TMI Blog2008 (11) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... DR relied on the impugned order. 4. After considering the rival submissions and perusing the relevant material on record we observe that the Special Bench of the Tribunal in the case of ITO v. Daga Capital Management (P.) Ltd. [2008] 26 SOT 603 (Mum.) has dealt with such issue. We set aside the impugned order and direct the Assessing Officer to decide this issue afresh in accordance with the view taken by the Special Bench in the afore-noted case of Daga Capital Management (P.) Ltd. ( supra ) along with the order passed by the Tribunal in assessee s own case. However it is made clear that if any of the observations contained in the order of the Tribunal passed in assessee s own case are found to be in conflict with those of the Special Bench, then the decision taken by the Special Bench will prevail. 5. Ground No. 3 of the assessee s appeal is against not allowing of deduction under section 33AC on the interest amount of Rs. 2,10,79,785. The learned counsel for the assessee candidly conceded that the Tribunal in assessee s own case in assessment years 2000-01 and 2001-02 has dismissed similar ground, following the view taken by the Tribunal in assessee s own case, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advance at 5% 1,92,500 Debt 29,57,500 Total 38,50,000 MV BADRI working for bar boat rentals to Essar International Limited USD per day Rounded off Interest on loan of USD 29,57,500 @ 8% 236,600 657 657 Depreciation on USD 38,50,000 Basis 5 years % 770,000 2104 2110 Dividend payable to ESL on investment of USD 10,00,000 @ 10% 100,000 273 274 Total Lease rentals per day 3,034 3,041 Rounded off to 3,100 Lease rentals payable for this year at USD 3100 per day for 366 days 1,134,600 Per month 94,550 9. The learned A.R. stated that the Addl. Commissioner of Income-tax, Transfer Pricing erred in reducing US $ 274 per day from the said working given to him which led to the making of the addition in dispute. He referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the case in question. She submitted that the rate of hire charges considered in Clarkson Research Studies were in relation to the modern ships, meaning thereby the ships which were not more than ten years old. She invited our attention to the fact that the ship acquired by the assessee was built in 1978 and hence was 22 years old. She stated that there could have been no comparison between the ship having age of less than 10 years with that of 22 years. While referring to sub-rule (2) of rule 10B, she submitted that the comparability of the international transaction with the uncontrolled transaction is required to be judged with reference to various factors which includes specific property transfer or services provided in either transactions and the functions performed etc. Her claim was that the assessee was not justified in relying on the rate of ship which was not at all comparable. She further submitted that the onus was upon the assessee to show the really comparable case being one in which the ship was of around 22 years old. Arbitrary adoption of the hire rate of ship less than 10 years of age and then allowing ad hoc deduction for working out the arm s length price for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vens and vice versa . There should be some real comparison and the cited comparable case should fall in near vicinity of the case to be compared with. In the present case the assessee has relied on the Clarkson Report as the comparable uncontrolled transaction. This report refers to the modern ships which are not more than ten years old and the average one year time charter rate for such vessel has been given at 12,582 US Dollars per day for the year in question. The assessee has computed the charter hire payment made to EIL at the rate of around 25 per cent of the rate as prescribed in Clarkson Report on the ground that the ship hired by it was 22 years old. There is absolutely no material worth the name by which we can justify the reduction at 75 per cent due to age factor of the ship. If at all the assessee was to rely on the Clarkson Report, it was incumbent upon it to bring on record some comparable case in which the age of the ship was around 22 years to make it comparable uncontrolled transaction. How 25 per cent of the rate for 10 year old ship can be said to be a comparable uncontrolled transaction for 22 years old ship is anybody s guess. In principle we are agreeable, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contention is sans merits for more than one reason. Primarily there is no record of the EIL to demonstrate that the profit earned by it in the year in question was accumulated and then distributed in the next years. It is trite law that the onus to prove a fact is on one who so claims. Secondly there is no requirement that the profit of a company must be distributed in the shape of dividend. A company may choose to plough back its profit instead of distributing it by way of dividend. No provision has been brought to our notice by which the entire income earned by an associated enterprise must be compulsorily-distributed in the shape of dividends. Such associated enterprise may distribute only part of its income in the form of dividend or it may not distribute any dividend at all. It is for that company to decide whether it intends to distribute dividend or not. Moreover the associated enterprise is liable to tax in its own capacity independent of the taxation of the other enterprise. Since there was no receipt of any dividend in the year in question from EIL, the contention that there will be double taxation and hence the provisions of transfer or pricing should not be applied, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the foregoing settled legal position, we are not persuaded to accept this argument that if there is a receipt of dividend by one enterprise from the other associated enterprise, which is chargeable to tax in India, then the application of the transfer pricing provisions should be ruled out to that extent as that will amount to double taxation. The intention of the Legislature, as interpreted by us, becomes further clear when we view the second proviso to section 92C(3), which also applies to section 92CA by virtue of sub-section (4), providing for not allowing deduction under section 10A or 10AA or 10B or under Chapter VI-A in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section. We, therefore, reject this contention. 17. Having come to the conclusion that the working of the assessee at arm s length price as per CUP Method does not merit acceptance, then the immediate question arises that how such price should be determined. The assessee submitted an alternate working before the Addl. CIT Transfer Pricing on the cost plus method, which was accepted by the authority in principle. The part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made available to the Addl. CIT Transfer Pricing on a misnomer. What is relevant is to include the gross profit mark-up and not reduce anything from the cost. In our considered opinion 10 per cent gross profit rate is reasonable for the inclusion in the direct and indirect costs for determining the arm s length price on cost plus method. Even if we go by such reasonable gross profit mark up of 10 per cent on such cost, the figure will result at US$ 274. We, therefore, hold that the learned CIT(A) was not justified in reducing US Dollars 274 per day from the lease rental by taking it as provision for dividend instead of the normal gross profit mark-up for the purposes of determination of arm s length price under section 92C of the Act. This ground is accepted. 18. The first ground of the Revenue s appeal is towards allowance of depreciation of ship "Nand Neeti" and also hire charges amounting to Rs. 1,82,55,527 as revenue expenditure. 19. Both the sides are agreeable that the facts and circumstances of this ground are similar to those decided by the Tribunal in assessee s own case in earlier years. The copies of the orders for the assessment years 1995-96 to 1999-2000 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 33AC on the basis of revised reserve created by reopening the account. We observe that similar issue was raised in assessment year 2001-02 before the Tribunal which has been decided in assessee s favour. Copy of the said order is available on record. The learned DR could not point out any distinguishing feature in the facts of the instant case vis-a-vis the said earlier year. We, therefore, approve the impugned order on this score. 23. The last effective ground is against the direction given by the learned CIT(A) to the Assessing Officer for allowing expenses of Rs. 31,54,967 incurred on non-convertible debentures as revenue expenses. 24. After considering the rival submissions and perusing the relevant material on record we find that the issue raised in this ground is against the deductibility of expenditure on non-convertible debentures. The Delhi Bench of the Tribunal in Network Ltd. v. Dy. CIT [2003] 84 ITD 67 (TM) (to which one of us, namely the AM is party), has held that the expenditure on issuance of partly convertible debentures is to be bifurcated into two parts and the portion relatable to the non-convertible portion is to be allowed as deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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