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2015 (4) TMI 548 - ITAT DELHI

2015 (4) TMI 548 - ITAT DELHI - TMI - Transfer pricing adjustment - Payment of export commission and Payment of royalty for export to the Associated Enterprises - Held that:- Similar issues were raised in appeals by the assessee determination of ALP in respect of Export commission has been restored to the file of AO/TPO with certain directions and the payment of royalty for exports to AE has been accepted at armís length price. No distinguishing feature has been brought to our notice in the fact .....

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BR> Disallowance of depreciation on Foreign exchange (forex) loss on the payment of model fees, which was capitalized by the assessee as part of the cost of Intangible assets - AO invoked the provisions of section 40(a)(i) to disallow the proportionate amount of depreciation on Intangible asset towards the additional cost paid by the assessee due to change in the foreign currency rate - Held that:- Whether there is a forex loss or gain, deduction of tax at source u/s 195 is contemplated only at .....

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reciation, inter alia, on intangible assets acquired on or after the 1st day of April, 1998, which are owned, wholly or partly, by the assessee and used for the purposes of the business or profession. It provides that depreciation shall be allowed in the case of any block of assets, at such percentage on the written down value thereof as may be prescribed. Section 43A of the Act is a special provision consequential to changes in rate of exchange of currency.

The interpretation as sug .....

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asset in terms of section 43A. - Decided in favour of assessee. - ITA No.1020/Del/2015 - Dated:- 13-4-2015 - SHRI R.S. SYAL AND SHRI GEORGE GEORGE K., JJ. For The Assessee : Shri Vijay Iyer, CA For The Department : Shri Judy James, Standing Counsel ORDER PER R.S. SYAL, AM: This appeal by the assessee is directed against the final order passed by the Assessing Officer (AO) u/s 143(3) read with section 144C of the Income-tax Act, 1961 (hereinafter also called the Act ) on 16.01.2014 in relation t .....

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ology from Honda, Japan. The assessee reported eight international transactions. On a reference made by the AO, the Transfer Pricing Officer (TPO) accepted six international transactions at arm s length price (ALP). As regards the international transaction of Payment of export commission , the TPO held that no service was rendered by the AE to deserve export commission. That is how, he determined the ALP of this international transaction at Nil. As regards the international transaction of paymen .....

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did not conform to the arm s length principle. He, therefore, proposed the TP adjustment amounting to ₹ 4,62,98,283/- in respect of payment of royalty for exports to AEs. The AO made the above additions by adopting the figures from the TPO s order as such without any further evaluation. The assessee is aggrieved against the making of such additions. 4. After considering the rival submissions and perusing the relevant material on record, we find that similar issues were raised in appeals b .....

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vis-à-vis those of the above referred earlier two years. We adopt the same reasons for the year under consideration as well and, accordingly, remit the international transaction of Payment of export commission to the file of AO/TPO for a fresh determination as per the guidelines given in our above referred order and delete the addition on account of Payment of royalty in respect of exports made to the AEs. 5. Ground nos. 2.1 and 2.2 are against the disallowance of ₹ 55,45,182/-, bei .....

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imilar for the instant year as well, inasmuch as neither the ld. AR nor the ld. DR could clearly inform about the final view taken on this issue for the earlier years, we set aside the impugned order and send the matter back to the file of AO for deciding it in conformity with the view taken by us in our order for the A.Y. 2006-07. 7. Ground no. 2.3 is against the disallowance of ₹ 1,30,67,871/-, being the amount of depreciation on Foreign exchange (forex) loss of ₹ 5,22,71,487/- on .....

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luctuated, as a result of which the assessee suffered a forex loss of ₹ 5,22,71,487/-. The cost of acquisition of the said asset which was originally recorded at ₹ 141,47,84,832/- swelled to ₹ 146,70,56,319/-, the incremental amount being the forex loss of ₹ 5.22 crore. The AO observed that the assessee deducted tax at source u/s 195 of the Act only on the payment of ₹ 141.47 crore and no tax at source was deducted from the additional payment of ₹ 5.22 crore o .....

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by the AO. 9. We have heard the rival submissions and perused the relevant material on record. The facts of the case lie in a narrow compass inasmuch as the assessee acquired the technical know-how and the invoice was raised in Japanese yen. At the time of acquisition, the assessee translated the invoice value from Japanese yen into Indian rupee at the rate prevailing at that time and credited the converted amount of ₹ 141.47 crore to the account of the supplier of know-how. Tax was duly .....

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noticed that the AO invoked the provisions of section 40(a)(i) to disallow the proportionate amount of depreciation on Intangible asset towards the additional cost paid by the assessee due to change in the foreign currency rate. The case of the AO is that the assessee was also required to deduct tax at source u/s 195 on the additional amount due to fluctuation in foreign exchange rate and such non-deduction led to the invocation of section 40(a)(i). Section 40 with the caption Amounts not deduct .....

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as not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 . Section 195 provides that a person responsible for paying to a non-resident shall at the time of credit of such income to the account of payee or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier deduct incometax thereon at the rates in force. When we read section 40(a)(i) in juxtapositi .....

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le transaction is contemplated at the earlier of the dates of credit or payment to the payee. It is not on both the occasions. Once deduction of tax at source has been made at the time of credit, which event occurs first, then there can be no question of once again making deduction of tax at source on full or in part at the time of payment. This position has been made clear by Rule 26 of Income-tax Rules, 1962 with the heading Rate of exchange for the purpose of deduction of tax at source on inc .....

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or the purposes of this rule, "telegraphic transfer buying rate'', in relation to a foreign currency, means the rate or rates of exchange adopted by the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), having regard to the guidelines specified from time to time by the Reserve Bank of India for buying such currency where such currency is made available to that bank through a telegraphic transfer. 11. A bare perusal of the above Rule indicates that .....

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e date on which tax is required to be deducted at source. The AO has held that Rule 26 operates only in respect of income under the head Salaries on which tax is required to be deducted at source u/s 192 and not on other payments including section 195. It is discernible from the plain language of Rule 26 that the same is applicable in respect of provisions of Chapter XVIIB, which covers sections 190 to 206AA. Not only section 192, but section 195 is also covered by the mandate of Rule 26. If we .....

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ime of credit of such income to the account of payee or at the time of payment thereof …., whichever is earlier . This shows that the tax is required to be deducted at the first stage when the amount of income is credited to the account of payee and, hence, deduction of tax at source is also contemplated at that stage alone which is to be done by converting foreign currency into TT buying rate at that particular date. There is no warrant for accepting the Revenue s contention that the ded .....

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the assessee cannot be called upon to deduct tax at source on the additional liability arising because of foreign exchange loss. If we take the contention of the Revenue to a logical conclusion, then every case of payment in convertible foreign exchange would require deduction of tax at source, firstly, at the time of credit and secondly, at the time when additional liability is fastened on it due to unfavourable rate of exchange. A very peculiar situation would arise, if instead of the assessee .....

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ax at source u/s 195 is contemplated only at the first stage of the credit of income to the account of the payee. The higher or lower liability due to foreign exchange loss or foreign exchange gain is inconsequential in so far as deduction of tax at source u/s 195 is concerned. Once there is no default on the part of the assessee in making deduction of tax at source on the additional amount paid due to foreign exchange loss, there can be no question of making any disallowance u/s 40(a)(i) of the .....

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cial provision consequential to changes in rate of exchange of currency. This section begins with a non-obstante clause and its relevant part provides as under : 43A. Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there .....

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which the liability as aforesaid is so increased or reduced during such previous year and which is taken into account at the time of making the payment, irrespective of the method of accounting adopted by the assessee, shall be added to, or, as the case may be, deducted from- (i) the actual cost of the asset as defined in clause (1) of section 43; .................. and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expen .....

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this provision is that the payment made for the acquisition of an asset should be considered as actual cost of asset notwithstanding the increased or reduced cost recorded at the time of acquisition of such asset. In other words, if liability of the assessee is increased due to unfavourable fluctuation in the foreign exchange rate, then, such increased liability will go to enhance the actual cost of the asset and vice versa. It is this adjusted cost of acquisition which is considered for the pu .....

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