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2022 (4) TMI 544 - AT - Income TaxTDS u/s 195 - disallowance of State taxes paid overseas under section 40(a)(ii) - eligibility to relief under section 90 - HELD THAT:- As relying on own case [2019 (11) TMI 408 - ITAT MUMBAI] we direct the Assessing Officer to verify as to whether the State Tax paid by the assessee overseas are eligible for any relief under section 90 of the Act and if it is not found to be so, the assessee”s claim of deduction should be allowed. Accordingly, ground no.2 raised in assessee”s appeal is allowed for statistical purpose. Expenditure incurred on import of software - Addition under section 40(a)(i) as tax at source was not deducted from the payments made to overseas vendors - assessee submitted that there was no withholding tax obligation on the assessee on the payments made to the non–residents as no income was chargeable to tax in India - HELD THAT:- No factual verification vis-a-vis relevant clauses of agreements entered into by the assessee for import of software was done by the Assessing Officer or the DRP. There is no iota of doubt that payment for transfer of “copyrighted article” as against the payment for transfer of “copyright” does not qualify as “royalty” and thus the same is not taxable in India in the absence of PE of the seller. However, each case is decided on its own facts. It is also pertinent to note that the conclusion in favour of the taxpayer in Engineering Analysis Centre for Excellence Pvt. Ltd. [2021 (3) TMI 138 - SUPREME COURT] was also reached after considering relevant clauses of End User License Agreement. However, in the present case as is evident from the orders passed by the Assessing Officer and DRP, such factual aspects were not considered and claim of the assessee was denied merely by referring to judicial precedents and CBDT circular. In view of the above we deem it appropriate to restore this issue to the file of AO for de novo adjudication after examination of the agreements entered into by the assessee for import of software - In view of the above, ground no. 3 raised in assessee”s appeal is allowed for statistical purpose. Disallowance made under section 14A of the Act by applying provisions of rule 8D - HELD THAT:- From the facts available on record, it is evident that the Revenue has merely treated the expenditure offered for disallowance as meager in nature and proceeded to make further disallowance by treating 0.5% of average value of investment income as expenditure towards earning the exempt income on ad–hoc basis. The Revenue has also not discharged its onus that the claim made by the assessee is incorrect and there exist a direct nexus between the expenditure disallowed under section 14A and the exempt income earned by the assessee - we direct the Assessing Officer to delete the disallowance of expenditure and accept the suo–motu disallowance offered by the assessee under section 14A. MAT computation - Assessing Officer is also directed to delete the addition of disallowance under section 14A r/w Rule 8D while computing Book Profit under section 115JB Disallowance of advertisement expenditure - expenditures were incurred by the assessee for advertisement in newspaper, marketing of its products, etc., in respect of its on–going business - HELD THAT:- As relying on own case [2019 (11) TMI 408 - ITAT MUMBAI] reasoning of the Assessing Officer that the expenditure was incurred for brand building is without any basis. It is to be noted, before the Departmental Authorities the assessee had demonstrated that in no way it is connected with development of Tata brand. The details of expenditure incurred clearly demonstrate that they were basically for the purpose of advertising assessee’s products in print media or through seminar, conferences, etc. As rightly observed by learned Commissioner (Appeals), the Assessing Officer has brought no material on record to establish that the expenditure is for brand building. As observed earlier, the expenditure relates to advertisement in newspaper, magazine, events, seminars, conferences, exhibitions, etc. Thus, the nature of expenditure incurred by the assessee clearly indicates that it was for promoting its own business. Further, considering the turnover of the assessee, the expenditure incurred 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. Disallowance of payment towards Tata Brand Equity subscription - HELD THAT:- As per the “Tata Brand Equity and Business Promotion Agreement”, the assessee was under contractual obligation to make annual payment towards the subscription fees. According to assessee, in consideration of this subscription fees, Tata Sons Limited was, inter-alia, responsible for organising corporate identity and brand promotional activities and campaigns, engage professional consultants, make available a pool of sharable resources of the Tata Group to the assessee and provide assistance in accessing the network of domestic and international business contacts and also permit the assessee to use the business name. All the activities were predominantly the activities carried out or to be carried out by Tata Sons Limited to enhance the value of TATA Brand, which is owned by Tata Sons Limited and for same expenses were incurred by Tata Sons Limited and accounted in its books of account. In the present case, nothing has been brought on record to suggest that the subscription fee paid by the assessee to Tata Sons Limited under the “Tata Brand Equity and Business Promotion Agreement” is different in nature from the one considered in aforesaid decisions. Thus, we direct the Assessing Officer to delete the disallowance on account of subscription fees paid by the assessee to Tata Sons Limited. Accordingly, ground no. 6 raised in assessee”s appeal is allowed. Disallowance of commission paid to non–resident under section 40(a)(i) - HELD THAT:- As relying on own case [2019 (11) TMI 408 - ITAT MUMBAI] we direct the Assessing Officer to delete the disallowance made under section 40(a)(i) of the Act in respect of commission paid by assessee to non–resident agents - we direct the Assessing Officer to delete the disallowance made under section 40(a)(i) of the Act in respect of commission paid by assessee to non–resident agents. Additional reduction from Export and Total Turnover of foreign currency communication expenses included in proportionate expenses excluded by the Assessing Officer - HELD THAT:- As per the assessee, foreign currency communication expenses have been reduced twice from Export and Total Turnover. Thus, we direct the Assessing Officer to conduct necessary verification and delete the additional/double reduction of foreign currency communication expenses if any, from Export and Total Turnover as per law. As a result, ground no.8 raised in assessee”s appeal is allowed for statistical purpose.d Deduction under section 10AA in respect of SEZ units of the assessee which commenced its operations during earlier years - fifth year of deduction claimed on SEZ unit under section 10AA - HELD THAT:- Once the first set of conditions is established in the initial year, these should not be examined in subsequent assessment years. We are of the view that provisions of section 10AA(4) of the Act lay down the first set of conditions which is to be satisfied in the initial year of operation and should not be examined in the subsequent years. As the CIT(A) has already allowed the deduction under section 10AA of the Act in respect of SEZ units for assessment years 2008–09, 2009–10 and 2010–11 and no further appeal has been filed by the Revenue against the same, which has also not been controverted by the learned Departmental Representative nor any facts contrary to the same has been adduced. Thus, as the deduction under section 10AA of the Act has already been allowed to the assessee in respect of SEZ units for the assessment years 2008–09, 2009–10 and 2010–11, we find no reason to deny the same in the relevant assessment year which is the fifth year of deduction claimed on SEZ unit under section 10AA of the Act. Thus, to this extent, we endorse the conclusion of the DRP and accordingly the Assessing Officer is directed to allow the deduction under section 10AA of the Act in respect of SEZ units commenced during the assessment years 2008–09, 2009–10 and 2010–11 as the same has already been allowed in the preceding assessment years. Thus, grounds no.9 and 10, raised in assessee”s appeal are allowed. Grant of foreign tax credit as per the provisions of section 90(1)(a) read with provisions of the applicable Double Taxation Avoidance Agreement (“DTAA”) for taxed paid overseas in relation to income eligible for deduction under section 10A/10AA - HELD THAT:- As relying on own case [2019 (11) TMI 408 - ITAT MUMBAI] 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 various other countries such as Indo–Denmark, Indo–Hungary, Indo–Norway, Indo–Oman, Indo–US, Indo–Saudi Arabia, Indo–Taiwan also have similar provision providing for benefit of foreign tax credit even in respect of income not subjected to tax in India. However, Indo–Canada and Indo–Finland treaties do not provide for such benefit unless the income is subjected to tax in both the countries. Therefore, the foreign tax credit would be available to the assessee in all cases except the foreign tax paid in Finland and Canada. The Assessing Officer is directed to grant credit accordingly - ground is allowed for statistical purpose. Short credit for tax deducted at source - HELD THAT:- We direct the Assessing Officer to verify the claim of the assessee and grant credit for tax deducted at source after necessary verification and in accordance with law. Deduction on education cess paid by the assessee - HELD THAT:- We deem it appropriate to direct the Assessing Officer to decide the issue of allowability of education cess, as per law. Consequently, the first issue raised by way of additional ground of appeal is allowed for statistical purpose. Claim of deduction under section 10AA of the Act on the basis of commercial profit instead of income from business or profession - HELD THAT:- We find that the issue raised by the assessee by way of additional ground of appeal is squarely covered in favour of the assessee by the aforesaid order passed by the Co–ordinate Bench of the Tribunal in Reliance Industries Ltd. [2020 (12) TMI 165 - ITAT MUMBAI] and the law laid down in Vijay Industries [2019 (3) TMI 652 - SC ORDER] - DR could not show us any reason to deviate from it. In view of the above, respectfully following the aforesaid judicial precedence, we direct the Assessing Officer to allow the deduction under section 10AA of the Act on “Commercial Profit” instead of “Income From Business And Profession”. Consequently, the second issue raised by way of additional ground of appeal is allowed. Transfer pricing adjustment - International transaction pertaining to provision of software consultancy services - HELD THAT:- As in assessee”s own case [2020 (11) TMI 36 - ITAT MUMBAI] the order of the TPO and DRP on the issue of transfer pricing adjustment in respect of provision of software consultancy services cannot sustain and are accordingly set aside to this extent - TPO/ Assessing Officer is directed to conduct the benchmarking of the international transaction of provision of software consultancy services as per the findings of the Tribunal referred above. The TPO/Assessing Officer is also directed to consider the comparables selected by the CIT(A) in previous assessment years, for North American Region, APAC Region and Europe Region, for the purpose of benchmarking after necessary verification. Further, any transfer pricing adjustment should be restricted to the international transactions undertaken by the assessee. In view of the above, ground no.17 in assessee”s appeal is allowed for statistical purpose. Transfer pricing adjustment in respect of provision of guarantee - HELD THAT:- As relying on own case [2019 (11) TMI 408 - ITAT MUMBAI] Following the decision in CIT v/s Everest Canto Cylinders Ltd.[2015 (5) TMI 395 - BOMBAY HIGH COURT] directed the Assessing Officer to charge guarantee commission @ 0.5% per annum. Deduction u/s 10A - Reduction of expenses incurred in foreign exchange from both export turnover and total turnover while computing the deduction under section 10A - HELD THAT:- We find that this issue is no longer res integra and has been decided in favour of the taxpayer by the Hon'ble Supreme Court in CIT v/s HCL Technologies Ltd., [2018 (5) TMI 357 - SUPREME COURT] Wherein the Hon'ble Court held that the expenditure excluded from the export turnover while computing the deduction under section 10A of the Act should also be reduced from the total turnover - Decided against revenue. Charging of interest on loans provided to A.Es.- HELD THAT:- It is pertinent to note that while charging mark up, over and above the interest rate paid by the assessee on borrowed funds, for computation of adjustment the TPO held that the mark up of 3% will cover various risks factors like exchange rate fluctuation risk, entity risk, country specific risk. Thus, when TPO itself had applied a mark-up of 3%, interest charged by assessee in the range of 4% to 5% by applying the principle of LIBOR plus 300 to 400 basis points cannot be find fault with and to this extent we do not find any infirmity in the directions issued by the DRP. As a result, ground no. 3 raised in Revenue”s appeal is dismissed. Disallowance of interest / penalty for delayed overseas return filing and delayed payment of overseas advance tax - HELD THAT:- As we have restored the issue arising in ground no.1, in the present appeal for the assessment year 2006–07 to the Assessing Officer, with similar directions the present issue is also restored to the file of the Assessing Officer for necessary verification as to whether the interest / penalty paid by the assessee overseas is eligible for any relief under section 90 of the Act and if it is not found to be so, the assessee”s claim should be allowed. Accordingly, ground no.2, raised in assessee”s appeal is allowed for statistical purpose. Set off of loss of the STP units against the taxable business income - HELD THAT:- It is now settled by Hon”ble Supreme Court in Yokogawa India Ltd. [2016 (12) TMI 881 - SUPREME COURT] that after amendment by Finance Act 2000 with effect from 1-4-2001, section 10A has become a provision for deduction. Thus,Assessing Officer is directed to allow set off of losses of STP units eligible under section 10A of the Act against the taxable business income. Accordingly, the ground no. 5(a) raised in assessee”s appeal is allowed. Claim of deduction under section 10A in respect of units on which deduction under section 80HHE of the Act was availed in past - only basis for denying the claim of the assessee is that deduction under section 80HHE was previously claimed in respect of such units - HELD THAT:- We find that on identical issue in assessee”s own case [2019 (11) TMI 408 - ITAT MUMBAI] held that old unit of assessee on which deduction under section 80HHE was claimed is entitled to claim deduction under section 10A of the Act from the profits of its units. TP Adjustment - adjustment in respect of loan to A.Es - HELD THAT:- Adjustment made by TPO by adopting rate of interest of 6% based on loan given by the assessee itself to another A.E. is not a valid CUP as the transaction is also between the related parties, thus to this extent order passed by the TPO and upheld by the DRP is set aside. Further, as we have already upheld the benchmarking of this transaction of loan to the A.Es., inter-alia, for the purpose of acquisition of downstream subsidiaries, for assessment year 2011-12 by applying the principle of LIBOR plus 300 to 400 basis points, we direct the TPO / Assessing Officer to compute the adjustment in respect of loan to A.Es. for the relevant assessment year by applying rate of interest of LIBOR, which will further be marked up with basis points. We further direct that the quantification of markup shall be done by the TPO / Assessing Officer after hearing the assessee. As a result, ground no.11 raised in assessee”s appeal is allowed for statistical purpose.
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