Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2019 (9) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (9) TMI 609 - AT - Income TaxSubvention/ subsidy money receipt from its parent company Nalco, USA - revenue receipt exigible to tax or not? - Assessing Officer / TPO, pursuant to directions of DRP treated the said subvention amount received from its associated enterprises as non-operating income - HELD THAT:- The issue vis-à-vis its taxability i.e. receipt of subvention from parent company now stands settled by recent decision of Hon'ble Supreme Court in Siemens Public Communication Network (P.) Ltd. Vs. CIT [2016 (12) TMI 507 - SUPREME COURT] had held that voluntary payments made by parent company to its loss making Indian company can also be understood to be payments made in order to protect the capital investment of assessee company. It was further held that if that is so, then the payment in question could not be held to be revenue receipts, hence they were capital receipts in the hands of assessee. Applying the said proposition to the facts of present case, where the assessee had received the alleged subvention amount or the subsidy as referred to by the Assessing Officer / TPO / DRP, the amount received by assessee from its parent company Nalco, USA was a capital receipt in the hands of assessee and hence, was not taxable in its hands. Treatment of said amount while determining the PLI of assessee - assessee claims that the amount is to be taken as operating income since the said receipt was to make good losses incurred by assessee in earlier years and also current year - HELD THAT:- Once the subsidy of ₹ 65.19 crores was credited, there was profit of ₹ 2.03 crores. In other words, profit during the year was attributable to subvention amount of ₹ 65.19 crores and hence, it cannot be held that the amount was not operational in nature. The item of receipt was undoubtedly, an exceptional item of income but was not an extraordinary item of income. The assessee was also compensated for additional revenue expenses incurred by it for transferring its establishment from Kolkata to Pune and then running the same at Pune. Such onetime payment received by assessee is thus, operating in nature. The learned Authorized Representative for the assessee had pointed out that the subvention amount related to two years. We hold that amount relatable to the year, need to be considered for computing PLI of the assessee. We direct the Assessing Officer to carry out the said exercise. We in the final analysis hold that subvention income is capital receipt in the hands of assessee, hence not taxable. Further, we hold that the said subvention amount is operating in nature and has to be included as operating income while computing PLI in the hands of assessee restricted to the amount relatable to the instant assessment year. Thus, ground of appeal No.2 raised by assessee against taxability of subvention income is allowed and ground of appeal No.11 also stands allowed in favour of assessee. Depreciation on assets installed at the customers’ premises - HELD THAT:- Decided in favour of assessee as relying on own case [2017 (4) TMI 446 - ITAT KOLKATA] Transfer pricing adjustment to the value of management charges paid to associated enterprises - case of assessee before us is that it had provided substantive documentary evidences before the TPO and also submitted additional evidences before the DRP demonstrating the need, actual receipt of services and benefit thereon - adjustment made on account of charges for intra-group services paid by assessee to its associated enterprises - HELD THAT:- In the facts and circumstances of the present case before us, which are similar to the facts and circumstances in the case of Emerson Climate Technologies (India) P. Ltd. Vs. DCIT [2018 (6) TMI 1565 - ITAT PUNE] and Eaton Fluid Power Ltd. Vs. ACIT , [2018 (6) TMI 1266 - ITAT PUNE] we hold that there is no merit in the observations of TPO in holding that the assessee had not availed any services, hence the arm's length price of transactions was to be adopted at Nil. We reverse the findings of authorities below in this regard. Intra-group fees paid by assessee to Nalco US for providing services such as information technology, engineering support services, business development services, supply chain services - HELD THAT:- Services were availed, payment for which was made at cost without any markup and such cost was attributed to the assessee on the basis of particular methodology adopted by US company for recovering the expenditure from all entities under Nalco group and the same cannot be disturbed in the hands of assessee. The payment made by assessee was thus, at arm's length price and no adjustment needs to be made on this account. Further, in any case, where when in the hands of Nalco US the services have been taxed as fees for included services, then corollary which follows is that the arm's length price of payment made for such services cannot be determined at Nil. Accordingly, we reverse the order of Assessing Officer/TPO/DRP and the grounds of appeal are thus, allowed Adjustment made vis-à-vis international transactions pertaining to royalty - whether CUP method was the most appropriate method to benchmark the aforesaid transaction of payment of royalty? - HELD THAT:- Applying the rule of consistency which has been applied by the TPO himself in earlier years and also where the rate of payment of royalty at 6% had been approved by RBI for the earlier years and also for the part of year, then the same should not have been disturbed. The second aspect of issue is whether the rate of payment of royalty which has been approved by the Government of India i.e. RBI would constitute CUP data and the same could be applied for holding the transactions to be at arm's length. This proposition has been applied by the Hon’ble Bombay High Court in CIT Vs. SGS India (P.) Ltd. [2015 (11) TMI 1619 - BOMBAY HIGH COURT] . In case the said dictate is applied, then we hold that the payment of royalty by assessee to its associated enterprise @ 6% / 4% is to be considered at arm's length rate and no adjustment is warranted in the hands of assessee. Where the royalty rates were approved by RBI, CUP method was the most appropriate method to be applied to determine arm's length price of royalty payments made during the year. Accordingly, we reverse the order of Assessing Officer in holding that royalty payment is to be benchmarked with that of payment of raw material and other goods bought. The said transaction of royalty payment is to be benchmarked independently by applying CUP method and since the rates of commission paid to other concerns is at arm's length, no adjustment on this account is warranted in the hands of assessee. Accordingly, the TPO is directed to re-calculate the PLI of assessee by excluding the payment of royalty out of PLI determined for the segment of payment for raw materials and other goods bought - Decided in favour of assessee Benchmarking analysis applied by authorities below while using TNMM method for benchmarking the international transactions pertaining to manufacturing segment - assessee is also aggrieved by the set of comparables which are finally selected by the Assessing Officer / TPO - HELD THAT:- It is only after the PLI / margins of assessee are re-worked in line with our decision in respect of various issues raised which affect the operating margins of assessee, the need would come to look at the margins of comparables. Our decision on the inclusion / exclusion of comparables at this stage would be an academic exercise. In such facts and circumstances of the case, we first direct the Assessing Officer to re-work the operating margins of assessee and thereafter to look into the objections raised by assessee vis-à-vis the comparables finally selected and also the comparables which have not been finally selected. The assessee shall furnish complete details in this regard and the Assessing Officer shall decide the issue of final selection of comparables after taking into consideration the settled position on the issues after appreciating the facts relating to each of the comparables and in accordance with law. Hence, the ground of appeal raised by assessee is allowed for statistical purposes. Transfer pricing adjustment vis-à-vis in proportion with the value of international transactions - HELD THAT:- Issue now stands settled in CIT Vs. Hindustan Unilever Ltd. [2018 (10) TMI 1611 - SC ORDER] and CIT Vs. Firestone International P. Ltd. [2015 (6) TMI 1123 - BOMBAY HIGH COURT] . The benchmarking on account of transfer pricing adjustment, if any, has to be done for associated enterprises transactions only and not the entire turnover. Accordingly, we direct the Assessing Officer to carry out the said exercise after verifying the computation of proportionate adjustment filed by assessee before us and also after calculating the margins of assessee in line with our directions in the paras above. Use of multiple year data stands decided against the assessee, hence the same is dismissed. Non-granting of benefit of +/- 5% range - decided against the assessee and hence, the same is dismissed. Charging of interest under section 234B of the Act, which is consequential, hence the same is also dismissed.
|