TMI Blog2015 (1) TMI 1064X X X X Extracts X X X X X X X X Extracts X X X X ..... dless to say that apart from above direction the TPO is at a liberty to call for any other document as proof of evidence which he so considers it necessary for deciding the issue. Similarly the assessee is also at liberty to place fresh evidence if any in support of its claim. The TPO thereafter shall consider the same and shall pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. Needless to say that the TPO after a FAR analysis characterizing the assessee shall carry out the exercise of search for comparables in order to decide whether the transaction is at arms length or not. - Decided in favour of assessee for statistical purposes. - I.T.A .No.-2594/Del/2014 - - - Dated:- 22-1-2015 - SMT DIVA SINGH AND SH. B.C.MEENA, JJ. For the Appellant : Sh. Mukesh Butani, Adv., Sh. Vishal Kalra, Adv., Sh. Rahul Yadav, Adv. Smt. Puja Nalaw, CA For the Respondent : Sh. Peeyush Jain Sh. Yogesh Verma, CIT DRs ORDER PER DIVA SINGH, JM This is an appeal filed by the assessee against the order of the AO passed in pursuance to the Dispute Resolution Panel s order (hereinafter referred to as the DRP ) u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts and circumstances of the case and in law, the AO/DRP erred in disallowing an expenditure of ₹ 14,08,104 incurred for the purposes of business, alleging the same to be capital in nature. 6.1. That on the facts and circumstances of the case and in law, the DRP erred in directing the AO to verify the expenditure pertaining to repairs and renovation for the purpose of deductibility of the same under the provisions of section 30, section 31 and section 37 of the Act, without appreciating that under the provisions of section 144C(8) of the Act, power conferred on DRP is limited to confirming, reducing or enhancing the proposed variation and it cannot set aside any proposed variation to the AO for further enquiry. 7. That on the facts and circumstances of the case and in law, the AO erred in not giving credit of tax deducted at source amounting to ₹ 11,49,518. 8. Without prejudice and notwithstanding, that on the facts and circumstances of the case and in law, the AO erred in granting only partial relief in relation to tax credit available to the Appellant under section 90 of the Act read with Article 23 of the Double Taxation Avoidance Agreement between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be done and in order to ensure that the comparison is meaningful appropriate risk adjustments may also at times be necessitated however this stage it was submitted would only arrive after the business model/services of the assessee has been correctly characterized. The FAR analysis of the assessee it was submitted is mandated right at the threshold under the Rules. It was submitted that only after the assessee has been correctly characterized considering the functions performed assets utilized and risks assumed that the stage of selecting appropriate filters for selecting comparables can be reached and after this exercise risk adjustments etc. may still need to be made. However in the facts of the present case it was submitted the FAR analysis has not been correctly understood by the Revenue. Referring to the material available on record it was submitted the exercise done by the Revenue has taken into consideration irrelevant facts as a result of which the assessee has been wrongly re-characterized as a technical service provider. The conclusion so drawn it was submitted has ignored the fact that not only the assessee does not meet the requisite capital asset ratio even otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion for which reference has been made to the so-called high salaries paid to staff. Similarly conclusions have been drawn based on incorrect appreciation of facts namely that out of 69 employees 56 were holding technical degrees. How the Revenue has concluded that there were 56 technically qualified personnel was not understood as assessee had categorized the employee as graduate; commerce graduates; engineers and MBAs. It was explained that the assessee out of 69 employees had 37 employees who were engineers. What was the criteria applied to judge what is a technical degree it was argued has been left unaddressed. The mistake it was submitted may have occurred in view of the fact that the Revenue considering the product of the assessee concluded that technically qualified staff employed is rendering technical services ignoring the assessee s claim that it was rendering only sales and support services to its AEs. It was his submission that a perusal of the transfer pricing study of the assessee at page 96 would show that the Dassault Systems SA is in partnership with various world renowned IT companies and when a manufacturer select the assessee s product, benefit of the produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Direct Sales: Under Direct Sales, the products are sold by Dassault Group entities directly to end customers. Indirect sales: Under direct sales, the products are sold in different regions through Value Added Resellers ( VAR ). VARs are further supported by Channel Management Partners ( CMP ) such as the Appellant in their respective regions with a defined scope of business support services. BT/BTSP-Business transformation/Business Transformation Sales Support VLS/VSP-Value Sales/Value Sales Support 5.5. Addressing the above chart, Ld. AR conceded that it has not been given by the assessee before the authorities and is only being filed now so as to address the issues which have not been correctly appreciated by the Revenue . 5.6. Considering the chart filed, the Ld. AR was required to address the documentation available on record on the basis of which it is claimed that billing has been done and also to co-relate the same with the invoices relied upon as the above chart merely addresses the issue that the assessee is claimed to be a ( CMP ) channel management partner providing business support services for indirect sales made through a Value Added R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business support services are claimed to have been provided. Alongwith the above relevant facts the Ld. AR was further required to address whether the billing has been done by way of man hours for specific employees on the receipt of specific information received and were actual site visits also made for the stated claim of providing business support services. The evidence on record in regard to the same was required to be addressed. The Ld. AR stated the this information may also be available however what has been filed is the basis of assessee s claim and it was stated that the issues require re-consideration as the Revenue has changed the characterization of the assessee without looking at the relevant facts. 5.7. Considering the issue further the Ld. AR was also required to address by way of any other document on record addressing the assessee s claim in regard to its nature of activities and services or for what purposes the assessee company came into existence as per its Memorandum of Association or the Article of the Association. The ld. AR stated that this document was never asked for by the Revenue and is not readily available with him. It was conceded that this docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olutions, OS SA a worldwide partnership with IBM, which sold, marketed, and supported CADAM. The Group is a engaged in Product Lifecycle Management ( PLM ) software solutions powered by 3D, the Group's applications and services enable businesses of all sizes in all industries around the World to digitally define and simulate products, as well as the processes and resources required to manufacture, maintain and recycle those products and improve the environment The Group's solutions facilitate the design, simulation and production of extremely complex systems, such as cars or aircraft, and enhance the manufacturing facilities used to produce them. These solutions are also employed to design and manufacture articles for everyday life, from tableware and household appliances to jewellery. The PLM offering from the Group is organized around the CATIA, ENOVIA, DELMIA and SIMULIA brands. It is marketed worldwide, particularly through the network of its long-standing partner, IBM. Taxpayer s Profile Dassault Systems India Private Limited ( DSIPL or the Company ) was incorporated on September 12, 2007 which was fully owned subsidiary of 3DPLM Softw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing net operating margin over cost at PLI. As per the agreement, the AE is liable to compensate the taxpayer at cost plus 10%. 7.2. The record further shows that the multiple year data used by the assessee in its T.P. Report being contrary to the income tax provisions was not upheld by the TPO and the said issue has not been agitated before us. Considering the replies of the assessee to the show cause notices to justify its claim the TPO concluded the issue as under:- The above discussion can be summarized as follows:- a) The product supplied by the parent AE to the clients in India is technical in nature. b) The product offers software business solutions and is called product life cycle management (PLM) software solutions powered by 3D. c) The technical product requires technical support at presale level, Sale level and After sole level. d) The assessee is having highly skilled competent and qualified manpower at his disposal to provide such support. e) The markup of Cost plus 10% on the services rendered by such highly skilled manpower is not at arm's length. f) There is no agreement for the service fees and services provided but one sid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payer was requested by this Panel to provide the copies of agreement with its AE for all the international transactions. While no agreement has been filed, a letter dated 25th September 2008 signed by Mr. Xavvier Hermen, Chief Financial Officer (Dassault Systems KK) and Mr. Mukul Agarwal, Director, Finance and Administration (Dassault Systems India Private Limited) was submitted. As per the Appendix A to this letter, the services to be provided by the tax payer are:- You shall provide our customer with the following services in compliance with our quality standards: You shall be generally responsible for: Marketing You shall be generally responsible for the local activity for planning, development execution of marketing and channel enablement programs, including Value-Added Re-seller (VAR) co-marketing and lead management if applicable, in alignment with Geography global marketing operations. Channel Pre-sales support Monitoring/Management of the VARs network in their territory: Creation of VAR and customers records and management of VAR claims; Handling of customer claims when escalated from VARs (relayed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mations can only compound the problem. It is beyond the realms of creduality even to imagine, let alone to hold that a conglomerate of this stature can function without having any written agreements setting out the respective duties and responsibilities of the assessee vis- -vis the holding companies at geo-platforms for whom services are stated to be performed as a result of direct sales by the AEs or indirect sales through VARs. The documentary framework on the basis of which rendering of services which would trigger the generation of bills must be available as it cannot be presumed to have left this vital area to the undefined whimsical fancies of the parties. In the facts of the present case it is evident that complete facts have not been placed on record by the tax payer. Accordingly the conclusion arrived at on the basis of limited information provided may have resulted in incorrect characterization of the assessee. In view thereof we deem it appropriate to restore the issue back to the TPO as the Revenue also has not called for the relevant evidences like the Memorandum of Association and Article of Association. It is hoped that the opportunity so provided is utilized by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the glitch or malfunction is required. However we are also alive to the claims of the Revenue that site visits to address the glitches/malfunction etc. would come in the realm of technical service which necessarily can be performed by engineers only. Thus the functions taken on by the tax payer need to be addressed. It is seen that the tax payer has been required by the TPO to address the duties assigned to the personnel and it is seen that the same has not been addressed. 7.7. We have also held that the assessee s Memorandum of Association be also taken into consideration as the said document not only addresses the name and place of the registered office but also enshrines the Objects of its Incorporation. It is the basic document which brings the Company into existence as it contains the Objects of purposes of the incorporation of the Company. Similarly the Articles of Association also need to considered as these would contain the rules/bye-laws and regulations for internal management of a Company, and would throw light on how the day to day business of the assessee is to be conducted. The relationship between the holding companies, between the company and its members includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the claims and counter claims of the parties that there may be an element of technical services in the business support services as site visits to address glitches and malfunctioning of the product may also have been provided as claimed by the Revenue. However to arrive at any possible conclusive finding conclusions dehorse material facts on record is not appropriate. The tax payer needs to explain how billing has been done whether it is by way of man hours for site visits if so what function was performed during the site visits it is only then it can be decided whether a technical function was being performed or was it a routine business support services to get feed back etc. after the sales. Thus the function responsibilities and the duties undertaken by the employees is an important area for consideration. Considering which it may turn out that part of the services performed are technical support services and part of the services performed are business support service as the claim that computer asset ratio of the company is less for a technical service provided may not be a relevant factor for deciding the issue as in the absence of any material whatsoever of the nature of se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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