CARGILL ASIA PACIFIC HOLDINGS PTE. LTD.,SINGAPORE vs. ADIT, NEW DELHI

PER O.P. KANT, A.M.:

Out of the above three appeals of the assessee, the first two appeals are directed against common order dated17/03/2011 passed by the learned CIT(Appeals)-XI, New Delhi [in short ‘the Ld. CIT(A)’] for assessment years 2005-06 and 2006-07. The third appeal is directed against final assessment order dated

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27/09/2010 passed by the Learned Assistant Director of Income- Tax, Circle-1(1), International Taxation, New Delhi [in short the ‘Ld. Assessing Officer’ (AO)] in pursuant to the direction of the learned Dispute Resolution Panel (DRP) forassessment year2007- 08. In these appeals identical issues permeating from the same set of the fact and circumstances are involved and therefore these appeals were heard together and disposed off by way of this consolidated order for convenience.

ITA No. 1437 & 1438/Del./2012 2. First, we take up the appeal bearing ITA No.1437/Del./2012 for assessment year 2005-06 and ITA No. 1438/Del/2012 for assessment year 2006-07. Grounds of appeal for assessment year 2005-06: 1. That the on the facts and circumstances of the case and in law, the order passed under section 143(3) of the Act by the Assistant Director of Income-tax, Circle 1(1), International Tax, New Delhi (hereinafter referred to as the ‘learned AO’)and order passed under section 250 of the act by the learned Commissioner of Income- Tax(Appeals)-XI, New Delhi (hereinafter referred to as learnedCIT(A) should be set aside as the same is based on conjectures and services and is bad in law. 2. That the learned AO and CIT(A) have erred in facts and in law in making addition amounting to Rs.3,19,89,426/- the returned income by treating reimbursements/recharges of actual cost incurred by the appellant under an Agreement for Services and Cost Sharing (“the agreement”) with Indian entities as interest (Rs.31,35,588) and fee for technical services (Rs.2,88,53,838/-) under the act as well as under the Double Taxation Avoidance Agreement between India and Singapore (“the treaty”) 2.1 That the ld. AO and CIT(A) haveerred in facts and circumstances of the case and in law in treating the cost reimbursements received from its Indian entities on actual basis as income chargeable to tax under the provisions of Act and DTAA. The learned CIT(A) and AO have failed to appreciate that the assessee has not received any markup or embedded profit element and accordingly the same are not taxable at all 2.2 That the learnedAO and CIT(A) have erred in taxing the cost recharges amounting to Rs.31,35,588/- received under the

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agreement as interest taxable under the act as well as DTAA on the basis of an in advertisement mistakes in the TDS certificate issued by the prayer of such recharges and by completely ignoring the documentary evidences brought on record the actual nature of the payment. 2.3 That the learned AO and CIT(A) have erred in facts and in law in not accepting the various classes of the agreement really on the ground that the agreement was not signed by the appellant/signed after 1st June 2004 even though it has been duly signed by the appellant and the Indian entities. 3. Without prejudice to the above that the cost reimbursement made by the Indian entities to the plant under the Agreement is not taxable under the Act as well as treaty, the learned AO & CIT(A) have erred in facts and in law in holding that the services provided under the agreement are covered under the definition of FTS under Article 12(4)(b) of the treaty even though the plant has not made available any technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the service is the services to apply the technology contained therein. 3.1 The learned AO and CIT(A) have also erred in not considering the Memorandum of Understanding (‘MOU’) to Article 12 of the Treaty between India and USA, wherein the terms ‘make available’ technical knowledge, experience, skill know-how are processes, have been explained, while treating the cost reimbursements/ recharges as FTS under article 12(4)(b) of the Treaty between India and Singapore. 4. Without prejudice to above the learned CIT(A) has also erred in facts in upholding Rs.31,989,426/- as taxable receipts in the hands of the plant even though the plant has received Rs.31,529,315/- only under the Agreement. The learnedCIT(A) haserred in ignoring the submission made by the appellant to highlight that Rs.460,112/- (31,989,426 – 31,529,315) was instead paid by the appellant to the Indian entity and does not represent any receipt. 5. That the learned AO and CIT(A) have erred in facts and in law not allowing any credit of tax deducted at source while computing the tax liability of the appellant for the subject year. 6. The Learned AO has erred in facts and in law in levying interest amountingto Rs.1,080,269/- under section 234B of the Act as the provisions under section 210/211 for payment of advance tax are not applicable on the plant in view of the Delhi High Court ruling in the case of Mitsubishi Corporation, Japan. 7. The Ld. AO has erred in facts and in law in levying interest under section 234D of the act and withdrawing interest under section 24A of the act in the absence of any refund being granted to the appellant. 8. That the learned AO has erred in facts and in law in initiating the penalty proceedings under section 271(1)(c) of the Act for the subject year for concealing particulars of income for furnishing inaccurate particulars of income.

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Ground of appeal for assessment year 2006-07: 1. That the on the facts and circumstances of the case and in law, the order passed under section 143(3) of the Act by the Assistant Director of Income-tax, Circle 1(1), International Tax, New Delhi (hereinafter referred to as the ‘learned AO’)and order passed under section 250 of the act by the learned Commissioner of Income- Tax(Appeals)-XI, New Delhi (hereinafter referred to as learnedCIT(A) should be set aside as the same is based on conjectures and services and is bad in law. 2. That the learned AO and CIT(A) have erred in facts and in law in making addition amounting to Rs.10,125,068/-to the returned income of Rs.3,21,71,721/- by treating reimbursements/recharges of actual cost incurred by the appellant under an Agreement for Services and Cost Sharing (“the agreement”) with Indian entities as Fee for Technical Services (‘FTS’) under the Act as well as under the Double Taxation Avoidance Agreement between India and Singapore (“the treaty”) 2.1 That the ld. AO and CIT(A) haveerred in facts and circumstances of the case and in law in treating the cost reimbursements received from its Indian entities on actual basis as income chargeable to tax under the provisions of Act and DTAA. The learned CIT(A) and AO have failed to appreciate that the assessee has not received any mark-up or embedded profit element on such receipts and accordingly, the same are not taxable at all. 2.2 That the learnedAO and CIT(A) have erred in facts and in law in not accepting the various clauses of Agreement merely on the ground that the Agreement was not signed by the appellant/signed after 1st June, 2004, even though it has been duly signed by the appellant and the Indian entities. 3. Without prejudice to ground 2 above, the learned AO and CIT(A) have also erred in facts and circumstances of the case in making addition of Rs.4,075,156/- based on the Form 3CEB of Cargill Global Trading India Pvt. Ltd. (‘CGTIPL’) instead of Rs.34,00,066/- being actual reimbursement received from CGTIPL under the Agreement by ignoring the submissions made in this regard. 4. Without prejudice to the above that the cost reimbursement made by the Indian entities to the appellant under the Agreement is not taxable under the Act as well as Treaty, the learned AO & CIT(A) have erred in facts and in law in holding that the services provided under the agreement are covered under the definition of ‘FTS’ under Article 12(4)(b) of the Treaty even though the appellant has not made available any technical knowledge, experience, skill, know-how or

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processes, which enables the person acquiring the service is the services to apply the technology contained therein. 4.1 The learned AO and CIT(A) have also erred in not considering the Memorandum of Understanding (‘MOU’) to Article 12 of the Treaty between India and USA, wherein the terms ‘make available’ technical knowledge, experience, skill know-how are processes, have been explained, while treating the cost reimbursements/ recharges as FTS under article 12(4)(b) of the Treaty between India and Singapore. 5. That the learned AO has erred in facts and in law by applying the tax rate @15% on the FTS income offered to tax by the appellant in the return @10% under Article 12(2) of the Treaty between Indian and Singapore without providing any opportunity of being heard. 6. The Learned AO and CIT(A) haveerred in facts and in law in levying interest amounting to Rs.514,364/- under section 234B of the Act as the provisions under section 210/211 for payment of advance tax are not applicable on the appellant in view of the Delhi High Court ruling in the case of Jacabs Civil Incorporated (ITA No. 491/2008). 7. The learned AO and CIT(A) have erred in facts and in law in withdrawing interest under section 244A of the Act amounting to Rs.180,431 in absence of any refund being granted to the appellant. 8. That the learned AO has erred in facts and in law in initiating the penalty proceedings under section 271(1)(c) of the Act for the subject year for concealing particulars of income for furnishing inaccurate particulars of income. 9. That the learned AO has erred in facts and in law in initiating penalty proceedings under section 271AA and 271BA of the Act for non-compliance of various provisions of chapter X of the Act in connection with the aforesaid international transactions which are not taxable in the hands of the assessee.

Facts of Assessment Year: 2005-06: 3. Briefly stated facts of the case are that the assessee, Cargill Asia Pacific Holding Pte Limited (CAPHL), is incorporated in the Singapore and a tax resident of the Singapore. The assessee claimed to have entered into a cost sharing agreement with Cargill Private Limited (CIPL), Cargill Global Trading India Private Limited (CGTIPL) and Mosic India Private Limited (MIPL) (hereinafter collectively referred to as ‘companies’). Under the agreement, the companies were charged towards the cost of the services incurred by the assessee on actual basis, without any

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markup, as per the methods provided in the agreement for allocation of the cost. In the previous year relevant to the assessment year, the companies have deducted tax at source amounting to Rs.47,22,953/-on the payments/credit to the assessee. 3.1 The assessee filed return of income on 31/10/2005 declaring nil income. In the notes forming part of the return of income, the assessee claimed that those payments/credit/reimbursement for actual cost incurred without any inbuilt element of profit, chargeable to tax in India and therefore the tax deducted at source amounting to Rs.47,22,953/-had been claimed for refund in the return of the income. The assessee further submitted that the amount received for the services rendered under the agreement does not constitute “Fee for Technical Services” (FTS)under Article 12 of India Singapore Double Tax Avoidance Agreement (DTAA), as it does not ‘make available’ any technical knowledge etc. 3.2 The return of income filedby the assessee was selected for scrutiny assessment and statutory notices under Income-tax Act, 1961 (in short the ‘Act’) were issued and complied with. 3.3 The Assessing Officer observed the receipts shown by the assessee and held the taxability of those receipts under the provisions of the Act as well as under the DTAA and taxed the same under the DTAA in view of the provisions of section 90 of the Act in following manner: (i) Interest received of Rs. 31,35,588/-: According to the TDS certificate issued by Cargill India private limited(CIPL), the said company has paid interest of

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Rs.31,35,588/-and deducted tax of Rs.4,70,339/-at the rate of 15% from the payment and deposited into Central Government Account. The interest payment has been made by an Indian resident, therefore in view of the section 9(1)(v)(b) of the Act, the interest income is deemed to accrue or arise in India and same is liable to tax as per the provisions of section 115A(1)(a)(ii) at the rate of 20% on the gross amount. The interest is also deemed to arise in Indiaas per the provisions of paragraph 5 of Article 11 of the DTAA between India and the Singapore and same is taxable at the rate of the 15% of the gross amount in view of the provision of paragraph 2(b) of the article 11 of the DTAA. Considering the beneficial DTAA provisions, the interest was held taxable at the rate of 15% of the gross amount. (ii) Professional Services and AP/IT recharge :The Assessing Officer observed deduction of tax at source by the companies at the rate of 15% on payment made on account of professional services and AP/IT recharge. The Assessing Officer noted that only part invoices of AP recharge, IT recharge, international leased charges were provided to him and further no documents in support of the invoices, as how the cost was allocated by the assessee to different companies for a specific service. In view of failure to provide the said document, the Assessing Officer rejected the contention of the reimbursement of the expenses towards cost.

8 ITA No.1437 & 1438/Del/2012 & 5444/Del./2010 (iii) The assessee provided invoices summary which included dollar amount equivalent to Rs.2,10,46,637/- and balance invoices were on account of IT recharge/ AP recharge and relocation of ‘Philkana Jairam’. The assessee did not provide complete invoices and also did not explain what were the technical services, how the same rendered and what were the deliverables. The assessee only provided certain timesheet of the activities performed indicating tax related advices. According to the Assessing Officer, the amount received for services rendered are FTS in terms ofparagraph 1 to 4 of Article 12 of the DTAA between India and the Singapore. The contention of the assessee on the other hand is that it has not made available technical knowledge, experience, skill, know-how or process which enables the person acquiring the service to apply the technology contained therein. According to the Assessing Officer the assessee has not provided document of the nature of the services rendered and only provided timesheet in relation to advisory services provided and thus claim of the assessee that no technical knowledge etc has been made available, can be verified. The LearnedAssessing Officer distinguished various judicial precedentscited by the assessee and held the payment received for technical services of Rs.2,21,21,518/- for IT recharge/AP rechargesas taxable in India as per the provisions of the ‘Act’ as well as ‘DTAA’ between India and Singapore.

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Facts of Assessment year 2006-07: 4. For the assessment year 2006-07, the assessee filed return of incomeon 30/11/2006 declaring total income of Rs.3,21,71,721/-. In the notes to the computation of the income, it was submitted that during the year, the assessee has entered into a service agreement dated 01/06/2005 with certain Indian entities of the group, whereby the assessee has rendered certain services and for which it has charged the Indian entities at cost +6%. Further, certain other services have been renderedby the assessee at cost without any profit element. During the scrutiny assessment proceeding, the learnedAssessing Officer observed that fora period of two months of the assessment year i.e. April and May 2005, the assessee has rendered services to the Indian entities at cost without any markup under the agreement entered into in June , 2004(“old agreement”) and income of same has not been offered for tax in India either under the provisions of the Act or under the provisions of the DTAA. From 01/06/2005, the assessee has rendered services under new service agreement( “new agreement” ) under which a markup of 6% on the cost has been charged, and the amount has been offered for tax as Fee for Technical services (FTS). 4.1 The Assessing Officer observed that neither all the invoices nor documentsin support of the details of the services rendered under the “old agreement” were filed before him. He also observed that similar services with different nomenclatures have been rendered from June 2005 under “new agreement” , but no details of those also were provided by the assessee so as to correlate the

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services rendered by the assessee. The Assessing Officer following his finding in assessment year 2005-06, held the payment received and claimed by the assessee as cost reimbursement , as taxable in Indiaas per the provisions of the Act as well as the provision of the DTAA between India and the Singapore and made addition of Rs.1,01,25,068/- to the returned income. 4.2 On further appeal by the assessee for both assessment years 2005-06 and 2006-07 , the Ld. CIT(A) passed a common order for both assessment years. He observed that claim of the assessee of the reimbursement of the cost was not justifiable in view of material facts brought on record by the Assessing Officeri.e. neither invoices in respect of the technical services nor details in respect of the rendering of the technical services were provided by theassessee. 4.3 For both the assessment years i.e 2005-06 and 2006-07, the Ld. CIT(A), upheld the action of the Assessing Officer holding the amount of reimbursement received as taxable under the provisions of the Act as well as under the provisions of the DTAA between the India and the Singapore. 4.4 In assessment year 2005-06, Ld. CIT(A) also upheld the taxing of amount of Rs.31,35,588/-as interest received by the assessee as against the claim of the assessee of reimbursement of the cost. 5. Before us, the learned Counsel of the assessee for assessment year 2005-06, has filed a paper book containing pages 1 to 144 containing a copy of the agreement relied upon by the assessee for claiming cost sharing between the assessee and the companies in respect of the various services rendered by the

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assessee. For assessment year 2006-07, the learnedCounsel filed a paper containing pages 1-150 containing a copy of old service agreement as well as new service agreement dated 01/06/2005. 5.1 In Assessment year 2005-06, the ground No. 1 to 2.1 and 2.3 to 3.1 are related to treating the payment received by the assessee for services rendered as Fee for Technical Services (FTS). Similarly, in assessment year 2006-07, the grounds No. 1 to 4.1 of the appeal relates to the same issue of treating the payment received by the assessee for services rendered as Fee for technical services (FTS). 5.2 Regarding the issue of payment of services considered as FTS for assessment at 2005-06 and 2006-07, the learnedCounsel first of all, submitted that the assessee provided support services such as accounting, legal, taxation to its group companies in Asia-Pacific sector under a, sharing agreement effective from June 2004(hereinafter shall be referred as “Old Service Agreement”), a copy of which is available on page 4-21 of PB for AY 2006-07. For the services rendered for 10 months of assessment year 2005-06 (June, 2004 to March, 2005) and for 2 months of assessment year 2006-07 ( April 2005 to May 2005), the assessee charged only cost incurred without any markup, as per this ‘Old service agreement’. 5.3 But from 01/06/2005, the assessee entered into another agreement for rendering services to group entities located in India, acopy of which is available onpage 22 -37 of the PB for assessment year 2006-07(hereinafter referred to as “new service agreement”). Consequently, from June, 2005, as per this “new service agreement”, the assessee has charged cost plus 6%

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markup and has also offered to tax such income as Fee for Technical Services (FTS). 5.4 The LearnedCounsel referred to page 136 to 147 of the paper-book for assessment year 2006-07, wherein Article 12 of the DTAA between India and the Singapore is contained. According to the LearnedCounsel, the definition for Fee for technical services in Article 12(4) get attracted only when the condition mentioned in paragraphs (b) and (c) is met. He submitted that para (b) states that service qualify as FTS only when “such services make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein or “ and para (c) states that service qualify as FTS only when “ such service consist of the development and transfer of the technical plan or technical design but exclude any service that does not enable the person acquiring the service to apply the technology contained therein”. 5.5 The learned Counsel submitted that nature of services involved under the agreement was set out at pages 75 to 77 of the paper-book and in view of the cases relied upon, the amount received by the assessee were in the nature of the reimbursement and in any case do not constitute FTS as a make available condition is not satisfied. 5.6 The learned Counsel further submitted that, without prejudice to the above, the context in which services in question are rendered under cost sharing agreement between group concerns cannot be lightly ignored. Economic context and necessity of resorting to such an arrangement for routine day-to-

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day activities, in contrast to say research and development or technology development efforts, need to be appreciated. Any entity desirous of acquiring technical knowledge, which it intend to put to use independently in future without recourse to the performance of the service, would not enter into, sharing arrangement year on year for day-to-day activities. Where cost consideration and business economics do not justify engagement of skilled personnel in each of the routing functions necessary for conducting day-to-day business, business group has resorted to, sharing arrangement. Thus, lack of desire to acquire knowledge in such day-to-day dynamic activities for future use, being root cause for cost sharing arrangement, allegations such as once raised by the Learned AO and upheld by the Ld. CIT(A) that the service provider “ made available” technical knowledge, as contemplated under Article 12(4)(b), are without any basis in the present facts of the case. 5.7 The learned Counsel submitted that the fact that the provision of services may require technical input by person providing the service, does not per se mean that technical knowledge, skills etc are made available to the person purchasing the services. 5.8 Further, in view of the fact that after June 2005 onward the assessee has charged markup at the rate of 6 percentile on the cost and has offered to tax as income as FTS, the learnedCounsel submitted that in view of the decision of the Hon’ble Supreme Court in the case of CIT Vs MRP Firm, Muar (1965) 56 ITR 67 (SC), wherein it is held that the doctrine of ‘approbate and reprobate’ is only a species of estoppel and applies only to the

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conduct of the parties. As in the case of the estoppel, it cannot operate against the provision of the statute. If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of the estoppel or any other equitable doctrine. Equity is out of the place in the tax law, aparticularincome is either eligible to tax under the tax statute or it is not. If it is not, the ITO has no power to impose tax on the said income. Accordingly, the learnedCounsel submitted that question involved in present case on whether cost reimbursement received by the assessee during assessment year 2005-06 and 2006-07 satisfy make available condition under Article 12 will have to be decided in accordance with law without being influenced by the extraneous factors like in subsequent years by adopting a different model receipt or offered to tax in India. 5.9 On the contrary, the Learned Departmental Representative (DR) submitted that the assessee has neither furnished all invoices in respect of the services rendered nor furnished any documentary evidence in respect of the details of the services rendered. If the assessee contested that payment for services rendered under the agreement are not Fee for Technical Services (FTS), then onus is on the assessee to substantiate with the help of documentary evidence.He submitted that the authorities have been precluded from examining the documents which amounts to foreclosure of the opportunity to the DepartmentalAuthorities. In absence of those documents, the learnedAssessing Officer was justified in rejecting the contention of the assessee that the payments are in respect of reimbursement of the cost of support services only.

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5.10 He further submitted that the agreement for services income sharing (old service agreement) , which is between the assessee and Cargil Inc., start with the sentence that the agreement is made among the following as of 01/06/2004, however, representative of Cargill Inc has signed on 19/01/2005. He further submitted that according the documents filed in Paper book , the Indian entities i.e. Cargill India private limited (CIPL) and Cargill global trading India private limited ( CGTIPL) became party to the agreement by way of letter dated 01/06/2004 addressed to the assessee. According to the Learned DR, when the original agreement (old service Agreement) itself came into operation from 19/01/2005 aftersigning by the accepting party, the claim of the assessee that agreement came into effect from 01/06/2004 with the Indian entities by way of letter dated 01/06/2004, is doubtful and need proper examination of the authenticity of the agreement. 5.11 He further referred to various clauses of the agreement to highlight that the services rendered were specific to the entities and not in the nature of the cost sharing. He referred to the services under the group management which reads as under: “(iii) Advises on the proper handling of balance sheet, finance and risk of the Asia Pacific businesses. (iv) Promotes and supports the growth of existing businesses, develops new business opportunities, and seeks out and identifies acquisition candidates.”

5.12 He submitted that under the services of advising on theproper handling of the balance-sheet, finance and risk of the businesses, the assessee provides knowledge to the recipient, which is having possibility of utilizing for further use by the

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recipient, and thus payment for such services falls under FTS and make available clause also get satisfied. 5.13 The learned DR further referred to the services mentioned in the agreement under the head controller-Asia /Pacific sector, which are reproduced as under: “Controller-Asis/Pacific Sector: (i) Ensures that financial and operating controls in the Asia/Pacific sector are adequate to safeguard Cargill assets and the integrity of the financial reporting system. (ii) Monitors compliance with corporate financial and operating policies. (iii) Advises and participates in the development of major new accounting and data processing systems. (iv) Participates in the selection process for country and product line controllers, senior accountants and senior data processing positions within the Group. (v) Reviews and advises regarding the establishment of major reserves and regarding other decisions/events that could have a significance impact on the earnings and financial statements of the members of the Group.”

5.14 The learned DR submitted that above services are core to the business whichare in the nature of FTS and also fulfils the condition of make available clause. 5.15 The Ld DR in support of his contention that payment for services rendered in the instant case are FTS, relied on the decision of the Tribunal in the case of H J Heinz ( ITA No. 6252/Del/2012). 5.16 The LearnedCounsel of the assessee in the rejoinder submitted that assessee had submitted part of the invoices, which have been examined by the learnedAssessing Officer. Further, he submitted that Ld DR attempted to set up a new case by reading out of context observations, which was not permittedin view of the guidelines laid down in a special bench decision in the case of Mahindra and Mahindra 313 ITR 264 at placitum 79. He

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further submitted that facts of the case of H. J. Heinz (supra) are distinguishable and conclusion reached therein would not be applicable over the facts of the instant case. He submitted that in the said case the services provided under service agreement flew from the terms of TTLA (technology transfer and license agreement). He submitted that both service agreement and TTLA under which royalty was paid for technology transfer, are related contracts and the service fee can be considered ancillary and subsidiary to application and enjoyment of rights for which royalty was paid and hence covered under article 12(4)(a) of the treaty and thus the assessee’s claim that it does not make available any know how technology through service was academic. According to the learnedCounsel decision of the coordinate bench in the case of Exxon Mobil (2018)92 taxmann.com 5 is more relevant to the present case which involves India Singapore Treaty as also services of the similar nature are directly relevant to decide the issue in the present appeal. 5.17 We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The moot question in the instant case is whether the payment for services rendered by the assessee are mainly in the nature of the cost reimbursement for support services or in the nature of Fee for Technical Services (FTS). 5.18 For payment for services to fall under the Article 12 ( Fee for Technical Services) of the India Singapore DTAA, the services should first be of technical or managerial or consultancy in

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nature as defined under article 12(4) of the DTAA, which reads as under: “Article 12(4): The term “fees for technical services” as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through 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, which enables the person, acquiring the services to apply the technology contained therein; or c. Consist of the development and transfer or a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein.” 5.19 Following payments, however have been excluded from the definition of the “ Fee for technical services” as provided in Article 12(5) of the treaty: “5. Notwithstanding paragraphe 4, “fees for technical services” does not include payments: a. for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a); b. for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; c. for teaching in or by education institutions; d. for services for the personal use of the individual or individuals making the payment; e. to an employees of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 14; f. for services rendered in connection with an installation or structure used for the exploration or exploitation of natural resources referred to in paragraph 2(j) of Article 5; g. for services referred to in paragraphs 4 and 5 of Article 5.”

5.20 For ascertaining the character of the services whether the same are “routine support services” or “technical, managerial or consultancy”, before the lower authorities the assessee provided only part invoices and copy of the agreement. Copies of 5 invoices

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provided by the assessee to the Assessing Officer are placed on page 46 to 50 of the paper-book for AY 2005-06. The copy of the agreement (old Agreement) is provided by the assessee to the Assessing Officer, which is placed on page 4-21 of the Paper-Book for assessment year 2005-6 as well as for the Paper-Book for assessment year 2006-07. We have perused the agreements. The details of the services and allocation method have been provided in Exhibit-1 to the agreement. The title of the services include accounting, audit. Group management, public affairs, controller- Asia, human resources, legal, tax, business unit engineering, information and system services (regional IT management and information protection, regional network group, TCO project, Microsoft Windows technical service group, reigonal CAN IT group) , global financial solution Department etc. 5.21 The invoices provided by the assessee contains the description of the services as “AP recharge”, IT Recharge, International leased CCT, Diginet etc. 5.22 In the agreement under various titles further scope of the services has been provided. But in our opinion, from the mere scope of the services, it cannot be ascertained which services have been actually rendered by the assessee. Further, nothing can be made out about the nature of the services from the of description services rendered in the invoices. The description of the services in the invoiceis also not getting correlated with the various titles of services under the agreement. 5.23 Further, the learned DR has referred to the various clauses of the agreement to highlight the possibility of the services in the nature of technical services. In our view, the agreement provides

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scope of the services but what the actual services have been rendered cannot be ascertained from the agreement. The agreement can give a smell about possibility of services in the nature of the technical services, managerial or consultancy but that is not a confirmatory test and for ascertaining the nature of the services, the assessee was required to provide all the documents in relation to the services rendered. But the assessee has neither submitted any such documents before the lower authorities not before us. 6. We have noticed that the assessee has entered into a fresh agreement (new service agreement) from 01/06/2005 and scope of servicesunderthe agreement has been provided on page 26 to 32 of the Paper-Book for assessment year 2006-07. The services covered under the scope of the agreement are accounting, audit, group management, human resources, legal, tax, business unit engineering, information and system services, financial solutions Department etc. We find that similar services were provided under the ‘old agreement’, details of which are available on page 11 to 14 of the Paper-Book for assessment to 2006-07. 6.1 For the services rendered under the new agreement, the assessee has charged markup at the rate of 6% on the cost and also offered the payment for tax as Fee for technical services under DTAA between India and Singapore. 6.2 Before us the assessee is contending that issue in dispute of whether the cost reimbursement issued by the assessee during assessment at 2005-06 and 2006-07 satisfy the make available condition under Article 12 should be decided in accordance with the law without being influenced by the factor that in the

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subsequent year the assessee has offered the same for tax in India. We do not understand, how the Assessing Officer can decide this issue without examining the documentary evidence in support of the actual services rendered. The onus was on the assessee to provide the documentary evidence in support of its claim thatpayment received was only in respect of the reimbursement of cost of daily routine support services, but the assessee has not provided any such documentary evidence either before the lower authorities or before us. Before us even the assessee has not offered willingness to produce such documents before the Assessing Officer, otherwise we would have an option to restore the matter back to the Assessing Officer for deciding a fresh. But in absence of any such willingness, we do not find this as a fit case for restoring the matter back to the Assessing Officer. In the circumstances, the only option is that when the same services rendered by the assessee under the garb of the new service agreement with effect from 01/06/2005 and offered the same for tax as Fee for Technical Services (FTS), the same services rendered under the old agreement during period of 10 months in assessment year 2005-06and period of two monthsin assessment year 2006-07, also falls in the nature of Technical, Managerial or Consultancyservices liable to be taxed under the DTAA. The rule of the consistency also demands that when the assessee has admitted the payment for identical services as Fee for technical services in the subsequent year, the assessee should not dispute this issue in the years under consideration. The assessee cannot take shelter under the decision of the Hon’ble Supreme Court in the case of CIT Vs. M R P Firm (supra), without

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providing the documentary evidence to the Assessing Officer for examining the nature of the services rendered. In the circumstances, we uphold the order of the Assessing Officer on the issue in dispute. The other arguments raised by the assessee are rendered merely academic only as without knowing the actual services rendered and whether the technical information, knowledge, know how acquired by the assessee has been utilized by the assessee as per requirement of Article12 of the DTAA, the applicability of the judicial decisions cited by the assessee cannot be examined. Accordingly, we are not adjudicating upon the other arguments raised by the assessee. 6.3 In the result, the grounds of the appeal for assessment year 2005-06 and 2006-07 relating to the addition of Fee for Technical Services are dismissed. 7. In the ground No. 2.2 for assessment year 2005-06, the assessee has raised the issue of interest income of Rs.31,35,588/- assessed by the Assessing Officer. 7.1 Regarding the addition of Rs.31,35,588/-as interest income for assessment year 2005-06,we have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. 7.2 The Learned Counsel of the assessee submitted that this was inadvertent mistake in the TDS certificates issued by the deductor or payer for assessment year 2005-06. He referred to page 62 of the Paper-Book, which is a copy the TDS Certificate and submitted that the deductor ( i.e. Cargil India P. Ltd.) has in the ‘nature of payment’ column inadvertently mentioned ‘interest’in place of AP recharge. We find that in the TDS

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certificate, copy of which is available on page 62 of the Paper- Book for assessment at 2005-06), following two payments/credit are appearing: “DETAILS OF PAYMENT, TAX DEDUCTION AND DEPOSIT OF TAX INTO CENTRAL GOVERNMENT ACCOUNT Date of Amount Amount of Income- Rate at Date & Name of payment/ paid/credit(Rs. tax deducted (Rs.) which Challan No. bank and credit deducted of deposit of branch tax into where tax Central deposited Government Account 28-Aug-04 USD 16,065.30 USD 2,409.80 15% 27/08/2004 IOB BANK, Or Or /ITNS 281 CP MA INR 7,45,832 INR 1,11,875

31-Aug-04 USD 51,475.63 USD 7,721.34 15% 6/09/2004/I IDBI BANL Or Or TNS 281 LTD, KG INR 23,89,756 INR 3,58,464 MARG NC Total USD 67,540.93 USD 10,131.14 OR OR INR 31,35,588 INR 4,70,339

7.3 The learned Counsel submitted that on the first payment of USD 16,065.30 tax at the rate of 15% amounting to USD 2409.80 has been deducted. The LearnedCounsel referred to corresponding invoice issued by the assessee, which is available on page 63 of the Paper-Book for assessment year 2005-06. We find that this invoice no. 007 has been issuedon 18/08/2004 for a sum of USD 16065.30. The description of the services, in the invoice is mentioned as ‘June-Aug 04 AP Recharge’. The assessee has also referred to ledger account of the assessee in the books of accounts of ‘Cargil India private limited’, which is available on page 64 of the Paper-Book for assessment year 2005-06. In the said ledger account, against invoice No. 7 dated 18/08/2004, amount of USD 13,655.51 has been shown as credited, which according to the assessee is the net amount credited after

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deduction of tax at source of USD 2409.80/-. As far as this contentionof the assessee is concerned, it got reconciled with the TDS certificate, but in the ledger account, the description of the service has been mentioned as IT recharge, as against mentioned by the assessee in the invoice as AP recharge. 7.4 Regarding the second payment/credit of USD 51,475.63appearing in the TDS certificate, the learnedCounsel referred to copy of ledger account of the assessee in the books of M/s Cargill India private limited, a copy of which is available on page 64 of the Paper-Book for assessment year 2005-06. The LearnedCounsel referred to 1st entry in the said ledger account, according to which the payment of USD 43,754.29 ( after deduction of taxes source of USD 7,721.34) by M/s Cargill India private limited against invoice No. 43 dated 18/08/2004 for services of IT charge. But copy of corresponding invoiceissued by the assessee have not been made availablebeforeusfor verification of the claim whether the payment by M/s Cargill India private limited was towards interest or towards services. 7.5 In the circumstances, we are of the opinion that as far as second payment of USD 51,475.63 is concerned, in absence of copy of invoice and supporting evidence of rendering services, the documents filed by the assessee are not sufficient to establish that the amount in question was payment towards services. In the interest of the substantial justice, we feel it appropriate to restore this issue to the file of the Assessing Officer, with the directionto the assessee to file all the relevant documents before the Assessing Officer for verification of the claim of the assessee. The Ld. Assessing Officer is directed to verify the claim of the

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assessee in accordance with law and if he finds the payment in respect of the services rendered then, take action as per our finding in earlier paragraphs in respect of the reimbursement of the cost of services. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The ground is accordingly allowed for statistical purpose. 8. The ground No.4 raised in assessment year 2005-06 relates to quantum of taxable receiptin the hands of the assessee. The Ld. CIT(A) has upheld the amount of taxable receipt as Rs.3,19,89,426/-whereas according to the assessee the amount liable for receipt under the agreement is only of Rs.3,15,29,315/-. 8.1 In our opinion ,this is a matter of factual verification by the Assessing Officer. Accordingly, we restore this issue to the file of the Assessing Officer with the direction to the assessee to produce all the necessary documents in support of its claims before the Assessing Officer. The Assessing Officer after verification of the documents and after providing adequate opportunity of being heard to the assessee, shall decide the issue in dispute in accordance with law. The ground of the appeal is accordingly allowed for statistical purposes. The identical ground No. 3 has been raised in assessment year 2006-07. The said ground is also accordingly restored to the file of the Assessing Officer for deciding in accordance with the directions given while adjudicating the ground No. 4 of the appeal for assessment at 2005-06. 9. The ground No. 5 raised in assessment year 2005-06 is relating to credit of tax deducted source not allowed to the assessee.

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9.1 In our opinion, the issue of allowing credit of tax at source is a matter of verification, therefore we restore this matter to the file of the Assessing Officer with the direction tothe assesseeto produce all the necessary documents in support of its claim including original TDS certificates and confirmation from the deductor (s) that corresponding tax has been deposited in Government Account, copy of form No. 26 etc. The Assessing Officer is directed to verify the evidences which will be furnished by the assessee and then decide the issue in accordance with law. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The ground of the appeal is accordingly allowed for statistical purposes. 10. The ground No. 5 raised in appeal for assessment year 2006-07 is in respect of the rate of the tax applied on the income under FTS. According to the assessee, it should be taxed at the rate of 10% under article 12(2) of the treaty, whereas Assessing Officer has applied the rate of 15%. We find that the assessee has filed a copy of the DTAA between the India and the Singapore. The relevant part of the Article 12(2), specifying the rate of tax is reproduced as under: “Article -12(2)- However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so changed shall not exceed: a. in the case of royalties referred to in paragraph 3(a) and fees for technical services as defined in this Article (other than services described in sub-paragraph (b) of this paragraph), 15 per cent of the gross amount of the royalties and fees; b. in the case of royalties referred to in paragraph 3(b) and fees for technical services as defiend in this Article that are ancillary and subsidiary to the enjoyment of property for which royalties under paragraph 3(b) are received, 10 per cent, of the gross amount of the royalties and fees.

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10.1 On perusal of the above article, it is evident that tax rate of the 10% is applicable when the FTS are ancillary and subsidiary to the enjoyment of the property for which royalties are received. But in the instant case no such royalties have been received and thus the FTS is taxable at the rate of the 15% of the gross amount of FTS. In view of the above, we do not find any infirmity in the order of the Assessing Officer, and we accordingly uphold the same. The ground of the appeal of the assessee is accordingly dismissed. 11. The ground No. 6 to 9 for both assessment years 2005-06 and 2006-07, were not argued specifically before us, and therefore same are dismissed as infructuous.

ITA No.5444/Del./2010 12. Now, we take up the appeal of the assessee bearing ITA No. 5444/Del/2010 for assessment year 2007-08. The grounds raised by the assessee are reproduced as under: 1. That the learned Assistant Director of Income Tax, Circle01(1), International Taxation, New Delhi, (hereinafter referred to as ‘Learned AO’)/Hon’ble Dispute Resolution Panel (“DRP”) has erred in facts and in law in treating the reimbursement of actual expenses paid/incurred by the assessee on behalf of its Indian Group Company amounting to Rs.22,24,216/- as fees for technical services (FTS) chargeable to tax under the Act and Double Tax Avoidance Agreement between Indian and Singapore. 1.1 That the learned AO/Hon’ble DRP has erred in facts and in law in holding that these reimbursement received is essential part of overall services agreement between the assessee and Indian Group company. 1.2 That the learned AO/Hon’ble DRP has erred in facts and in law in holding that these reimbursement are received by the assessee for making available advisory/technical services of its employees and thus covered under the definition of FTS under Double Tax Avoidance Agreement between Indian and Singapore.

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1.3 That the learned AO/Hon’ble DRP has erred in facts and in law in holding that the reimbursement received from Indian Group Company is taxable as FTS in India without appreciating that such reimbursement of actual expenses does not accrue or arise in India and deemed to accrue or arise in India under section 9(1)(vii)(b) of the Act. 2. That the learned AO has erred in facts and in law in levying the interest amounting to Rs.93,416 under section 234B of the Act by completing ignoring the fact that no advance tax was payable by the appellant as the entire tax was deductible at source on the said reimbursement.

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Sl. Particulars Amount Amount Invoice No. (USD) (INR) Number 1. Payment of Singapore 33,849.56 1,519,599 Invoice No- Income Taxes 0463, 0542, 0270, 0382. 0631, 0862 2. SBF subscription 493.11 22, 128 Invoice no- 0542 3. Payment to KPMG for: 14,664.65 650,407 Invoice no- • Filing 0270, 0631, Singapore 0862 Income Tax return and handling Singapore Income Tax matters. • providing audit services to Singapore branch 4. Payment to DHL 709.34 31,744 Invoice no- 0463, 0542, 0270, 0382, 0631, 0862

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15.3 The learned Counsel also referred to the detailed invoices in respect of the payments, available on page 20 to 45 of the Paper- Book. 15.4 In respect of the above payments, the Assessing Officer is of the view that the reimbursement received by the assessee are essentially and strongly linkedwith the service rendered which had been offered to tax. According to him the above reimbursement are part of the service agreement and when the base/root service constitute the FTS, the reimbursement does not remain mere reimbursement and take the colour of the service. According to the Assessing Officer the experience and skills of the employees of the assessee is made available in the form of the advisory services/technical services and such services are being used by the Indian companies in the business and thus covered under article 12(4)(b) of the DTAA between India and the Singapore which require that technical service should be “ make available” is satisfied. 15.5 However, on perusal of the above details of the payment and corresponding invoices, we find that the assessee has paid certain payments to 3rd parties in Singapore on behalf of the branch of Cargill India Private Limited (CIPL). One of the major payment of USD 33,849.56 (Indian Rs.15,19,599) is of payment of the Singapore Income-taxes of branch of CIPL. The another major payment is payment to KPMG (a consultancy firm) for audit services, tax filing and handling tax matter of branch of CIPL in Singapore. The supportingletters of payment and corresponding

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invoices raised for reimbursementby the assessee are available on page 20 to 45 of the Paper-Book. It is evident from the invoices and supporting letters that no services have been rendered by the assessee and the assessee has merely made payment to 3rd parties on behalf of the branch of CIPL and subsequently raise invoices on the CIPL. The CIPL has accordingly made the payment for cost of reimbursement of payment made to 3rd parties by the assessee. In our opinion, the payment received by the assessee are merely reimbursementof the payment made to 3rd parties on behalf of the ‘CIPL’ .The said payment was obligation of the CIPL and no services have been rendered by the assessee and thus the payments received do not constitute an income in the hands of the assessee and cannot be termed as FTS. 15.6 The Learned Counsel submitted that identical payments in assessment year 2009-10 and 2010-11 have been held as reimbursement of the cost by the Ld. CIT(A) and no further appeal has been in filed by the Revenue. The relevant observation of the Ld. CIT(A) regarding the cost of reimbursement in assessment year 2009-10 and 2010-11 is reproduced as under: “6.3 The appellant submitted that it has not provided any service and has just made payment on behalf of Singapore Branch of CIPL as a matter of convenience. These reimbursement are not in pursuance to the service agreement under which the Appellant is providing various services on mark-up basis. A pictorial representation of the transaction between the Appellant and Branch office of CIPL is as under:

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In view of the above presentation, the transaction can be summarized as under: - BO of CIPL has received various services from third parties. - The third parties have raised invoices on the BO of CIPL. - In respect of the above services rendered, the Appellant has made payments to the third party on behalf of BO of CIPL as a matter of convenience. - The appellant has raised debit notes for all the payments made on behalf of the BO which has later reimbursed the amount so paid by the Appellant to the third parties.”

15.7 After considering the submission of the assessee, the Ld. CIT(A) in assessment year 2009-10 and 2010-11 deleted the addition of observing as under: “7.1 I have duly considered submissions of the appellant. The relevant facts are that the appellant has entered into a service agreement with its group entities under which it is providing certain services on cost plus 6% mark up basis and consideration received its being offered to tax as FTS on gross basis under Article 12 of Indo-Singapore DTAA. The appellant made certain payments to auditor namely KPMG who conducted audit of Singapore branch of Cargtill India Pvt. Ltd. (‘CIPL’) and subsequently Singapore branch of CIPL reimbursed the appellant on cost to cost basis. The case of theAO is that the appellant has incurred the expenses in connection with services being rendered by it under the service agreemtn and therefore, payment received from Singapore branch of CIPL is also in nature of FTS. The arguments of the appellant is that Singapore branch of CIPL received services from a third party and not from the appellant and the appellant made payments to auditor for and on behalf of Singapore branch of CIPL. The appellant also argued that

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payment does not amount to FTS u/s 9(1)(vii)(b) of the Act and Article 12(4)(b) of DTAA. 7.2 The appellant has furnished ‘engagement letter’ issued by Singapore Branch of CIPL in favour of KPMG under which KPMG has been appointed as tax advisor who shall be providing various services to Singapore branch of CIPL. The appellant has also furnished copies of invoices raised by KPMG on Singapore branch of CIPL. Perusal of these documents shows that services are received by Singapore branch of CIPL from KPMG and not from the appellant. Tax advisory services rendered by KPMG are not covered by services agreement entered into by the appellant with CIPL. The payments made by the appellant to KPMG which has been later on reimbursed by Singapore branch of CIPL are not in connection with services rendered by the appellant under the service agreement. It is simply in nature of debtor creditor relationship. Relevant facts in various case laws relied upon by the AO were different as in those case, reimbursements were received from the expenses incurred in connection with rendering of technical services and hence reimbursements were closely connected with FTS. 7.3 I find force in connection of the appellant that even assuming that reimbursement represent FTS, ‘make available’ clause as contained in Article 12(4)(b) of DTAA is not satisfied. There is no training clause under which Singapore branch of CIPL can be said to have been made available the technology. 7.4 In view of discussion above, I hold that payments made by the appellant to KPMG which were later on reimbursed by Singapore branch of CIPL are not in nature of FTS. The ground of appeal is accordingly allowed.”

15.8 In view of our observation above, as the payments being obligation of the CIPL and the assessee paid to 3rd parties and no services have been rendered by the assessee to CIPL under the service agreement, the payment received by the assessee from the CIPL are merely reimbursement and not liable to be taxed as Fee for technical services (FTS). The ground No. 1 to 1.3 of the appeal are accordingly allowed. 16. The ground No. 2 is consequential and further no arguments were raised before us in respect of the ground, accordingly we dismiss the same as infructuous.

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Sd/- Sd/- (K.N. CHARY) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 23rd March, 2020. RK/-(D.T.D.S) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi