TMI Blog2022 (4) TMI 1558X X X X Extracts X X X X X X X X Extracts X X X X ..... overseas are eligible for any relief under section 90 of the Act and if it is not found to be so, assessee's claim of deduction should be allowed. Disallowance made on account of advertisement expenses - HELD THAT:- This issue is already covered by the Co-ordinate Bench decision of this Tribunal in assessee s own case for A.Y.2009-10 [ 2019 (11) TMI 408 - ITAT MUMBAI ] evidences were not furnished before the Departmental Authorities, to afford a fair opportunity to the Department to verify the authenticity of assessee's claim vis-a-vis the additional evidences furnished before us, we restore the issue to the AO for de novo adjudication after providing reasonable opportunity of being heard to the assessee. We make it clear, our aforesaid direction is only with regard to the experience certainty expenditure - The decision of learned Commissioner (Appeals) on this issue is modified to this extent only. Foreign tax credit in respect of income pertaining to Section 10A/10AA eligible units in India - HELD THAT:- Credit for foreign tax paid shall be eligible only for nine countries listed above. Respectfully following the aforesaid decision for the A.Y.2009-10 in assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The amounts paid by resident Indian end-users or distributors to non-resident computer software manufacturers or suppliers, as consideration for the resale or use of the computer software through end-user licence agreements or distribution agreements, was not royalty for the use of copyright in the computer software, and did not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Act were not liable to' deduct any tax at source under section 195 - Decided against revenue. Disallowance u/s.14A r.w.r. 8D - HELD THAT:- We find that it is the duty of the ld. AO to record objective satisfaction with cogent reasons as to why the voluntary disallowance made by the assessee is incorrect having regard to the accounts of the assessee. Without recording such objective satisfaction with cogent reasons, the ld. AO cannot proceed directly to apply the computation mechanism provided in Rule 8D(2) of the Income Tax Rules and make disallowance u/s.14A of the Act. This issue is also addressed by the decision in the case of Maxopp Investments [ 2018 (3) TMI 805 - SUPREME COURT ] Hence, the disallowance made by the ld. AO u/s.14A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2019 (11) TMI 408 - ITAT MUMBAI ] it becomes clear that significant marketing functions are being performed and distribution and marketing risk are being taken by the AEs. On examination of the financials of the subsidiaries it is revealed that some subsidiaries are still making loss at net level which signifies that some risk is being borne by the AEs. It has further been brought on record that the manpower base of AEs performed various functions relating to marketing as well as client co-ordination. The AEs have developed sufficient competency to handle the marketing work independently. The entire contract related work is performed by the AEs, though, in cooperation with the assessee. Thus, it is quite natural that for being a sufficiently motivated work force, the AEs are compensated at return on sales and not merely on value added costs. Therefore, learned Commissioner (Appeals) was justified in directing the Transfer Pricing Officer to adopt the PLI of gross margin on sales. As regards consideration by the Transfer Pricing Officer, the outsourcing / sub-contracting cost to assessee as a pass through cost, learned Commissioner (Appeals) was absolutely correct in observing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces made to the AEs. He should also examine the applicability of the ratio laid down in the case of DLF Hotel Holdings Ltd. [ 2016 (11) TMI 1031 - ITAT DELHI ] and any other case laws which may be cited before him. The assessee must be afforded reasonable opportunity of being heard. TP Adjustment made in respect of provision of guarantee - HELD THAT:- As in assessee s own case in A.Y.2009-10 in [ 2019 (11) TMI 408 - ITAT MUMBAI ] after introduction of Explanation-(i)(c) to section 92B of the Act, with retrospective effect from 1st April 2002, provision of guarantee to AEs has to be considered as an international transaction. Different Benches of the Tribunal have also expressed similar view on the issue. Therefore, we hold that the provision of guarantee to the AEs is an international transaction. In fact, the aforesaid view has been expressed in WNS Global Services Pvt. Ltd. [ 2019 (1) TMI 1128 - ITAT MUMBAI ] Therefore, we direct the Assessing Officer to charge guarantee commission @ 0.5% per annum both on performance / lease guarantee as well as financial guarantee. Disallowance of expenditure u/s.40(a)(ia) in respect of year end provision both under normal provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 144C(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 16/02/2017 by the ld. Asst. Commissioner of Income Tax, LTU-(1), Mumbai (hereinafter referred to as ld. AO). ITA No.797/Mum/2018 (A.Y. 2012-13)- Assessee Appeal ITA No.1887/Mum/2018 (Assessment Year : 2012-13)-Revenue Appeal These cross appeals in ITA Nos.797/Mum/2018 1887/Mum/2018 for A.Y.2012-13 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-58, Mumbai in appeal No.CIT(A)-58, Mumbai 10041/2016-17 dated 22/12/2017 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 144C(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 28/04/2016 by the ld. Asst. Commissioner of Income Tax, LTU-(1), Mumbai (hereinafter referred to as ld. AO). Since certain issues are identical all the appeals are taken up together and disposed of by this common order for the sake of convenience. 2. The ground No.1 raised by the assessee for A.Y.2012-13 is challenging the disallowance made u/s. 40 (a)(ii) in respect of state taxes paid in overseas countries. 3. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., [2011] 43 SOT 27 (Mum.), has held that the State taxes paid overseas cannot be allowed as deduction in view of the provisions of section 40(a)(ii) of the Act. However, the aforesaid legal position has substantially changed after the decision of the Hon'ble Jurisdictional High Court in Reliance Infrastructure Ltd. (supra). While interpreting the provisions of section 2(43) of the Act, vis- a- vis section 40(a)(ii) of the Act, the Hon'ble Court held that the tax which has been paid abroad would not be covered within the meaning of section 40(a)(ii) of the Act, since, the meaning of the word tax as defined under section 2(43) of the Act would mean only the tax chargeable under the Act. Thus, as per the aforesaid decision of the Hon'ble Jurisdictional High Court, taxes levied overseas which are not eligible for relief either under section 90 or 91 of the Act, would not come within the purview of section 40(a)(ii) of the Act. It is the specific plea of the assessee that the State tax is not covered either under Indo-US or Indo-Canada tax treaty, hence, not eligible for any relief under section 90 of the Act. Pertinently, unlike section 91 read with Explanation-(iv), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on advertisement does not appear to be unusually high. That being the case, the expenditure incurred on advertisement cannot be treated to be in the nature of capital expenditure and amortized over a period of five years. To that extent, we agree with the decision of learned Commissioner (Appeals) on the issue. However, as regards experience certainty expenditure amounting to ₹ 5.28 crore, it appears that learned Commissioner (Appeals) has held it to be of capital nature on the basis that the assessee itself admitted so. However, before us, leaned Sr. Counsel for the assessee has vehemently argued that no such admission was made by the assessee before learned Commissioner (Appeals) and under a misconception, learned Commissioner (Appeals) has come to such conclusion. The leaned Sr. Counsel submitted, the experience certainty campaign was also for the purpose of advertisement only and in this context, he has furnished before us the details of such expenditure through additional evidences. Since, the additional evidences furnished by the assessee will have a crucial bearing in determining the nature of expenditure, we are inclined to admit the additional evidences. However, con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er after examining the claim of the assessee and verifying the details allowed tax credit in respect of tax paid overseas on the income which was not only offered to tax abroad but was also subjected to tax in India to the extent not exceeding the rate of tax payable in India. However, in respect of income subjected to tax abroad but exempt from payment of tax in India, he did not grant relief either under section 90 or 91 of the Act. The assessee challenged the aforesaid decision of the Assessing Officer before the first appellate authority. 28. Learned Commissioner (Appeals), after considering the submissions of the assessee and taking note of the decision of the Hon'ble Karnataka High Court in Wipro Ltd. v/s DCIT, [2015] 62 taxmann.com 26 (Kar.) bifurcated the foreign tax credit into three parts i.e., tax paid in USA, tax paid in other DTAA countries and tax paid in non-DTAA countries. Thereafter, he directed the Assessing Officer to allow tax credit in respect of tax paid in USA even on the income which is exempt from tax in India under section 10A / 10AA of the Act. However, in respect of tax paid in other DTAA and non- DTAA countries, learned Commissioner (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... context, he drew our attention to the relevant clauses of the DTAAs with the above noted countries. Thus, he submitted, tax credit has to be provided for taxes paid in overseas jurisdiction in respect of section 10A/10AA eligible income in India as per the provisions of respective DTAAs. He submitted, even under MAT computation, the assessee should be allowed full credit for taxes paid overseas in respect of section 10A/10AA eligible income. In support of his contention, the learned Sr. Counsel put strong reliance upon the decision of the Hon'ble Karnataka High Court in Wipro Ltd. (supra).The learned Sr. Counsel submitted, when no decision of the Hon'ble Jurisdictional High Court is available on the issue and the only decision of a High Court which is available is that of the Hon'ble Karnataka High Court, even though, the decision is of a non-jurisdictional High Court, however, this being the only decision available on the issue, it will be binding when there is no contrary decision of another High Court is available. For such proposition, he relied upon the following decisions:- i) CIT v/s Smt. Nirmalabai K. Davekar, [1990] 186 ITR 242 (Bom.) Tata Consultancy Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt thereafter referring to the treaty provisions with USA held that it is not the requirement of law that the assessee before he claims credit under the Indo-US convention or under the provision of the Act must pay tax in India on such income. The Court observed, as per the embargo placed in the DTAA, the assessee is entitled to such tax credit only in respect of that income which is taxed in USA. In similar context, the Court also referred to the tax treaty with Canada where the provisions does not allow credit for tax paid in Canada if the income is not subjected to tax in India. With regard to country's with which India does not have any agreement for avoidance of double taxation, the Court observed that as per section 91 of the Act, the assessee would be eligible to avail tax credit. Thus, on a careful reading of the aforesaid judgment of the Hon'ble Karnataka High Court, it becomes clear that where the respective tax treaty provides for benefit for foreign tax paid even in respect of income on which the assessee has not paid tax in India, still, it would be eligible for tax credit under section 90 of the Act. Like Article 25 of the Indo-USA treaty, treaties with vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration. Hence, in view of the amendment in the statute, this additional ground raised by the assessee on account of claim for deduction of education cess is dismissed. 6.3. In respect of claim of deduction u/s.10AA of the Act on commercial profit, the ld. AR before us placed reliance on the provisions of Section 80HH of the Act and also argued that the language of Section 80HH and Section 10AA are pari materia in as much as both the sections provide that in computing the total income of the assessee, deduction shall be allowed at certain percentage of profits and gains derived from business. The expression profits and gains derived was subject matter of adjudication by the Hon ble Supreme Court in the case of Vijay Industries Ltd., reported in 103 taxmann.com 454 wherein the Hon ble Apex Court observed that the profits and gains referred to commercial profits without deducting depreciation and investment allowance as per the Act. Since this aspect was not raised by the assessee before the lower authorities, accordingly, the lower authorities did not have an occasion to give their finding on the same. Hence, in the interest of justice and fair play, we deem it fit and appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt, he referred to Explanation-3 to section 9(1)(vi) of the Act as well as CBDT Circular no.621 dated 9th December 2019. Having held so, the Assessing Officer observed that since the assessee had not deducted tax at source while making payment for purchases of software both for internal use as well as for trading purpose, the amount paid is liable for disallowance under section 40(a)(i) of the Act. Accordingly, he disallowed the entire amount of ₹ 78,39,58,321. The assessee challenged the aforesaid disallowance before the first appellate authority. 9. Learned Commissioner (Appeals) following the order passed by the Tribunal in assessee's own case for the assessment year 2005-06, held that the expenditure incurred on software products acquired for internal use is a capital expenditure, hence, the assessee is entitled to depreciation thereon. However, in respect of payment made towards software products acquired for re-sale / trading purpose, learned Commissioner (Appeals) agreed with the Assessing Officer that it is in the nature of royalty, hence, the assessee was required to deduct tax at source. 7.2. We find that the ld. AR argued that the amendment brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more beneficial to the assessee and not otherwise. Further, by Explanation 4 to section 90, Parliament has clarified that where any term is defined in a DTAA, the definition contained in the DTAA is to be looke4 at. It is only where there is no such definition that the definition in the Ad can then be applied. UNION OF INDLA V. AZADI BACHAO ANDOLAN [7003] 763 1TR 706 (SC) relied on. The expression copyright has not been defined separately in the definitions section of the Copyright Act, 1957, yet, section 14 makes it clear that copyright means the exclusive right , subject to the provisions of the Act, to do or authorise the doing of certain acts in respect of a work . In the case of computer programmes, section 14(b) specifically speaks of two sets of acts: the seven ads enumerated in clause (a) and the eighth act of selling or giving on commercial rental or offering for sale or for commercial rental any copy of the computer programme. All the seven acts set out in clause (a) delineate how the exclusive right with the owner of the copyright may be parted with. In essence, such right is referred to as copyright, and includes the right to reproduce the work in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produce and the right to use computer software. Whereas the former would amount to parting with a copyright by the owner thereof, the latter would not. When, under a non-exclusive licence, an end -user gets the right to use computer software in the form of a compact disk, the end-user only receives a right to use the soft-ware and nothing mare. The end-user does not get any of the rights that the owner continues to retain under section 14(b) of the 1957 Act read with .cub-clauses (i) to (vii) of clause (a) thereof Thus. the conclusion that when com-puter software is licensed for use under an end-user licence agreement, what is also licensed is the right to use the copyright embedded therein, is wholly incorrect. The licence for the use of a product under an end-user licence agreement cannot be construed as the licence spoken of in section 30 of the 1957 Act, as such end-user licence agreement only imposes restrictive conditions upon the end-user and does not part with any interest relatable to any rights mentioned in section 14(a) and (b) of the 1957 Act. The ownership of copyright in a work is different from the ownership of the Physical material in which the copyrighted wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Explanation 2 to section 90(1)(vi) of the Act, is wider in at least three respects it speaks of consideration , but also includes a lump-sum consideration which would not amount to income of the recipient chargeable under the head capital gains ; when it speaks of the transfer of all or any rights , it expressly includes the granting of a licence in respect thereof; and it states that such transfer must be in respect of any copyright of any literary work. However, even where such transfer is 'in respect of copyright, the transfer of all or any rights in relation to copyright is a sine qua non under Explanation2 to section 9(1)(vi) of the Act. in short, there must be transfer by way of licence or otherwise, of all or any of the rights mentioned in section 14(b) read with section 14(a) of the 1957 Act. Indian tax laws use the expression in respect of as synonymous with the expression on the expression in respect of , when used in a taxation statute, is only synonymous with the words on or attributable to . This accords with the meaning to be given to the expression in respect of contained in Explanation 2(v) to section 9(1)(vi) of the income-tax Act, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... software for the first time with effect from April 1, 1991, when it was introduced, which was then amended by the Finance Act, 2000. Quite clearly, Explanation 4 cannot apply to any right for the use of or the right to use computer software before the term computer software was inserted in the statute. Likewise, even qua section 2(o) of the 1957 Act, the term computer software' was introduced for the first time in the definition literary work, and defined under section 2(ffc) only in 1994. It is equally Ludicrous for the amendment which also inserted Explanation 6 to section 9(i)(vi) of the Act, to apply with effect from June 1, 1976, when technology relating to transmission by a satellite, optic fibre or other similar technology was only regulated by Parliament for the first time through the Cable Television Networks (Regulation) Act, 1995, much after 1976. For all these reasons, it is clear that Explanation 4 to section 9(1)(vi) of the Act is no clarificatory of the position as of June 1, 1976, but in fact, expands that posit ion to include what is stated therein, by the Finance Act, 2012. Notification No, 21 of 2C'12 dated June 13, 2012 being issued after Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all, inasmuch as the provisions relatable to deduction of tax at source under section 195 of the Act do not refer to tax at all, but are deductions that are to be made before assessments to tax are made, would Lead to absurd consequences. Article 30 cannot be read out of context. The logic behind article 30 of the DTA.4 is for reasons connected with the municipal taxation laws of the United States of America and has nothing to do with Indian municipal law governing the liability of persons to deduct tax at source under section 195 of the Income-tax Act. This is reinforced by the fact that the OECD Commentary on articles 30 and 31 acknowledges the fact that the entry into force provisions, unlike the rest of the provisions in the OECD Mode! Tax Convention on Income and on Capital, depend on the domestic laws of contracting States. Persons are not obligated to do the impossible, i.e., to apply a provision of a statute when it was not actually and factually on the statute book. Thus the person mentioned in section. 195 of the Act cannot be expected to do the impossible, namely, to apply the expanded definition of royalty inserted by Explanation 4 to section 9(1 Xvi) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Agreements have, as their starting point, either the OECD Model Tax Convention on Income and Capital or the United Nations Model Double Taxation Convention between Developed and Developing Countries in so far as the taxation of royalty for parting with copyright is concerned. The OECD Model Tax Convention speaks of the importance of the OECD Commentary. The term royalties is defined in all the DTAAS in a manner either identical with or similar to the definition con tamed in article 12 of the OECD Model Tax Convention. The OECD Commentary on royalty payments under article 12 states that in a transaction where a distributor makes payments to acquire and distribute software copies (without the right to reproduce the software), the rights in relation to these acts of distribution should be disregarded in analysing the character of the transact ion for tax purposes. Payments in these types of transactions would be dealt with as business profits. From the positions taken by India (in the capacity of an OECD non-member) with regard to article 12 of the OECD Model Tax Convention and the OECD Commentary, which use the language reserves the right to and is of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing computer software from foreign, non-resident suppliers or manufacturers and then reselling it to resident Indian end- users (c) cases where the distributor was a foreign, non-resident vendor, who, after purchasing software from a foreign, non-resident seller, resold it to resident Indian distributors or end-users; and d) cases where the computer software was affixed onto hard ware and sold as an integrated unit or equipment by foreign, non-resident suppliers to resident Indian distributors or end-users, on the question. whether amounts paid in/ the persons resident in India to non-resident, foreign-n software suppliers, amounted to royalty, and whether it constituted taxable income deemed to accrue in India under section 9(I)(vi) of the Income-tax Act, 1961 thereby making it incumbent upon all such persons to deduct tax at source and pay such tax deductible at source under section. 195 of the Act; Held, (i) that in all these cases, the licence that was granted under the end-user licence agreement, was not a licence in terms of section 30 of the 1957 Act, which transferred an interest in all or an of the rights contained in sections 14(a) and 14(b) of the 1957 Act, but a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacturers or suppliers, as consideration for the resale or use of the computer software through end-user licence agreements or distribution agreements, was not royalty for the use of copyright in the computer software, and did not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Act were not liable to' deduct any tax at source under section 195 of the Act. Decision of the Delhi High Court in CIT v. ALCATEL LUCENT CANADA [2015] 372 ITR 476 (1.)(Delhi) affirmed. Decisions of the Karnataka High Court in CIT v. SAMSUNG ELECTRONICS Co. Ltd. 12012J 345 ITR 494 (Karn) and CIT v. SUNRAY COMPUTERS P. LTD. [2012] 348 ITR 196 (Karn) and ruling of the Authority for Advance Rulings in CITRIX SYSTEMS ASIA PACIFIC Pry. LTD., In re (2012] 343 ITR 1 (AAR) reversed. The real nature of the transaction must be looked at upon reading the agreement as a whole. 7.6. In view of the above, the ground No.1 raised by the Revenue is hereby dismissed. 8. The ground Nos. 2 3 raised by the Revenue are challenging the deletion of disallowance u/s.14A of the Act for the A.Y.2012-13. 8.1. We find that assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly proceeding to make disallowance under Rule 8D(2) of the Rules. We find that it is the duty of the ld. AO to record objective satisfaction with cogent reasons as to why the voluntary disallowance made by the assessee is incorrect having regard to the accounts of the assessee. Without recording such objective satisfaction with cogent reasons, the ld. AO cannot proceed directly to apply the computation mechanism provided in Rule 8D(2) of the Income Tax Rules and make disallowance u/s.14A of the Act. This issue is also addressed by the decision of the Hon ble Apex Court in the case of Maxopp Investments reported in 402 ITR 640. Hence, the disallowance made by the ld. AO u/s.14A of the Act has been rightly deleted by the ld. CIT(A) for want of recording of objective satisfaction with cogent reasons. Accordingly, the ground Nos. 2 3 raised by the Revenue for the A.Y.2012-13 are hereby dismissed. 9. The ground No.5 raised by the Revenue for the A.Y.2012-13 is challenging the deletion of disallowance of payment made towards Tata Brand equity subscription which was treated as capital expenditure. 9.1. We have heard rival submissions and perused the materials available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and enforces the collective image and goodwill of the Tata Group, organize corporate identity, coordinate major campaign involving promotion and development of Tata name, engage the service of specialist and professional consultants for energizing and enhancing the overall Tata brand etc. By entering into the agreement, Tata Sons Ltd. had granted non exclusive and on assignable subscription to use TATA name and marketing Indica. The assessee justified the payment stating that the main goal to formulate the scheme was to justify a diverse and diffuse enterprise and make it capable of facing the challenge from international brand names, post liberalization. The assessee company has derived huge benefits in the form of increase sales and also other operational efficiencies. In the past assessment years the similar payment has been allowed as deduction. The Assessee relied on the decision in the case of Radhasoami Satsang Vs. CIT (1992)193 ITR 321(SC) . 4. The A.O. did not find merit in the above submissions made by the assessee on this issue for the following reasons given in the assessment order:- The assessee company was incorporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation being relevant in the present context are extracted below from page No. 210 and 212 of the assessee s paper book:- a) To protect and promote the interests generally of the Subscriber both in India and abroad. To this end, the Subscriber hereby authorizes the Proprietor to act on its behalf in protecting and enforcing the collective image and goodwill of the Group and preventing any newly developed mark or symbol from being usurped and/or diluted in any way. b) To organize periodically as may be deemed necessary corporate identity and brand promotional activities and campaigns through various media including electronic /telecommunication/satellite communication media (e.g. TATA Website) etc. printing and publishing of promotional material and such other activities as in the opinion of the Board of Directors of the Proprietor Company, will enhance the TATA Brand Equity and correspondingly benefit the business of the Subscriber. c) To co-ordinate major campaigns involving the promotion and development of the Business Name Marks and Marketing Indica. d) to engage the services of specialist agencies both National and International as the need may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, the Marks and Marketing Indica in India and abroad and thereby endeavor to promote the business of the Subscriber to achieve greater profitability and enhancement of stakeholder value. m) To undertake measures to preserve the stability of the management of the Subscriber in order to protect the larger interests of its stakeholders. n) To provide resources for availing services in the areas of 1. Financial and Strategic Management. 2. Legal and Economic matters. 3. Management Develop0ment and Human Resources. 4. Corporate Communications. 5. Community Services. o) For the purposes of promoting the business of the Subscriber to provide assistance in accessing the network of domestic and international business contacts and availing the services of the domestic and overseas offices of the Proprietor and the Group Companies. p) To institutionalise mechanisms to share and propagate best management practices amongst the Subscribing companies. q) To manage and supervise the implementation of the Scheme and ensure compliance with the terms of this Agreement and the Code . The ld. counsel for the assessee has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the A.O. to allow the said expenditure after verifying as to whether the department has accepted the said decision of the Tribunal. On verification, the A.O. found that no appeal was filed by the department against the order of the Tribunal passed in the case of Rallis India Ltd. giving relief to the assessee on the issue of brand equity subscription and accordingly he allowed similar subscription paid by Tata Steel Ltd. in the final assessment completed u/s 143(3) r.w.s. 144-C of the Act vide order dtd. 27-11-2010. It is thus clear that this issue is squarely covered in favour of the assessee by the decision of the co-ordinate Bench of this Tribunal in the case of Rallis India Ltd. which has also been accepted by the department. Respectfully following the said decision of the Tribunal, we delete the disallowance made by the A.O. on account of subscription paid by the assessee to Tata Sons Ltd. towards brand equity and promotion scheme and allow ground No. 1 of assessee s appeal. 9.3. Respectfully following the same, we find no infirmity in the order of the ld. CIT(A) allowing the said expenditure as a Revenue expenditure. Accordingly, the ground No.5 raised by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Accordingly, we uphold the decision of learned Commissioner (Appeals) on this issue. 10.3. Respectfully following the same, the ground No.6 raised by the Revenue for A.Y.2012-13 is dismissed. 11. The ground No.7 raised by the Revenue is challenging the method of computation of deduction u/s.10AA of the Act. 11.1. We have heard rival submissions and perused the materials available on record. The short issue to be decided in this ground is as to whether the list of items that are subject matter of reduction from export turnover would be liable for reduction from total turnover also, while computing deduction u/s.10AA of the Act. 11.2. We find that this issue is no longer res integra in view of the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. TCS Limited (assessee s own case) in Income Tax Appeal No.1778 of 2016 dated 18/03/2019 for A.Y.2005-06, wherein it was held as under:- 10] Coming to the revenue's contention in relation to the computation of benefit of section 10A of the Act, this issue is squarely covered by the judgement of Supreme Court in the case of Commissioner of Income Tax Vs. HCL Technologies, reported in 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services rendered were determined on the basis of mutual negotiation between the parties. The assessee gave a complete description of functions performed, assets employed and risks assumed (FAR analysis) while rendering this provision of software, technical and consultancy services. These facts are brought out in detail by the assessee in its TPSR as well as in the order of the ld. TPO vide pages 5-8 of the order. The assessee selected comparable companies wherein the arithmetic mean margin was arrived at 11.28%. The assessee s margin for provision of IT services was 34.99%. The assessee in its TP study report mentioned that the margins earned by AE were better than that earned from AEs and non-AEs collectively and accordingly, the transactions were at arm s length. 12.3. The assessee also made a comparable analysis in the TP study report to justify that its margin are better than the peers i.e. Wipro, Infosys, HCL Technologies, Patni Computers etc., to state that its transactions are at arm s length. The ld. TPO used the same set of comparables as were used by him in assessee s own case for A.Y.2006-07 and considered the AEs as the tested party. The ld. TPO selected companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner (Appeals) in his order that the AEs are bearing credit risk and risk of default by client. In fact, the assessee through proper evidences has demonstrated instances where the credit risk with reference to part cancellation of contract has been borne by the AEs without compensation from the assessee. The documentary evidences in this regard furnished by the assessee were thoroughly examined not only by learned Commissioner (Appeals) but they were also produced before us. Thus, from the aforesaid facts, it becomes clear that significant marketing functions are being performed and distribution and marketing risk are being taken by the AEs. On examination of the financials of the subsidiaries it is revealed that some subsidiaries are still making loss at net level which signifies that some risk is being borne by the AEs. It has further been brought on record that the manpower base of AEs performed various functions relating to marketing as well as client co-ordination. The AEs have developed sufficient competency to handle the marketing work independently. The entire contract related work is performed by the AEs, though, in cooperation with the assessee. Thus, it is quite nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rability analysis. No convincing argument or evidence has been brought on record by the learned Departmental Representative to persuade us to disturb the finding of learned Commissioner (Appeals) on these issues. In view of the aforesaid, we do not find any merit in the grounds raised by the Revenue on the issues. Accordingly, grounds are dismissed. 12.5. Hence, the ground No.5 raised by the assessee and ground No.9 raised by the Revenue are disposed off in the above mentioned terms. 13. The ground No.6 raised by the assessee is challenging the transfer pricing adjustment made in respect of provision of loans to Associated Enterprises (AEs). 13.1. We have heard rival submissions and perused the materials available on record. We find that assessee had provided loans to its Associated Enterprises as under:- S. No. Name of the Associated Enterprise (AE') Currency Denomination extended prior to subject AY Loan given during the year Loan repaired/ converted to equity during the year Amount outstanding as on 31 March 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards and was finally liquidated on 30th May 2014. An amount of USD 253,350 was received by TCS India from TCS Morocco in January 2014 and the balance amount of the loan of USD 9! 0,485 was written off in September 2014. Copy of board resolution and certificate of liquidation are attached as Annexure 25.1 and 25.2. II. TCS Iberoamerica SA ( TCS Iberoamerica ) a. TCS Iberoamerica is a wholly owned subsidiary of the Appellant which acts as the regional holding company i. e. the operating entities in the South America region are held by TCS Iberoamerica. Loan outstanding as on lsl April, 2011 to TCS Iberoamerica USD 59,140,000. During the year under consideration, there is no further amounts advanced to the TCS Iberoamerica. Particulars Date Amount in USD Opening Balance 1-Apr-ll 59,140,000 Conversion into Equity 1-Oct-ll 49,740,000 Closing Balance 31-Mar-12 9,400,000 b. The appellant had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary to meet the demands of investing and operating in alien countries. Hence, it was prudent on the part of the assessee to invest a portion of its funds in the form of equity and balance in the form of loan. The assessee also submitted that in some countries substantial time is taken to obtain statutory and exchange control approvals to invest by way of equity, wherein the funds are initially infused as loans and later converted into equity. Having regard to overseas investment regulations, existence of barriers to repatriation of equity etc., investment made by way of share holders deposit provided flexibility to assessee to bring back the money in case it is so desired. The assessee specifically pointed out that had such monies not been provided, the assessee could not have acquired these downstream subsidiaries across the world which would have hampered its growth and expansion and long term profitability and sustainability. The assessee also relied on various case laws to drive home the point that it had passed the test of commercial expediency. 13.5. The assessee had charged interest on its loan to its AEs as under:- Sr. No. Name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a part of business strategy and not simply to help the AEs with capital infusion. The assessee has advanced detailed argument stating that advances made to the AEs is a shareholder activity and not advancement of loan. In this context, the assessee has referred to OECD Transfer Pricing Guidelines as well as UK and Australian Regulations. It is evident from the impugned order of the learned Commissioner (Appeals), though, he sketchily referred to some of the submissions made by the assessee, however, he has not at all dealt with them in an effective manner. The learned Commissioner (Appeals), though, has observed that the loans advanced were not merely for downstream acquisition but for a variety of purpose including working capital requirement and other business uses, however, he has not elaborated as to for what other purpose loans were advanced. Without properly dealing with the factual aspect of the issue, learned Commissioner (Appeals) has jumped to the legal aspect and has held that the amount advanced by the assessee is in the nature of loan and has to be benchmarked as such. After considering the submissions of the parties and examining the material on record, we are conv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-13 in assessee s own case held that charges should be levied only on the portion of lease premises, occupied by the AE. The details of guarantees given i.e performance, financial and others are tabulated in page 32 of the order of the ld. TPO. The ld. TPO made transfer pricing adjustment in respect of guarantee services amounting to ₹ 28,74,94,665/- in his order. We find that the entire gamut of this issue has already been addressed by this Tribunal in assessee s own case in A.Y.2009-10 in ITA No.5713/Mum/2016 and IT(TP)A No.5823/Mum/2016 dated 30/10/2019 wherein it was held as under:- 43. We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. Insofar as the contention of learned Sr. Counsel for the assessee that provision of guarantee is not an international transaction as per section 92B of the Act, we are unable to accept such contention. In our considered opinion, after introduction of Explanation-(i)(c) to section 92B of the Act, with retrospective effect from 1st April 2002, provision of guarantee to AEs has to be considered as an international transaction. Different Benches of the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions for expenses at the end of the year for which deduction of tax at source has not been made. The ld. AO disallowed the same for non-deduction of tax at source invoking the provisions of Section 40(a)(ia) of the Act both under normal provisions of the Act as well as under the computation of book profits u/s.115JB of the Act. We find that the ld. CIT(A) had deleted the said disallowance by observing as under:- This is a matter arising for the first time in the case of assessee and has three parts, I, II and III. The Assessing Officer deals with the same in para 14 of assessment order. The genesis of the disallowance under section 40(a)(ia)1 is remark in Audit Report under section 44AB which is as under: In the opinion of the company , year-end provisions of expenses which are reversed in the subsequent year are not liable for deduction of tax at source as such provisions are made only for the purpose of preparation of annual financial statements in accordance with applicable accounting principles/standards 16. I first take up the part I on the matter of disallowance u/s 40(a)(ia). The Assessing Officer called for explanation of the assessee who stated int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid out or expended wholly and exclusively for the purposes of business . The written submission does not contain a specific comment on this part. In course of hearing, the appellant stated that this is a consistent method where income and expenses are accounted for following the principle of accrual and that this consistent method is disturbed without adequate recording of reasons or analysing facts. 19. I find from the assessment order that the views of appellant is not considered. The decision is taken without examining relevant facts. Verification of annual reports of the company reveal no significant change in accounting policy. The Assessing Officer has made a disallowance merely because provision is created. The disallowance without examining the nature of provision by itself renders it wrong. There are admissible and inadmissible provisions. The disallowance made sans valid reasons has no locus stand/. The heading of the disallowance and the computation statement mentions the same as disallowance under section 40(a)(i)2 which leaves doubt as to whether there is an unambiguous finding regarding eligibility under section 37. As an emphatic finding which is reason bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is booked. 19.1.After considering the submissions made by the appellant AO held that same was not acceptable because expenses under consideration was liable to TDS and were squarely covered by the provisions of chapter XVIIB of the Act. He was of the view that once the assessee was debating the P L account, it automatically was crediting the party account based on matching principle. 19.2.Before us ,AR submitted that amount in question was year-end accounting provision to book, expenditure incurred, but in respect of which there was no obligation to either pay or to deduct tax at source is because no income had accrued to the payee, that no order had been passed under section 201 of the act holding, the appellant to be an assessee in default. Therefore, no disallowance could be made under section 40a(ia). He referred to page number 265 of the paper-book that gives details of provision on which TDS was not paid. As per the AR bills for the said expenditure were not received during the year under consideration. As per the AR, the appellant company would make year-end provisions based on services rendered by various lenders/professionals. These provisions represe ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
