TMI Blog2015 (1) TMI 1430X X X X Extracts X X X X X X X X Extracts X X X X ..... ALP. Further, the services provided by the assessee on its own were compared with CUP. Therefore, two separate ALP were determined by the TPO for the same service provided by the assessee to AE. Even if the CUP is adopted as most appropriate method ALP cannot be more than price received by GESA. Whereas the TPO has taken into consideration the price charged by the assessee with 10% mark-up. Hence, the computation of ALP is otherwise not based on correct uncontrolled price. We may clarify that the international transaction in question should be considered as one and price received by the assessee in total has to be compared with the ALP. The assessee received the price for providing the service as per the agency agreement. Therefore, the service provided by the assessee to the AE are closely interlinked and price of one part is dependent on the price of the other part. Therefore, the entire services provided by the assessee has to be treated as one international transaction for the purpose of determining the ALP. Depreciation on computer hardware - assessee claimed depreciation @ 60% on computer including printer, scanner and electronic token display system all part of block ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Ajit Kumar jain, Shri Jitendra Jain, Ms. Astha Bhatia and Ms. Radhika Thakkar For The Respondent : Shri K.C.P Patnayak ORDER PER VIJAY PAL RAO, JM: These two appeals by the assessee are directed against the assessment orders passed u/s. 144C(13) of the Income tax Act, 1961 (the Act) in pursuant to the directions of the DRP u/s. 144C(5) for the assessment year 2008-09 and 2009-10 respectively. 2. For the assessment year 2008-09 the assessee has raised various grounds. However, the only issue arising for our consideration and adjudication is whether in the facts and circumstances of the case the AO/TPO/DRP has erred in making the adjustment of ₹ 18.37 crores in respect of the international transaction pertaining to the transaction of business support services. 2.1 The assessee is a 100% subsidiary of Hapag Lloyd AG (HLAG) and is a captive unit engaged in providing business support services to its parent company. The assessee company assisted in booking shipments requirements required to be moved from one location to another. The assessee has entered into a shipping agency agreement with HLAG, according to which it was appointed as the agent for HLA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agency agreement between GESA and the assessee is not an appropriate CUP. It was contended that business decision cannot be questioned by the Income tax authorities. The DRP did not accept the contention of the assessee and confirmed the action of the AO/TPO. 4. Before us, the ld. AR has submitted that the TPO is not justified in adopting the commission paid to sub-agent as CUP for determining the ALP in respect of support services provided by the assessee to the AE. The agreement between HLAG and GESA was terminated on 31.12.2006. Therefore, the said agreement is not a contemporary price for the year under consideration. The assessee was appointed as shipping agent by HLAG vide agreement dated 01/01/2007. As per Article-5 of the agreement, the assessee was authorised to appoint sub-agent with prior approval of HLAG. Accordingly, the assessee appointed GESA as sub-agent vide agreement dated 21/02/2007 w.e.f. 01/01/2007. GESA has performed the services for territories including all of Inidia and Nepal but, excluded territory of the assessee as demarcated in the sub agency agreement. The assessee remunerated GESA on the basis of the rate provided in the sub-agency agreement . The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice was rendered by GESA to HLAG during the year under consideration then, in the absence of current year data, the non-existing agreement cannot be considered as CUP. The ld. AR has also contended that there is a difference between services rendered by the GESA to assessee and services by the assessee to HLAG. He has pointed out that GESA refers to customer service booking and documentation service to assessee under sub agency agreement, whereas the assessee does not provide such services to HLAG under agency agreement. The assessee is a long term service provider for AE as compared to GESA. Further, the GESA is required to furnish bank guarantee which is not required by the assessee. Thus, the ld. AR has submitted that the controlled transactions, level of market, geographical market, risk involved varies in the transaction with GESA and the transaction with AE. The business model of the assessee and commercial expediency cannot be questioned by the TPO when the assessee is receiving a mark up of cost + 10% from the AE. In support of his contentions the ld. AR has relied on the decision of this Tribunal in the case of UCB India Pvt. Ltd. vs. ACIT dated February 06, 2009 (2009-T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes as well a fee for consignment delivery and bill of lading. 6.1 On the other hand the assessee was appointed as agent w.e.f. 01/01/2007 and is remunerated for the services rendered to AE at cost plus 10% mark-up. The assessee was also authorized by the AE HLAG to appoint GESA as sub-agent for providing services for certain territories of India and the entire territory of Nepal. The sub-agent is remunerated on the same basis as it used to receive the commission under 1993 agreement. The assessee benchmarked its international transactions by adopting TNMM as most appropriate method. The TPO did not accept TNMM method and applied internal CUP being the price/commission received by GESA from HLAG under 1993 agreement, as well as under sub-agency agreement dated 27/02/2007 w.e.f. 01/01/2007. It is pertinent to note that after the termination of agreement between HLAG and GESA w.e.f. 31/12/2006, GESA was not providing services to HLAG, but under the sub agency agreement, the services are being provided to the assessee. The question arises whether the price charged for services by GESA to HLAG upto 31.12.2006 can be considered as internal CUP for the purpose of determination of ALP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction between an unrelated party and associate enterprise of the assessee in the parity of the services provided by the assessee to the AE. United Nations Practical Manual on Transfer Pricing for Developing Countries has discussed the comparable uncontrolled price (CUP) in para-6.2.1.1 as under :- 6.2.1.1 The comparable Uncontrolled Price (CUP) Method compares the price charged for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances. The CUP method may also sometimes be used to determine the arm s length royalty for the use of an intangible asset. CUPs may be based on either internal comparable transactions or on external comparable transactions. Figure 6.1 below explains this distinction in the context of a particular case study. Figure 6.1 Comparable Uncontrolled Price Method 6.2.1 In the case of the assessee, GESA does not provide services to HLAG . Therefore, it cannot be considered as internal CUP. Moreover, the assessee is providing the services to the AE and receiving the remuneration and in turn getting part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above observation as well as the decision of this Tribunal in the case of UCB India Pvt. Ltd. vs. ACIT dated February 06, 2009 (2009-TII-02- ITAT-MUM-TP) ITA No.428 429/Mum/2007 for assessment years 2002-03 and 2003- 04(supra). 7. For the assessment year 2009-10 the assessee has raised the following grounds :- Aggrieved by the order passed by the learned Assessing Officer ('AO'), giving effect to the order under Section 92CA(3) of the Income-tax Act, 1961 ('the Act) passed by the learned Transfer Pricing Officer (TPO), in pursuance to the directions of the Honble Dispute Resolution Panel - ('the Honble DRP'), under Section 143(3) read with Section 144C(13) of the Act dated December 19, 2013 ('the assessment order'), the Appellant respectfully submits that the learned AO, the learned TPO and the Hon'ble DRP have erred on the following grounds each of which are without prejudice to each other: TRANSFER PRICING GROUNDS 1. GENERAL 1.1 The Learned AO erred in assessing the income of the Appellant under the normal provisions of the Act at INR 35,36,29,790 based on the directions received from Hon'ble DRP upholding the transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though the subject agreement was not in existence during AY 2009-10. 3.2 Using powers u/s 131 in a selective manner and not providing annual accounts of GESA to the Appellant. 3.3 Without prejudice, whilst considering CUP as the MAM, the Learned AO/ITPO has erred in computation of the arm's length price as the Learned TPO has added the reimbursement received from HLAG for payment made to GESA with a mark-up of 10 percent to the commission receivable. CORPORATE TAX GROUNDS 4.RATE OF DEPRECIATION ON COMPUTER HARDWARE: ₹ 14,65,292 That on the facts and circumstances of the case and in law, the learned AO erred in proposing and the Hon'ble DRP erred in granting depreciation on printers, scanners and Electronic Token Display System at the rate of 15 percent being the rate applicable to other machinery and plant instead of 60 percent being the specific rate applicable to 'Computers including computer software' as claimed by the Appellant. 5.RATE OF DEPRECIATION ON COMPUTER SOFTWARE: ₹ 6,80,185 That on the facts and circumstances of the case and in law, the learned AO erred in proposing and the Hon'ble DRP erred in granting dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 2008-09 this issue is set aside to the record of AO/TPO for fresh consideration on the same terms. 8. Ground No.4 is regarding rate of depreciation on computer hardware. 8.1 The assessee claimed depreciation @ 60% on computer including printer, scanner and electronic token display system all part of block of asset of computer. The AO held that the peripherals item do not fall under the definition of computer and allowed depreciation only @ 15%. The DRP confirmed the action of the AO without any discussion. 8.1.2 Before us, the ld. AR has submitted that this issue is now covered by various decisions of Hon'ble High Courts as well as this Tribunal. He has relied upon the judgment of Hon'ble Delhi High Court in case of CIT vs. BSES Yamuna Powers Ltd. (358 ITR 47). He has also relied upon the decision of the Special Bench of this Tribunal in the case of DCIT vs. Datacraft India Ltd. (40 SOT 295)(Mum)(SB)/[2010]. On the other hand the ld. DR has relied upon the orders of authorities below. 8.2 We have considered the rival submissions as well as relevant material on record. The issue of allowability of depreciation @ 60% on the computer accessories and perip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s etc., is computer. It has rest r icted the meaning of computer only to the CPU of the computer and pulled out the input and output devices from the ambit of computer. No doubt the function of the computer, as one composite unit, is to perform logical, arithmetical or memory functions etc., but it is not only the equipment which performs such functions that can be called as computer; All the input and output devices, as discussed above, which support in the receipt of input and outflow of the output are also part of computer. CPU alone, in our opinion, cannot be considered as synonymous to the expression 'Computer'. The function of CPU is akin to the brain playing a pivotal role in the conduct of the body. As we do not call the brain alone as the body, similarly the CPU alone cannot be described as computer. Thus the computer has to necessarily include the input and output devices within its scope, subject to their exclusive user with the computer, as discussed above. If we constrict the definition of computer only to processing unit, as has been held in the case of Routermania Technologies (P.) Ltd (supra), then even the keyboard and mouse etc., will not qualify to be cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on software at the rate of 60 per cent. By providing higher depreciation, it cannot be said that prior to 1st April, 2003, it was revenue expenditure. It was always a capital asset. Prior to 1st April, 2003, the assessee was entitled to normal rate of depreciation which was enhanced to 60 per cent by the amendment considering the rapid wear and tear. The judgment of Supreme Court in the case of Scientific Engg. House (P) Ltd. v. CIT (1986) 157 ITR 86 (SC) also supports the view taken by us inasmuch as their Lordships held that know-how is part of plant and machinery and, assessee is entitled to depreciation thereon. Before concluding this issue, we would like to refer to one more judgment of Supreme Court in the case of Arvind Mills Ltd. v. CIT (1992) 197 ITR 422 (SC) for the proposition The expenditure incurred on capital asset does not lose the character of capital expenditure and does not become a revenue expenditure on the score that the said capital expenditure also ultimately ensures to the effective running of the business . In view of the above discussion, it is held that expenditure was incurred on acquisition of capital assets and thus, it was a capital expenditure. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 licences, cost of which was allocated by HLAG to the assessee. Whereas while giving effect to the said directions of the DRP, the AO disallowed the proportionate cost of additions to computer hardware assets including scanner, printer and electronic token display as well as computer software asset purchased by assessee from third party. The ld. AR has submitted that even as per directions of DRP the amount for disallowance of proportionate depreciation on software licence would be ₹ 49,513/- whereas the AO has disallowed depreciation of ₹ 1,03,769/-. 10.2 On the other hand the ld. DR has submitted that the assessee failed to produce the invoices of purchase of computer accessories and licences. Therefore, the AO is justified in disallowing the depreciation. 10.3 We have considered the rival submissions as well as relevant material on record. DRP while dealing with the issue of depreciation on computer accessories and software directed the AO as under :- On the facts and circumstances as are available on record, it is evident that the cost allocation is not evidenced by invoices before us though seems to have been found acceptable by the TPO as there is no a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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