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2024 (7) TMI 840 - AT - Income TaxTP Adjustment - upward adjustment on account interest charged to the Associated Enterprise (AE) - CIT(A) deleted addition - HELD THAT - TPO s reliance on loan data from the US and Europe for benchmarking is inappropriate given the distinct economic environments and sovereign risks associated with Bahrain. That the Prime Lending Rate of the Central Bank of Bahrain already incorporates regional economic factors and risks aligning with the financial context of the Assessee s AE. Adding spreads for country and foreign exchange risks as proposed by the TPO constitutes duplicative adjustments considering these factors are inherently reflected in the Prime Lending Rate adopted by the Assessee. CUP method as per Rule 10B necessitates adjustments only if they have a material impact on the price. The Prime Lending Rate s comprehensiveness negates the necessity for further adjustments. Assessee s method of calculating interest has been consistently applied in previous and subsequent financial years without challenge underscoring its reliability and appropriateness. CIT(A) has thoroughly addressed and resolved the issues raised aligning with the principles of fair benchmarking and appropriate risk adjustments - we uphold the Ld.CIT(A) s order thereby dismissing the TPO s adjustment - Decided in favour of assessee. Non-deduction of withholding tax u/s 195 - disallowance of Product Certification Expenses paid to non-resident - non-genuineness of the expenditure - HELD THAT - We conclude that the services rendered for product certification which include evaluating technical quality and issuing certificates do not fall under the definition of Fees for Technical Services as per Section 9(1)(vii) of the Act. This view is consistent with the CIT(A) s findings and supported by the judgments cited by the AR particularly the Hon ble Supreme Court decision in CIT Vs. Kotak Securities Ltd. 2016 (3) TMI 1026 - SUPREME COURT which clarified that routine services not involving technical knowledge do not constitute technical services and it is mere in the nature of facility offered or available. Under the DTAA provisions the payments for certification services rendered by entities in the USA UK Korea and China are not taxable in India in the absence of a fixed place of business in India. Hence the payments are not liable for withholding tax under Section 195 - As decided in TUV Bayern (India) Ltd. 2012 (7) TMI 220 - ITAT MUMBAI that certification services are not fees for technical services under the Act or the DTAA. Thus concluded that the services rendered to the assessee for product certification which include evaluating technical quality and issuing certificates do not fall under the definition of Fees for Technical Services as per Section 9(1)(vii) of the Act.The assessee provided sufficient evidence including certificates invoices and agreements to establish the genuineness and business necessity of the expenses. The AO s contention on the non-genuineness of the expenditure is not substantiated by any contradictory evidence. - Decided in favour of assessee. TDS u/s 195 - disallowance of provision for royalty expenses - HELD THAT - The provision for royalty expenses made by the assessee was appropriate given the business practice of recording sales and subsequently making provisions for royalty expenses due upon activation by the end user. The royalty becomes payable only when the end user activates the software creating a legitimate time gap between the recording of sales and the actual payment. We agree with the Ld.CIT(A) that the withholding tax liability under Section 195(2) of the Act does not arise until the royalty payment is actually due and payable. The income embedded in the payment must be taxable under the Act for the withholding tax provisions to apply. In this case since the royalty is not immediately payable the withholding tax liability does not get triggered. We acknowledge the relevance of the judicial pronouncements relied upon by the Ld.CIT(A) and the assessee. The principles laid down in the cases of Saira Asia Interior Private Limited 2017 (4) TMI 242 - ITAT AHMEDABAD and Sophos Technologies Pvt. Ltd. 2018 (12) TMI 1556 - ITAT AHMEDABAD support the view that the withholding - uphold the CIT(A) s decision to delete the disallowance of the provision for royalty expense u/s 40(a)(i) - Decided against revenue.
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