TMI Blog2017 (4) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... deal, to subscribe to the capital of the AE on the terms as offered by the AE to the assessee. Unless that happens, there is not even a prima facie case made out for an ALP adjustment. Whenever the assessee’s right to exercise the option of converting the loan into equity comes to an end, the assessee is entitled to interest on the commercial rates. It is not even the case of the authorities below that the interest so charged by the assessee, in a situation in which the right to exercise the option has come to an end, is not an arm’s length price. Keeping in mind all these factors, as also entirety of the case, we deem it fit and proper to delete the arm’s length price adjustment in respect of interest which, according to the revenue authorities, should have charged on the optionally convertible loan granted to the AEs. - Decided in favour of assessee Corporate guarantee charges - Held that:- We uphold the grievance of the assessee, and direct the Assessing Officer to delete the ALP adjustment taking note of the insertion of Explanation to Section 92B of the Act, that the issuance of corporate guarantees is covered by the residuary clause of the definition under section 92B o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally, and decide the disallowance under section 40(a)(i) on merits, we donot think that will be appropriate on the facts of this case. DRP has not examined the matter on merits at all. The discussions by the Assessing Officer in respect of these payments have also been inadequate, superficial and without sufficient application of mind, and a reasonable case has not been made out for invoking the disallowance under section 40(a)(i) by meeting the arguments of the assessee and demonstrating that the income embedded in these payments is indeed taxable in India. It is equally true that the Assessing Officer cannot decide taxability of income embedded in these payments on the basis of sweeping generalizations either. Essentially, therefore, the DRP also must decide the matter on the same parameters and in the same manner. While doing so, the DRP may also call for, and take into account, specific case by case comments of the Assessing Officer on each of, or each set of- as may be appropriate, the payment. The DRP may also take into account decisions of the coordinate benches, on the taxability of income embedded in such payments, in assessee’s own case as indeed in other similarly situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax in the hands of the partners. As a corollary to this undisputed position, when an income is found to be not taxable in the hands of the partnership firm, it cannot be brought to tax in the hands of the partners on the ground that it was not actually taxed in the hands of the partnership firm. If it is found to be not taxable in the hands of the partnership firm, it is not taxable at all, because so far as income of the partnership firm is concerned, that is the only point when such an income, if at all and to whatever extent, can be taxed. We have also noted that in the subsequent assessment year the Assessing Officer himself has not made such additions in the course of assessment proceedings, and the above interpretation, as such, stands accepted by the field authorities. Yet, ironically, when DRP grants this relief on the same point, the Assessing Officer is in appeal before us. This fact shows how frivolous is this appeal. In view of the above discussions, in our considered view, the DRP was quite justified in granting the impugned relief. Trademark Registration and Patent fee considered as revenue expenses Expenses incurred outside the approved R&D facility is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal services in India under the respective treaty provisions. As regards the clinical and analytical testing charges, the issue stands covered in favour of the assessee in assessee’s own case as also in the case of Reddy Laboratories(2013 (11) TMI 304 - ITAT HYDERABAD). Learned Departmental Representative has not pointed out any distinguishing features or disputed this position. Thus we approve the conclusions arrived at by the DRP and decline to interfere in the matter. As we do so we may also add that, for the sake of brevity, we are not adding reproductions from the orders relied upon by us and these orders will be deemed to be attached and forming part of this order. - IT (TP) No. 898/Ahd/2014 and 694/Ahd/2015, IT (TP) No. 519/Ahd/2014 and 747/Ahd/15 - - - Dated:- 3-3-2017 - Pramod Kumar AM and S S Godara JM For The Assessee : Mukesh Patel, and Hitesh Gajaria, along with Jigar Patel and Prashant Maheshwari For The Revenue : S T Bidari ORDER Per Pramod Kumar, AM: 1. These four appeals, consisting of two sets of cross appeals i.e. for the assessment years 2009-10 and 2010-11, pertain to the same assessee, involve some common issues and were heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the view that the assessee should have charged, and provided for in the books of accounts, interest in respect of these loans. It was in this backdrop that the TPO put the assessee to notice as to why ALP adjustment in respect of interest on these loans not be made. The assessee explained that the convertible loan is at the option of the assessee at any time till the date of maturity, that it has been used for acquisition of step down subsidiaries, that intrinsic value of the shares was much more than the conversion rate and that by not charging the interest, the assessee has kept its option of conversion intact which is beneficial to the company. None of these submissions, however, impressed the TPO. He was of the view that the mere fact that the loan has been converted into equity does not alter its character as loan as on the relevant point of time, and once that is so, the benchmarking of loan is to be done as per the prevailing market rate. It was also noted that while the Irish subsidiary, i.e. ZIPL, had received ₹ 9.69 crores in the relevant previous year as interest and dividend from the various entities to which the monies were given as capital or loan, which works ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th certain tests on whether the debentures are in the nature of debt or equity, he applied these tests on the facts of this case and concluded that the character of the instrument is predominantly debt rather than equity. His analysis was as follows: 7.4.6 The treatment of such instruments by the Reserve Bank of India gives an insight into their characterisation. All optionally convertible instruments are treated as loan as per the directions issued by RBI in this regard. As per the RBI Master Circular on Foreign Investment in India, the various types of instruments are defined as below: 4. Type of instruments i) Indian companies can issue equity shares, fully and mandatorily convertible debentures and fully and mandatorily convertible preference shares subject to the pricing guidelines/valuation norms and reporting requirements amongst other requirements as prescribed under FEMA Regulations. ii) Issue of other types of preference shares such as, non- convertible, optionally convertible or partially convertible, have to be in accordance with the guidelines applicable for External Commercial Borrowings (ECBs). iii) As far as debentures are concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in light ofthe guidelines issued by RBI. The contention of the assessee that RBI has different yardsticks for the inbound and outbound investments/loans is not borne out of the guidelines issued by it. 7.4.8 While funds advanced by the parents to their subsidiaries have to be examined for the purpose of intent in each case separately, the actual stated nature of the instrument is one of the main criteria for establishing its nature. Prima facie, an optionally convertible loan can be recalled at any time by the holder and the borrowing company is liable to pay the amount. The rules related to such remittances are less stringent as these instruments are treated as debts and not equity. On the contrary, repatriation of equity holding requires much elaborate mechanism and approvals in the resident state of the subsidiary. 7.4.9 The issue of convertible loan being hybrid instruments, in the nature of debt or equity has been debated at judicial forums in US. Acknowledging the importance of characterization of such instruments, the US Supreme Court, in their order in the case of Pepsi Cola Bottling Company of Puerto Rico Inc. Docket Nos.13676-09, 13677-09 on 20/9/2012, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Till time of conversion, in nature of loan. 4 Right to enforce payments A definite obligation to repay an advance, including interest thereon, suggests a loan obligation. We understand that if a instrument does not provide its holder with any means to ensure payment of interest, it is strong indication of a equity contribution rather than debt. In our case, if we exercise the option of repayment, there is a definite obligation on ZIPL to repay the loan along with interest. Thus the nature of the instrument is in the nature of a Loan as per this test. The amount can be redeemed any time. In nature of Loan. 5 Participation in management as a result of the advances The right of the entity advancing funds to participate in the management of the receiving entity s business demonstrates that the advance may not have been bonafide debt and instead was intended as an equity investment. This test flows in favour of Equity since we hold 100% share holding in XIPL and can participate in their management, if we choose to. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the test applies when there is a consortium of lenders. Not Applicable to the facts of our case. Not made in proportion to stockholders. Character of loan. 9 thinness of capital structure in relation to debt The purpose of examining the debt to equity ratio in characterising an advance is to determine whether a corporation is so thinly capitalised that repayment would be unlikely. We understand that loan to a thinly capitalised We submit that the capital of ZIPL at the time the loan of USD 27 Mn was granted was INR 119.33 crores as compared to the loan of INR 120.25 crores. Thus, this test flows towards Loan. Loan. The AE is sufficiently capitalised. company would be indicative of equity rather than a loan. 10 Ability of the corporation to obtain credit from outside sources The touchstone of economic reality is whether an outside lender would have made the payments in the same form and on the same terms. We understand t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the convertible loan is loan and not equity. 7. On this basis, the TPO concluded that the transaction was of debt rather than that of equity. He thus proceeded to make an ALP adjustment, by computing interest @ 7.02% in respect of the first loan, and interest @ 9.62% in respect of the second loan. The ALP adjustment was finally quantified at ₹ 5,00,35,270. Aggrieved by the addition proposed by the Assessing Officer, on the basis of above findings of the TPO, assessee did raise an objection before the DRP but without any success. In a brief operative order, the DRP confirmed the action of the TPO by observing as follows: We have considered the facts of the case. We agree with the TPO that until actually converted, the debentures would count as loans and hence interest should have been charged on the same. Further implicating fact is that on the same amount the borrower has earned huge income. This fact is also mentioned in the TPO s order. The TPO has referred to RBI circulars etc regarding ECBs etc. The TPO has also convincingly discussed all the issues relevant to the issue. We, therefore, reject the assessee s arguments and confirm the adjustment. 8. The Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital in the context of the transfer pricing legislation. 6. Hon ble Delhi High Court, in the case Chryscapital Investment Advisors India Ltd Vs ACIT [(2015) 56 taxmann.com 417 (Delhi)], has begun by quoting the thought provoking words of Justice Felix Frankfurter to the effect that A phrase begins life as a literary expression; its felicity leads to its lazy repetition; and repetition soon establishes it as a legal formula, undiscriminatingly used to express different and sometimes contradictory ideas . The reference so made to the words of Justice Frankfurter was in the context of the concept of super profits but it is equally valid in the context of concept of quasi capital also. As in the case of the super profits, to quote the words of Their Lordships, many decisions of different benches of the ITAT indicate a rote repetition (in the words of Felix Frankfurter J, quoted in the beginning of this judgment a lazy repetition ) of this reasoning, without an independent analysis of the provisions of the Act and the rules , the same seems to be the position with regard to quasi capital . There are several decisions of this Tribunal, including in the cases of Perot Syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in our humble understanding, is relevant from the point of view of highlighting that a quasi-capital loan or advance is not a routine loan transaction simplictor. The substantive reward for such a loan transaction is not interest but opportunity to own capital. As a corollary to this position, in the cases of quasi capital loans or advances, the comparison of the quasi capital loans is not with the commercial borrowings but with the loans or advances which are given in the same or similar situations. In all the decisions of the coordinate benches, wherein references have been made to the advances being in the nature of quasi capital , these cases referred to the situations in which (a) advances were made as capital could not subscribed to due to regulatory issues and the advancing of loans was only for the period till the same could be converted into equity, and (b) advances were made for subscribing to the capital but the issuance of shares was delayed, even if not inordinately. Clearly, the advances in such circumstances were materially different than the loan transactions simplicitor and that is what was decisive so far as determination of the arm s length price of such transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether advance agreements issued by PepsiCo s Netherlands subsidiaries to certain PepsiCo domestic subsidiaries and PPR are more appropriately characterized as debt than as equity; and, (2) if the advance agreements are characterized as debt, whether, and to what extent payments on the advance agreements constitute original issue discount, relating to contingent payment debt instruments under section 1.1275-4(c), Income Tax Regulations. This provision is a deduction provision and not a provision relating to determination of arm s length price. Nothing, therefore, turns on this decision. In any event, it is nobody s case that the transaction before us is of the debt. The case of the assessee is that since in consideration of this transaction, the assessee is entitled to own the capital at certain admittedly favourable terms, the true reward of this debt is the availability of such an option, and, therefore, it cannot be compared with a debt simplictor for the purpose of determining arm s length price. Nothing, therefore, turns on this decision, and whatever be its persuasive value, or lack thereof, the authorities below were in error even in relying upon this decision 14. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price of a transaction, it is immaterial as to what benefit an AE subsequently derives from such a transaction. What is to be determined is the consideration of a transaction in a hypothetical situation, in which AEs are independent of each other, and not the benefit that AEs derive from such transactions. It is not even the case of the authorities below that in the event of hypothetically dealing with an independent enterprise, no independent enterprise would not have given him an interest free loans even if there was an option, coupled with such a deal, to subscribe to the capital of the AE on the terms as offered by the AE to the assessee. Unless that happens, there is not even a prima facie case made out for an ALP adjustment. 16. We have also noted that, in any event, whenever the assessee s right to exercise the option of converting the loan into equity comes to an end, the assessee is entitled to interest on the commercial rates. It is not even the case of the authorities below that the interest so charged by the assessee, in a situation in which the right to exercise the option has come to an end, is not an arm s length price. Keeping in mind all these factors, as also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as cases decided by the US and Canadian tax courts have also held that provision of guarantee by the guarantor is a service rendered and the guarantor is justified in charging a suitable fees for this service . The TPO was further of the view that the credit rating variation between Cadila and its AEs is between an AA rated company (Cadila) and BB rated company (its AE) on the basis of Fitch rating. The interest rate difference between these rating of the companies, according to the TPO, works out to 2.706%, and taking into account the currency risk, this amount can be enhanced to 3%. When assessee was put to notice in respect of this opinion of the TPO, it was explained by the assessee that in the preceding years, in assessee s own case, the guarantee commission @ 1%, as charged by the assessee, has been accepted by the TPO. It was then explained that the guarantees allowed to the AE for buy back of shares of Zydus Inc was to leverage upon the experience gained in US markets which in turn helped the group as a whole, rather than the company, as the funds raised on that basis were used for inorganic growth of the assessee. As regards guarantee given for Zydus Netherlands BV, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional risk on the assessee and a charge on the balance sheet. The liability of the guarantee will result in higher risk margin being applied in case of the loans to the assessee because of its exposure. iii. The assessee is correct to the extent that in specific circumstances, the value of guarantee can be taken as nil. Such a case would arise if the guarantee is given but funds are not withdrawn on the strength of this guarantee. This would mean that the services of the assessee have not been availed by the other party. But in all other cases, the guarantee would be benchmarked at reasonable amount. The assessee has elaborately discussed the benefits being given by the AEs to the assessee company. However, for this, these companies are being remunerated at arm's length rate. Providing free guarantee support cannot be a reward for providing market access. For that, a separate reward system exists. As far as guarantee is concerned, it needs to be benchmarked at suitable rate. iv) A transaction, for the purpose of benchmarking, needs to be treated in the same way as it has been characterized in the books of the assessee. A loan is a loan and it cannot be taken as eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (yield or interest rate) in respect of AA rated bonds and BB rated bonds comes to 2.706%age points. By taking guarantee for payments on behalf of its AE, the assessee has incurred significant currency risk as evident by general depreciation of rupee against dollar. In order to factor this currency risk, the above spread is increased 25 basis points and hence a spread of 2.956% is found to be reasonable spread which the assessee should have charged as benefit granted to the AE. 6.8 Based on this benchmark, the service rendered by the assessee by offering guarantees to the financial institutions on behalf of its AE is liable to be benchmarked at 2.956% of the amount of guarantee given. The contention of the assessee that the guarantees given on behalf of ZIPL and Zydus Inc., USA relate to acquisition of shares of other company and to that extent, they reflect shareholder activity is not found acceptable. As already discussed above, a benefit passed to an AE as a service falls within the provisions of section 92B and hence it needs to be benchmarked. The total guarantee fee is computed as below: Sl. Name of the AE to whom guarantee provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without charging any fees. The relevant observations of the DRP are as follows: Considering the facts of the case, we direct the TPO to accept guarantee fees @1% as in earlier years. However, we are not impressed by the assessee s argument that some of the guarantees were given as shareholder s service and hence no charge will be justified. The AO has detailed the reasons as to why providing guarantee is a service that requires arm s length payment. We uphold charge of guarantee commission in respect of all the guarantees provided albeit @ 1%. 20. The Assessing Officer thus proceeded to make an ALP adjustment of ₹ 4,19,22,177 in respect of guarantee commission. The assessee is aggrieved and is in appeal before us. 21. Learned representatives fairly agree that so far as this issue is concerned, it is covered, in favour of the assessee, by a coordinate bench decision in the case of Micro Ink Ltd Vs ACIT [(2016) 157 ITD 0132 (Ahd)], even as learned Departmental Representative vehemently relied upon the stand of the authorities below. 22. In the case of Micro Ink (supra), dealing with the above issue, a coordinate bench of this Tribunal has, inter alia, observed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , furniture, commodity or any other article, product or thing; (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know -how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature; (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; (d) provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of which should be a non-resident. An international transaction can be a transaction of the following types: in the nature of purchase, sale or lease of tangible or intangible property, in the nature of provision of services, in the nature of lending or borrowing money, or in the nature of any other transaction having a bearing on the profits, income, losses or assets of such enterprises An international transaction shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to anyone or more of such enterprises. Section 92B (2), covering a deeming fiction, provides that even a transaction with non-AE in a situation in which such a transaction is de facto controlled by prior agreement with AE or by the terms agreed with the AE. 26. Let us now deal with the Explanation, inserted with retrospective effect from 1st April 2002 i.e. right from the time of the inception of transfer pricing legislation in India, which was brought on the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l clause of definition in international transactions, as in Section 92B(1), which covers any other transaction having a bearing on profits, incomes, losses, or assets of such enterprises . 30. It is, therefore, essential that in order to be covered by clauses (c) and (e) of Explanation to Section 92B, the transactions should be such as to have bearing on profits, incomes, losses or assets of such enterprise. In other words, in a situation in which a transaction has no bearing on profits, incomes, losses or assets of such enterprise, the transaction will be outside the ambit of expression 'international transaction'. This aspect of the matter is further highlighted in clause (e) of the Explanation dealing with restructuring and reorganization, wherein it is acknowledged that such an impact could be immediate or in future as evident from the words irrespective of the fact that it (i.e. restructuring or reorganization) has bearing on the profit, income, losses or assets of such enterprise at the time of transaction or on a future date . What is implicit in this statutory provision is that while impact on profit, income, losses or assets is sine qua non, the mere fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an international transaction as the condition precedent with regard to the 'bearing on profit, income, losses or assets' set out in Section 92B(1) may not be fulfilled. For example, an enterprise may extend guarantees for performance of financial obligations by its associated enterprises. These guarantees do not cost anything to the enterprise issuing the guarantees and yet they provide certain comfort levels to the parties doing dealings with the associated enterprise. These guarantees thus do not have any impact on income, profits, losses or assets of the assessee. There can be a hypothetical situation in which a guarantee default takes place and, therefore, the enterprise may have to pay the guarantee amounts but such a situation, even if that be so, is only a hypothetical situation, which are, as discussed above, excluded. One may also have a situation in which there is a receivable or any other debt during the course of business and yet these receivables may not have any bearing on its profits, income, losses or assets, for example, when these receivables are out of cost free funds and these debit balances do not cost anything to the person allowing such use of funds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issuance of corporate guarantees to the net of transfer pricing. Nevertheless, the ALP adjustment made by the TPO was deleted by the Tribunal. Aggrieved by the relief so given by the Tribunal, the matter was carried in further appeal, by the Commissioner, before the Hon'ble Bombay High Court which eventually upheld the relief granted by the Tribunal. The appeal before the Hon'ble High Court was by the Commissioner, and not by the assessee, and, therefore, the grievance against the issuance of corporate guarantee being held to be an international transaction could not have come up for consideration. Of course, the assessee had no occasion to challenge the stand of the Tribunal on this aspect since the addition, on merits, was deleted anyway making revenue's success in this respect hollow and of no damage to the interests of the assessee. It was in this backdrop that the action of the Tribunal was upheld in granting relief to the assessee on merits. It is difficult to understand as to how this decision is taken as supporting the proposition that the issuance of corporate guarantee, even in a case in which neither any guarantee commission is charged nor any costs are i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, we find that the operative portion of this judgment, so far as relevant to this discussion, is as follows: '213. The amendment to section 2(47) raises several important questions of fact and of law. Whether or not it affects the proceedings which were the subject matter before the Supreme Court is not relevant for the purpose of this Writ Petition. But, whether it is relevant or not for the purpose of the assessment proceedings in respect of the petitioner which are the subject matter of this Writ Petition, is relevant. The effect of the amendment would have to be considered. It cannot be brushed aside. 214. Section 2(47), as amended, even on a cursory glance raises various issues. It is necessary to note four preliminary aspects of Explanation 2 to section 2(47). Firstly, as the opening words, For the removal of doubts it is hereby clarified that ... , indicate it is a clarificatory amendment. Secondly, it is an inclusive definition as is evident from the words transfer includes . Thirdly, the amendment is with retrospective effect from 1st April, 1962. Fourthly, the Finance Act 2012 which introduced, inter alia, the amendment to section 2(47) and section 92C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other material for interpreting them. Vodafone's case obviously considered the ambit of the term transfer prior to the amendment. In the present assessment proceedings, it is the amended definition which would have to be considered. 218. We do not find it either necessary or proper to indicate the application of section 2(47) as amended to the present proceedings. The application would depend upon the facts on record or those may be permitted to be brought on record. 219. There is another aspect. The petitioner may well contend that the amended definition makes no difference it being clarificatory in nature. The provisions thereof must, therefore, be deemed always to have been in existence. We will presume that it would be open to the petitioner to contend, therefore, that the judgment of the Supreme Court would remain entirely unaffected for the Supreme Court must be deemed to have considered the term as per its true ambit, as always intended by the Parliament. On the other hand, it may be equally open to the Revenue to contend that certain ingredients of a transfer were not considered by the Revenue itself in the proceedings relating to Vodafone's case on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account the amendments, the legal implications of this amendment is still an open issue which will have to be adjudicated in the light of pleadings of the parties. Even in these observations, which do not anyway decide anything on merits, effect of a retrospective amendment was not in the context of the precise issue before us, or on the scope of the international transaction, but in respect of connotations of 'transfer'. As learned counsel rightly contends, in the light of Hon'ble Bombay High Court's judgment in the case of Sudhir Jayantilal Mulji (supra) ratio of a decision alone is binding, because a case is only an authority for what it actually decides and not what may come to follow from some observations which find place therein . In view of these discussions, the reliance placed on Vodafone India Services (P.) Ltd. (supra) is also equally misplaced and devoid of legally sustainable merits. In any case, as is noted by Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297/64 Taxman 442 (SC), It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference is made to well known Canadian decision in the case of GE Capital Canada (supra). The said case, to quote the words of the DRP, also shows that the group company issuing the guarantee (i.e. guarantor) would, in principle, at least need to cover the cost that it incurs with respect to providing the guarantee and that these costs may include administrative expenses as well as the costs of maintaining an appropriate level of cash equivalents, capital, subsidiary credit lines or more expensive external funding conditions on other debt finance . The DRP had also noted that in addition, the guarantor would want to receive appropriate compensation for the risk it incurs and concluded that following the above discussions, an arm's length guarantee fees is typically required to be determined by establishing a range of fees that the guarantor would, at least, want to receive and the fees that the guaranteed group company would be willing to pay depending on the prevailing conditions within financial markets in practice . 30. However, while dealing with this aspect of the matter, it is necessary to bear in mind the fact that this judicial precedent, whatever be its w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the prices of such transaction come into play Where a taxpayer or a partnership and a non-resident person with whom the taxpayer or the partnership, or a member of the partnership, does not deal at arm's length [See Section 247(2) ibid]. When one takes into account these variations in the statutory provisions, it will become very obvious that the provisions of the Indian Income-tax Act, 1961 and the Canadian Income-tax Act, 1985 are so radically different that just because a particular transaction is to be examined on arm's length principle in Canada cannot be a reason enough to hold that it must meet the same in India as well. While the Canadian transfer pricing legislation, as indeed the transfer pricing legislation in many other jurisdictions, does not put any fetters on the nature of transactions between the AEs, so as to be covered by the arm's length price adjustment, and, therefore, covers all transactions between the related enterprises, Indian transfer pricing legislation covers only such transactions as are in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary to popular but apparently erroneous belief, the issuance of corporate guarantees can indeed be kept outside the ambit of services. The relevant extracts from this document are as follows: 102. An independent company that is unable to borrow the funds it needs on a stand-alone basis is unlikely to be in a position to obtain a guarantee from an independent party to support the borrowings it needs. Where such a guarantee is given it compensates for the inadequacies in the financial position of the borrower; specifically, the fact that the subsidiary does not have enough shareholders' funds. ..... 103. It would not be expected that a company pay for the acquisition of the equity it needs for its formation and continued viability. Equity is generally supplied by the shareholders at their own cost and risk. 104. Accordingly to the extent that a guarantee substitutes for the investment of the equity needed to allow a subsidiary to be self-sufficient and raise the debt funding it needs, the costs of the guarantee (and the associated risk) should remain with the parent company providing the guarantee. 33. On a conceptual note, thus, there is a valid schoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices. The issuance of corporate guarantee, as long as it is in the nature of shareholder activity, cannot, therefore, amount to a provision for services . 34. Undoubtedly, pioneering work done by the OECD, in the field of international taxation, has been judicially recognized worldwide by various judicial forums, including, most notably by Hon'ble Andhra Pradesh High Court in the case of CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146/15 Taxman 72 (AP). Their Lordships also referred to Lord Radcliffe's observations in Ostime v. Australian Mutual Provident Society [1960] 39 ITR 210 (HL), which has described the language employed in the models developed by the OECD as the international tax language . The work done by OECD in the field of transfer pricing is no less significant. No matter which part of the world we live in, and irrespective of whether or not that tax jurisdiction is an OECD member jurisdiction, the immense contribution of the OECD, in the field of the transfer pricing as well, is admired and respected. However, the relevance of this work, so far as interpretation to transfer pricing legislation is concerned, must remain confined to the areas which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itute the rendering of intra- group services. However, some guidance may be given to elucidate how the analysis would be applied for some common types of activities undertaken in MNE groups. 7.8 Some intra-group services are performed by one member of an MNE group to meet an identified need of one or more specific members of the group. In such a case, it is relatively straightforward to determine whether a service has been provided. Ordinarily an independent enterprise in comparable circumstances would have satisfied the identified need either by performing the activity in-house or by having the activity performed by a third party. Thus, in such a case, an intra-group service ordinarily would be found to exist. For example, an intra-group service would normally be found where an associated enterprise repairs equipment used in manufacturing by another member of the MNE group. 7.9 A more complex analysis is necessary where an associated enterprise undertakes activities that relate to more than one member of the group or to the group as a whole. In a narrow range of such cases, an intra-group activity may be performed relating to group members even though those group members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ministrations' specifically recognizes that an activity in the nature of shareholder activity, which is solely because of ownership interest in one or more of the group members, i.e. in the capacity as shareholder would not justify a charge to the recipient companies . It is thus clear that a shareholder activity, in issuance of corporate guarantees, is taken out of ambit of the group services. Clearly, therefore, as long as a guarantee is on account of, what can be termed as 'shareholder's activities', even on the first principles, it is outside the ambit of transfer pricing adjustment in respect of arm's length price. It is essential to appreciate, at this stage, the distinction in a service and a benefit. One may be benefited even when no services are rendered, and, therefore, in many a situation it's a 'benefit test' which is crucial for transfer pricing legislation, such as in US Regulations 1.482-9(1)(3)(i) which defines 'benefit', form a US Transfer Pricing perspective, as an activity is considered to be provided a benefit to the recipient if the activity directly results in a reasonably identifiable increment of economic or commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefited by the shareholder activities, these activities do not necessarily constitute services. There is no such express reference to the benefit test, or to the concept of benefit attached to the activity, in relevant definition clause of 'international transaction' under the domestic transfer pricing legislation. As we take note of these things, it is also essential to take note of the legal position, in India, in this regard. No matter how desirable is it to read such a test in the definition of the international transaction' under our domestic transfer pricing legislation, as is the settled legal position, it is not open to us to infer the same. Hon'ble Supreme Court, in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 (SC) , took note of the situation before Their Lordships in these words: We have given anxious thoughts to the persuasive arguments of Mr Sharma. His arguments, if accepted, will certainly soften the rigour of this extremely drastic provision and bring it more in conformity with logic and equity . However, Their Lordships declined to do so on the ground that There is no scope for importing into the statute the words which are not ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guarantee, the guarantees issued by the corporates for their subsidiaries are rarely, if at all, backed by any underlying security and the risk is entirely entrepreneurial in the sense that it seeks to maximize profitability through and by the subsidiaries. It is inherently impossible to decide arm's length price of a transaction which cannot take place in arm's length situation. The motivation or trigger for issuance of such guarantees is not the kind for consideration for which a banker, for example, issue the guarantees, but it is maximization of gains for the recipient entity and thus the MNE group as a whole. In general, thus, the consideration for issuance of corporate guarantees are of a different character altogether. 40. At this stage, it would appropriate to analyze the business model of bank guarantees, with which corporate guarantees are sometimes compared, in the context of benchmarking the arm's length price of corporate guarantees. A bank guarantee is a surety that that the bank, or the financial institution issuing the guarantee, will pay off the debts and liabilities incurred by an individual or a business entity in case they are unable to do so. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We see no meeting ground in these two types of guarantees, so far their economic triggers and business considerations are concerned, and just because these instruments share a common surname, i.e. 'guarantee', these instruments cannot be said to be belong to the same economic genus. Of course, there can be situations in which there may be economic similarities, in this respect, may be present, but these are more of an exception than the rule. In general, therefore, bank guarantees are not comparable with corporate guarantees. 41. As evident from the OECD observation to the effect In contrast, if for example a parent company raises funds on behalf of another group member which uses them to acquire a new company, the parent company would generally be regarded as providing a service to the group member , it is also to be clear that when the corporate guarantees are issued for the purpose of subsidiaries raising funds for acquisitions by such subsidiaries, these guarantees will be deemed to be services to the subsidiaries, and, as a corollary thereto, when corporate guarantees are issued for the subsidiaries to raise funds for their own needs, the corporate guarantees are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and Development ('OECD', for short) has laid down transfer pricing guidelines for Multi-National Enterprises and Tax Administrations. These guidelines give an introduction to the arm's length price principle and explains article 9 of the OECD Model Tax Convention. This article provides that when conditions are made or imposed between two associated enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises then any profit which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, if not so accrued, may be included in the profits of that enterprise and taxed accordingly. By seeking to adjust the profits in the above manner, the arm's length principle of pricing follows the approach of treating the members of a multi-national enterprise group as operating as separate entities rather than as inseparable parts of a single unified business. After referring to article 9 of the model convention and stating the arm's length principle, the guidelines provide for recognition of the actual transactions undertaken in paragraphs 1.36 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d entitlement to the intellectual property rights arising as a result of future research for the term of the contract (as previously indicated in paragraph 1.10). While in this case it may be proper to respect the transaction as a transfer of commercial property, it would nevertheless be appropriate for a tax administration to conform the terms of that transfer in their entirety (and not simply by reference to pricing) to those that might reasonably have been expected had the transfer of property been the subject of a transaction involving independent enterprises. Thus, in the case described above it might be appropriate for the tax administration, for example, to adjust the conditions of the agreement in a commercially rational manner as a continuing research agreement. 1.38 In both sets of circumstances described above, the character of the transaction may derive from the relationship between the parties rather than be determined by normal commercial conditions as may have been structured by the taxpayer to avoid or minimize tax. In such cases, the totality of its terms would be the result of a condition that would not have been made if the parties had been engaged in arm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be benchmarked and, for that purpose, it is in the service category but that occasion comes only when it is covered by the scope of 'international transaction' under the transfer pricing legislation of respective jurisdiction. The expression 'provision for services' in its normal or legal connotations, as we have seen earlier, does not cover issuance of corporate guarantees, even though once a corporate guarantee is covered by the definition of international transaction', it is benchmarked in the service segment. In view of the above discussions, OECD Guidelines, as a matter of fact, strengthen the claim of the assessee that the corporate guarantees issued by the assessee were in the nature of quasi-capital or shareholder activity and, for this reason alone, the issuance of these guarantees should be excluded from the scope of services and thus from the scope of 'international transactions' under section 92B. Of course, once a transaction is held to be covered by the definition of international transaction, whether in the nature of the shareholder activity or quasi-capital or not, ALP determination must depend on what an independent enterprise would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e included in the international transactions, these guarantees are included in service segment in contradistinction with other heads under which international transactions are grouped, the guarantees should be treated as services, and, for that reason, included in the definition of international transactions. That is, in our considered view, purely fallacious logic. In our considered view, under Section 92B, corporate guarantees can be covered only under the residuary head i.e. any other transaction having a bearing on the profits, income, losses or assets of such enterprise . It is for this reason that Section 92B, in a way, expands the scope of international transaction in the sense that even when guarantees are issued as a shareholder activity but costs are incurred for the same or, as a measure of abundant caution, recoveries are made for this non-chargeable activity, these guarantees will fall in the residuary clause of definition of international transactions under section 92B. As for the learned Departmental Representative's argument that whether the service has caused any extra cost to the assessee should not be the deciding factor to determine whether it is an intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to purchase, sale, transfer, lease or use of tangible and intangible properties. These transactions were anyway covered by transactions 'in the nature of purchase, sale or lease of tangible or intangible property'. The only additional expression in the clarification is 'use' as also illustrative and inclusive descriptions of tangible and intangible assets. Similarly, clause (d) deals with the provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service which are anyway covered in provision for services and mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to anyone or more of such enterprises . That leaves us with two clauses in the Explanation to Sect ion 92B which are not covered by any of the three categories discussed above or by other specific segments covered by Section 92B, nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 92B read with Section 92B(1), is restricted to such capital financing transactions, including inter alia any guarantee, deferred payment or receivable or any other debt during the course of business, as will have a bearing on the profits, income, losses or assets or such enterprise . This precondition about impact on profits, income, losses or assets of such enterprises is a precondition embedded in Section 92B(1) and the only relaxation from this condition precedent is set out in clause (e) of the Explanation which provides that the bearing on profits, income, losses or assets could be immediate or on a future date. These guarantees do not have any impact on income, profits, losses or assets of the assessee. There can be a hypothetical situation in which a guarantee default takes place and, therefore, the enterprise may have to pay the guarantee amounts but such a situation, even if that be so, is only a hypothetical situation, which are, as discussed above, excluded. When an assessee extends an assistance to the associated enterprise, which does not cost anything to the assessee and particularly for which the assessee could not have realized money by giving it to som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he peculiar nature and purpose of transfer pricing provision, is it at all a workable idea to enlarge the scope of transfer pricing provisions with retrospective effect There can be little doubt about the legislative competence to amend tax laws with retrospective effect, and, in any case, we are not inclined to be drawn into that controversy either. On the issue of implementing the amendment in transfer pricing law with retrospective effect, in the case of Bharti Airtel Ltd. (supra), a coordinate bench had observed as follows: 34. There is one more aspect of the matter. The Explanation to Section 92B has been brought on the statute by the Finance Act 2012. If one is to proceed on the basis that the provisions of Explanation to Section 92B enlarges the scope of Section 92B itself, even as it is modestly described as 'clarificatory' in nature, it is an issue to be examined whether an enhancement of scope of this anti avoidance provision can be implemented with retrospective effect. Undoubtedly, the scope of a charging provision can be enlarged with retrospective effect, but an anti-avoidance measure, that the transfer pricing legislation inherently is, is not primarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions which were amended, post the payment having been made by the assessee, with retrospective effect. All this only shows that even when law is specifically stated to have effect from a particular date, its being implemented in a fair and reasonable manner, within the framework of judge made law, may require that date to be tinkered with. When a proviso is introduced with effect from a particular date specified by the legislature, the judicial forums, including this Tribunal, at times read it as being effect from a date much earlier than that too. One such case, for example, is CIT v. Ansal Landmark Township (P.) Ltd. [2015] 377 ITR 635/234 Taxman 825/61 taxmann.com 45 (Delhi), wherein Hon'ble Delhi High Court confirmed the action of the Tribunal in holding that the provision, though stated to be effective from 1st April 2013 must be held to be effective from 1st April 2005. Whether such an exercise can be done in the present case is, of course, something to be examined and our observations should not be construed as an expression on merits of that aspect of matter. Given the fact that the assessee has succeeded on merits in this case, it would not really be necessary to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have also noted that in view of the decision a coordinate bench, in the case of JKT Fabrics v. Dy. CIT [2005] 4 SOT 84 (Mum.) and following the Full bench decision of Hon'ble AP High Court in the case of CIT v. BR Constructions [1993] 202 ITR 222/[1994] 73 Taxman 473 (AP), a decision disregarding an earlier binding precedent on the issue is per incurium. Such decisions cannot be basis for sending the matters to special bench since occasion for reference to special bench arises when binding and conflicting judicial precedents from coordinate benches come up for consideration. That was not the case here. All these factors taken together, in our considered view, it was not possible in this case to refer the matter for constitution of a special bench. In any case, whatever we decide is, and shall always remain, subject to the judicial scrutiny by Hon'ble Courts above and our endeavour is to facilitate and expedite, within our inherent limitations, that process of such a judicial scrutiny, if and when occasion comes, by analyzing the issues in a comprehensive and holistic manner. 50. In the light of the detailed discussions above, and for the detailed reasons set out above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h its local affiliates in such jurisdictions. During the relevant previous year, the assessee has paid product registration charges amounting to ₹ 2,48,48,862, at a mark up @ 10% over actual expenses incurred, to Zydus Healthcare (USA)LLC (Zydus LLC, in short) , and ₹ 4,44,95,968, at a mark up @ 6%, to Zydus Pharma Inc, Japan (Zydus Japan, in short). The stand of the assessee was that the services rendered by these entities was for preparing all the relevant information and data, filing applications, before the regulatory authorities in respective jurisdictions. This work was one under the guidance of technical and qualified persons. The work was done under the local regulatory framework and in accordance with the local laws. The AEs were also to follow up with the regulatory authorities, deal with deficiency letters, if any, in respect of such registration applications and provide necessary legal and technical inputs to the assessee. As the AEs were the least complex entities, between the assessee and the AEs, the AEs were chosen as the tested parties. Accordingly, as noted by the TPO himself, the benchmarking was done as follows: 5.2 As per assessee, after carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 AOCORP AUSTRIA LIMITED 2 COG CO LTD 3 COMMUNICATION DESIGN INTERNATIONAL LTD. 4 FAR EAST DDB PUBLIC COMPANY LIMITED 5 LEGS COMPANY LIMITED 6 MPCLTD 7 OR1COM INC 8 PHOTON GROUP LIMITED 9 SALMAT LIMITED 5.3.2 The weighted average NCP of the aforesaid 13 companies comes to between 2.6% to 13.52% with an arithmetical mean of 6.03 per cent. Thus, the NCP of Zydus Japan was taken at 6 percent. 25. The Transfer Pricing Officer was, however, not satisfied with the approach so adopted by the assessee. He rejected the same by observing as follows 5.4 The business description of above companies which the Assessee wants to compare for its product registration services are perused. The companies selected are primarily in the business of direct mail media, marketing, advertising, public relation services, management services, business consulting services, outdoor advertising services, etc. None of these companies have functions which are similar to the activities of Zydus LLC and Zydus Japan i.e. product registration services. In view of above, the assessee should have rejected all these companies for comparison purpose. Detailed busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even if the arm s length price is computed on the basis of assessee s stand in 2006-07, which has met approval of the Tribunal, the benefit of +_5% should be allowed, the TPO rejected the same and observed that such an adjustment comes into play only when there are more than one comparable prices available and the ALP is computed on the basis of arithmetic mean of such prices. What the TPO disregarded, however, was the fact that the Tribunal had also directed the benefit of +_5% in the order. In effect thus, the amount paid by the assessee in excess of 2% mark up was declined, and 2% mark up was accepted as an arm s length price. On this basis, an ALP adjustment of ₹ 34,86,285 was justified. Aggrieved by the addition so proposed, assessee carried the matter in appeal before the DRP, but without any success. Aggrieved by the resultant ALP adjustment of ₹ 34,86,285, the assessee is in appeal before us. 27. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position, 28. We have noticed that what has been held to be arm s length price in this case is the price at which transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables which are appropriate. If comparables are not available for a application of a particular method of the ALP, the possibilities of other methods are to be examined. As for his observation to the effect that in fact, transaction carries zero risk and if it was to be compared with independent entrepreneur, adjustment to the results of above mentioned companies was to be carried out which would have resulted into profit of almost zero percent as these were purely administrative support services provided by one person to another and where all cost incurred on behalf of others has been paid to the last penny , this observation is very much divorced from the ground reality inasmuch as it cannot be suggested that when an enterprise carries on any work for an independent enterprise or rank outsider, which does not have any risk at all, the enterprise should do it without any mark up or profit to itself and he should not even recover any part of the overheads costs relatable to such a work. When a business enterprise does anything for an independent enterprise, as is the inherent nature of an arm s length transaction, it does not do so driven by the desire to serve the mankind but wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why all these payments aggregating to ₹ 101.44 crores, without deduction of tax at source, not be disallowed under section 40(a)(i). It was pointed out by the assesse that, vide his earlier submissions, complete details of payments made to non-residents have already been placed on record. It was also pointed out at the time of making these payments, the taxability of payments in the hands of the non-residents is duly examined and only when it does not have any income taxable in India, the payments are made without deduction of tax at source. It was also submitted that the supporting evidences are duly furnished to the tax authorities and no infirmities therein have been pointed out. It was then submitted that, as is the settled legal position in the light of Hon ble Supreme Court s judgment in the case of G E India Technology Centre Pvt Ltd Vs CIT [(2010) 327 ITR 456 (SC)], tax withholding obligations under section 195(1), from payments made to non residents, come into play only when income embedded therein are taxable in India. That is not, according to the assessee, case here. It was also submitting that, as held by the Tribunal in the case of ACIT Vs Anchor Health and Bea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rials are fees for technical services as these services not only involve services of technical person, but also these services are ancillary and subsidiary to the application or enjoyment of information for which the payments are made. Assessee submitted that with regard to the Bio-Analysis and Clinical Trials the language of the DTAA with USA, UK, Canada and Singapore, is clear with regard to 'fees for Technical Services which exclude such payments when no technology is made available by the non-resident party, to whom such payment for Bio-Analysis is made. 3.7 Contention of the assessee is considered carefully. The arguments of the assessee are that the 'DTAA with regard to FTS excludes such payments where no technology is made available by the non-resident. Article 12 reads as under : ARTICLE 12-Royalties and fees for included services-1. Royalties and fees for included services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for included services may also be taxed in the Contracting State in which they arise and according to the laws of that St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 (a) of this article is received; or b) make available technical knowledge, experience, skill, know- how, or processes, or consist of the development and transfer of a technical plan or technical design. UK Article 12 4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term fees for technical services means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion fall under sub clause (a) and not under sub clause (b) as sought to be argued by the assessee. Certificate of a CA in form 15CA/CB is not the final authority on the taxability of an amount in India. It is a facility given to the assessee for convenience in remittance. Payments for consultancy (legal. patent application or other consultant) 3.9 There are 69 entries of consultancy, 160 entries of consultancy for patent fees and one entry for legal fees in the data supplied to the assessee. These were payments towards services given by the foreign law firms either individuals, firm of individuals or companies with regards to IPRs and Trademark Registration/Patent Registration. Assessee has contended that the payment falls in the 'Independent Personal Services' under DTAA and falls in Article 14 or 15 of the DTAA. For example, Article 15 of DTAA between India-USA reads as under ARTICLE 15 - Independent personal services - 1. Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 Iphorgan Limited 98,179 6 Nixon Vanderhye P.C. 5,45,887 7 Nixon Vanderhye P.C. Attorney at Law 9,84,266 8 Sanford T. Colb Co. Intellectual Property Law Firm 55,883 Legal Fees Sl. No. Name of the Company Amount paid 1 SL Balnes Anapharm INC 15,15,286 3.11 The assessee was liable to deduct tax from these payments which are in the nature of Independent Personal services, but failed to deduct u/s 195 of the Act. Certificate of a CA in form 15CA/CB is not the final authority on the taxability of an amount in India. It is a facility given to the assessee for convenience in remittance. Therefore after examination of the nature of 'Independent Personal Services it is held that the amounts paid to companies are taxable in India and the assessee failed to deduct tax. 3.12 Details of payments made to non-residents with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s directed to obtain the order passed by the ITO (international Taxation)-II, Ahmedabad, on taxability and liability to deduct tax on foreign remittances on all the transactions under consideration and will disallow the expenditure for foreign remittances only to the extent of the foreign remittances liable to taxed in India on which the Assessee was liable to deduct tax u/s 195 of the I T Act. For the remaining expenditure disallowed u/s. 40(a)(i), the AO is directed to delete and objection to that extent will be treated as sustained. 35. Based on the stand taken by the Income Tax Officer (International Taxation- II), the Assessing Officer proceeded with the above disallowance of ₹ 18,18,96,302. The assessee is aggrieved and is in appeal before us. 36. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 37. We must, at the outset, express our anguish at the evasive approach adopted by the DRP. They have simply declined to examine the matter on merits and preferred to let the Income Tax Officer in international tax wing decide what the DRP ought to have decided on i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which a large number of payments have been disallowed under section 40(a)(ia). Much as learned counsel urges us to examine these payments individually, and decide the disallowance under section 40(a)(i) on merits, we donot think that will be appropriate on the facts of this case. As we have noted earlier in this order, the DRP has not examined the matter on merits at all. The discussions by the Assessing Officer in respect of these payments have also been inadequate, superficial and without sufficient application of mind, and a reasonable case has not been made out for invoking the disallowance under section 40(a)(i) by meeting the arguments of the assessee and demonstrating that the income embedded in these payments is indeed taxable in India. As learned counsel for the assessee rightly contends, and as held by a coordinate bench in the case of Anchor Health and Beauty Care (supra), unless Assessing Officer demonstrates that the recipient has a tax liability in respect of income embedded in the payment, he cannot invoke disallowance under section 40(a)(i). It is equally true that the Assessing Officer cannot decide taxability of income embedded in these payments on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 12,17,51,000 which is impugned in appeal before us. 44. We have heard the rival submissions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 45. Learned counsel s short submission is that the impugned disallowance is incorrect for two reasons- first, that the computation of average investments takes into account investments abroad which do not yield tax exempt income; and second, that the total interest paid is taken at ₹ 66.40 crores whereas the actual interest paid is only ₹ 64.37 crores. It is also pointed out that rectification petition under section 154 is pending in respect of these adjustments, and that he will be content by our direction to the Assessing Officer to look into these two issues. We see merits in the plea. It is beyond controversy that dividends from companies abroad do not enjoy the tax exempt status, and, as a corollary thereto, the related investments must therefore be kept out of investments yielding tax exempt income for the purpose of rule 8D. As for the correct figure of interest paid, it is purely a factual issue and the Assessing Officer is, therefore, directed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which includes the profit of 76.74% which the company was already earning from marketing the same products. The actual increase in profit was only 7.91% after manufacturing the same products at Baddi unit. 2. Whether the DRP has substantially erred in holding that the AO should not determine the fair market value of goods when there is no intercorporate transfer, despite the provisions of sect/on 80IA(8) which applies to intra-corporate transfer of goods from eligible business unit to non-eligible business unit of the assessee. In the case of the assessee only Baddi unit is eligible unit. 3. Whether the DRP has substantially erred by not approving the AO's action for determination of market value of goods on internal transfer from eligible unit to non-eligible unit as per the provisions of section 80IA(8). 54. So far as these grievances of the Assessing Officer are concerned, learned representatives fairly agree that the issue is covered, in favour of the assesse, by a coordinate bench in assessee s own case for the assessment year 2008-09, which in turn has followed the assessment years 2006-07 and 2007-08 which have attained finality as revenue s appeals agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said partnership firm, as per statement of income, was only ₹ 4,97,200. When this, what was termed by the Assessing Officer as discrepancy was brought to the notice of the assessee, it was explained by the assessee that statement of income of the partnership firm shows the taxable income component of its income, whereas what has been claimed as exempt in the hands of the assessee is entire share of profit, authorised by the partnership deed, received by the assessee. In other words, even when the assessee receives a partnership firm s share of income, which is exempt from tax in the hands of the partnership firm, it will be exempt in the hands of the assessee under section 10(2A) anyway. This interpretation was not accepted by the Assessing Officer. He was of the view that exemption under section 10(2A), in respect of assessee s share of income in partnership firm, is confined to the amount which is included in total income of the firm, and thus is taxable in nature. He was also of the view that exemption under section 10(2A) is to avoid double taxation of an income, in the hands of the partnership firm as also in the hands of the partners, but when an income is not ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of income referred to in section 5, computed in the manner laid down in this Act . It is this approach which underlies the argument, as indeed adopted by the Assessing Officer, that an income which is not includible in total income cannot ordinarily be a part of total income of the firm. 65. However, the above approach, as DRP has rightly concluded, would be erroneous. We must bear in mind the fundamental legal position that, definition of the expression total income under section 2(45), as indeed all definitions under section 2, are subject to the rider that these definitions are in consonance with the context in which the meanings are to be found out, as obvious from the words unless the context otherwise requires . The context in which we have to find meaning to the expression total income in the scheme of Section 10(2A) is the scheme of taxation of partnership firms. In the method of taxation of firms that we now follow in India, while the partnership firm is treated as an opaque entity and taxed as such on the profits arising in its hands, the share of profits in the firm in the hands of its partners are excluded from their taxable income. The point of taxation is, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the share income included in the hands of the partners for rate purposes only. There has been a consistent demand for removal of the double taxation. A new scheme of assessment of firms has been introduced from assessment year 1993-94. The scheme is modelled after the scheme introduced by the Direct Taxes Laws (Amendment) Act, 1987, with suitable modifications to take care of the difficulties pointed out in the context of the 1987 scheme. The scheme contained in Direct Taxes Laws (Amendment) Act, 1987 sought to tax firms at the maximum marginal rate after allowing interest and remuneration to partners. Further there was a rigorous definition of whole-time working partners to whom alone remuneration was payable. The deduction for remuneration and interest allowable to partners and allowing remuneration to any partner or partners at the discretion of the firm, have been suitably restructured. 48.1 A firm will now onwards be taxed as a separate entity (Sections 184 185). There will be no distinction between registered and unregistered firms, and clauses (39) and (48) of section 2 containing the definition of registered firm and unregistered firm have been omitted. Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorised by and in accordance with the terms of the partnership deed. These payments will be allowed as deduction only for a period beginning with the date of the partnership deed and not for any earlier period. Thus, if a partner is allowed a higher remuneration by varying the terms of the deed on a particular date, such higher remuneration cannot be allowed to him for any period prior to the said date. However, as the financial year 1992-93 had already commenced, by the time the Bill received the Presidential assent, it would not have been possible for assessees to change the partnership deed with effect from 1st April, 1992. Therefore, the Finance Act has provided that for the previous year, 1992-93 interest or remuneration would be allowed if the partnership deed provides for such payment anytime during the accounting period. Thus, for the previous year 1992-93, relevant to assessment year 1993-94, the terms of the partnership deed may be amended to have retrospective operation. There is no restriction as to the number of times the terms of a partnership deed may be changed during a previous year in so far as payment of salary, bonus, commission or other remuneration to a worki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment of interest should be in pursuance of the partnership deed. The maximum rate of interest allowed would be 18% simple interest per annum [section 40(b)(iv)]. 48.9 Changes have been made in the scheme of set-off and carry forward of losses. The existing provisions relating to firms and their partners in sections 76 and 77 have been omitted. Under the new scheme, the firms are treated as a separate entity and the losses suffered by them would be allowed to be carried forward in their hands only. There would be cases where brought forward losses apportioned to a partner have not been set-off in the hands of the partner prior to assessment year 1992-93. A provision has been made for dealing with brought forward losses pertaining to assessment years prior to assessment year 1993-94. In such cases the carried forward losses of a partner will be allowed as a set-off in the assessment income of the firm subject to the condition that the partner continued to remain a partner in the said firm (section 75). 48.10 Although the distinction between a registered and unregistered firm has been removed, a firm will be assessed as a firm only if- (i) the partnership is evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned relief. We approve the same and decline to interfere in the matter. 68. Ground no. 5 is thus dismissed. 69. In ground no. 6, the Assessing Officer has raised the following grievance: Whether the DRP has erred in considering Product Registration expenses of ₹ 7.22 Crores as revenue expenditure when the same entitles the assessee to export the registered drugs to various countries for many years. 70. Learned representatives fairly agree that this issue is settled in favour of the assessee by decisions of the coordinate benches in assessee s own case, and Hon ble High Court has declined to admit appeal against such decision, as in the esteemed views of Their Lordships, no question of law arises from these decisions. The relief granted to the assessee on this point in past has thus achieved finality. In this view of the matter, we approve the relief granted by the DRP on this point and decline to interfere in the matter. 71. Ground no. 6 is thus dismissed. 72. In ground no. 7, the Assessing Officer has raised the following grievance: Whether the DRP has substantially erred in holding that Trademark Registration and Patent fee of ₹ 4.64 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation was proposed to be declined by the Assessing Officer mainly on the ground that the assessee did not own the vehicle in question. However, the assessee succeeded in the DRP in his objection to this proposal. We have noted that the DRP has given a categorical finding to the effect that the car was used for the purpose of business and the Assessing Officer has himself allowed the running and maintenance expenses of this car. It has also been noted that the registration of car in the name of driver was a matter of convenience as it gave advantage to the assessee in terms of road tax. On these facts, as held by the DRP, the mere fact that the car was not legally owned by the assessee company- particularly when beneficial ownership of this vehicle is not even in dispute, the depreciation on car cannot be declined. Aggrieved, assessee is in appeal before us. 80. Having heard the rival contentions and having perused the material on record, we are not inclined to disturb very well reasoned findings of the DRP and the conclusions arrived at by the DRP. Once it is not in dispute that the vehicle was owned, in substance, by the assessee and the vehicle was used for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward Governor India Pvt Ltd [(2009) 312 ITR 254 (SC)]. Considering the same, addition proposed in the draft assessment order is deleted and objection of the petitioner is upheld . The Assessing Officer is aggrieved and is in appeal before us. 84. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 85. We have noted that there is no dispute about the fact that the loss on foreign exchange conversion is allowed as a deduction, and the dispute is confined to the fact whether entire amount is to be allowed as deduction or only so much of the loss as pertains to the payments actually made during the relevant year. Once the deduction has been allowed by the Assessing Officer himself, though in respect of loss in respect of payments made during the year, clearly there is no dispute about its being on revenue account. The question then remains whether the deduction should be of the entire loss evident as at the year end or it should remain confined to the loss which has fructified in the sense the payments are actually made. As we deal with this question, it is important to bear in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fluctuation in the rate of foreign exchange was merely a contingent/notional liability which does not crystallize till payment. In that case, the Supreme Court was considering the meaning of the expression expenditure incurred while dealing with the question as to whether there was a distinction between the actual liability in praesenti and a liability de futuro. The word expenditure is not defined in the 1961 Act. The word expenditure is, therefore, required to be understood in the context in which it is used. Sec. 37 enjoins that any expenditure not being expenditure of the nature described in ss. 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head Profits and gains of business . In ss. 30 to 36, the expressions expenses incurred as well as allowances and depreciation has also been used. For example, depreciation and allowances are dealt with in s. 32. Therefore, Parliament has used the expression any expenditure in s. 37 to cover both. Therefore, the expression expenditure as used in s. 37 may, in the circumstances of a particular case, cover an amount which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted grievances, which we will take up together with the above grievance of the assessee, the Assessing Officer has raised the following grievance by way of its first and second grounds of appeal: 1. The DRP has erred in law and on facts in restricting the guarantee fee @ 1% without any basis as against 2.98% determined by the TPO on a scientific basis, 2. The DRP has substantially erred in law and on facts in directing the TPO to restrict benchmarking to new loans/advance taken during the year and not subject to old loans/advances to transfer pricing study. 96. So far as these grounds of appeal are concerned, only a few material facts need to be taken of at this stage. When a reference was made to the TPO for determination of arm s length price in respect of international transactions entered into by him, he proposed the following arm s length price adjustments: (i) Product Registration consideration paid to the AEs 39,36,230 (ii) Corporate guarantee commission charges 8,62,37,606 (iii) Interest on optionally convertible loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial on record and duly considered facts of the case in the light of the applicable legal position. 99. We find that so far as corporate guarantee commission and interest on optionally convertible loans are concerned, these issues are covered by our decision earlier in this order for the assessment year 2009-10. We see no reasons to take any other view of the matter than the view so taken by us, and for the elaborate reasons set out earlier in this order, in assessee s own case. Respectfully following these views, we direct the Assessing Officer to delete these ALP adjustments. To that extent, grievance of the assessee is upheld and the grievance of the Assessing Officer is dismissed. As regards interest on loans to Zydus France, we find that the same loan, on the same terms, has been held to be at an arm s length in the earlier assessment years. As regards the action of the TPO in comparing this loan with not so safe loans to companies other than the companies rates AAA, AA or A, we find that, quite to the contrary, the judicial consensus should be in making comparison with relatively safer loans. While on this issue, we may usefully take note of the following observations mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rriving at the arm's length CUP rate based on bank rates. 7.11 Adjustment for security Usually, bankers extending loans in foreign currency also insist on sufficient security. In this case, no security is offered by the AE. Keeping in view the financial health of the subsidiary, it may not be in a position to offer security. Thus an adjustment is required to be made for not offering a security. This may be computed as the difference between the interest rates prevailing for the bonds of equivalent credit rating of the AE and sovereign government bonds in the country in which the AE is located. This can also be considered as the guarantee cost payable to the taxpayer for giving guarantee for equivalent amount of loan given to the AE i.e. the rate differential for the difference in interest spread between the credit rating of the taxpayer and the AE. Thus after the above analysis, the equivalent interest rate is the interest rate including the transaction cost for a foreign currency loan, if given to the AE for its credit standing / rating. 66. We see no substance in this adjustment either. The TPO has taken the lender as the tested party, and yet made adjustments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in adopting the maximum LIBOR rate on which dollar loans were advanced. Yet, Hon ble High Court specifically approved the Tribunals reasoning that the assessee advanced monies to the subsidiaries which were under its management and control, which in fact substantially reduced the risk and in these circumstances there was no rationale of adjusting any amount of higher basis . When such are the views of Their Lordships, it is futile to suggest that the loans advanced by the parents to subsidiary can indeed be taken as BB to D grade investments which refers to, as noted by the TPO himself at page 28 of the order, investments with serious risks of inadequate safety, investments of high risk, investments of substantial risk and investments of default 100. In view of the above discussions, as also bearing in mind entirety of the case, we approve the reasoning adopted by the DRP as also the conclusions arrived at by the DRP. The relief granted by the DRP regarding deletion of ALP adjustments in respect of loan to Zydus France is thus also confirmed. 101. In the result, while the first ground of appeal of the assessee is allowed, first and second grounds of appeal is the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer erred in law and on facts in not acknowledging in the Assessment Order, the availability of the amount of Carried Forward MAT Credit u/s 115JAA of ₹ 27,19,89,591/-, to which the Appellant is lawfully entitled to in view of it being covered under the provisions of MAT u/s 115JB. 109. So far as this grievance of the assessee is concerned, short grievance of the assessee is that the Assessing Officer has not specifically mentioned that the assessee is entitled to carry forward the MAT credit of ₹ 20,08,52,398. However, we are unable to see much merits in this plea because, as is the settled legal position in the view of Hon ble Supreme Court s judgment in the case of CIT Vs Manmohan Das [(1966) 59 ITR 699 (SC)], in the year of carry forward only quantification of a set off claim is to be seen. The question as to its entitlement for being set off is to be examined in the year in which set off is claimed. Grievance of the assessee is premature and is dismissed as such. 110. Ground no. 4 is thus dismissed. No other grievances of the assessee, as learned representatives fairly agree, require any specific adjudication by us. 111. In the result the appeal of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to explain why above mentioned payments should not be considered for disallowance u/s. 40(a)(i) of the Act. In response thereto, the assessee furnished its reply on 28/03/2014 along with information in respect of TDS made u/s.195 of the Act for above mentioned expenditure incurred in foreign currency and reasons for non-deductions of tax on other items on which the assessee did not make TDS, the same is asunder:- Particulars Expenditure Amount Amount on which tax deducted TDS Amount on which not deducted Reason for Non-deduction (Rs. ) (Rs. ) (Rs. ) (Rs. ) Commission on Exports 69,488,308 69,488,308 Remittance of Commission to Overseas Selling Agents is not liable to TDS u/s. 195 in view of the following: - CBDT Circular No.23 dated 23/07/1969 read with Circular No.786 dated 07/02/2000 - Decision of the Supreme Court in Toshoku Ltd. 125 ITR 525 (SC) - It is further pertinent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51,324,419 5,675,572 261,423,147 3.4 The submission of the assessee has been gone through carefully but the same is not acceptable for the following reasons: (i) Commission on export: As stated above, the assessee has made payment of commission of ₹ 6,94,88,308/-without complying the provisions of Section 195 of the Act. Clause (i) to Sub-Section (1) of Section 9 provides that all income accruing or arising whether directly or indirectly through from any business connection in India or through or from any property in India deemed to accrue in India. Explanation -1 to Section 9 further provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operation carried out in India. The assessee company is manufacturer and trader of pharmaceuticals goods. All the manufacturing of the assessee company is carried out in India only and only certain part of the manufactured goods are exporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other profession as is notified by the Board for the purposes of section 44AA or of this section. As such, the assessee's submission that the payment of professional charges paid to non-resident and TDS is not deductable is not accepted and the same is rejected, as the assessee is liable to deduct the tax u/s. 195 of the Act. It is also worthwhile to point out here that Article-25 of the DTAA provide that subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle thereof), the United States shall allow to a resident or citizen of the United States as a credit against the United States tax on income, the income-tax paid to India by or on behalf of such citizen or resident. It is, therefore, very clear that whatever the tax deducted from the commission payment to the non-resident, they are getting the relief from US as per the DTAA. As such, such income not only arose in India but also same is earned by the non-resident in India. Clearly, therefore, the commission paid to the non-resident is accrued in India for the services rendered in India. In view of the above, the assessee ought to have complied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for technical services as these services not only involve services of technical person, but also these services are ancillary and subsidiary to the application or enjoyment of information for which the payments are made. The assessee submitted that with regard to the Bio-Analysis and Clinical Trials the language of the DTAA with USA, UK, Canada and Singapore, is clear with regard to 'fees for Technical Services which exclude such payments when no technology is made available by the non-resident party, to whom such payment for Bio-Analysis is made. Contention of the assessee is considered carefully. The arguments of the assessee are that the 'DTAA with regard to FTS excludes such payments' were no technology is made available by the non-resident. Article 12 reads as under : ARTICLE 12-Royalties and fees for included services-1. Royalties and fees for included services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for included services may also be taxed in the Contracting State in which they arise and according to the laws of that State; bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 (a) of this article is received; or b) make available technical knowledge, experience, skill, know- how, or processes, or consist of the development and transfer of a technical plan or technical design. UK Article 12 4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term fees for technical services means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made to law firms in UK, USA, Japan and France but none of these firms have fixed base in India and, as such, these independent personal services are not taxable in the respective treaty provisions. As regards, clinical trial, analytical and testing services are concerned, it was observed that the issue stands concluded, in favour of the assessee, by coordinate bench decision in the case of DCIT Vs Dr Reddy Laboratories Ltd [(2013) 35 taxmann.com 339 (Hyd)] and that there is nothing to even indicate that make available clause is satisfied so as to bring these services, rendered by non residents, to tax in India under the fees for technical services clause in the respective treaties. As there was no income in these payments which could be brought tax in India, opined the DRP, there was no tax withholding requirement, and, as such, section 40(a)(ia) could not have been invoked. The Assessing Officer is aggrieved and is in appeal before us. 118. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 119. We find that so far as the taxability of commission payments made to non resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same are classified as intangible assets u/s 32(1)(ii) of the Act. 125. Learned representatives fairly agree that this issue is also settled in favour of the assessee by decisions of the coordinate benches in assessee s own case, and Hon ble High Court has declined to admit appeal against such decision, as in the esteemed views of Their Lordships, no question of law arises from these decisions. The relief granted to the assessee on this point in past has thus achieved finality. In this view of the matter, we approve the relief granted by the DRP on this point and decline to interfere in the matter. 126. Ground no. 5 is thus dismissed. 127. In ground no. 6, the Assessing Officer has raised the following grievance: The DRP has substantially erred in holding that the expenses amounting to ₹ 21,03,15,537/- incurred outside the approved R D facility is also eligible for weighted deduction in contravention of section 35(2AB) whereby only expenditure on in-house research and development facility qualifies for weighted deduction. 128. Learned representatives fairly agree that this issue is also settled in favour of the assessee by decisions of the coordinate benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of its business, there cannot be any legally sustainable reasons for declining the depreciation. Learned Departmental Representative could not bring on record any material to dislodge the findings of the DRP. We approve the action of the DRP and decline to interfere in the matter. 133. Ground no. 7 is thus dismissed. 134. In ground no. 8, the Assessing Officer has raised the following grievance: The DRP has erred in deleting the addition to Book Profit amounting to ₹ 11,23,95,002/- being addition u/s. 14A despite the specific clause (f) to Explanation 1 of section 115JB. 135. As regards this grievances of the Assessing Officer, learned representatives fairly agree that the issue is covered, in favour of the assesse, by a coordinate bench in assessee s own case for the assessment year 2008-09, which in turn has followed the assessment years 2006-07 and 2007-08. As a matter of fact, all that the DRP has done is to follow the said order of the coordinate bench. 136. We see no infirmity in the relief so granted by the DRP. No arguments have been advanced before us to persuade us to take any other view of the matter than the view so taken by the coordinate be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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