TMI Blog2014 (9) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter is to be remitted back to theAO/TPO for a fresh determination of the ALP of the international transactions – Decided in faovur of assessee. International transaction in the nature of ‘Marketing support services’ – Held that:- The Tribunal for the immediately preceding two AYs restored the matter to the file of AO/TPO for a fresh determination of ALP under this segment as well - The directions given by the tribunal were common to both the segments, namely, Software development services segment and Marketing support services – the matter is remitted back to the AO/TPO for fresh determination – Decided in favour of assessee. Excess claim of depreciation on computer UPS and other peripherals – rate of depreciation to be @ 60% or 15% - Held that:- Following the decision in CIT Vs BSES Rajdhani Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT] - UPS and other computer peripherals are eligible for depreciation @ 60% - Decided in favour of assessee. Addition u/s 40(a)(ia) - Management fees paid – Article 12 Indo-US DTAA - Held that:- In order to make a disallowance by invoking section 40(a)(i), it is sine qua non that apart from other things, the amount which is paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case are that the assessee was incorporated in India in 2005 and is engaged in the business of development of systems and applications software. It is a subsidiary of Hughes Systique Maurities Pvt. Ltd. Four international transactions were reported by the assessee, viz., Receipts on account of software development services, Payment on account of marketing support services, Payment for services availed and Miscellaneous income. The Transfer Pricing Officer (TPO) accepted the last two transactions at ALP. First international transaction of receipts on account of software development services amounted to ₹ 52,42,68,870/-. In its Transfer pricing study report, the assessee benchmarked this transaction by selecting Comparable Uncontrolled Price (CUP) method as the most appropriate method and a corroborative internal Transactional Net Margin Method (TNMM). The TPO observed that the assessee provided software engineering services in the telecom sector and it was an essential Software Development Centre of its US holding company. Following the view taken by him in the immediately preceding year, the TPO held that the use of CUP method as the most appropriate method and a corrobo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Resolution Panel (DRP) on its line of reasoning. Resultantly, the A.O made an addition on account of Transfer Pricing Adjustment under this segment for a sum of ₹ 8.56 crore. The assessee is aggrieved against this addition. 2.2. We have heard the rival submissions and perused the relevant material on record. It is clear from para 4.2 of the TPO s order that he rejected the application of CUP method as the most appropriate method and a corroborative internal TNMM by relying on the view taken by him in the preceding year. It is noticed that his order for such earlier year came up for consideration before the tribunal. The tribunal has passed a common order on 5.7.2013 (in ITA Nos. 5420/Del/2011 and 6057/Del/2012) not only for the immediately preceding assessment year 2008-09 but also assessment year 2007-08. It can be seen that in both the years, the assessee benchmarked its international transactions under the Software development services segment by applying CUP method as the most appropriate method and internal TNMM as the corroborative method, as the position is obtaining for the instant year. The TPO disregarded the benchmarking analysis done by the assessee and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of AO/TPO for fresh determination of ALP under this segment in consonance with the directions given by the Tribunal for the immediately preceding two assessment years. 2.4. At this stage, we consider it important to clarify that the CUP method can be used only if the products or services of the assessee are comparable to those of the other uncontrolled transaction. Thus, it follows that it is of utmost importance to first precisely determine the nature of services offered by the assessee to its AEs in order to make an effective comparison with the services rendered by it to the non-AEs. Unless the nature of services rendered by the assessee to its AEs and non-AEs is accurately ascertained, there can be no question of making a meaningful comparison. Coming back to the TPO s order, it is observed that the assessee had international transactions with four of its A.Es under this segment. The details of transactions with only one A.E, namely, Hughes Network Systems Inc., were made available to the TPO in the shape of Agreement etc. No other details or copies of the Agreements for the transactions with the remaining three A.Es were provided to the TPO, enabling him to carry out an ana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation of the ALP under this segment in consonance with the directions given by the Tribunal. We order accordingly. 4.1. Ground No. 5 is against the addition of ₹ 18,98,367/- on account of excess claim of depreciation. The facts apropos this ground are that the assessee claimed depreciation on computer UPS and other peripherals @ 60%, which was reduced by the Assessing Officer to 15%. 4.2. After considering the rival submissions and perusing the relevant material on record, we find that this issue is no more res integra in view of the direct decision of the Hon ble jurisdictional High Court in the case of CIT Vs BSES Rajdhani Powers Ltd. (Delhi) and a Special Bench order in the case of DCIT Vs Datacraft India Ltd. (2010) 133 TTJ (Mum) (SB) 377. In these decisions, it has been held that UPS and other computer peripherals are eligible for depreciation @ 60%. The ld. AR contended that the Tribunal has also taken similar view in assessee s own case for the earlier years. In view of the foregoing discussion, we are of the considered opinion that the assessee deserves to succeed on this issue. We order accordingly. This ground is allowed. 5.1. The last effective ground is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction. Thus, it clearly emerges that unless the amount paid by the assessee in India is not chargeable to tax in the hands of the resident of other country, there can be no question of invoking section 195 and consequently section 40(a)(i) of the Act. 5.3. Now let us examine whether the provisions of section 195 are attracted on such payment or, in other words, whether such amount is chargeable to tax in the hands of the foreign AE. Before reaching any conclusion in this regard, it is paramount to notice the nature of services rendered by the foreign AE, for which the assessee made the said payment. It is observed from para 4.1 of the assessment order that the assessee paid this amount as Management fees to its foreign A.E. Para 4.4 of the assessment order further elaborates the fact that this amount was paid as Management fees . Page 398 of the paper book is an Addendum to the Master agreement, pursuant to which, the amount was paid by the assessee. For the sake of ready reference, its relevant part given in Article 7.A.(iii), is reproduced here as under : - As consideration for the provision of payroll and related services by HSC to HSIPL for HSIPL seconded employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s juncture, it is relevant to note the prescription of section 90(2) of the Act, the relevant part of which reads as under : - 90. Agreement with foreign countries. (1) . (2) Where the Central Government has entered into an agreement with the Government of any country outside India under subsection (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. 5.8. On going through the mandate of the above provision, it transpires that where the Central Government has entered into a Double Taxation Avoidance Agreement with the Government of any other country for granting of relief in respect of income on which tax is payable both in India as well as the other country or for the purposes of avoidance of double taxation of income under this Act or under the corresponding law in force in that other country, then the assessee to whom such agreement applies, shall be entitled to be governed by the provisions of the Double Taxation Avoidance Agreement (DTAA) or the provisions of the Act, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that an assessee, to whom the DTAA applies, has been given option to be governed by the Act or the DTAA, whichever is more beneficial to it. 5.10. The Hon ble Supreme Court in CIT v. P.V.A.L.Kulandagan Chettiar (2004) 267 ITR 654 (SC) has held that where the tax liability is imposed by the Act, the DTAA may be resorted to either for reducing the tax liability or altogether avoiding the tax liability. Similar view has been expressed by the Mumbai Bench of the Tribunal in DDIT (IT) v. Safmarine Container Lines N.V. (2009) 120 ITD 71 (Mum.). In view of the above discussion, it becomes palpable that the statute by means of section 90(2) of the Act, has itself conferred an option to an assessee to be ruled either by the Act or the DTAA, whichever is more beneficial to him. 5.11. Coming back to the facts of the case under consideration and having seen that consideration for Managerial services is chargeable to tax in India as per Expl.2 to section 9(1)(vii), let us examine if the Double Taxation Avoidance Agreement between India and USA (hereinafter referred to as the DTAA ) helps the assessee, as has been contended. In this regard, it is pertinent to note that whereas sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he DTAA, it is essential that the payment should be to make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. On the contrary, there is no such requirement of making available any managerial, technical or consultancy services in section 9(1)(vii) of the Act. Simple rendition of such services is sufficient. Scope of the expression make available has been dealt with by the Hon ble Karnataka High Court in CIT VS. De Beers India Minerals (P.) Ltd. (2012) 346 ITR 467 (Karn), in which it has been held that it means providing technology to the payer so that he may independently use it in future without the involvement of service provider. It was further noticed that unless the service provider makes available his technical knowledge, experience, skill, know-how or process to the recipient of the technical service, the liability to tax is not attracted. 5.15. Coming back to the facts of the extant case, it is clear that the foreign AE rendered services in USA, which were consumed there itself. By rendering such services, nothing was made available to the assessee for use in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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