KRAFT FOODS GROUP BRANDS LLC ,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-3(1)(2), MUMBAI

O R D E R PER S. RIFAUR RAHMAN (AM)

(A.Y: 2019-20) Kraft Foods Group Brands LLC 2. Aggrieved with the final Assessment Order passed by the Assessing Officer, assessee has filed the appeal before us raising following grounds in its appeal: - “General Objection 1. erred in assessing total income of the Appellant at INR 11,74,88,824 as against INR 3,63,32,800 as per the Return of Income (ROI); Final assessment order barred by limitation 2. erred in not appreciating that the time limit prescribed under section 153 is the outer time limit for passing the final assessment order and hence, the final assessment order dated

29. July 2022 is time barred and liable to be quashed, Notice under section 143(2) is without jurisdiction and bad in law 3. erred in carrying out assessment proceedings initiated by National e-Assessment Centre (now known as National Faceless Assessment Centre) by issuance of notice under section 143(2) of the Act which was without jurisdiction and accordingly, the assessment be treated as bad in law and be quashed, Addition of Tax Deducted at Source (TDS) of INR 10,260 on royalty income and TDS of INR 93.45.429 on support service income 4. erred in adding TDS of INR 10,260 to the returned royalty income of INR 96,715 on the ground that net royalty income was offered to tax (ie., gross income less TDS); 5. erred in adding TDS of INR 93,45,429 to the returned support service income of INR 3,62,36,081 on the ground that net support service income was offered to tax (ie, gross income less TDS): 6. erred in making the above additions on the basis of initial incorrect submission filed by the Appellant which was subsequently withdrawn during assessment proceedings along with supporting evidence as reflected in Form 26AS: 7. should have appreciated that addition of INR 10,250 representing TDS on royalty income and INR 93,45,429

Page No. | 2 (A.Y: 2019-20) Kraft Foods Group Brands LLC representing TDS support service income would lead to double taxation as same isalready considered in the returned income, Taxability of receipts of INR 7,18,00,340 as Fees for Technical/ Included Services ('FTS/FIS') under the Income Tax Act, 1961 (the Act) and Double Taxation Avoidance Agreement between India and The United States of America ("DTAA") 8. erred in making an addition of alleged receipt of INR 7,18,00,340 as FTS under section 9(1)(vii) ofthe Act and Article 12 of the DTAA: 9. erred in making addition of alleged receipts of INR 7,18,00,340 without appreciating that the aforesaid amount is towards allocation of cost wherein no services have been made available to the Indian group entity ie., HIPL thereby not being taxable as per Article 12 of DTAA: 10. erred in ignoring that such receipts are reimbursement of cost allocation arrangements without any mark-up and hence such reimbursements can neither be taxed under the Act nor under the DTAA: 11. should have appreciated that the receipts under consideration represent managerial services' and ought to have held that in the absence of 'managerial services' under Article 12 of India-USA DTAA, said receipts cannot be taxable as per provisions of DTAA 12 without prejudice to the above, erred in not appreciating that the receipts in dispute is of INR5,18,61,854 as against INR 7,18,00,340 alleged by the AO Levy of interest under section 234B 13. erred in levying interest under section 234B of the Income Tax Act, 1961 of INR 13,89,600 initiation of penalty proceedings under section 270A of the Act 14 erred in wanting to initiate penalty proceedings under section 270A of the Act without appreciating that the Appellant has not under-reported income”

Page No. | 3 (A.Y: 2019-20) Kraft Foods Group Brands LLC 3. At the outset, Ld. AR of the assessee submitted that Ground No. 1 is general and Ground Nos. 2 and 3 are not pressed, accordingly, these three grounds are dismissed as such.

6. Ld. AR of the assessee submitted that even after the clear direction of Ld. DRP, the Assessing Officer proceeded to sustain the addition with the observation that Form 26AS captures the transactions on which TDS was deducted. In the present case, an amount of ₹.10,260/- as royalty income and ₹.93,45,429/- as support services income has not been offered to income which has not suffered TDS and therefore it does not appear in Form 26AS. Accordingly, he sustained the additions made in the draft Assessment Order.

Page No. | 5 (A.Y: 2019-20) Kraft Foods Group Brands LLC by the assessee in its return of income are matching. Hence there is no concealment of income.

Page No. | 7 (A.Y: 2019-20) Kraft Foods Group Brands LLC tax residency certificate issued by the USA Tax Authorities. During the year, assessee offered to tax revenue of ₹.3,63,32,796/- received from Heinz India Private Limited (“Heinz India” Now known as Zydus Wellness Products Limited) and also taken credit of TDS of ₹.93,55,689/-.

Page No. | 8 (A.Y: 2019-20) Kraft Foods Group Brands LLC 13. With regard to the cost allocation arrangement of ₹.5.18 crores are claimed as non-chargeable to tax, it was submitted that the same are reimbursement without any mark-up, in this regard, assessee has submitted an agreement entered by the assessee and Heinz India dated 04.01.2016 and they brought to the notice of the Assessing Officer Article 5 and specifically brought to the notice Article 5(2)(d) that the parties agreed the mark-up of 0% share applied to cost of performing support services under this agreement and further, they submitted that Section 90(2) of the Act provides the option to non-resident to be governed under the provisions of tax or the provisions of applicable tax treaty whichever is more beneficial. The assessee by relying on the following case law submitted that the reimbursement of expenditure is not taxable under the Income-tax Act. i. CIT v Siemens Aktiongesellschaft (220 CTR 425) Bombay High Court (Bom) ii. CIT v Industrial Engineering Products Pvt Ltd (202 ITR 1014) (Del-HC) iii. CIT v Dunlop Rubber Co Ltd (142 ITR 493) (Kol.) iv. Mahindra & Mahindra v DCIT (ITA No. 85 8597/Mum/2010) (Mum.) v. ADIT v Antwerp Diamond Bank Inv (ITA No. 7347/Mum/2007) (Mum.) vi. A.P.Moller Maersk v DCIT (ITA No. 8703, 8704/Mum/2010) (Mum.) vii. DECTA, In re (237 ITR 190) (AAR)

Page No. | 9 (A.Y: 2019-20) Kraft Foods Group Brands LLC 14. Further, it submitted that the reimbursement of expenditure will also not attract Article 12(4) and submitted that the relevant receipt of reimbursement of expenditure will not fall under ancillary and subsidiary to the application or enjoyment of the right etc., and also it does not come under the provisions of make available clause.

Page No. | 11 (A.Y: 2019-20) Kraft Foods Group Brands LLC 16. Aggrieved with the above order assessee preferred an objection before the Ld. DRP and filed detailed submissions before him. After considering the detailed submissions Ld. DRP sustained the additions made by the Assessing Officer by observing as under: -:

“11.1 Submissions of the assessee are carefully considered. It is noted that the assessee entered into a Service Agreement with Heinz India (Pvt) Ltd. (HIPL) under which it provided Support Services in lieu of Service Fee which has been offered for taxation as Fee for Technical Service (FTS), being taxable under the Act, and the relevant DTAA. It has also claimed that it had received an amount of INR 5,18,61,854 (INR 7,18,00,339 as per the AO) as cost reimbursement. Claiming that the same had been received without markup, the assessee didn't offer the same for taxation. 11.2 The AO has analysed the Service agreement in the draft order and pointed out that. (i) there is only one agreement between the assessee and HIPL, and it is about the Service Fee; (ii) there is no reference to the cost allocation in the agreement: (iii)As the FTS is taxable on gross basis, both under the ACT and the DTAA, the same is liable to taxed, irrespective of whether there was any markup or not. 11.3 The submissions of the assessee are considered in this background. The assessee has described the transaction in question, claimed to be a mere reimbursement on account- of cost allocation, in following terms:

1. 1. Payments recovered by KFG was for support in the areas of human resources, strategic planning and marketing, finance, and information systems to achieve consistency of approach and economies of scale for the affiliates across the globe.

2. Support was provided to carry day to day business operations. Thus, there are no personnel being deputed to HIPL by KFG for providing assistance to HIPL.

3. In the instant case, no such consultancy has been provided by KFG to HIPL. The same is merely support in carrying out day to day business operations.

Page No. | 12 (A.Y: 2019-20) Kraft Foods Group Brands LLC 4. In this instant case, no special skill or knowledge in relation to technical field was required by KFG for rendering services to HIPL.

5. In the instant case, there is no mark up on cost allocation arrangements. The same qualify as reimbursements.

Page No. | 13 (A.Y: 2019-20) Kraft Foods Group Brands LLC element as a mere reimbursement, the aim was to reduce the tax liability as the taxability of FTS is on gross receipt basis. 11.8 It is clear from the above that the expenses relate to certain technical services provided by the assessee to HIPL. What the assessee is trying to pass on as innocuous reimbursements are in fact incidental expenses incurred by the assessee in order to enable itself to provide certain technical services to HIPL. It is not disputed by the assessee that these services are taxable as FTS in the hands of the assessee under section 9(1)(vii). however, by bifurcating the receipts as reimbursement of expenses and other receipts, the assessee is attempting to circumvent the provisions of the Act/DTAA which provide for taxation of FTS on gross basis. 11.9 It is beyond dispute that as per the scheme of the Act, and the DTAA, the royalty and FTS are taxable on gross basis, irrespective of the fact whether any profits were actually earned on the transfer. Under the circumstances, for a receipt under the head royalty or FTS to be taxable in India, it is sufficient to ascertain that transaction resulted in accrual of income in India. 11.10 The decision of the Hon'ble Supreme Court in the case of GE India Technology CHCen. (P.) Ltd. Vs CIT (327 ITR 456) is relevant here to counter the argument of the assessee that mere reimbursement cannot be taxed in India. The context of the decision is the "taxability in India' as in whether the income in question is accrued or arisen in India. In the present case, the services are rendered in India and therefore, there is no dispute that the income did accrue in India. The para 11 and 12 of the decision directly demolish the line of argument taken by the assessee: “11. Before concluding we may clarify that in the present case on facts the ITO (TDS) had taken the view that since the sale of the concerned software, included a license to use the same, the payment made by appellant(s) to foreign Suppliers constituted "royalty" which was deemed to accrue or arise in India and, therefore, TAS was liable to be deducted under Section 195(1) of the Act. The said finding of the ITO (TDS) was upheld by the CIT (A). However, in second appeal, the ITAT held that such sum paid by the appellant(s) to the foreign software Supplier was not a "royalty" and that the same did not give rise to any income taxable in India and, therefore, the appellant(s) was not liable to deduct TAS. However, the High Court did not go into the merits of the case and it went straight to conclude that the moment there is remittance an obligation to deduct TAS arises, which view stands hereby overruled.

Page No. | 14 (A.Y: 2019-20) Kraft Foods Group Brands LLC 12. Since the High Court did not go into the merits of the case on the question of payment of royalty, we hereby set aside the impugned judgments of the High Court and remit these cases to the High Court for de novo consideration of the cases on merits. The question which the High Court will answer is whether on facts and circumstances of the case the ITAT was justified in holding that the amount(s) paid by the appellant(s) to the foreign software Suppliers was not "royalty" and that the same did not give rise to any income taxable in India and, therefore, the appellant(s) was not liable to deduct any tax at source? 11.11 As can be seen from the above, the decision of the apex court in the case of GE India Technology Cen. (P.) Ltd. (supra) clearly espouses the view that if a receipt is characterized as royalty (or FTS), and the same did give rise to an income taxable in India by virtue of having been accrued in India, then it is taxable in India, notwithstanding whether it contains any profit element or not. 11.12 In the case of CSC Technology Singapore Pte. Ltd. v ADIT, [2012] 19 taxmann.com 123 (Delhi) the assessee, a foreign company, rendered services to Indian Companies. The assessee had offered to tax all sums received from India as royalty/FTS under the DTAA. However, there are certain amounts from an Indian company, which was not been offered for taxation. The assessee claimed that the assessee had incurred travel expenses in respect of employees of the head office who came to India for helping the work of the Indian subsidiary company. The expenses were in relation to air-tickets, hotel bills, taxi charges etc. The Indian company had reimbursed these expenses to the head office on cost to cost basis. These amounts were reimbursements and there was no element of profit was involved in the reimbursements. Therefore, the same was not taxable and was also not included in the receipts. The Hon'ble ITAT held that "these expenses have been incurred in connection with technical services agreement. Therefore, the expenditure has been incurred for earning royalty/FTS. In spite of the fact that the agreement provides inter- alia for adequate level of support and posting its personnel, the expenses for which will be reimbursed, the fact remains that the expenditure has been incurred for earning the royalty/FTS. The expenditure is that of the assessee and not that of the Indian subsidiary company. Article 12 provides for taxation of royalty/FTS in the source country on gross basis at a concessional rate of tax. This means that the expenditure incurred for earning royalty/FTS is not deductible in computing gross royalties or gross FTS received by the assessee company......... It is clear from the language that this article taxes royalty/FTS on gross basis and does not permit

Page No. | 15 (A.Y: 2019-20) Kraft Foods Group Brands LLC deduction of expenses. Therefore, it is held that the alleged reimbursement of expenses for traveling or the expenses of the assessee-company are its expenses, liable to be included in its gross receipts." 11.13 In the present case, instead of offering the entire receipts for taxation as FTS, the assessee is seeking to bifurcate them by separating a part thereof to be paid to third parties. It must be noted that if the contention of the assessee is accepted, it would amount to taxing the FTS on 'net' basis, instead of 'gross' basis, as prescribed by the statute. The assessee cannot be allowed to deduct all or any of the expenses it might have incurred, including third party payments, from the gross receipts for technical services it rendered. 11.14 As such, the panel holds that the amount of reimbursement of expenses is not eligible to be deducted from the gross amount received by the assessee and offered for taxation as FTS, and must be taxed as FTS on gross basis. In view of the above discussion, Ground of Objection No. 6, 8 and 9 are rejected.”

Page No. | 16 (A.Y: 2019-20) Kraft Foods Group Brands LLC The learned AO has allegedly considered INR 7,18,00,339 as taxable under the Act/ India-USA DTAA as FTS/FIS. The assessee humbly submits that basis the receipts tabulated above, INR 3,62,36,081 have been offered to tax. Further, receipts from cost allocation arrangements of INR 5,18,61,854 are not chargeable to tax since the same are reimbursements without any mark-up. Refer page 168-177, whereby Article 5 of the agreement dated 4 January 2016 makes it amply clear there shall be no mark-up on such cost allocation arrangements. • Refer relevant pages of the DRP Application filed dated 29 October 2021 with the Hon'ble Members of DRP-1, Mumbai Assessee’s contentions: In addition, invoice of USD 12,04,511 has been raised on HIPL (refer page 178). Such invoice is towards receipts of USD 4,95,435 (i.e. INR 3,62,36,081) towards support services (offered to tax) and USD 7,09,076 (INR 5,18,61,854) towards reimbursement of cost allocation arrangements. Section 90(2) of the Act provides an option to a non-resident to be governed under the provisions of the Act or the provisions of the applicable tax treaty, whichever is more beneficial. This view is supported by the Hon'ble Supreme Court ruling in the case of UOI vs AzadiBachaoAndolan (263 ITR 706) and the Andhra Pradesh High Court in the case of CIT vs Visakhapatnam Port Trust (144 ITR 146) and also by CBDT Circular No. 333 dated 2 April 1982. KFG being a company incorporated in USA and a tax resident of USA, is entitled to avail the benefits of the India-USA DTAA. Taxability under the Act The above receipts of KFG merely represents reimbursement of the costs incurred by and on behalf of HIPL. KFG wishes to submit that it is pertinent to examine whether the term 'reimbursement' could be considered as income under the Act. The term 'reimbursement' has not been defined under the Act and hence, should partake the meaning assigned to it in common parlance. The term reimbursement has been defined in Law Lexicon to mean "to pay back, to make restoration, to repay that expended, to indemnify or make whole." Accordingly, payments

Page No. | 17 (A.Y: 2019-20) Kraft Foods Group Brands LLC which are made towards meeting the actual expenses incurred on behalf of the payer would qualify as reimbursements. The allocation of actual costs which is charged by KFG as a participant to the Agreement merely represents a reimbursement of those costs incurred by and on behalf of HIPL. The same can be evidenced from the service agreement above, that there is 0% markup. Thus, such recovery of expenses would not constitute income of KFG and hence is not taxable. Refer relevant pages of the DRP Application filed dated 29 October 2021 with the Hon'ble Members of DRP-1 Assessee's contentions: Reliance is placed on following judgments:  CIT vs Siemens Aktiongesellschaft (220 CTR 425 (Bom.))  CIT vs Industrial Engineering Products Pvt Ltd [202 ITR 1014 (Del HC)]  Mahindra & Mahindra vs DCIT [ITA No. 8597/Mum/2010 (Mum.)] ADIT vs Antwerp Diamond Bank Inv [ITA No. 7347/Mum/2007 (Mum.)]  A. P. Moller Maersk vs DCIT [ITA No. 8703, 8704/Mum/2010 (Mum.)]  CIT vs Dunlop Rubber Co Ltd [142 ITR 493 (Kol.)] The broad principles which emerge from the above judicial precedents are as follows: Where expenses have been incurred by a person at the behest of or on behalf of or for the benefit of another person, and the same were merely reimbursed to the first mentioned person (in which case, by effecting the reimbursement, the expenses were correctly borne by the other person), such reimbursements are mere recoupment of expenses and would not constitute income of the first mentioned person. If the reimbursements made to the person incurring the expenses on behest of or on behalf of or for the benefit of another person, also includes profit element over and above the actual costs incurred by the first mentioned persons, such excess could be Page No. | 18 (A.Y: 2019-20) Kraft Foods Group Brands LLC taxable as the income of the first mentioned person. However, where reimbursement of expenses is made at actuals, the reimbursement would not constitute income of the first mentioned person. Assessee’s contention: In the present case, the expenses incurred by KFG and reimbursed by HIPL are mere recoupment of expenses and would not constitute income of KFG. KFG merely allocates the costs and does not charge any mark-up. In view of the above, it is submitted that having regard to the aforesaid facts of the present case and the principles emerging from various judicial precedents stated above, since KFG has received payments from HIPL towards cost allocation arrangements which are reimbursements and do not contain income element embedded in it, payments made by HIPL should not be chargeable to tax in India as income under the provisions of the Act. While reimbursements received are not taxable under the Act itself, nonetheless taxability under the DTAA is discussed below: Taxability under the DTAA Article 12(4) of the treaty defines the term FIS, which reads as under: "4. For purposes of this Article, fees for included services' means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision 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, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design." Assessee's contentions: Further, Article 12(3)(a) of the DTAA pertains to payments of any kind received as a consideration for the use of, or the right to use,

Page No. | 19 (A.Y: 2019-20) Kraft Foods Group Brands LLC any copyright or a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and Article 12(3)(b) pertain to payments of any kind received as consideration payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8. It is submitted that the payments recovered by KFG was for support in the areas of human resources, strategic planning and marketing, finance, and information systems to achieve consistency of approach and economies of scale for the affiliates across the globe. Therefore, it cannot be said to be ancillary or subsidiary to the application or enjoyment of Technology and Trademark license agreement executed between KFG and HIPL. Accordingly, the amounts received by KFG cannot be characterized as FIS under Article 12(4)(a) of the DTAA. As per clause (c) of Article 12(4) of the DTAA, FIS also covers consideration for the rendering of any technical or consultancy services, provided such services make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. In the light of above definition and judicial pronouncements of various Courts, for any payment to qualify as FIS under the DTAA, the following criteria are essential: a) The services need to be of technical or consultancy nature; and b) The services need to make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. Assessee's contentions: The term 'make available' has not been defined in the Treaty. However, the Memorandum of Understanding (MOU) executed

Page No. | 20 (A.Y: 2019-20) Kraft Foods Group Brands LLC between India and USA provides a detailed commentary explaining the meaning of the term 'make available' at length. As per the MOU, a 'technical service' is one that requires an expertise in a technology and a 'consultancy service' is a service which is of an advisory nature. A 'technical or consultancy service' is taxable only if the services 'make available' technical knowledge, experience, skill, know-how, or processes, or consist of development and transfer of a technical plan or technical design. The MOU states that generally technology is 'made available' when the person acquiring the service is enabled to apply the 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 technical 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, the MOU has set out illustrative services that either 'make available' technical knowledge, experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design. In a nutshell, the illustrations in the MOU suggest as follows: The payments for training provided by experts of non-resident company to Indian engineers in manufacturing of products qualifies as FIS as the services 'make available' technical knowledge, skill, and processes to the Indian company. Wherein non-resident manufacturer fabricates a product in its plant for a fee, though it is performing a technical service, no technical knowledge, skill, etc are 'made available' to the Indian company, nor there is any development and transfer of a technical plant or design. Hence, the fees would not be treated as FIS. Payments for transfer of a technical plan (e.g. computer programme) developed by non-resident company would qualify as FIS. Assessee's contentions: The services of a non-resident company to modify formula and train the employees of Indian company in applying the formulas could be regarded technical knowledge 'made available' and the payments would be regarded as FIS as the technical knowledge is made available to the Indian company.

Page No. | 21 (A.Y: 2019-20) Kraft Foods Group Brands LLC The payments for the computer simulation of markets done by non-resident company would not be FIS as only commercial information is transferred and it does not 'make available' technical services within the meaning of Article 12(4)(b). 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 under Article 12(4) of the Treaty. Typically, services rendered may not make available any technical knowledge, skill, know-how or processes if the service provider is able to demonstrate that: such services do not enable the service recipient to apply the technology (if any) contained therein. such services also do not contemplate development or transfer of a technical plan or technical design; and the payment to the service provider is for service simpliciter and not for making available any technical knowledge, experience, etc. Accordingly, the service recipient should be able to make use of such technical knowledge, skill, etc by himself inhis business or for his own benefit without recourse to the service provider in the future. The aforesaid principle has also been upheld in the following judicial precedents: Assessee's contentions:  Guy Carpenter & Co Ltd vs ADIT (2012) (Del_HC)  CIT vs De Beers India Minerals (P) Ltd (2012) 346 ITR 467 (Kar_HC)  National Organic Chemical Industries Ltd vs DCIT (2005) 96 TTJ 765 (Mum.) ADIT vs WSN Global Services (P) Ltd (2011) 10 Taxmann 254 (Mum.)  Wockhardt Ltd vs ACIT (2011) 10 Taxmann 208 (Mum.)  Raymond Ltd. vs DCIT (2003) 86 ITD 791 (Mum.)  ACIT vs Paradigm Geophysical Pvt. Ltd. (2008) 117 TTJ 812 (Del_T)

Page No. | 22 (A.Y: 2019-20) Kraft Foods Group Brands LLC  ACIT vs Viceroy Hotels Ltd (2011) 11 Taxmann 216] (Hyd.)  Sandvik Australia Pty. Ltd. vs Deputy Director of Income-tax (International Taxation) In the present case, based upon the facts and description of the services as mentioned above, no technology is made available by KFG to HIPL while arranging support services. Accordingly, it is submitted that KFG does not "make available" any technical knowledge, skill, etc. to HIPL, nor does it develop and transfer any technical plan, design, etc. Therefore, the payments recovered by KFG towards support services provided cannot be said to be covered within the meaning of FIS under the DTAA. Hence, such reimbursements should not be taxable in India under the DTAA In addition to above, the definition of FIS under the India-USA DTAA includes only technical and consultancy services within its ambit. The word managerial is not included in the definition and hence, managerial services are outside the ambit of FIS. Meaning of 'managerial' is "of or relating to a manager or to the functions, responsibilities, or position of management". Thus, it signifies service for management of affairs or services rendered in performing management functions. Hence, it can be inferred that managerial services essentially involves controlling, directing or administering the business. If the services are treated as technical, consultancy and managerial in nature, i.e. as a mixed bag of services without distinguishing between the nature of the services, nor appreciating the intent of the services, the definition of FTS/FIS under the Act and the DTAA would become redundant. Further, in the DTAA, the countries have entered into negotiations and dropped the term 'managerial' services to specifically exclude the same. However, if difference between the services is ignored, such language of the DTAA would also be rendered redundant. Hence, considering the above argument, KFG wishes to submits that where managerial services are excluded under the India-USA DTAA, such services cannot be subject to tax under the DTAA. Conclusion: In view of above, KFG wishes to conclude that:

Page No. | 23 (A.Y: 2019-20) Kraft Foods Group Brands LLC Reimbursements received by KFG towards cost allocation are not taxable in India both under the Act and the DTAA. The learned AO has completely ignored the factual submission of KFG and allegedly considered INR7,18,00,339 as FTS/FIS thereby ignoring the actual receipts INR 5,18,61,854. Receipts from HIPL is INR 8,81,94,650 which is as per Form 26AS. However, the learned AO has completely ignored the said fact.”

Page No. | 24 (A.Y: 2019-20) Kraft Foods Group Brands LLC submitted before us in Form – 26AS, it clearly shows that assessee has actually received ₹.5,18,61,854/- from Heinz India towards cost allocation and this receipts were declared by the assessee as reimbursement. Therefore, we are inclined to accept the submissions of the assessee that it has actually received only ₹.518,61,854/- and we direct Assessing Officer to consider only the amount declared in Form-26AS.

Page No. | 25 (A.Y: 2019-20) Kraft Foods Group Brands LLC Services are given and it clearly means any activities performed by the assessee in the areas of general management, internal audit, communications, human resources, finance and treasury, data processing and information technology, food safety and quality control, supply chain and manufacturing, business development, legal and other related areas including but not limited to the services described in Article 3 and provided to recipient on a commercial basis. Further, it defined the relevant cost center in the section 1.9 to mean the cost centre within the company responsible for the provision of support services to Affiliates. From the above, the assessee has clearly defined the term of support services and it illustrated the various services in the Article 3 but it clearly defined it to be not limited to the services as mentioned in Article 3, it means the definition of various services illustrated in the article are not exhaustive.

Page No. | 26 (A.Y: 2019-20) Kraft Foods Group Brands LLC depreciation of equipment, expenses paid to third parties, and overhead expenses. b) For each relevant cost center, the aggregate amount of such costs shall not include costs which are related to the provision of Special Services and stewardship activities. c) An Allocation Factor shall be determined for each relevant cost center based on reasonable estimates provided by the relevant cost center related to the Support Services performed during the Accounting Period. The expenses attributed to Recipient under this Agreement shall be the sum of the amounts determined for each relevant cost center. d) The parties agree that a mark-up of 0% shall be applied to costs of performing Support Services under this Agreement unless a different mark-up is required under U.S. transfer pricing rules based on the nature of the Support Services performed.”

Page No. | 27 (A.Y: 2019-20) Kraft Foods Group Brands LLC towards receipt of cost allocation [recovery of expenses] and claimed the same as not taxable. It is important to note that the assessee has raised one single invoice for all the cost incurred by different cost centers and based on the above agreement, the assessee has to determine cost of each allocable cost by adopting allocation factor. The assessee did not file the above details before any tax authorities. Further we observe that the assessee has to provide support services to its affiliates through the respective cost centers for various services as illustrated in the Article 3 and it is not exhaustive definition. Therefore, as per the terms of agreement, the services provided by the assessee are only support services.

Page No. | 28 (A.Y: 2019-20) Kraft Foods Group Brands LLC 24. Further, it was agreed between them that an allocation factor shall be determined for each relevant cost center related to the support services performed during the accounting period and further clause (d) of section 5.2 describes that a mark-up of 0% shall be applied to costs of performing support services under this agreement unless a different mark-up is required under U.S. transfer pricing rules based on the nature of the Support Services performed. It clearly shows that the assessee will provide support services with 0% mark up on the costs of performing the various support services under this agreement unless a different mark up is required under US transfer pricing rules. It also shows that it is merely an initial commitment, unless the US TP rules applicable. The assessee has not brought on record the relevant assessment made under the US TP rules and also not bothered to submit any details of cost allocation by the respective cost centers and relevant cost factors for allocation. It is relevant to note that the support service charges are determined only by adopting the allocation of cost of respective cost centers, no other method was prescribed. Therefore, all the cost claimed by the assessee is only towards support services.

Page No. | 30 (A.Y: 2019-20) Kraft Foods Group Brands LLC unless and until a proper supporting documents are submitted before the authorities below by explaining how the costs are incurred on behalf of affiliates and how it is to be considered as reimbursement. How the various expenses claimed by the assessee are allocated to Heinz India and on what basis? In absence of the above, one cannot presume that these are reimbursement. First the assessee has to prove that these are falling under the category of reimbursement and then only they can claim the same as exempt under income tax or under treaty.

Page No. | 31 (A.Y: 2019-20) Kraft Foods Group Brands LLC 28. We are in agreement with the submissions of the Ld.AR that reimbursement of expenditure is not taxable. Since there is no profit element embedded in such expenses which are incurred on behalf of other person. However, in the given case there is no supporting evidences to appreciate that assessee has recovered the above said expenses from the other party i.e., Heinz India that it has incurred various expenditure on behalf of them.

Page No. | 33 (A.Y: 2019-20) Kraft Foods Group Brands LLC 30. Ground No. 13 is consequential and Ground no. 14 is premature, therefore, these grounds are not adjudicated at this stage.