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M/s Vestas Wind Technology India Pvt. Ltd. Versus The Assistant Commissioner of Income Tax, Corporate Circle 3 (2) , Chennai

2016 (6) TMI 125 - ITAT CHENNAI

Transfer pricing adjustment - exclusion of income from annual maintenance charges from the total income - treatment to expenditure for earning the annual maintenance income - Held that:- TPO has proposed to exclude the income from annual maintenance charges from the total income. Once the income was excluded, the expenditure for earning the annual maintenance income also needs to be excluded. As rightly submitted by the Ld. D.R., it is not clear either from the assessment order or TPO’s order. T .....

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income from annual maintenance is to be excluded or not? The Assessing Officer after receiving the report from the DRP, shall pass order in conformity with the direction of the DRP as provided in Section 144C(13) of the Act.

Disallowance towards sales commission - Held that:- On perusal of the direction of the Dispute Resolution Panel, it shows that the assessee has not produced the details of the service rendered, the names and address of the commission agents and the details of the .....

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facts. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed. - Decided against assessee

TDS u/s 194-I - non deduction of tds - Disallowance under Section 40(a)(i) - Held that:- This Tribunal is of the considered opinion that since the payment does not partake the character of interest, it would naturally be a business profit for the parent company. In the course of its business activity, the parent c .....

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ven by the parent company is enforceable in India? If it is not enforceable in India, whether such kind of agreement is for business purpose or not? It also needs to be examined when the parent company gives guarantee to Indian customers in respect of the product sold by the assessee-company in India, whether the assessee-company can be considered as permanent establishment in India in respect of the income earned by the assessee in the form of guarantee performance fee? These aspects were not c .....

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e issue after giving reasonable opportunity to the assessee. Thereafter, the Assessing Officer shall pass necessary order under Section 144C(13) of the Act. - Decided partly in favour of assessee for statistical purposes. - ITA No.177/Mds/2016 - Dated:- 22-4-2016 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER For The Appellant : Shri Ajit Tolani, CA and Shri Darpan Kirpalani, CA For The Respondent : Dr. Milind Madhukar Bhusari, CIT ORDER PER N.R.S. GANESAN .....

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its components in the domestic market as well as in the international markets. Referring to the objection raised before the Dispute Resolution Panel in the grounds of objection No.6, a copy of which is available at page 71 of the appeal folder, the Ld. representative submitted that the assessee claimed before the Dispute Resolution Panel that the Transfer Pricing Officer computed the sales of the assessee by excluding the income from annual maintenance service without excluding the correspondin .....

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ed of. Referring to the order of the Transfer Pricing Officer, more particularly the computation of income, the Ld. representative submitted that the Transfer Pricing Officer excluded the income from annual maintenance service, however, failed to exclude the expenditure. Referring to the order of the Transfer Pricing Officer, more particularly para 9.1, the Ld. representative submitted that the shortfall in revenue recognition from annual maintenance charges and the adjustment thereunder require .....

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Ld. Departmental Representative, submitted that the Transfer Pricing Officer found that income from annual maintenance service needs to be excluded. Therefore, the expenditure incurred for annual maintenance service also needs to be excluded. However, it is not clear from the assessment order and the order of the Transfer Pricing Officer whether it was really excluded from the operating cost. Therefore, the Assessing Officer may be directed to verify whether the expenditure for annual maintenanc .....

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e Transfer Pricing Officer found at para 9.1 that the shortfall in revenue recognition from AMC, the adjustment thereunder requires no consideration as the service income from annual maintenance is proposed to be excluded while computing the profit from manufacture and sale of wind turbine generators. Therefore, it is obvious that the Transfer Pricing Officer has proposed to exclude the income from annual maintenance charges from the total income. Once the income was excluded, the expenditure fo .....

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for maintenance charges to the Dispute Resolution Panel. In such reference, the DRP shall examine whether the expenditure said to be incurred by the assessee for earning income from annual maintenance is to be excluded or not? The Assessing Officer after receiving the report from the DRP, shall pass order in conformity with the direction of the DRP as provided in Section 144C(13) of the Act. 5. Now coming to the second ground of appeal with regard to disallowance of ₹ 10,50,000/- towards .....

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ive, since the assessee filed the invoices before the authorities below, there cannot be any disallowance, especially when the payments were not in dispute. 7. On the contrary, Dr. Milind Madhukar Bhusari, the Ld. Departmental Representative, submitted that the assessee has not filed the details of service rendered by the person to whom the commission was paid. Even the names and address of the agents were not produced. The assessee has not filed any other details. Therefore, the Dispute Resolut .....

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towards sales commission. The assessee has filed copies of invoice. On perusal of the direction of the Dispute Resolution Panel, it shows that the assessee has not produced the details of the service rendered, the names and address of the commission agents and the details of the commission paid, etc. Even before this Tribunal, the details of the agents, the payment of commission are not available. The assessee claims a lump sum payment of ₹ 10,50,000/-. In the absence of any details with .....

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,87,91,750/- under Section 40(a)(i) of the Act. 10. Shri Ajit Tolani, the Ld. representative for the assessee, submitted that the parent company of the assessee, namely, Vestas Denmark, gave guarantee to the customers of the assessee who purchased windmill in India. The assessee has paid corporate performance guarantee fee of ₹ 3,87,91,750/- and claimed the same as expenditure. The Assessing Officer, however, found that the payment made by the assessee is in the nature of interest, therefo .....

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company at Denmark. Placing reliance on the Double Taxation Avoidance Agreement between Government of India and Government of Denmark, the Ld. representative submitted that interest is defined in Article 12. Article 12(4) clearly says that interest means income from debt-claimed of every kind and income from bonds or debentures. However, the payment of penalty for late payment shall not be regarded as interest for the purpose of this Article. In view of the Double Taxation Avoidance Agreement, a .....

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establishment for parent company in India. In this case, there is no permanent establishment, therefore, payment made to the parent company is not chargeable under the Indian income-tax. The Ld. representative further submitted that a copy of the guarantee performance given by the parent company is available at page 49 of the paper-book. The parent company guarantees to perform the contract of warranty and service in case the assessee-company fails to perform. In view of this guarantee, accordin .....

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ssee. On a query from the Bench, when the Indian customer is aggrieved over the performance of wind turbine generators, where he can raise the dispute either in India or in Denmark? The Ld. representative submitted that the agreement is silent on this aspect. The Ld. representative further submitted that in view of the guarantee given by the parent company, the payment was made, therefore, it is a business expenditure. 11. On the contrary, Dr. Milind Madhukar Bhusari, the Ld. Departmental Repres .....

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ween India and Denmark clearly shows that what was paid by the assessee is not interest. It is a payment for the so-called guarantee said to be given by the parent company. The question arises for consideration is what kind of services are rendered by the parent company and whether such services are rendered in India and whether such payment is liable for taxation in India. This Tribunal is of the considered opinion that since the payment does not partake the character of interest, it would natu .....

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