TMI Blog2013 (11) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. Disallowance of depreciation - claim of 100% depreciation - Held that:- Nothing has been brought on record by the assessee to show that erection of office cabins, partitions, installation charges, flooring charges, waterproofing treatment, etc. were in the nature of pure temporary erections which alone qualified for 100% depreciation. In such circumstances, we are of the opinion that Assessing Officer was justified in making a disallowance to the extent of Rs. 1,06,25,793/-. No interference is required - Decided against assessee. Disallowance of royalty - Non-deduction of tax - Held that:- assessee was obliged to deduct tax at source at the time when credit was given to M/s Microsoft Corporation Inc. No doubt, Hon'ble Apex Court in the case of GE India Technology Centre (P.) Ltd. (2010 (9) TMI 7 - SUPREME COURT OF INDIA) has clearly held that a person is bound to deduct tax at source only when the sum paid is assessable to tax in India. Here, there is no dispute that the sum paid to M/s Microsoft Corporation Inc. was taxable in India. In such a situation, in our opinion, contention of the assessee that only the net amount actually paid could be considered for effecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67500 133567500 8% CUP Loan Repayment received 133567500 133567500 8% CUP Receipt of Interest 1424716 1424716 6.85 Receipt of Interest 322222 322222 8% CUP TOTAL 2984237246 4. Assessee had adopted Transaction Net Margin Method (TNMM) as most appropriate method for bench marking its international transactions involving import and export of goods. The imported items, which were re-sold by the assessee, included computer peripherals as well as computers. In the transfer pricing documents filed by the assessee, it seems assessee had first preferred the CUP method. What was stated by the assessee in the transfer pricing document, read as under:- "In the instant case, REDIL is purchasing the products from its AEs, who in turn purchase the product from the manufacturer of hardware equipments. Price charged by the manufacturers of computer peripherals suppliers on the AEs can be compared with the price charged on REDIL by the AEs. Price charged by the manufactuers of computer peripherals on the AEs can be verifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only available to registered users of M/s Intel Semiconductor Limited. Hence, as per the assessee, it was not proper to make a comparison with such list price and TNMM method was more appropriate. As per the assessee, if TNMM method was adopted, no adjustment was required to be made to the purchase cost of Pentium IV. Vis- -vis the second item, namely, WS-C2980T-2424, assessee submitted that it was only due to the competitive nature of export that lower prices were realized. 7. However, TPO was not impressed. According to him, the list price of M/s Intel Semiconductor Limited was not something which was not available in public domain and assessee itself had, in its transfer pricing documents submitted, considered CUP method as the most appropriate one. As per TPO, reason given by the assessee for not adopting CUP method was not supported by any evidence. In other words, according to her, assessee could not prove that the list price was only indicative price. Insofar as the explanation for variation in the second item, TPO was of the opinion that comparison required was between export to an Associate Enterprise and export to an unrelated party and therefore, the question of dome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to him, comparison based on list price available in website of M/s Intel Semiconductor Limited was not called for. The invoice raised by M/s Intel Semiconductor Limited on the Associate Enterprise itself was a comparable transaction. Further, according to him, no preference could be placed on CUP method vis- -vis TNMM method. List price was available only to registered users of M/s Intel Semiconductor Limited and it was not in public domain. At the best, such list price was only indicative and did not represent the true price between parties. When the assessee was required to produce such list price, it had duly produced. The TPO had made an analysis based on such list price, and she could find only one transaction of purchase of 1250 Pentium IV processors, where there was a variation exceeding 5%. With regard to all other transactions, the variations were not significant even by the analysis done by the TPO. There were a large number of items which were sold by the AE to the assessee at prices significantly lesser than the price list of M/s Intel Semiconductor Limited. According to him, in a series of transaction, where purchase quantities and items varied from transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of this Tribunal in the case of Clear Plus India (P.) Ltd. v. Dy. CIT (I.T.A. No. 3944 of 2010 dated 11 th January, 2011). According to him, in the circumstances of the case, the TPO was justified in adopting CUP method for comparing the prices at which assessee had purchased various items from its Associate Enterprise. 11. We have perused the orders and heard the rival submissions. There is no dispute that in the transfer pricing document submitted by the assessee before the TPO, assessee itself had considered CUP method to be the appropriate one. However, in the audit report in Form No.3CEB, it was mentioned that TNMM was being followed. Reason given by the assessee was that list price, based on which CUP method could be adopted, was only indicative and was not in public domain. Assessee itself had submitted the list price of various items purchased by it, as available in the website of M/s Intel Semiconductor Limited, and the TPO had gone ahead with comparative study based on such list. Section 92C(1) requires determination of arm's length price by following one of the most appropriate methods out of the six methods mentioned therein. Sixth method is one prescribed by the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mally issued in connection with the transactions under the accounting practices followed. Therefore, contention of the assessee that the list price could not have been used, for the reason that it was not in public domain, cannot be accepted. The list price was available not only to assessee but all registered users of the website of M/s Intel Semiconductor Limited. It will be hard to believe that M/s Intel Semiconductor Limited had different set of list price for different users. However, the contention of the assessee that such list price was only indicative, in our opinion, carries considerable strength. We cannot say that M/s Intel Semiconductor Limited would have entered into sale transactions with its customers at the very same price as given in the list price. Prices are always a measure of market exigencies and economic rules of demand and supply. Prices are negotiated between parties according to quantity, value and other aspects which are determinant of market forces. For making a comparative study under CUP method also, what is required is a comparison with actual sale and purchase with unassociated enterprise or transaction between unassociated enterprises. It cannot so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cabins, partitions, installation charges, flooring charges, waterproofing treatment, etc. to be of temporary nature and therefore, charged 100% depreciation. According to assessee, these were all temporary structures and it was eligible for such depreciation. However, Assessing Officer on scrutiny of vouchers found that the outgo involved major items and was not for simple temporary structures. Against the total claim of depreciation of Rs. 1,14,87,058/-, Assessing Officer found that depreciation could be allowed at 100% only on a sum of Rs. 8,61,265/-. In other words, he disallowed the claim to the extent of Rs. 1,06,25,793/-. 16. When the matter reached DRP, assessee argued that the Tribunal in assessee's own case for assessment years 1999-2000, 2001-02 and 2002-03, had in its order in I.T.A. No.544 and 545, on a similar issue, remitted the matter back to Assessing Officer for consideration afresh. However, the DRP was not impressed. According to it, Assessing Officer had already considered such directions of the Tribunal while considering the allowability of claim of 100% depreciation. Further as per the DRP, Assessing Officer had rightly demarcated the items which were tempor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital outgo and then claimed depreciation of 100%. Assessee itself having treated it as an asset in its books under the head "building/temporary structure", it cannot turn back to say that these were only revenue outgo. Had it been in the nature of revenue outgo, the item would have been entered in the Profit Loss account as an expense. Once assessee claims 100% depreciation, it is necessary for it to show that the claim is purely on a temporary erection. Earlier order of the Tribunal did direct the Assessing Officer to make an analysis as to whether the expenditure could be allowed as revenue outgo. However, such analysis has already been done by the Assessing Officer for the impugned assessment year. Out of the total claim, a sum of Rs. 8,61,265/- was allowed considering it to temporary erection. Nothing has been brought on record by the assessee to show that erection of office cabins, partitions, installation charges, flooring charges, waterproofing treatment, etc. were in the nature of pure temporary erections which alone qualified for 100% depreciation. In such circumstances, we are of the opinion that Assessing Officer was justified in making a disallowance to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P, assessee, despite their specific query, had failed to produce the books of accounts and ledger folio of M/s Microsoft Corporation Inc. to prove its case. They confirmed the disallowance. 26. Now before us, learned A.R., strongly assailing the orders of lower authorities, submitted that duty to deduct tax at source under Section 195 arose only if the sum payable was chargeable under the provisions of the Act, in the hands of the recipient non-resident. According to him, even if M/s Microsoft Corporation Inc. was considered as an Indian entity, what could be charged to tax in its hand was only the net royalty amount received by it and not the gross royalty amount billed by it. What was chargeable to tax in India was the royalty actually received by M/s Microsoft Corporation Inc. from the assessee and such amount could only be reckoned after considering the returns. According to him, assessee was having a bonafide belief that tax was required to be deducted only on the net amount and not from the gross amount. Reliance was placed on the decision of Hon'ble Apex Court in the case of GE India Technology Centre (P.) Ltd. v. CIT (327 ITR 456). 27. Per contra, learned D.R., strongly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section clearly show that chargeability to tax has to be determined at the time of credit of such income to the account of the payee or at the time of payment, whichever was earlier. Assessee was following mercantile system of account, without doubt. Therefore, when M/s Microsoft Corporation Inc. raised invoices on the assessee for the royalty amount, it had to pass entries crediting the account of M/s Microsoft Corporation Inc. in its books and debiting the royalty account. The question thus is whether the royalty due to M/s Microsoft Corporation Inc. is chargeable to tax in India, at point of credit based on their invoice or based on actual payments. Assessee cannot say that refunds of royalty or issue of credit note by M/s Microsoft Corporation Inc. were all within its knowledge, when credit entries for royalty were passed. Even if it was within its knowledge, there was no legal obligation on behalf of M/s Microsoft Corporation Inc. to give such refund unless and until the sales returns stood proved. In our opinion, assessee was obliged to deduct tax at source at the time when credit was given to M/s Microsoft Corporation Inc. No doubt, Hon'ble Apex Court in the case of GE Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation (Status, Immunities and Privileges) Act, 1958 exempted the income of IFC from Indian income-tax. According to him, this Act was not properly considered by the authorities below. Assessee was not obliged to deduct tax at source when the payments were effected and therefore, the disallowance was not called for. 34. Per contra, learned D.R., strongly supporting the orders of authorities below, submitted that the payments were related to a proposed public offering of US $ 50 million and it could only be considered as a capital outgo. According to him, Assessing Officer had taken an alternative ground that amounts could not be considered as revenue outgo. 35. We have perused the orders and heard the rival submissions. Assessing Officer had applied Section 40(a)(i) of the Act on the payments effected to IFC for the reason that there was no provision in the Income-tax Act which gave immunity to the said Corporation. As per the Assessing Officer, United Nations (Privileges and Immunity) Act, 1947 exempted only public utility services and not commercial transactions. The DRP at para 6.2 of its order referred to the same enactment for ruling that the said Corporation did not en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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