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TMI Blog2017 (4) TMI 917X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee by S.G.Singapore(SGS), i.e.other branch of the assessee.It was claimed that the payments represented reimbursement made to SGS and same were made for services on lease line expenses on reimbursement basis,that the payment did not contain any marked up,that the reimbursement were for data communication charges and annual Microsoft Enterprises Products billing,that the Singapore entity had incurred the true-up charges on behalf of the assessee,that TDS u/s.195 of the Act was required to be made only if the income was chargeable to tax,that the income was not chargeable,that question of making TDS would not arise. However, the AO did not agree with the assessee and held that the HO of the assessee had been providing services to an Indian assessee,that the services were in the nature of Royalty/fees for technical services(FFTS).He relied on the explanation (2)to sub clauses (iv)(vi) as well as explanation 3 to section 9 (1)(vi) for the meaning of the term Royalty and held the payments in question were covered by the definition of the royalty as per the provisions of Article 13(3) and 13(4) of the India France DTAA.Accordingly, he proposed to tax the amount at the rate of 10%. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the payment made by it were Royalty/FFTS. We find that the assessee had produced the debit note raised by the foreign entity.The invoices issued by the SGS talk about reimbursement,software maintenance charges,data communication charges, EDP consumables and others.If the DRP had some doubt about maintenance of software,it should have called for explanation from the assessee.But,doubt cannot take place of evidence to confirm any addition.Page 24 of the paper book contains detail of various charges paid by the assessee to the foreign entity.The Panel has not brought anything on record to controvert the entries appearing in it.Besides,Protocol 7 to the DTAA also supports the stand taken by the assessee.We would like to reproduce the relevant portion of the judgment of Steria (supra) and same is as under : The Protocol to the Double Taxation Avoidance Agreement between India and France (see [1994] 209 ITR (St.) 130, 157) provides that if under any Convention, Agreement or Protocol signed after September 1, 1989, between India and a third State which is a member of the OECD, India limits its taxation at source, inter alia, on fees for technical services to a rate lower or a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside the ambit of "fee for technical services", the question of the assessee having to deduct tax at source from payments for the managerial services, would not arise. The payment made by the assessee to SF for the managerial services provided by the latter could not be taxed as fees for technical services and the payments were not liable to withholding of tax under section 195 of the Act. The Hon'ble Bombay High Court in the case of WNS Global Services has also dealt with the issue of International Telecom Operators Lease Lines. Considering the above,we are of the opinion payment made by the assessee was neither royalty nor FFTS.It was case of pure and simple reimbursement.Secondly, the assessee had not made any payment to Singapore Telecommunication.Therefore,following judgment of Steria (supra) we decide Ground no.1 in favour of the assessee. 3. Second Ground deals with not allowing the TDS credit of Rs. 1.58 lakhs on interest income paid to HO of Rs. 15,86,609/-in computation of total income.During the assessment proceedings, the AO found that the assessee had paid an amount of Rs. 15.86 lakhs as interest to HO /overseas branches on borrowings,that it had deducted the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal has dealt with the issue as under: "10. The issue raised in ground No. 3 relates to the addition of Rs. 66,80,02,000/- made by the A.O. to the total income of the assessee by way of transfer pricing adjustment in respect of income earned by the assessee from the marketing of derivative products on behalf of its Associated Enterprise. 11. During the year under consideration, the assessee had received commission of Rs. 21.49 crores on account of sale of fixed income and derivative products made in India on behalf of its Associated Enterprise (AE) Societe Generale (SG), Paris. It was submitted that the assessee was compensated in terms of the agreement with the SG, Paris for its performance activity whereby sales credit was paid to the assessee by SG, Paris as gross sales less counterpart risk less cost of capital. It was submitted that the same formula had been consistently applied by the assessee in the earlier years and since the same was accepted in the earlier assessments being at arm's length, the transaction should be accepted as at arm's length in the year under consideration. It was also pointed out that the commission received by the assessee as net sales credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the assessee is not disputing either the TNMM followed by the TPO as most appropriate method or the OP/TC taken by him as PLI for this purpose. He submitted that the assessee is also not disputing its OP/TC worked out by the TPO at 16.38%. He submitted that what the assessee is disputing is the comparables selected by the TPO for the purpose of calculating the average margin at 59.95%. He invited our attention to the specific objections raised by the assessee in this regard in the written submission filed before the DRP placed at page 111 and 113 of his paper book and submitted that the same have not been considered either by the DRP and even by the TPO during the course of remand proceedings. He contended that the average margin of the comparables thus is required to be recomputed after taking into consideration the said objections specifically raised by the assessee. He further contended that the average margin of the comparables as recomputed after taking into consideration the objection of the assessee is required to be applied only to the total cost of the assessee relating to its international transactions with its AEs and not to the entire cost of the assessee as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re specifically disputed by the assessee by raising specific objections before the DRP, which were as under:- XXXXXX 15. A perusal of the order of the DRP as well as that of the TPO passed in the remand proceedings, however, shows that these objections specifically raised by the assessee have not been considered and this position is not disputed even by the ld. DR at the time of hearing before us. We, therefore, consider it fair and proper and in the interest of justice to set aside this matter to the A.O./TPO with a direction to consider the said objections of the assessee and recompute the average margin of the comparables after taking into consideration the said objections. We also direct the A.O./TPO to apply the average margin of comparables so recomputed to the operating cost of the assessee relating to its relevant transactions with its AEs in order to determine the ALP of the said transaction as well as the TP adjustment to be made in respect of such transactions.Needless to observe that the A.O. shall offer proper and sufficient opportunity to the assessee of being heard on this matter.Ground No. 3 of the assessee's appeal is accordingly treated as allowed for statisti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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