TMI Blog2019 (10) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... e operating profit margin of M/s Celltick Mobile Media (India) Pvt. Ltd. up to its revenue of ₹ 50 crore was to be taken at 7% of its Operating revenue . Admittedly, the FAR analysis and overall functions of the subsidiary company i.e M/s Celltick Mobile Media (India) Pvt. ltd. had remained the same during the period covered by the APA and that for the year under consideration i.e A.Y 2014-15. Though, the APA in the case of the assessee had been entered into for the period spread over A.Y. 2015- 16 to A.Y 2019-20, however, as held by the ITAT, Mumbai in the case of 3i India Pvt. Ltd. Vs. DCIT [ 2016 (9) TMI 1320 - ITAT MUMBAI] a subsequent APA would also have a bearing on the earlier years. Accordingly, we find that the ALP of the transactions covered by the APA up to INR 50 cr. was to be taken @ 7% of its operating revenue. As such, as the operating revenue of M/s Celltick Mobile Media (India) Pvt. Ltd. during the year under consideration viz. A.Y 2014-15 was ₹ 32,71,03,165/-, therefore, the ALP of the covered transactions @ 7% worked out at ₹ 2,30,20,874/-. As against the aforesaid ALP, the Indian subsidiary of the assessee viz. M/s Celltick Mobile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;Hon'ble DRP'), Mumbai. On the facts and in the circumstances of the case and in law, the learned AO based on the directions of Hon'ble DRP has: Wrong determination of the total taxable income of the Appellant 1. erred in determining the total income of the Appellant at ₹ 6,52,66,290/- as against 'Nil' income declared in the return of income filed by the Appellant for the subject AY; Non-taxability of the income earned by the Appellant as royalty income 2. erred in holding that the income received by the Appellant From provision of software solutions to Celltick Mobile Media (India) Private Limited ('Celli.ick India') for onward distribution to third party customers in India is taxable in India as 'royalty' income under Section 9(1)(vi) of the Act; 3. erred in holding that the income received by the Appellant from provision of software solutions to Celltick India for onward distribution to third party customers in India is taxable in India as 'royalty' income under the provisions of Article 12 of the Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come and Profits to the alleged DAPE of the Appellant in India Without prejudice to ground No. 6 to 8 above, even assuming (without admitting) that the Appellant has a DAPE in India; 9. erred in attributing further income to the alleged DAPE, without appreciating the fact that the alleged DAPE has been compensated at an arm's length price; 10. erred in attributing 50 percent of the gross revenues of the Appellant as being attributable to the alleged DAPE in India, on an arbitrary and ad-hoc basis, without appreciating the fact that additional attribution of 50 percent of the gross receipts of the Appellant from Celltick India would tantamount to a total attribution of 75 percent of the gross revenues to the alleged DAPE in India; 11. erred in estimating the profits of the alleged DAPE of the Appellant at 40 percent of the gross revenues of the Appellant, on an arbitrary and ad-hoc basis without appreciating the global f inancial loss position of the Appellant for the subject year under consideration: Initiation of penalty proceedings under Section 271(1)(c) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings, it was observed by the A.O, that the assessee was marketing and distributing its software solutions and also providing certain support services in India through a company incorporated in India viz. M/s Celltick Mobile Media (India) Pvt. Ltd. As per the facts discernible from the records, it was gathered by the A.O that the assessee during the year had earned income from provision of its software solutions to M/s Celltick Mobile Media (India) Pvt. Ltd. for onward distribution to third party customers in India. The A.O held a conviction that the amount received by the assessee from providing the software solutions to its third party customers in India constituted sale of copyright right, and not sale of a copyrighted article. Accordingly, the A.O concluded that the amount of ₹ 16,31,65,734/- that was received by the assessee from the provision of software solutions to the telecom operators in India was towards royalty both as per the provisions of the I-T Act and the India-Israel tax treaty. Further, the A.O was of the view that M/s Celltick Mobile Media (India) Pvt. Ltd. was the dependant agent PE of the assessee in India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entical facts was involved in the appeal of the assessee for A.Y. 2012-13. The ld. A.R took us through the assessment order for the year under consideration, and submitted, that the A.O while framing the assessment had followed the view taken by his predecessor in A.Y. 2012-13. It was submitted by the ld. A.R that the assessment framed by the A.O in A.Y. 2012-13 was assailed by the assessee on identical grounds before the Tribunal viz. (i) that, the revenue earned by the assessee from provision of its software solutions to M/s Celltick Mobile Media (India) Pvt. Ltd. for onward distribution to third party customers in India did not constitute royalty under the India-Israel tax treaty; (ii) that, the Indian subsidiary of the assessee viz. M/s Celltick Mobile Media (India) Pvt. ltd. was not working as a dependant agent PE of the assessee in India; and (iii) alternatively, as 50% of the receipts from the customers that was paid by the assessee to its Indian subsidiary viz. M/s Celltick Mobile Media (India) Pvt. Ltd., was reported by the latter as an international transaction within the meaning of Sec.92B, which on a reference to the TPO was accepted as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken @ 7% of its Operating revenue . It was averred by the ld. A.R, that as the operating revenue of M/s Celltick Mobile Media (India) Pvt. Ltd. during the year under consideration viz. A.Y 2014-15 was ₹ 32,71,03,165/-, therefore, the ALP of the covered transactions @ 7% worked out at ₹ 2,30,20,874/-. It was thus submitted by the ld. A.R that as M/s Celltick Mobile Media (India) Pvt. Ltd. had shown a profit of ₹ 3,65,52,479/- as per its profit and loss account for the year under consideration, therefore, the same was higher than the ALP of the covered transactions. 7. Per contra, the ld. Departmental Representative (for short DR ) relied on the orders of the lower authorities. It was submitted by the ld. D.R that the assessee had not shown any basis as per which the profitability and income attribution was to be estimated. In support of his aforesaid contention the ld. D.R took us through the relevant observations of the DRP. It was further averred by the ld. D.R that FAR analysis in the case of the Indian subsidiary viz. M/s Celltick Mobile Media (India) Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds revealed that the amount realised by the assessee from the customers was shared between the assessee and its Indian subsidiary viz. M/s Celltick Mobile Media (India) Pvt. Ltd. on 50:50 basis. We find that pursuant to the directions of the DRP, the A.O had assessed the receipts as the business profits of the assessee in terms of Article 7 of the India- Israel tax treaty. The ld. A.R had in the case before us confined his contentions to the aspect that the addition made by the A.O/DRP was untenable, for the reason, that once the arms length principle had been satisfied qua the relevant transaction between the assessee and its Indian subsidiary viz. M/s Celltick Mobile Media (India) Pvt. Ltd., then, no further profits could be attributed to the assessee in India, even if it was to be held that the latter had a PE in India. At this stage, we may herein observe that the assessee while canvassing the aforesaid contention had not assailed the observations of the lower authorities that the assessee had a PE in India. In sum and substance, it is the claim of the assessee that now when during the year the Indian subsidiary of the assessee viz. M/s Cellti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven if it has a PE in India. While canvassing such proposition, assessee also does not bring into question the stand of the Revenue that there is a PE of the assessee in India. The point sought to be made by the assessee is that the compensation remaining with the Indian subsidiary, i.e. Celltick India, is adequate and justified on the basis of the Transfer Pricing analysis, and the same has been so accepted by the income tax authorities in the case of Celltick India for the very same assessment year. In this regard, a copy of the order of TPO dated 25.01.2016 (supra) in the case of Celltick India has also been placed in the Paper Book at pages 123 to 124. Therefore, according to the assessee, no further income could be attributable to it on account of its PE in India. In our considered opinion, the proposition sought to be canvassed by the assessee has the approval of the Hon'ble Supreme Court in the case of Morgan Stanley Co. (supra). In fact, in a subsequent judgment in the case of E-Funds IT Solution Inc. (supra), the Hon'ble Supreme Court reiterated the earlier proposition laid down in the case of Morgan Stanley Co. (supra), and in doing so, it took into considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) Pvt. ltd. had remained the same during the period covered by the APA and that for the year under consideration i.e A.Y 2014-15. Though, the APA in the case of the assessee had been entered into for the period spread over A.Y. 2015- 16 to A.Y 2019-20, however, as held by the ITAT, Mumbai in the case of 3i India Pvt. Ltd. Vs. DCIT (ITA No. 581/Mum/2015, dated 16.09.2016) , a subsequent APA would also have a bearing on the earlier years. Accordingly, we find that the ALP of the transactions covered by the APA up to INR 50 cr. was to be taken @ 7% of its operating revenue. As such, as the operating revenue of M/s Celltick Mobile Media (India) Pvt. Ltd. during the year under consideration viz. A.Y 2014-15 was ₹ 32,71,03,165/-, therefore, the ALP of the covered transactions @ 7% worked out at ₹ 2,30,20,874/-. As against the aforesaid ALP, the Indian subsidiary of the assessee viz. M/s Celltick Mobile Media (India) Pvt. Ltd. had shown a profit of ₹ 3,65,52,479/- as per its profit and loss account for the year under consideration. Accordingly, we are of the considered ..... 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