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Le Passage to India Tours & Travels (P) Ltd. Versus DCIT, Circle 4 (1) , New Delhi and Vica-Versa

2015 (11) TMI 184 - ITAT DELHI

Transfer pricing adjustment - addition on account of AMP expenses - Held that:- AO has made the addition on account of transfer pricing in relation to expenses incurred by assessee in outbound business segment by comparing the expenses incurred by comparables in the inbound segment. We understand that two segments are materially different and require different level of expenditure for promotion of these business segments. Therefore we are of the firm view that this matter should be reconsidered .....

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in the nature of managerial technical or consultancy services. In the present years the agreements entered into with agents were not on record and therefore without examination of these agreements the decision as to whether the services do not fall in managerial technical or consultancy category can not be arrived at. Therefore in view of substantial justice we are of the view that the AO should examine agreements to determine the nature of services provided by agents and if the nature of servic .....

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ld that:- The issue of advertisement and publicity charges will also be examined by AO afresh keeping in view the terms and conditions of the agreement of Advertisement and AO will examine the nature of services rendered by such payees. Therefore the issue of advertisement of publicly expenses is restored to A.O for re-adjudication.

As regards amount paid representing AMC for computer software we find that the payment is clearly for provision of technical services and therefore the p .....

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scanners and server etc. form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60%. See Rajdhani BSES [2010 (8) TMI 58 - DELHI HIGH COURT] - Decided in favour of assessee. - ITA No: 2491/Del/2014 & ITA No. 1529/Del/2015, ITA No: 1186/Del/2014 & ITA No. 659/Del/2015 - Dated:- 29-9-2015 - SMT. DIVA SINGH .....

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ised its grievance with the action of learned DRP by which it upheld the addition on account of transfer pricing adjustment amounting to ₹ 20121113/- for advertisement marketing and sale promotion expenses. In various sub grounds of appeal listed in 2.1 to 2.26 the assessee has raised various objections on which the addition has been challenged. In ground No. 3 the assessee has raised its grievance regarding upholding of disallowance of overseas representation charges and reimbursement of .....

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nd No. 1 relates to deletion of addition of ₹ 5,16,542/- made by the AO for excess claim of depreciation made by Assessee on computer peripherals. 2.1 Ground N.2 relates to the action of the learned DRP by which it had deleted the addition amounting to ₹ 13,93,42,766/- which the A.O had made for non deduction of tax at source on tour expenses. 2.2 Ground No. 3 relates to the action of DRP, whereby it deleted the addition of ₹ 3,42,96,779/- made by AO u/s 40(a)(ia) on account of .....

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tives. Vide ground No. 4 the assessee is aggrieved with the disallowance of advertisement and publicity expenses and other charges representing AMC for computer software and membership & subscriptions paid to non-resident entities without deduction of tax. Ground No. 7 & 8 relates to levy of interest and initiation of penalty proceedings which are consequential and pre mature respectively and therefore these are dismissed. Ground No.1 being general do not require any adjudication and the .....

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appeals were heard together and therefore for the sake of convenience a common and consolidated order is being passed. 5. The brief facts of the case are that the assessee is engaged in the business of organising tours and arrangements for foreign tourists coming to India and going out of India. The assessee provides all services to tourists beginning from travelling to India till their departure from India such as travel in India by all modes of transports like air, rail, road etc. The assesse .....

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of which one relates to transfer pricing adjustment on account of brand building expenditure and other related to addition on account of non deduction of TDS on payments to overseas agents on account of reimbursement of expenses and on account of payment of representation charges. Ld. AR submitted that the addition on account of overseas representations charges and reimbursement of expenses to overseas representatives is covered in favour of assessee by order of Hon ble Tribunal dated 19th Decem .....

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d to deduct TDS. Ld. AR submitted that the above Tribunal order has been upheld by Hon ble Delhi High Court in ITA No. 489 and 491/2015 vide order dated 10th August, 2015 and in this respect filed a copy of order of Hon ble Delhi High Court. Ld. AR submitted that since the facts and circumstances remains same and therefore the addition confirmed by DRP is a covered issue in favour of assessee. 6.1. As regards transfer pricing adjustment Ld. AR submitted that assessee had incurred certain expendi .....

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comparables engaged in inbound business segment. Ld. AR invited our attention to the case law of Sony Ericsson Mobile Communications India Pvt. Ltd. vs. CIT ITA No. 16/2014 and submitted that Hon ble High Court has held that unilateral incurring of AMP expenses does not constitute an international transaction and benefit to the AE if any is incidental only. Ld. AR further submitted that Hon ble Delhi High Court in a number of cases has held that advertisement expenditure should not be treated a .....

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and names cannot be recognized as an intangible. Ld. AR further submitted that there is a material difference in inbound segment of out bound as the assessee is required to incur substantial expenditure of advertisement and marketing to promote their outbound business whereas these expenses are incurred by foreign tour operator / travel agent in the inbound business and therefore the outbound advertisement expenditure is bound to be substantially more as compared to inbound advertisement expendi .....

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arketing will be much more because of various reasons. Inviting our attention to a decision of Delhi Bench of Tribunal in the case of Destination of the World vs. ACIT (ITA No. 5534/Del/2010). Ld. AR submitted that Hon ble Tribunal held that there is a material difference between inbound and outbound services segments. In view of the above arguments the Ld AR submitted that it would be inappropriate to benchmark AMP expenses to sales ratio of the inbound segment for AMP expenses to sale ratio of .....

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year is a different year and invited our attention to para 17 of the Tribunal order relied upon by Ld. AR and submitted that in that years Ld. DR was unable to controvert any of the findings of Ld. CIT(A) whereas in present years he can demonstrate that the assessee was liable to deduct TDS and in this respect he invited our attention to the Hon ble Delhi High Court order in the case of CIT vs. Havells India Ltd. and submitted that Hon ble High Court has clearly held that assessee was liable to .....

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afresh in view of applicability of Indo-US treaty. He submitted that Hon ble Tribunal in earlier years had not gone into this aspect as Ld. DR had not represented the revenue s case in this direction. Therefore he strongly argued that the issues of reimbursement and payments be restored to Assessing Officer. Further Ld. DR filed a copy of case law decided by Hon ble Tribunal Chennai Bench in ITA No. 1810/Mds./2013 and submitted that the Hon ble Tribunal has decided the issue of TDS and has held .....

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the Act and therefore Hon ble court had rightly held the payments to be liable to tax deduction at source. Ld. AR invited our attention to provisions of section 9(i)(vii) and submitted that the income is deemed to accrue or arose only when the payments are made for managerial, technical or consultancy services and Hon ble Tribunal after analysing the various agreements entered into by assessee has arrived at a conclusion that these services were not in the nature of managerial, technical or con .....

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l placed on record. The appeals were originally heard on 24.8.2015. However at the time of dictation it was felt that agreements entered into by assesee with overseas agents were not on record. The Hon ble Tribunal vide its decision dated 19th December, 2014 had concluded the issue in favour of assessee after examining the terms and conditions of agreements with overseas agents and since the agreements were not found in the paper books therefore the cases were refixed for clarification and was f .....

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sessment year 2009-10 and assessment year 2010-11. Ground No. 1 in both years is general and do not require any adjudication. Therefore ground No. 1 in both years is dismissed. Ground No. 2 in both years is regarding addition on account of AMP expenses. We find that the AO has made the addition on account of transfer pricing in relation to expenses incurred by assessee in outbound business segment by comparing the expenses incurred by comparables in the inbound segment. We understand that two se .....

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r analysis of the agreement with overseas representatives and had arrived at a conclusion that the nature of services provided by these agents were not in the nature of managerial technical or consultancy services. In the present years the agreements entered into with agents were not on record and therefore without examination of these agreements the decision as to whether the services do not fall in managerial technical or consultancy category can not be arrived at. Therefore in view of substan .....

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o. 3 in both years is allowed for statistical purposes. 10. Ground No. 4 and 5 in assessment year 2009-10 and ground No. 7 and 8 in assessment year 2010-2011 are against the levying of interest u/s 234B and initiating of penalty proceedings. These Grounds are consequential and premature respectively, therefore, these are dismissed. 10.1 As regards ground 4 in assessment year 2010-11 we find that AO had disallowed an amount of ₹ 13,52,224/- as advertisement & publicity charges paid to n .....

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s clearly for provision of technical services and therefore the payments were liable for tax deduction at source, in view of the judgment of Hon ble Delhi High Court in the case of Havells India 21 taxman.com. 476 and therefore the addition to the extent of ₹ 19,39,692/- is confirmed. In view of the above ground No. 4 in assessment year 2010-11 is partly allowed for statistical purposes and is party dismissed. 11 Ground No. 5 and 6 raised by assessee in assessment year 2010-11 relates to i .....

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ssed. 11.2 Now coming to the revenue s appeal. We first take up assessment year 2009-10. Ground No. 1 relates to deletion of addition of ₹ 5,16,542/- which the AO had made on account of excess depreciation on computer peripherals. We find that similar issue has been decided by Hon ble Delhi High Court in the case of Rajdhani BSES. Moreover similar issue has been decided by Tribunal in Asst. Years 2007-08 & 2008-09 in the case of assessee itself which has been decided against the Revenu .....

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find that DRP has dealt the issue at para 6.4.3 to para 6.4.8 and has arrived at conclusion that assessee was not required to deduct tax on such payments. The findings of DRP are reproduced as under :- 6.4.3 The taxpayer has made the impugned payments to the various entities situated in the countries listed above, for the purposes of hotel bookings, car bookings etc. The payments are stated to have been made directly to the hotel or tour agent etc. It cannot be said that foreign tour operators .....

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ition of the expression business connection given in the Act is an inclusive one. The expression undoubtedly means some things more than business . A business connection is not equivalent to carrying on of a business but involves a relation between a business carried on by a nonresident which yields profits or gains and some activity carried out in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. It predicates an element of continuity bet .....

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the carrying on of that business. Further, certain parameters for calling the relationship as business connection, has been carved out, which are enumerated hereunder a. A real and intimate relation must exist between the trading activities carried on outside India by a non-resident and the activities within India. b. Such relationship must contribute to the income of the non-resident. d. Some part of the activity must be carried out in India. e. Continuity of relationship must be there. Form th .....

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in India. As per Article 7 of treaties entered into by India with different countries, business income of a non-resident is taxable in India only if a Permanent Establishment (PE) is construed to be established in India. Further, the Article provides that only that part of the income can be taxed in India that can be reasonably attributable to the PE existing in India. Article 5 of the treaties defines the term Permanent Establishment and in the present case of the Taxpayer, no such PE can be c .....

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o tax under the domestic law as well as the DT AA. Accordingly , in the light of the discussion made about section 40(a)(i) in para 6.4.1 above, the Panel holds that the payments made by the taxpayer do not cover all the ingredients of section 40(a)(i) of the Act and therefore, the taxpayer was not liable to deduct tax at source. The action of the AO is accordingly, not upheld. 11.4 In assessment year 2007-08 & 2008-09, the Hon ble Tribunal vide its order dated 19.12.2014 had dismissed the a .....

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enses 41,40,902 3. Overseas Representation charges 1,90,80,872 4. Reimbursement of expense to overseas Representatives 38,53,603 Total 3,42,96,779 11.6 The DRP has held that the Travelling Expenses and Participation Expenses did not require tax deduction at source therefore, it deleted these two disallowances. However, it confirmed the disallowance proposed by A.O on account of overseas representation charges reimbursement of expenses. As regards the issue of Travelling Expenses, Participation E .....

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verseas representation charges has been set aside to the office of A.O for examination of nature of services to be performed by agents. Therefore, the issue of overseas representation charges amounting of ₹ 1,90,80,872/- was restored to the office of Assessing Officer who will re-adjudicate on the above after examination of nature of services of agents and the nature of services did not fell into any of the categories of managerial, technical on consultancy services he will allow the same .....

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er had not made these two disallowances. Anyway, we have already set aside this issue to the office of Assessing Officer for re-adjudication and therefore ground raised by Revenue on account of deletion of representation charges has become infructuous and hence dismissed. 11.8 In view of the above ground No. 3 is also dismissed. 11. 9 In nutshell the appeal of the revenue for the Asst. Year 2009-10 is dismissed. Revenue s appeal for the assessment year 2010-11 12. Ground No. 1 is regarding actio .....

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s been considered by Hon ble Tribunal in its order dated 19.12.2014, which has been upheld by Hon ble Delhi High Court vide its order dated 10.08.2015. Respectfully following the above, Ground No.1 is dismissed. 12.1 In Ground No. 2 the revenue is aggrieved with the action of Ld. DRP by which it had reduced the amount of disallowance from ₹ 3,76,59,563/- to ₹ 1,23,01,374/-. The relevant finding of Ld. DRP are contained in para from 6.1 to 6.2. We find that amount of ₹ 3,76,59,5 .....

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