Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2023 (3) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (3) TMI 399 - AT - Income TaxTP adjustment in respect of management fee - these payments were made after deducting taxes prescribed under the relevant DTAA - TPO conclusion on Alleged failure of the assessee to prove the actual receipt of the said service - HELD THAT:- Section 92A(2)(g) get attracted only when one AE provides service to the other AE by allowing the AE to use the know-how, patents, trademark, franchise, etc. and the business of the assessee is wholly dependent on such IP/franchise. Once the foundational condition is receipt of IP/franchise of which the assessee company’s business is wholly dependent and only on that basis, the AE relationship was established, consequently TP provisions were applicable, it is unsustainable then to turn around and hold that the assessee did not receive the IP/franchise from its deemed AE. When the TPO alleges that the assessee has not received any of the above services, it would indicate that the very relationship based on which the assessee company and WeWork Global have been established as AE would be nonexistent. The very fact that the entire business model of the assessee is dependent on foreign AE which has provided the concept, design, trademark, software, etc. for the assessee’s day to day operation clearly establishes that services were rendered by the foreign AE to the assessee (independent of the legal point that the AE relationship itself has been established only due the existence of the services and in absence thereof, AE relationship would fail, and consequently, the jurisdiction of the TPO itself would also fail.) Therefore on the facts on record, it is beyond doubt that the assessee is wholly dependent on the use of know-how, patents, copyright, trademark, licences, franchise and other services of We Work Global, for its day to day operation in India. Thus TPO is not justified in treating the ALP of management fee paid by assessee to WeWork Global at ‘NIL’. It is ordered accordingly. Interest on CCDs issued by the assessee - assessee had issued 33,75,000 Compulsory Convertible Debentures (CCD) to WeWork Netherlands under the Debenture Subscription Agreement - HELD THAT:- The Bangalore coordinate bench of the Tribunal in the case Summit Development Pvt. Ltd.[2022 (11) TMI 1323 - ITAT BANGALORE] had held that CCD are in the nature of debt and cannot be recharacterised as equity till the time the same is converted into equity. In the instant case the assessee had duly made disallowance u/s 94B of the Act in its return of income for the relevant assessment year. The said disallowance therefore address the issue of thin capitalisation in the manner envisaged by the Legislature. Hence, it cannot be disallowed under TP provisions on the same basis. It is submitted that the assessee is not arguing that the TP provisions ought not to apply where a disallowance is made under Section 94B of the Act but only is contending that thin capitalisation cannot be the basis for such TP disallowance and the same may be tested for arm’s length compliance and held to be excessive based on benchmarking exercises. In such an event, the excessive interest of ALP will account for permanent disallowance, while balance interest would be subject to Section 94B of the Act which would be in the nature of a temporary disallowance permitted to be carry forward - Thus the impugned TP adjustment with reference to payment of interest on CCD is deleted. Assessee appeal allowed.
|