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2019 (3) TMI 462 - AT - Income TaxTransfer pricing adjustment - ALP determination - profit attributable to India - assessee a foreign company is a tax resident of Hong Kong - income accrued in India - MAM selection - HELD THAT:- If the provisions of section 9 is read as a whole, it would be very much clear that as per Explanation 1 to section 9(1)(i) of the Act, in case of an assessee whose business operations are not exclusively carried out in India, the amount of income which will be deemed to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. The income which is deemed to accrue or arise in India must have a territorial nexus. It is well settled position of law as per the various judicial precedents including the decisions cited before by the Sr. Counsel, agency / marketing commission paid to non–residents agent outside India and for services rendered outside India is not taxable in India. Moreover, if one carefully reads the provision contained in Explanation below section 9(2) of the Act, it will be very much clear that it will not be applicable to the agency commission earned by the assessee. Therefore, in principle, we agree with the contention of the assessee that income accruing or arising outside India would not be taxable under the Act. It is the case of the Department that the assessee itself has admitted that the profit attributable to India is Rs. ₹ 252,59,62,559. Contesting the aforesaid finding of the TPO and the DRP, the learned Sr. Counsel for the assessee has submitted that the profit attributable to India. For demonstrating such fact, he has heavily relied upon the transfer pricing study report filed before the Transfer Pricing Officer. However, since the actual profit attributable to India is a purely factual issue which has to be demonstrated by the assessee through proper documentary evidences / books of account, for the limited purpose of verifying this fact, we are inclined to restore the issue to the AO to examine assessee’s claim. In the event, the claim of the assessee that actual profit attributable to India is ₹ 227,80,28,141, is found to be correct, no further adjustment can be made to the arm's length price since the Transfer Pricing Officer himself has concluded that the profit margin of the international transaction shown by the assessee is higher than the average margin of the comparables. Since, there is no dispute between the parties with regard to the most appropriate method selected by the assessee as well as profit margin shown and the dispute is only with regard to the factual issue relating to the actual profit attributable to India under PSM, we do not found it necessary to deal with the contention raised by the learned Sr. Counsel regarding the power of the Transfer Pricing Officer to determine the profit attributable to India. With the aforesaid observations, these grounds are allowed for statistical purposes. Decision of the departmental authorities in bringing the royalty income to tax @ 42.23% instead of 21.115% - HELD THAT:- We find that while dealing with identical issue in assessee’s own case in assessment year 2007–08 the Tribunal [2016 (2) TMI 836 - ITAT MUMBAI] has restored the issue to the Assessing Officer with the following direction:– “26. So far as issue raised vide ground 7 and 8, the assessee has challenged the taxation of service fee income @ 41.82% on the gross basis as against applicable @ 10.455% on gross basis. We direct the AO to apply the correct tax rate in accordance with section 115A and examine the contention of the assessee that tax rate of 10.45% and 20.91% should be applied.” Facts being identical, we direct the Assessing Officer to decide the aforesaid issue following the directions of the Tribunal as referred to herein above. This ground is allowed for statistical purposes. short grant of TDS credit - Held that:- We direct the Assessing Officer to verify assessee’s claim and grant credit for actual TDS. Levy of interest under section 234C - HELD THAT:- It is the contention of the learned Sr. Counsel for the assessee that since the assessee is a non–resident and liability was cast upon the payer to deduct tax at source while making the payment, interest cannot be charged under section 234C of the Act for failure to pay installments of advance tax. In this context, he has relied upon the decision in DIT v/s NGC Network Asia LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT]. We find substantial merit in the aforesaid submissions of learned Sr. Counsel. Accordingly, we direct the Assessing Officer to decide the issue of levy of interest under section 234C of the Act by following the ratio laid down by the Hon'ble Jurisdictional High Court in NGC Network Asia LLC (supra), this ground is allowed for statistical purposes.
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