN THESE AREAS WILL SE RIOUSLY AND ADVERSELY AFFECT THE TTLA. ALL THE ABOVE OBSERVATIONS ESTABLISHED T HAT THE SERVICES RECEIVED BY 16 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 THE LICENSEE ARE NOT ONLY RELATED TO THE APPLICATIO N OR ENJOYMENT OF THE RIGHTS GRANTED TO IT UNDER TTLA BUT THE PREDOMINATE PURPOS E OF THE ARRANGEMENT UNDER WHICH THE PAYMENT OF THE SERVICE FEE AND SUCH OTHER PAYMENTS ARE MADE TO FACILITATE THE EFFECTIVE APPLICATION OR ENJOYMEN T OF SUCH RIGHTS. THUS, THE FACILITATION TEST IS SATISFIED. THE SECOND TEST AS PER THE MEMORANDUM IS WHETHER SUCH SERVICES ARE CUSTOMARILY PROVIDED IN THE ORDIN ARY COURSE OF BUSINESS ARRANGEMENTS INVOLVING ROYALTIES DESCRIBED IN PARAG RAPH 3 OF THE AGREEMENT. THE ANSWER TO THIS IN THE PRESENT CASE IS IN NEGATI VE SINCE A SEPARATE AGREEMENT WAS NECESSITATED FOR THE PROVISION OF THESE SERVICE S. THE THIRD TEST REVOLVES AROUND THE QUANTUM PAID FOR SUCH SERVICES AND WHETH ER THE AMOUNT PAID FOR THE SERVICES IS AN INSUBSTANTIAL PORTION OF THE COM BINED PAYMENTS FOR THE SERVICES AND THE RIGHT, PROPERTY OR INFORMATION DES CRIBED IN PARAGRAPH 3 OF THE AGREEMENT. THE LD. DR POINTED OUT THAT THE QUANTUM PAID IS NOT INSIGNIFICANT AND IS MORE THAN THE AMOUNT OF ROYALTY PAID. HENCE , THE ANSWER TO THIS QUESTION IS IN NEGATIVE. THE FOURTH TEST AS PER TH E MEMORANDUM IS WHETHER THE PAYMENT MADE FOR THE SERVICES AND THE ROYALTY DESCR IBED IN PARAGRAPH 3 OF THE AGREEMENT ARE MADE UNDER A SINGLE CONTRACT (OR A SE T OF RELATED CONTRACTS). THE LD. DR SUBMITTED THAT AS HELD BY THE DRP, BOTH THE S.A AND THE TTLA ARE RELATED CONTRACTS. THE LAST TEST AS PER THE MEMORA NDUM IS WHETHER THE PERSON PERFORMING SERVICES IS THE SAME PERSON AS THE PERSO N RECEIVING THE ROYALTIES DESCRIBED IN PARAGRAPH 3 OF THE AGREEMENT AND THE A NSWER IS YES ACCORDING TO THE LD. DR. THUS, THE LD. DR SUBMITTED THAT ALL T HE TEST STATED UNDER THE MEMORANDUM ARE SPECIFIED AND THE SERVICE FEE CAN BE CONSIDERED ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF RIGHT S FOR WHICH ROYALTY WAS PAID AND HENCE COVERED UNDER PARAGRAPH 4(A) OF ARTICLE 1 2. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSMENT ORDER AND THE DRP DIR ECTIONS/ORDER OF THE CIT(A) ARE EMPHATICALLY RELIED UPON BY THE REVENUE AUTHORI TIES. THE LD. DR SUBMITTED THAT THE UNDISPUTED FACTS BEFORE US ARE THAT: (I) CHARACTERIZATION OF THE SERVICES AS TECHNICAL S ERVICES AND IT IS NOT AT ALL DISPUTED. 17 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 (II) SERVICES ARE ANCILLARY AND SUBSIDIARY TO THE A PPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH ROYALT Y IS PAID. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE CONVENIENTLY IGNORED AN D OVERLOOKED THE APPLICABILITY OF THE PROVISIONS OF ARTICLE 12(4) (A ) TO IT. IN ITS LETTER DATED 2/12/2011 TO THE ASSESSING OFFICER IN PARA 16, TH E ASSESSEE ITSELF HAD QUOTED THE SAID PROVISION. (III) THE SERVICES PROVIDED BY THE ASSESSEE ARE NO T COVERED UNDER ANY OF THE EXCLUSIONARY PROVISIONS OF ARTICLE 12(5) OF THE DTA A. THE NATURE OF SERVICES PROVIDED UNDER VARIOUS AGREEMENTS AND THE INTERPLAY AND INTERLINKAGE OF SUCH AGREEMENTS HAVE BEEN ELABORATELY DISCUSSED BY THE D RP. AFTER EXAMINING THE PROVISIONS OF TTLA AND S.A (GA), THE DRP RECORDED A FINDING THAT TTLA IS CRITICAL TO ITS (I.E. ASSESSEE) EARNING OF ROYALTY & (GA) DATED 3 RD MAY 2007 ONLY FORMALIZES THAT ARRANGEMENT FOR PROVISION OF SUPPOR T SERVICES IN THE AREAS LISTED ON A COMMERCIAL BASIS. THE AREAS LISTED IN GAR IDE NTICAL THAT AND FLOW FROM THE TERMS OF THE TTLA DATED 21 ST FEBRUARY 2005 AND ARE CLEARLY ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE R IGHT, PROPERTY OR INFORMATION FOR WHICH ROYALTY IS PAID. IT WOULD BE OUT OF CON TEST, THEREFORE, TO HIGHLY THE SIMILARITIES AND THE INTERCONNECTEDNESS OF THE OBLI GATIONS OF THE LICENSEE UNDER TTLA AND SERVICES RECEIVED BY IT UNDER SA. THE SER VICES PROVIDED BY THE ASSESSEE BY VIRTUE OF SA MERELY HIM TO ENSURE THAT OBLIGATIONS EXCEEDED UPON THE LICENSEE BY TTLA ARE FULFILLED. THE MEMORANDUM OF UNDERSTANDING CONSISTING FEES FOR INCLUDED SERVICES IN ARTICLE 12 ENDS FURTHER CREDENCE TO THE ABOVE FINDINGS OF THE DRP. THE MEMORANDUM ALSO IDE NTIFIED SEVERAL FACTORS WHICH MAY RELEVANT TO SUCH DETERMINATION ALTHOUGH N OT ANCILLARY CONTROLLING. THESE INCLUDE THREE POSITIVE TESTS AND TWO NEGATIVE TEST: (I) THE EXTENT TO WHICH THE SERVICES IN QUESTION FA CILITATE THE EFFECTIVE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION. (II) THE EXTENT TO WHICH SUCH SERVICES ARE CUSTOMAR ILY PROVIDED IN THE 18 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 ORDINARY COURSE OF BUSINESS ARRANGEMENTS INVOLVING ROYALTIES DESCRIBED IN PARAGRAPAH3. (III) WHETHER THE AMOUNT PAID FOR THE SERVICES ( OR WHICH WOULD BE PAID BY PARTIES OPERATING AT ARMS LENGTH) IS IN SUBSTANTIA L PORTION OF THE COMBINED PAYMENTS FOR THE SERVICES AND THE RIGHT, PROPERTY, OR INFORMATION DESCRIBED IN PARAGRAPH 3. (VI) WHETHER THE PAYMENT MADE FOR THE SERVICES AND THE ROYALTY DESCRIBED IN PARAGRAPH 3 ARE MADE UNDER A SINGLE CONTRACT OR A SET OF RELATED CONTRACTS) (V) WHETHER THE PERSON PERFORMING THE SERVICES IS T HE SAME PERSON AS RELATED PERSON TO THE PERSON RECEIVING THE ROYALTIE S DESCRIBED IN PARAGRAPH 3 ( FOR THIS PURPOSE, PERSONS RE CONSIDERED RELATED IF THE RELATIONSHIP IS DESCRIBED IN ARTICLE 9 (AN ASSOCIATED ENTERPRISES OR IF PERSON P ROVIDING THE SERVICE IS DOING SO IN CONNECTION WITH AND OVER ALL ARRANGEMENTS WHICH INCLUDES THE PAYER AND RECIPIENTS OF THE ROYALTIES. 12. THE LD. DR FURTHER SUBMITTED THAT THE FACILITAT ION TEST AS ENVISAGED IN THE MEMORANDUM, WHEN APPLIED TO THE OBLIGATIONS AND SERVICES AS ENUMERATED IN THE ABOVE TABLE LEAVES NO UNCERTAINTY . QUALITY CONTROL IS CENTRAL TO THE TTLA. ITS IMPORTANCE CAN BE SEEN FRO M THE FACT THAT IT IS THE MOST ELABORATE AND EXHAUSTIVE OF THE ABOVE THREE CO NTROL SYSTEMS. IN-FACT EXHIBIT-E IS THE MOST ELABORATE EXHIBIT OF THE ENTI RE AGREEMENT PROVIDING FOR A VARIETY OF QUALITY CONTROL MEASURES INCLUDING 'INSPECTION OF FACILITIES, EQUIPMENT AND MATERIALS USED FOR PREPARING, PROCESS ING, PACKAGING, ADVERTISING, SELLING AND DISTRIBUTING THE PRODUCTS MANUFACTURED(CL-4.2) EXHIBIT-E IDENTIFIES THE AREAS WHERE THE LICENSEE N EEDS TO CONFIRM WITH THE QUALITY CONTROL PARAMETERS OF THE APPELLANT. THE LI CENSEE HAS BEEN ENTRUSTED WITH THE OBLIGATION OF MAINTAINING QUALIT Y AND ANY SHORTCOMINGS IN THESE AREAS WILL SERIOUSLY AND ADVERSELY AFFECT THE EFFECTIVE APPLICATION 19 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 OR ENJOYMENT OF THE RIGHTS GRANTED TO IT UNDER TTLA . THE ASSESSEE IS IN ABSOLUTE CONTROL OVER THE ENTIRE PRODUCTION, QUALIT Y CONTROL AND MARKETING, SALE & DISTRIBUTION PROCESS THROUGH THE USE OF TECH NOLOGY (CL-3) AND QUALITY CONTROL (CL-4) CLAUSES OF THE TTLA. THE LIC ENSEE HAS TO MANUFACTURE 'IN ACCORDANCE WITH THE STANDARDS, SPEC IFICATIONS AND INSTRUCTIONS SUPPLIED BY OR APPROVED BY' THE ASSESS EE (CL-2.1) IN A 'FACTORY APPROVED BY THE ASSESSEE [CL.4.2] AND AS PER THE QUALITY STANDARDS' PROVIDED IN THE AGREEMENT [EXHIBIT- E] OR AS APPROV ED BY THE ASSESSEE. [CL.4.2] THIS PROVIDES THE ASSESSEE TO HAVE A RIGHT OF ACCESS TO THE FACTORY TO INSPECT THE FACILITIES, EQUIPMENT AND MATERIALS USED IN PREPARING, PROCESSING, PACKAGING AND RECORDS INVOLVING ADVERTI SING, SALE AND DISTRIBUTION AND OPERATIONS AND QUALITY CONTROL.[CL .4.2] THE ASSESSEE IS ALSO OBLIGATED UNDER TTLA TO PROVIDE SERVICES OF T ECHNICAL SPECIALISTS' [C1.3.5]AND TRAINING [CL.3.4 & 3.5]TO THE PERSONNEL OF THE LICENSEE. IT SHALL PROVIDE 'ONGOING TECHNICAL ASSISTANCE' TO THE LICENSEE[C1.3.2] AS WELL AS 'INSTRUCTION AND TRAINING TO THE EMPLOYEES OF THE LICENSEE AT ITS OWN FACTORY IN THE AREAS INVOLVING MANUFACTURE/PRODUCTI ON AND MARKETING OF THE PRODUCTS. [CL.3.4] ASSESSEE SHALL MAKE AVAILABL E QUALIFIED TECHNICAL SPECIALISTS TO WORK WITH AND ASSIST THE LICENSEE IN THE DEVELOPMENT OF EMPLOYEE TRAINING AND MANAGERIAL SKILLS AND IN THE OPERATION OF THE FACTORY AND THE MANUFACTURE OF LICENSED PRODUCTS. [ CL.3.5] ALL THE ABOVE OBSERVATIONS ESTABLISH THAT THE SERVICE RECEIVED BY THE LICENSEE UNDER SA ARE NOT ONLY RELATED TO THE APPLICATION OR ENJOYMEN T OF THE RIGHTS GRANTED TO IT UNDER TTLA BUT THE PREDOMINANT PURPOSE OF THE ARRANGEMENT UNDER WHICH THE PAYMENT OF THE SERVICE FEE AND SUCH OTHER PAYMENTS ARE MADE ARE TO FACILITATE THE EFFECTIVE APPLICATION OR ENJO YMENT OF SUCH RIGHTS AS GRANTED BY THE LICENSEE UNDER TTLA. MOREOVER, WHILE ANALYSING THE RELATIONSHIP BETWEEN THE SERVICES PROVIDED WITH THE EARNING OF ROYALTY, IT SHOULD BE REMEMBERED THAT THE QUANTUM AND VALUE OF ROYALTY RECEIPTS IS DIRECTLY DEPENDENT UPON THE NET SALES VALUE OF LICE NSED PRODUCTS. THUS, ANY SERVICES RESULTING IN ENHANCED SALES, MAXIMIZAT ION OF PROFITS, INCREASE 20 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 IN THE EFFICIENCY AND BENEFITS OF ECONOMIES OF SCAL E OF THE LICENSEE FACILITATES THE EFFECTIVE APPLICATION OR ENJOYMENT OF THE RIGHTS GRANTED UNDER TTLA AS WELL AS MAXIMIZATION OF ROYALTY RECEI PTS IN THE HANDS OF THE APPELLANT. THUS, THE FACILITATION TEST IS SATIS FIED. THE SECOND TEST AS PER THE MEMORANDUM IS WHETHER SUCH SERVICES ARE CUS TOMARILY PROVIDED IN THE ORDINARY COURSE OF BUSINESS ARRANGEMENTS INV OLVING ROYALTIES DESCRIBED IN PARAGRAPH 3. IT CANT BE SAID THAT SER VICES AS ENVISAGED IN SA ARE CUSTOMARILY PROVIDED IN THE ORDINARY COURSE OF BUSINESS ARRANGEMENTS INVOLVING ROYALTIES. THUS, THE ANSWER TO THIS IN TH E PRESENT CASE IS IN NEGATIVE SINCE A SEPARATE AGREEMENT WAS NECESSITATE D FOR THE PROVISION OF THESE SERVICES. 13. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE HAS PUT A LOT OF EMPHASIZE ON THE ZERO MARK UP ON THE SERVICES RENDE RED AND ARGUED THAT THESE BEING PURE REIMBURSEMENT DOES NOT HAVE ANY ELEMENT OF PROFIT IN IT AND HENCE CANNOT BE BROUGHT UNDER TAXATION. THE LD. DR SUBMI TTED THAT THE CONTENTIONS OF THE LD. AR CANNOT BE ACCEPTED AS NO EVIDENCE IN SUPPORT OF THE CLAIM WAS PLACED BY THE ASSESSEE BEFORE THE REVENUE AUTHORITI ES. THERE IS NO EMBEDDED PROFIT ELEMENT FURNISHED BEFORE THE REVENUE BY THE ASSESSEE. AS PER THE PROVISIONS IN THE TTLA, THERE IS A PROVISION AND FO R INDEPENDENT REIMBURSEMENT ALSO. THE ZERO MARKER AS PROVIDED IN ARTICLE 5.2 (D) OF THE SA HAS TO BE APPRECIATED WITH REFERENCE TO THE PROVISI ONS UNDER US TRANSFER PRICING RULES AND CANNOT BE TAKEN AS ABSOLUTE. THE ZERO MARK UP AS PROVIDED IN ARTICLE 5.2 (D) OF THE SA MUST VIEWED AGAINST AND CONTRASTED WITH THE ARTICLE 1.8 OF THE SA WHICH DEFINES SUPPORT SERVICE S AS THE SERVICES DESCRIBED IN ARTICLE 3 & PROVIDED TO THE RECIPIENTS ON A COMMERC IAL BASIS. THE DRP ON THE BASIS OF THE ASSESSEES SUBMISSIONS CONCLUDED THAT THIS ARRANGEMENT IS MERELY A BASIS FOR THE RECOVERY OF THE FEES, CHARGED ON A COMMERCIAL BASIS. RE- IMBURSEMENTS TO THE NON RECIPIENT ENTERPRISES HAVE BEEN HELD AS TAXABLE BY COURTS UNDER VARIOUS OTHER PROVISIONS OF THE ACT I. E. U/S 44 BB. THE LD. DR FURTHER SUBMITTED THAT ALTHOUGH PURELY ACADEMIC IN VIEW OF THE APPLICATION OF 21 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 THE PROVISIONS OF ARTICLE 12 (4) (A) OF THE DTAA, NEVERTHELESS AND WITHOUT PREJUDICE; THE ASSESSEES CLAIM THAT IT DOES MAKE A VAILABLE ANY KNOWHOW OR TECHNOLOGY THROUGH IT SERVICES ALSO CANNOT BE ACCEP TED. THE LD. DR FURTHER SUBMITTED THAT THE SA IS NOTHING BUT AN EXTENSION A ND ENABLE INSTRUMENT OF TTLA. CLAUSE 3.1 OF THE TTLA PROVIDES FOR THE LICE NSEE OF PROPRIETOR INFORMATION PROVIDED BY THE ASSESSEE MOSTLY IN WRIT ING. MOREOVER, THE ASSESSEE THROUGH ITS TECHNICAL SPECIALIZED AND TRAINEE AT IT S OWN FACTORIES ENABLES THE LICENSEES EMPLOYEES DEVELOP AND ACQUIRE MANAGERIAL SCALES AND SCALES IN THE OPERATION OF THE FACTORY AND MANUFACTURE OF LICENSE E PRODUCTS IN FACT AS PER CLAUSE 3.7 OF THE TTLA. THE ASSESSEE WILL BE ENTIT LED TO THE EXCLUSIVE BENEFIT WITHOUT ANY CONSIDERATION BEING PAYABLE. IF ANY NE W, IMPROVED OR CHANGED METHOD OF MARKING OR MANUFACTURING THE LICENSEE PRO DUCTS WHICH ARE DISCOVERED BY THE LICENSEE OR ANY OF ITS EMPLOYEES. VIEWED FROM THIS PROSPECTIVE, THERE IS NO DOUBT THAT THE REQUIREMENT S MAKE AVAILABLE CLAUSE ALSO STAND SATISFIED. THE LD. DR RELIED UPON THE D ECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CENTRICA INDIA OFF SHORE VS. CIT(A) (2014) 364 ITR 336. THE LD. DR ALSO RELIED THE DECISION OF THE AAR IN THE CASE OF INTERTEK TESTING SERVICES INDIA PVT. LTD. (2008) 307 ITR 418. THE L D. DR FURTHER SUBMITTED THAT THE CASES/DECISIONS RELIED UPON BY THE ASSESSEE ARE DISTINGUISHABLE ON FACTS AND ARE DELIVERED IN THE CONTEST OF MAKE AVAILABLE PROVISION AND HENCE HAVE NOT RELIEFS TO THE PRESENT CASE, SINCE IT IS COVERED UN DER THE PROVISIONS OF ARTICLE 12(4) (A) OF THE DTAA. ACCORDINGLY, IT IS PRAYED T HAT THE ORDER OF THE DRP BE SUSTAINED AND THE ASSESSEES APPEAL BE DISMISSED. 14. IN REJOINDER, THE LD. AR SUBMITTED THAT THAT TH E SERVICES RENDERED UNDER THE SERVICE AGREEMENT (SA) DATED 3 MAY 2007 ENTERED BETWEEN HEINZ US AND ITS VARIOUS OTHER ASSOCIATED COMPANIES INCLUDING HE INZ INDIA IS ANCILLARY AND SUBSIDIARY TO THE TECHNOLOGY TRANSFER AND LICENSE A GREEMENT (TTLA) ENTERED BETWEEN HEINZ US AND HEINZ INDIA IS MISPLACED IN VI EW OF THE FOLLOWING REASONS: 22 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 (I) HEINZ US IS THE ULTIMATE PARENT OF HEINZ INDIA WHEREAS HEINZ ITALIA IS THE HOLDING COMPANY OF HEINZ INDIA. THE SA CANNOT BE AN CILLARY AND SUBSIDIARY TO THE TTLA ENTERED WITH HEINZ US AS THE SALES OF THE LICENSED PRODUCTS MANUFACTURED BY HEINZ INDIA UNDER THE TTLA WITH HEI NZ US IS ONLY APPROXIMATELY 1 TO 3% OF THE TOTAL SALES OF ALL THE PRODUCTS MANUFACTURED/ TRADED BY HEINZ INDIA. (II) THE SERVICES RENDERED UNDER THE SA ARE FOR THE BENEFIT OF ALL THE PRODUCTS (NOT ONLY RESTRICTED TO TTLA) MANUFACTURED BY HEINZ INDIA. (III) DURING THE COURSE OF HEARING ON 10 DECEMBER 2 018. AS COULD BE PERUSED FROM THE SUBMISSION OF DR FILED ON 16 JANUARY 2019, THE ABOVE FACT AS STATED IN POINT 2 ABOVE IS UNDISPUTED. AMOUNT OF ROYALTY A ND SUPPORT SERVICE RECEIVED FROM HEINZ INDIA AS COMPARED TO SALES OF TOMATO KET CHUP BY HEINZ INDIA. THE SUPPORT SERVICES CANNOT BE CONSIDERED TO BE ANCILLA RY AND SUBSIDIARY TO THE TTLA ENTERED BETWEEN HEINZ US AND HEINZ INDIA UNDER THE TTLA, BETWEEN HEINZ US AND HEINZ INDIA, HEINZ US HAS GRANTED LICE NSE TO HEINZ INDIA TO MANUFACTURE, DISTRIBUTE, MARKET AND SELL ONLY THE L ICENSED PRODUCTS. 15. THE LD. AR SUBMITTED THAT HEINZ US HAS ENTERED INTO SA DATED 3 MAY 2007 WITH ITS VARIOUS ASSOCIATED COMPANIES INCLUDIN G HEINZ INDIA FOR PROVIDING SERVICES IN AREAS OF GENERAL MANAGEMENT, HUMAN RESO URCES, FINANCE, DATA PROCESSING, QUALITY CONTROL, PURCHASING, BUSINESS D EVELOPMENT, LAW AND OTHER RELATED AREAS AND IN TURN TO ENSURE UNIFORMITY, CON SISTENCY AND INTERNATIONAL STANDARDS ACROSS ALL GROUP COMPANIES. THE LD. AR S UBMITTED THAT THE PURPOSE OF BOTH THE AGREEMENTS TTLA & SA ARE ENTIRELY DIFFE RENT. WHILE ONE AIMS TO PROVIDE LICENSE ON WHICH ROYALTY IS BEING EARNED, T HE AIM OF THE SA IS TO ENSURE UNIFORMITY, CONSISTENCY AND INTERNATIONAL STANDARDS ACROSS ALL GROUP COMPANIES, FOR THE PURPOSE OF WHICH THESE SERVICES AND ACTIVITIES HAVE BEEN IDENTIFIED AND SUPPORT SERVICES ARE ACCORDINGLY BEI NG PROVIDED WHICH ARE OF THE NATURE OF GENERAL MANAGEMENT, HUMAN RESOURCES, FINA NCE, DATA PROCESSING, QUALITY CONTROL, PURCHASING, BUSINESS DEVELOPMENT, LAW AND OTHER RELATED 23 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 AREAS. THE LD. AR SUBMITTED THAT THE LD. DR WAS IN CORRECTLY STATING THAT THE TTLA PERTAINS TO PRODUCTS MANUFACTURED BY THE LICEN SEE I.E. HEINZ INDIA. THE TTLA AGREEMENT CLEARLY STATES THAT IT IS PERTAINING TO GRANTING OF LICENSE IN CONNECTION WITH THE DISTRIBUTION, MARKETING AND SAL E OF LICENSED PRODUCTS. 'LICENSED PRODUCTS AS MENTIONED IN EXHIBIT A OF TH E TTLA AGREEMENT STATES THE LIST OF LICENSED PRODUCTS I.E. TOMATO KETCHUP, COND IMENTS AND SAUCES, BEANS, CONVENIENCE MEALS, BABY FOODS AND PASTA/ NOODLES ON LY. ON THE BASIS TERMS OF TTLA, HEINZ INDIA HAS PAID ROYALTY TO HEINZ US ON T HE SALES OF TOMATO KETCHUP, WHICH CONSTITUTE ONLY 1 TO 3% OF TOTAL SALES OF HEI NZ INDIA AGAINST WHICH A ROYALTY OF RS 32.48 LAKHS AND RS 34.54 LAKHS DURING THE AY 2009-10 AND AY 2011-12 RESPECTIVELY WAS PAID BY HEINZ INDIA TO HEI NZ US. FURTHER A TECHNICAL ASSISTANT SERVICES, IF REQUIRED UNDER THE TTLA WOUL D AT BEST BE RENDERED FOR THE LICENSE PRODUCTS AND NOT FOR ALL THE PRODUCTS MANUF ACTURED BY HEINZ INDIA. THERE IS NO OVERLAP BETWEEN THE TTLA AND SA AGREEME NT AND, THEREFORE, SA IN INDIA MANNER ASSIST IN THE ENJOYMENT OF THE TTLA. SERVICES UNDER SA DO NOT COVER ANY PRODUCT SPECIFIC TECHNOLOGY ASSISTANCE OR PRODUCTS SPECIFIC QUALITY CONTROL. THE VERY FACT THAT SA IS FOR THE BUSINESS AS A WHOLE AND NOT RESTRICTED TO THE LICENSE PRODUCTS ESTABLISHED THAT SA IS IN THE ORDINARY COURSE OF BUSINESS. THE TOTAL SALE OF HEINZ INDIA DURING ASS ESSMENT YEAR 2009-10 IS RS. 748.20 CRORES OUT OF WHICH SALES FROM TOMATO KETCH UP IS ONLY RS. 13.43 CRORES. ACCORDINGLY, THE SALES FROM TOMATO KETCH U P CONSTITUTES ONLY 1-3% OF TOTAL SALES MADE BY HEINZ INDIA. THE SERVICE CHARG ES PAID ARE APPROXIMATELY SIX TIMES THE AMOUNT OF ROYALTY PAID AS THE SERVICE S CHARGES RECEIVED ARE RS.1.88 CRORES AND THE ROYALTY RECEIVED IS RS. 32.4 8 LAKHS. 16. THE LD. AR FURTHER SUBMITTED THAT 5 FACTORS (TH OUGH NOT CONCLUSIVE) ARE OUTLINED IN THE MEMORANDUM OF UNDERSTANDING IN THE INDIA-US TREATY TO DETERMINE WHETHER SERVICE FEE IS ANCILLARY AND SUBS IDIARY TO APPLICATION OR ENJOYMENT OF RIGHT, PROPERTY OR INFORMATION FOR WHI CH ROYALTY PAYMENT IS RECEIVED. THE SERVICES UNDER SA ARE NOT LINKED TO T TLA SINCE, THE TTLA RELATED SOLELY TO USE OF THE PRODUCT MARKS IN THE MANUFACTU RING PROCESS WHILE THE SA 24 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 RELATED TO CENTRALLY MANAGED OPERATION AND ADMINIST RATIVE SUPPORT FUNCTIONS THAT ARE SIMILAR FOR ALL AFFILIATES THAT CAN BE CON SOLIDATED INTO ONE GLOBAL FUNCTION FOR EFFICIENCY PURPOSES. THE AFFILIATES BE NEFITTED BY OBTAINING GREATER OPERATIONAL AND ADMINISTRATIVE COVERAGE THAT PREVIO USLY DIDNT EXIST. FURTHER, FROM HEINZ INDIA'S PERSPECTIVE, SEVERAL SERVICES UN DER SA LIKE LEGAL, FINANCE, ETHICS CORPORATE COMMUNICATIONS, ETC CANNOT BE LINK ED TO ONLY ROYALTY PAID TO HEINZ US UNDER TTLA SINCE THE SALES OF TOMATO KETCH UP IS ONLY 1-3% (APPROX) OF OVERALL SALES MADE BY HEINZ INDIA DURING THE YEA R UNDER CONSIDERATION. THE SERVICES UNDER SA FOR THE PURPOSE OF GREATER EFFICI ENCY AND OPTIMUM UTILIZATION OF RESOURCES THROUGH CENTRALIZED MANAGEMENT AND RED UCED COSTS, IRRESPECTIVE OF WHETHER ANY PAYMENT OF ROYALTY IS RECEIVED BY PA RENT COMPANY. THE ASSESSEE RENDERS SUPPORT SERVICES FOR CENTRAL OPERATIONS AND ADMINISTRATIVE SUPPORT FUNCTIONS. 17. FURTHER, THE LD. AR IN SUBMITTED THAT A SEPARAT E SUPPORT SERVICE AGREEMENT HAS ALREADY BEEN ENTERED BY HEINZ INDIA U NDER WHICH THE SUPPORT SERVICES ARE RENDERED TO VARIOUS GROUP ENTITIES OF HEINZ US WORLDWIDE. IN THE INSTANT CASE, AMOUNT PAID FOR THE SERVICES UNDER SA IS APPROXIMATELY SIX TIME AMOUNT PAID UNDER TTLA AND, THEREFORE, THE PAYMENT COULD BE CONSTITUTE TO BE ANCILLARY OR SUBSIDIARY TO ROYALTY PAYMENT MADE TO HEINZ US. THE LD. AR SUBMITTED THAT THE LD. DR AGREES IN HIS SYNOPSIS TH AT THE QUANTUM PAID IS SIGNIFICANT AND IS MORE THAN ROYALTY PAID. THEREFO RE, THE LD. AR SUBMITTED THAT THE SUPPORT SERVICE AGREEMENT CANNOT BE ANCILLARY S AID TO BE ANCILLARY OR SUBSIDIARY TO THE TTLA AS THE BENEFITS ARISING OUT OF THE SUPPORT SERVICES ARE FOR ALL HE PRODUCTS MANUFACTURED BY HEINZ INDIA I.E . COMPLAN, GLUCON D, NYCIL, TOMATO KETCHUP AND ALSO FOR THE CORPORATE OF FICE OF HEINZ INDIA FOR E.G. FINANCE, LEGAL, HUMAN RESOURCE, GENERAL MANAGEMENT, INFORMATION SYSTEM, ETC. FURTHER, IT IS HUMBLY STATED THAT HEINZ TRADE NAM E IS NOT USED ON PRODUCTS SUCH AS COMPLAN, GLUCON D, NYCIL, ETC WHICH CONSTIT UTE 90% AND MORE OF TOTAL SALES OF HEINZ INDIA. 25 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 18. THE LD. AR SUBMITTED THAT IN THE PRESENT CASE, THE ACTIVITIES CARRIED OUT BY THE ASSESSEE UNDER THE AGREEMENT ARE PARTICULARL Y IN THE AREA OF GENERAL MANAGEMENT, HUMAN RESOURCES, STRATEGIC PLANNING AND MARKETING, FINANCE AND INFORMATION SYSTEMS. COSTS INCURRED BY THE ASSESSEE IN TERMS OF TIME AND EFFORT OF ITS EMPLOYEES FOR CARRYING OUT THE ACTIVITIES AR E SHARED AMONGST THE VARIOUS AFFILIATES ON A UNIFORM AND CONSISTENT BASIS USING APPROPRIATE ALLOCATION FACTOR IN THE MANNER SPECIFIED IN SA. CLAUSE 5.2 OF SA SPE CIFICALLY DEALS WITH ALLOCATION OF COSTS AND PROVIDES FOR THE MECHANISM FOR THE SAME AN ACCOUNTING METHOD CONSISTENT WITH US GENERALLY ACCEPTED ACCOUN TING PRINCIPLES AND ASSESSEES ACCOUNTING POLICIES WOULD BE USED TO IDE NTIFY ALL DIRECT AND INDIRECT COSTS ASSOCIATED WITH THE ACTIVITIES CARRIED OUT BY THE ASSESSEE FOR EACH AFFILIATE FOR EACH COST CENTRE AN APPROPRIATE ALLOCATION FACT OR IS IDENTIFIED. THE ABOVE COSTS ARE ALLOCATED BY THE ASSESSEE TO ITS AFFILIAT ES WITHOUT CHARGING ANY MARK UP/ PROFIT ELEMENT. THE COST CONTRIBUTION/ PAYMENT S MADE BY HEINZ INDIA AS A PARTICIPANT TO SA MERELY REPRESENTS A REIMBURSEMENT OF THE COSTS INCURRED BY THE ASSESSEE TOWARDS THE ABOVE ACTIVITIES. IN SUBST ANCE AND IN FORM THE PAYMENT CANNOT BE CONSIDERED AS INCOME EARNED BY TH E ASSESSEE. AS CAN BE SEEN FROM THE AGREEMENT ITSELF, THERE IS 0% MARKUP. THE DEFINITION OF SUPPORT SERVICES IN THE SA MEANS THE ACTIVITIES PERFORMED B Y THE ASSESSEE IN THE AREAS OF AREA OF GENERAL MANAGEMENT, HUMAN RESOURCES, FIN ANCE, DATA PROCESSING, ETC ARE TO BE PROVIDED TO HEINZ INDIA ON A COMMERCIAL B ASIS I.E. THE SERVICES TO BE PROVIDED SHOULD BE SUCH THAT ARE PROVIDED BETWEEN T WO UNRELATED PARTIES. THE EXPENSES INCURRED BY THE ASSESSEE AND REIMBURSED BY HEINZ INDIA ARE MERE RECOUPMENT OF EXPENSES AND WOULD NOT CONSTITUTE INC OME OF ASSESSEE. THE ASSESSEE MERELY ALLOCATES THE COSTS AND DOES NOT CH ARGE ANY MARK-UP. IN VIEW OF THE ABOVE, THE ASSESSEE WISHES TO SUBMIT THAT TH E REIMBURSEMENT OF EXPENSES RECEIVED FROM HEINZ INDIA IS NOT TAXABLE I N THE HANDS OF THE ASSESSEE IN INDIA UNDER THE PROVISIONS OF THE ACT. THE LD. AR FURTHER SUBMITTED THAT THE ADDITION IS LIABLE TO BE DELETED ON THIS GROUND ALONE AS THERE ARE VARIOUS JUDGMENTS ON THESE ISSUES WHICH HAVE HELD WHEN THER E IS ONLY RECOUPMENT OF EXPENSES, THERE IS NO ELEMENT OF INCOME AND HELD TH E SAME CANNOT BE HELD TO 26 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 BE TAXABLE IN INDIA. THE DECISIONS ARE AS FOLLOWS: - DUNLOP RUBBER 142 ITR 493 KOLKATA HIGH COURT DECTA 237 ITR 190-AAR SIEMENS AKTIONGESELLSCHAFT 189 TAXMAN 422-AAR BOMBA Y HIGH COURT ABB LTD 189 TAXMAN 422-AAR ERNST & YOUNG PVT. LTD. 49 TAXMANN.COM 386 KOLKATA ITAT 19. IN RESPECT OF ISSUE RELATING TO MAKE AVAILABLE TECHNICAL SERVICES TO HEINZ INDIA. THE LD. AR SUBMITTED THAT THE ASSESSEE DOES NOT MAKE AVAILABLE TECHNICAL SERVICES TO HEINZ INDIA AND HENCE SHOULD NOT BE TAXABLE AS FIS UNDER THE PROVISIONS OF THE DTAA. IN THE PRESENT CASE, THE LD. AR SUBMITTED THAT FACTUALLY NO TECHNICAL KNOWLEDGE, ETC WAS MAD E AVAILABLE BY THE ASSESSEE TO HEINZ INDIA. THE FACT THAT THE ASSESSEE PERFORM S SUCH ACTIVITY ON YEAR ON YEAR BASIS ALSO SUPPORTS THE CONTENTION THAT NO TEC HNICAL KNOWLEDGE ETC. WAS MADE AVAILABLE. THE LD. AR SUBMITTED THAT THE AS SESSEE DOES NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, SKILL, ETC. TO HEINZ INDIA, NOR DOES IT DEVELOP AND TRANSFER ANY TECHNICAL PLAN, DESIGN, ET C. THEREFORE, THE AMOUNT RECEIVED BY THE ASSESSEE CANNOT BE SAID TO BE COVER ED WITHIN THE MEANING OF FIS UNDER THE DTAA. HENCE, SUCH REIMBURSEMENTS SHOU LD NOT BE TAXABLE IN INDIA UNDER THE DTAA. ARTICLE 12(4) OF THE DTAA DEF INES THE TERM FIS. IN LIGHT OF THE ABOVE DEFINITION AND JUDICIAL PRONOUNCEMENTS OF VARIOUS COURTS IT IS NOW A WELL SETTLED LAW THAT FOR ANY PAYMENT TO QUALIFY AS FIS UNDER THE DTAA, THE FOLLOWING CRITERIA ARE ESSENTIAL. THE SERVICES NEE D TO BE OF TECHNICAL OR CONSULTANCY NATURE; AND THE SERVICES NEED TO MAKE A VAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOWHOW OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TEC HNICAL DESIGN. THESE ARE ESSENTIALS A TECHNICAL OR CONSULTANCY SERVICE IS TAXABLE ONLY IF THE SERVICES MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, S KILL, KNOW-HOW, OR PROCESSES, OR CONSIST OF DEVELOPMENT AND TRANSFER O F A TECHNICAL PLAN OR 27 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 TECHNICAL DESIGN. THE TECHNOLOGY IS CONSIDERED TO B E MADE AVAILABLE WHEN THE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY TH E TECHNOLOGY. THE FACT THAT THE PROVISION OF THE SERVICE MAY REQUIRE TECHNICAL INPUT BY THE PERSON PROVIDING THE SERVICE DOES NOT PER SE MEAN THAT TEC HNICAL KNOWLEDGE, SKILLS, ETC ARE MADE AVAILABLE TO THE PERSON PURCHASING THE SERVICE. SIMILARLY, THE USE OF A PRODUCT, WHICH EMBODIES TECHNOLOGY, IS NOT PER SE CONSIDERED TO MAKE THE TECHNOLOGY AVAILABLE. FURTHER, EVEN IF THE SERVICES ARE CONSIDERED TO BE MANAGERIAL IN NATURE THE SAME WOULD NOT BE TAXABLE UNDER INDIA US TAX TREATY BECAUSE UNDER THE INDIA US TAX TREATY THE TERM MAN AGERIAL SERVICES IS NOT INCLUDED UNDER THE DEFINITION OF FEES FOR INCLUDED SERVICES. IN VIEW OF THE ABOVE, BY CONTRAST, IF NO TECHNICAL KNOWLEDGE, ETC IS MADE AVAILABLE TO A PURCHASER, ANY FEES GENERATED WOULD NOT BE FIS UNDE R ARTICLE 12(4) OF THE DTAA. TYPICALLY, SERVICES RENDERED MAY NOT MAKE AVA ILABLE ANY TECHNICAL KNOWLEDGE, SKILL, KNOW-HOW OR PROCESSES IF THE SERV ICE PROVIDER IS ABLE TO SHOW THAT SUCH SERVICES DO NOT ENABLE THE SERVICE RECIPI ENT TO APPLY THE TECHNOLOGY (IF ANY) CONTAINED THEREIN, IN AN INDEPENDENT MANNE R, IN FUTURE SUCH SERVICES ALSO DO NOT CONTEMPLATE DEVELOPMENT OR TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN; AND THE PAYMENT TO THE SERVICE P ROVIDER IS FOR SERVICE SIMPLICITER AND NOT FOR MAKING AVAILABLE ANY TECHNI CAL KNOWLEDGE, EXPERIENCE, ETC. 20. ACCORDINGLY, THE SERVICE RECIPIENT SHOULD BE AB LE TO MAKE USE OF SUCH TECHNICAL KNOWLEDGE, SKILL, ETC BY HIMSELF IN HIS B USINESS OR FOR HIS OWN BENEFIT WITHOUT RECOURSE TO THE SERVICE PROVIDER IN THE FUT URE. THE AFORESAID PRINCIPLE HAS ALSO BEEN UPHELD IN THE FOLLOWING JUDICIAL PREC EDENTS WHEREIN THE CONCEPT OF MAKE AVAILABLE HAS BEEN DISCUSSED IN DETAIL AN D THE ISSUE HAS BEEN RULED IN FAVOUR OF THE TAXPAYERS EVEN IN THE CASES OF THE SUPPORT SERVICES RENDERED UNDER A GLOBAL AGREEMENT. THE FOLLOWING DECISIONS W ERE RELIED BY THE LD. AR US TECHNOLOGY RESOURCES (P) LTD. (2018) 407 ITR 327 (KERALA) H.C 28 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 GUY CARPENTER & CO. LTD. [2012] 346 ITR 504-DELHI H .C DE BEERS INDIA MINERALS (P) LTD. [2012] 346 ITR 467 (KARNATAKA)- H.C KONINKLIJKE PHILIPS ELECTRONICS N. V. [2018] 99 TAX MANN.COM 23- KOLKATA ITAT EXXONMOBIL COMPANY INDIA (P.) LTD [2018] 92 TAXMANN .COM 5 - MUMBAI ITAT BOMBARDIER TRANSPORTATION INDIA (P.) LTD. [2017] 16 2 ITD 586 (AHMEDABAD - TRIB) TIMPKEN COMPANY [2017] 88 TAXMANN.COM 21 - KOLKATTA ITAT OUTOTEC OYJ [2017] 162 ITD 541 - KOLKATTA ITAT STERIA (INDIA) LTD. [2016] 386 ITR 390- DELHI- HC CUMMINS LTD. [2016] 381 ITR 44-AAR SANDVIK AB [2015] 61 TAXMANN.COM 31 - PUNE ITAT MEASUREMENT TECHNOLOGY LTD. [2015] 376 ITR 461 - A AR SANDVIK AUSTRALIA PVT. LTD. [2013] 31 TAXMANN.COM 256 - PUNE ITAT ENDEMOL INDIA PVT. LTD. [2014] 361 ITR 340-AAR INVENSYS SYSTEMS INC [2009] 183 TAXMAN 81 - AAR KPMG LTD. [2013] 142 ITD 323 (MUMBAI- TRIB RENAISSANCE SERVICES BV. [2018] 94 TAXMANN.COM 465 - MUMBAI ITAT VEEDA CLINIC RESEARCH (P) LTD. [2013] 144 ITD 297 ( AHMEDABAD - TRIB 29 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 RELIANCE GENERAL INSURANCE CO. LTD. [2018] 97 TAXMA NN.COM 350-MUMBAI ITAT FURTHER, THE CASE LAWS SPECIFIC ON THE PROPOSITION THAT MANAGERIAL SERVICES ARE NOT COVERED UNDER FIS ARTICLE IN INDIA -US TREATY ARE AS FOLLOWS:- RAYMOND LTD. [2003] 86 ITD 791-MUMBAI ITAT KONINKLIJKE PHILIPS ELECTRONICS N.V- [2018] 99 TAXM ANN.COM 23 - KOLKATTA ITAT STERIA (INDIA ) LTD. [2016] 386 ITR 390 - DELHI- H C CUMMINS LTD. [2016] 381 ITR 44-AAR HC MEASUREMENT TECHNOLOGY LTD. [2015] 376 ITR 461 - A AR INVENSYS SYSTEMS INC [2009] 183 TAXMAN 81 - AAR FURTHER, THE CASE LAWS SPECIFIC ON THE PROPOSITION THAT SINCE SUPPORT SERVICES ARE RENDERED YEAR-ON-YEAR, THEY DO NOT SATISFY MAKE AVAILABLE TEST AND HENCE IS NOT TAXABLE AS FIS: EXXONMOBIL COMPANY INDIA (P) LTD. (2018) 92 TAXMANN .COM 5- MUMBAI ITAT BOMBARDIER TRANSPORTATION INDIA (P.) LTD. [2017] 16 2 ITD 586 (AHMEDABAD - TRIB) OUTOTEC OYI- [2017] 162 ITD 541 - KOLKATTA ITAT THE LD. AR SUBMITTED THAT THE RELIANCE OF CENTRICA INDIA OFFSHORE PVT. LTD (2014) 364 ITR 336 CANNOT BE APPLIED IN THE FACTS O F HEINZ US AS IN THE CENTRICA RULING THE CASE OF WHETHER THE SALARY PAYM ENT MADE TO OVERSEAS ENTITY IS TAXABLE OR NOT. FURTHER, THE PAYMENT MADE UNDER THE CASE OF CENTRICA WAS NOT FOR YEAR-TO YEAR BASIS AS IN THE CASE OF HE INZ US. THUS, THE LD. AR SUBMITTED THAT THE SAID SERVICE CANNOT BE HELD TO B E FIS AND HENCE ARE NOT TAXABLE IN INDIA. 30 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 21. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIALS AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT T AXABILITY OF THE PAYMENT MADE BY HEINZ INDIA TOWARDS THE COST ALLOCATED BY HEINZ USA IN RESPECT OF THE ACTIVITIES CARRIED OUT WILL DEPEND UPON THE CHARACT ERIZATION OF SUCH PAYMENT. SUCH PAYMENT COULD BE GOVERNED BY ARTICLE 12 ROY ALTIES AND FEES FOR INCLUDED SERVICES OR ARTICLE 7 BUSINESS PROFITS . THE TERM FEES FOR INCLUDED SERVICES (FIS) HAS BEEN EXPLAINED IN ARTICLE 12(4) OF THE DTAA WHICH READS AS UNDER: 4. FOR PURPOSES OF THIS ARTICLE, FEES FOR INCLUDE D SERVICES MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE PROV ISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED; OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKI LL, KNOW-HOW, OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSF ER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. THE ASSESSEE HAS FILED THE PRESENT APPEAL CHALLENGI NG THE ASSESSMENT ORDER ON THE GROUND THAT THE COST REIMBURSEMENT OF RS. 1,88, 54,358/- RECEIVED BY THE ASSESSEE TOWARDS PROVIDING SUPPORT SERVICES TO ITS GROUP AFFILIATES ARE TAXABLE AS FTS BOTH U/S 9(1)(VII) OF THE ACT AS WELL AS ART ICLE 12(4) OF THE DTAA TAXING THE SAME BY THE ASSESSING OFFICER AS ROYALTY IS ALS O NOT JUST AND PROPER. FROM THE PERUSAL OF THE RECORDS IT CAN BE SEEN THAT THE ASSESSEE HAS ENTERED INTO A GLOBAL AGREEMENT EFFECTIVE FROM 3 RD MAY, 2007 WITH ITS GROUP ENTITIES (AFFILIATES), INCLUDING HEINZE INDIA PVT. LTD. (HEINZE INDIA) FOR THE PROVISION OF SUPPORT ACTIVITIES. THE UNDERLYING OBJECTIVE OF THE AGREEME NT IS TO ACHIEVE CONSISTENCY OF 31 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 APPROACH AND ECONOMIES OF SCALE FOR THE GROUP ENTIT IES. THE ACTIVITIES CARRIED OUT BY THE HEINZ, USA UNDER THE AGREEMENT ARE BROAD LY IN THE AREA OF SUPPLY CHAIN HUMAN RESOURCES, STRATEGIC PLANNING AND MARKE TING, FINANCE AND INFORMATION SYSTEMS FROM THE DTAA AS WELL AS THE AG REEMENTS ENTERED INTO BY THE ASSESSEE COMPANY AS WELL AS HEINZ, INDIA NOVEL DEFINE BUT SERVICES ARE COMING WHILE CLAIMING THE REIMBURSEMENT. THE APPROA CH OF THE ASSESSEE IS THAT THE SERVICES SHOULD NOT BE CONSIDERED AS TAXABLE CO NTENDING THAT THEY ARE MERELY REIMBURSEMENTS AND REIMBURSEMENT CANNOT BE T AXED. BUT TO COME UNDER THE CATEGORY OF REIMBURSEMENT OF CERTAIN RECE IPTS OF SERVICE, THE SAME HAS TO FULFILL CERTAIN CRITERIA FOR WHICH THE SERVI CES HAVE TO BE PROVIDED BY THE ASSESSEE TO ITS AFFILIATED COMPANIES. THE ASSESSING OFFICER HAS OBSERVED THAT THE SERVICES PROVIDED BY THE ASSESSEE ARE IN THE AREA O F SUPPLY CHAIN, HUMAN RESOURCES, STRATEGIC PLANNING AND MARKETING, FINANC E AND INFORMATION SYSTEMS UNDER THE AGREEMENT WHICH IS AN ADMITTED FACT. THUS , SERVICES HAVE BEEN UTILIZED BY THE INDIAN COMPANY AS WELL. THE CONCEPT OF MAKE AVAILABLE REQUIRES THAT THE FRUITS OF THE SERVICES SHOULD REMAIN AVAIL ABLE TO THE SERVICE RECIPIENTS IN SOME CONCRETE SHAPE SUCH AS TECHNICAL KNOWLEDGE, EXPERIENCE, SKILLS ETC. WHICH IS MET IN THE INSTANT CASE AS CAN BE REFLECTE D FROM THE NATURE AND DURATION OF THE CONTRACT. THE SERVICE RECIPIENT HAS TO MAKE USE OF SUCH TECHNICAL KNOWLEDGE, SKILLS ETC. BY HIMSELF IN HIS BUSINESS AND FOR HIS OWN BENEFIT. THUS, THE SHORT DURABILITY OR PERMANENT US AGE OF THE SERVICE ENVISAGES BY THE CONCEPT OF MAKE AVAILABLE SERVICES REMAINS A T THE DISPOSAL OF THEIR SERVICE RECIPIENTS. THUS, THE CONSIDERATION QUALIFI ES AS FEES FOR TECHNICAL SERVICES (FTS) BOTH UNDER THE INCOME TAX ACT AND UN DER THE TAX TREATY AS WELL. THE LD. AR RELIED UPON THE VARIOUS DECISIONS IN RES PECT OF MEANING OF MAKE AVAILABLE UNDER DTAA AND CERTAIN SUPPORT SERVICES W HICH DO NOT SATISFY MAKE AVAILABLE CLAUSE UNDER DTAA. THE FIRST CASE LAW OF THE HONBLE JURISDICTIONAL HIGH COURT IS GUY CARPENTER AND COMPANY LTD. 346 IT R 504. AFTER GOING THROUGH THE DECISION IN THIS PARTICULAR CASE, THE I SSUE WAS WHETHER THE NATURE OF REINSURANCE BROKERAGE, COMMISSION WHICH WAS PAID BY INSURANCE COMPANIES OPERATING IN INDIA TO THE ASSESSEE WAS ASSESSABLE A S FEES FOR TECHNICAL SERVICES 32 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 WITHIN THE MEANING OF SECTION 9(1)(VII) OF THE SAID ACT READ WITH ARTICLE 13 OF THE INDIA UNITED KINGDOM DOUBLE TAX AVOIDANCE AGREEMENT OR NOT. THE HONBLE DELHI HIGH COURT OBSERVED THAT A PLAIN READING OF A RTICLE 13(4)(C) OF THE DTAA INDICATES THAT FEES FOR TECHNICAL SERVICES WOULD ME AN PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF AN Y TECHNICAL OR CONSULTANCY SERVICES WHICH INTER ALIA MAKES AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSING OR CONSIST OF THE DEVELOPMEN T AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. IN THE SAID CAS E, THE ASSESSEE DID NOT MAINTAIN ANY OFFICE IN INDIA AND HAS A REFERRAL REL ATIONSHIP WITH J. B. BODA WHICH IS NOT AFFILIATED COMPANY OF THE ASSESSEE. TH US, THE FACTUAL ASPECT DIFFERS WITH THE PRESENT ASSESSEE AND THEREFORE THE RATIO L AID DOWN BY THE JURISDICTIONAL HIGH COURT DECISION IS NOT APPLICABL E TO THE FACTS OF THE PRESENT CASE. IN FACT THE ASSESSEE DURING THE HEARING HAS G IVEN ALMOST 20 DECISIONS WHICH ARE QUOTED HEREINABOVE AS THE SUBMISSIONS OF THE LD. AR WHICH ARE NOT BE APPLICABLE IN THE PRESENT CASE AS THE FACTUAL AS PECT DIFFERS AND HAS UNIQUE FEATURES WHICH WILL NOT BE APPLICABLE IN THE PRESEN T CASE. AS REGARDS THE DECISION THAT CERTAIN SUPPORT SERVICES CANNOT BE TA XABLE AS ROYALTY ON THE DTAA, THE DECISION OF THE TRIBUNAL CITED BY THE LD. AR WILL NOT BE APPLICABLE IN THE PRESENT CASE. DECISIONS ON ANCILLARY AND SUBSID IARY CLAUSES IN DTAA WILL ALSO BE NOT APPLICABLE. AS REGARDS, THE DECISION ON REIMBURSEMENT THE HONBLE BOMBAY HIGH COURT IN CASE OF SIEMENS (SUPRA) HAS HE LD THAT THE AMOUNTS RECEIVED BY THE ASSESSEE THEREIN UNDER THE AGREEMEN T WOULD BE ROYALTY UNDER THE DTAA BUT WOULD FALL WITHIN THE EXPRESSION, INDU STRIAL OR COMMERCIAL PROFITS WITHIN THE MEANING OF ARTICLE 3 OF THE DTAA. THUS, THE RATIO WILL NOT BE APPLICABLE IN THE PRESENT CASE. THUS, GROUND NO. 2 IS DISMISSED. 22. AS REGARDS THE GROUND NO. 3 NOT GRANTING CREDIT OF TAXES DEDUCTED AT SOURCE THE ISSUE IS REMANDED BACK TO THE FILE OF TH E ASSESSING OFFICER FOR GRANTING DUE CREDIT OF TDS AFTER PROPER VERIFICATIO N. NEEDLESS TO SAY THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWI NG PRINCIPLE OF NATURAL JUSTICE, THEREFORE, GROUND NO. 3 IS ALLOWED. 33 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 23. AS REGARDS GROUND NO. 4 REGARDING LEVY OF INTER EST U/S 234B, THE SAME IS CONSEQUENTIAL HENCE IS NOT ADJUDICATED HERE. 24. AS REGARDS GROUND NO. 5 (WRONGLY MENTIONED IN A PPEAL MEMO AS GROUND NO. 4) RELATING TO INITIATION OF PENALTY PROCEEDING S U/S 271(1)(C) OF THE ACT, IS CONSEQUENTIAL AND GROUND NO. 1 IS GENERAL IN NATURE , HENCE, DOES NOT REQUIRE ADJUDICATION. 25. AS REGARDS TO ITA NO. 1991/DEL/2015, THE SAME I S HAVING IDENTICAL ISSUES, HENCE THE SAME IS ALSO PARTLY ALLOWED FOR S TATISTICAL PURPOSE. 26. IN RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD AUGUST, 2019 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23/08/2019 R. NAHEED COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 34 ITA NO. 6252/DEL/2012 & 1991/DEL/2015 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER