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2014 (4) TMI 787 - AT - Income TaxCorporate tax – Deduction of TDS u/s 194I of the Act - Whether tax should be deducted at source u/s 194I from payments made for use of such standard facilities – Held that:- The decision in Asia Satellite v. CIT [2011 (1) TMI 47 - DELHI HIGH COURT] followed - payments made towards use of standard facility, when the lessee is not having any domain or control or possessory rights over such facility, cannot be categorized as use of assets for the purpose of the Act – Decided in favour of Assessee. Transfer pricing adjustment - Determination of ALP - Profit Split Method or Transactional Net Margin Method – Applicability of Rule 10AB - Held that:- The revenues in the case of the assessee are generated in a transaction where there is contribution from multiple entities - the assessee runs its business independently in India - the assessee is an independent entrepreneur - But when a transaction is integrated and interrelated and when costs are incurred by multiple entities and the revenues are to be apportioned to multiple entities, then the factual conclusions of the T.P.O have to be vacated - the "Profit Split Method" (PSM) is the "M.A.M" for the reason that the assessee generates revenue out of operations that are highly integrated - When one transaction, (example transmitting data from a destination in one country, to a destination in a different country in a secured manner) requires deployment of assets and functions of different entities, located in different Geographical locations, to ultimately deliver services and when such combined efforts generate revenues, the MAM for determining arm's length price is "Profit Split Method (PSM)." The Transfer Pricing Officer is wrong in rejecting PSM on the ground that it is not possible to determine the cost incurred by the Indian entity separately - The cost incurred by the assessee is available on record - The entity maintains books and the same are subject to audit - use of unique intangibles is not a must for adopting "PSM" - the assessee does possess unique intangibles in the field of data transfer and communications, and comparing the operations with a simple E Mail and as a plug in operator is not factually correct - If the assessee is held to be a simple Email operator, then it is to be explained as to why reputed global enteprises would pay them for data transmission, when E Mail is free - The assessee does offer unique services as compared to an ordinary Email service and it is these unique services which are its intangibles. The factum of the assessee having a loss is no ground to reject "PSM" as the "MAM" - the arrangement with the AE under the agreement demonstrates that the administrator does not have absolute discretionary power to determine inter group payment - though the Rules do suggest that benchmarking should be done with external uncontrolled transactions, this is an impossibility, as it is not possible to get a comparable - allocation can be done, based on how much each independent enterprise might have contributed - Relative contribution has to be determined, based on key value drivers - there is a general consensus on the principles of allocation of residual surplus - as per rule 10B(l)(d) of the IT Rules, a contribution or residual PSM would need to be supplemented by a comparable PSM - the TPO, should determine the ALP by adopting residual PSM as the MAM and by allocating residual profits based on the relative value of each enterprise's contribution - Relying upon Allied Motors Private Limited Versus Commissioner of Income-Tax [1997 (3) TMI 9 - SUPREME Court] - Rule 10AB can be applied for the AYs also, for determining the ALP – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee.
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