TMI Blog2020 (12) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... rom other operators from Laxmi field, ONGC, World Tata Petrodyne Ltd on the same price therefore it cannot be said that assessee has not made transaction according to arms length principles. Ground of appeal of the revenue is dismissed. Addition u/s. 40(a)(ia) r.w. 195 - payment of purchase commission and guarantee commission by the assessee company to British Gas Energy Holding Ltd. a group holding company situated in United Kingdom - CIT-A deleted addition - HELD THAT:- As decided in the case of the assessee itself for assessment year 2007-08 Payment of consideration would be regarded as fee for technical/included services only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.' The rendition of services for earning commission cannot be of such a nature that there is a transfer of technology, in the sense it is required to fulfil the 'make available' clause in the Indo UK DTAA. It is also elementary that in a case in which the provisions of the DTAA are applicable, the provisions of the Income Tax Act apply only to the extent the same are beneficial to the assessee. In view of these discussions, qui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Payment for corporate guarantee commission 38,70,000 2 British gas energy Holding Ltd Payment for corporate guarantee commission 63,10,000 The assessee has filed a transfer pricing study report of the Authorized Representatives along with supporting documents and details. The Assessing Officer has not agreed with the submission of the assessee regarding conclusion drawn in respect of arms length transaction. The associated enterprise B.G. Energy Holding Ltd. had negotiated the transaction with Cairn Energy Group for purchase of natural gas from its Laxmi Gas field. The contract for purchase of gas was transferred by the associated enterprise to Gujarat Gas Company Limited and subsequently it was transferred to the assessee company. Therefore, the Assessing Officer was of the view that the transactions of purchase of gas by the assessee from Cairn Energy Group were covered under the definition of international transaction as per provision of section 92B(2) of the Act. The payment of commission to the associate enterprise was benchmarked by using CUP as the most appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed international transaction. The Assessing Officer has also rejected the contention of the assessee to aggregate all the transactions and evaluate them on annual basis as a comparable price for benchmarking and Assessing Officer was of the view that transactions should be compared individually and not on aggregate basis. Accordingly, the Assessing Officer has determined the adjustment as under:- S. No. Date US Natural gas well headspot price (USD) Price in International transaction Difference Quantity Adjustment in USD 1 April 2009 3.180 3.9414 0.7614 238366.5 181492.3 2 May 2009 3.230 3.9414 0.7114 253038.2 180011.4 3 June 2009 3.380 3.9414 0.5614 246891.7 13860 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om Cairn India Ltd. The contract has been signed by the appellant after the negotiations for the price of gas was made by BGEH Ltd, an AE Of the appellant company. The appellant has paid corporate guarantee commission and commission on such purchases to its AE. These payments have been shown by the appellant as International transactions and T.P study report has also been submitted. The AO invoked the provisions of section 92B(2) on the transaction of purchase of gas from Cairn Energy group and held that the transactions were covered under the definition of international transaction . It was held by him that since the transactions for purchase of gas was as a result of the transaction between Cairn group and the AE, (BGEH) the provisions of section 92B(2) will be applicable and the transactions for purchase of gas were accordingly benchmarked by him after comparing the purchase price with the wellhead spot prices of US Natural Gas. He took an average rate of 3.9414 as the comparable price and made an adjustment of ₹ 4.73 crores to the income of the appellant on account of arm's-length adjustment of the international transactions. The appellant on the other hand has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made a party to that agreement. The payments for negotiation and corporate guarantee commission have separately been made by the appellant to its AE. The negotiation was for a long term contract of 22 years which has benefited the appellant as the price of gas keeps on varying. This has ensured guaranteed supply of gas to the appellant and also stability in the purchase price. The appellant has rightly submitted that the provisions of section 92 B(2) are not applicable. The section clearly specifies that there should be a prior agreement in relation to the relevant transaction between such other person and the AE. It is an undisputed fact that there was no agreement between the BGEH and Cairn group. The BGEH was negotiating on behalf of the Indian companies. The agreement was entered between the Indian entity of Cairn Group and the appellant group company, which is incorporated in India. The contract or the agreement has subsequently been assigned to the appellant. Therefore, I am of the considered opinion that the provisions of section 92B(2) are not applicable. The AO was accordingly not justified to treat the transaction of purchase of gas from Cairn group as intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) then that section does not have any application. The ld. counsel has also referred page no. 3 of the paper book pertaining to the copy of agreement between ONGC, World Tata Petrodyne Ltd., Cairn Energy group of companies and Gujarat Gas Limited. The ld. counsel has referred page no. 5 of agreement pertaining to the various clauses of sale and purchase of gas by the sellers and the buyers. As per clause 6, it is stated that each of the sellers has agreed to sell gas to the buyers and the buyer has agreed to purchase gas from the sellers as per the terms and conditions of the contracts. The ld. counsel has also referred page no. 14 of this agreement and article 14.1 of the agreement stating that the purchase price payable by the buyer to the seller will be as per article 14 which includes various clauses such as price, price calculation, ceiling and floor price etc. The ld. counsel has also contended that the price is negotiated between the parties to the agreement and there is no role of the associated enterprise to negotiate the price of the gas purchased by the assessee and the Assessing Officer has wrongly made the addition. 6. Heard both the sides and perused the materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has purchased the gas from Cairn and from other operators from Laxmi field, ONGC, World Tata Petrodyne Ltd on the same price therefore it cannot be said that assessee has not made transaction according to arms length principles. In the light of the above facts and findings, we do not find any infirmity in the decision of the ld. CIT(A) as elaborated supra in this order. Therefore we do not find any merit in this ground of appeal of revenue, accordingly, this ground of appeal of the revenue is dismissed. Ground No. 2(Deleting ₹ 1,01,80,000/- u/s. 40(a)(ia) r.w. 195 of the Act) 7. During the course of assessment, on verification of P L account , the Assessing Officer observed that provision of section 195 of the Act were applicable on the payment of purchase commission and guarantee commission of ₹ 1,01,80,000/- by the assessee company to British Gas Energy Holding Ltd. a group holding company situated in United Kingdom. The detail of purchase commission and guarantee commission elaborated in ground no. 1 of the Revenue is as under:- Payment of corporate guarantee commission 38,70,000 Payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d no service are rendered in India .it has also stated that it cannot be said that the commission has accrued in India . Following points are noted in respect of the assessee's transaction with BGEH: However in this regards the appellant humbly submit that during the course of the assessment proceedings it has never said that it is not obliged to deduct TDS on payments remitted in the form of commission to BGEH as the company does not have any PE in India and no service are rendered in India in any of its submissions with the learned A.O. Further the learned A. O. has never asked the appellant to provide justification non deduction of TDS on payments remitted in the form of commission to BGEH. Hence the learned A.O. has failed to provide the opportunity of being heard to the appellant before arriving at the conclusion regarding the application of section 9(1 )(vii) r.w.s. 195 of the Act to commission income of BGEH, hence it is against the principle of natural justice. 2.5 The appellant humbly submits that the disallowance of ₹ 1,01,80,000/-as made by the learned A.O. is required to be deleted on the following grounds. (a) The learned A. O. has grossly er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase if was a commission whether provisions of section 195 were applicable and the appellant was bound to deduct fax on the same. The facts show that the appellant has made following payment of commission: - Purchase commission : ₹ 38,45,000 Payment guarantee commission : ₹ 79,79,000 Total : ₹ 1,,18,24,000 The purchase commission has been paid as BGEH negotiated a gas purchase agreement with Cairn India Ltd for supply of gas to the appellant. The commission was paid at the rate of 1% of its annual gas purchases at ceiling price. The payment guarantee commission has been paid to BGEH as it provided a corporate guarantee to Cairn Energy Ltd on behalf of the appellant. BGEH was the primary obligor to the selling party for the gas purchase contract. The facts regarding the quantum of payment are not disputed as it is evidence by the agreements and the A.O has also not disputed the same. As per Explanation 2 below clause (vii) of Sub-Section (1) of Section 9 of the I.T. Act 'fees for technical services' m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 312 (Del)], Linde AG (62 ITD 330) and UPS SCS (Asia) Ltd. [50 SOT 268 (Mum.)] wherein the proposition laid down is that merely because the foreign selling agent has provided procurement services, it would not fall under the category of managerial services so as to apply the provisions of S.9(l)(vii) of the Act. The Bombay High Court in the case of J.K. (Bombay) Ltd.(supra) has referred an article on 'Management Science' in Encyclopedia 747, wherein it is stated that the management in organizations include at least the following: (a) discovering, developing, defining and evaluating the goals of the organisation and the alternative policies that will lead towards the goals; (b) getting the organisation to adopt the policies; (c) scrutinizing the effectiveness of the policies that are adopted and (d) initiating steps to _ ^changepolicies_wjier2jhey^rejudged to be less effective than they ought to be. Management thus pervades all organizations. Further reliance is also placed on the orders of Angelique International [55 SOT 226 (Del)], Adidas Sourcing Ltd. [21 ITR (Trib.) 697 ( Del.)] and Sukani Enterprise ITA No. 1330/M/2011, wherein also, the proposition laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted abroad and therefore, it also cannot be said that it has been received by some agent in India. The honourable Supreme Court of India in the case of Toshoku (supra) has held that commission earned by the non-resident for acting as the selling agent for the Indian exporter, wherein such non-resident was rendering services from outside India does not accrue in India. In the present case before me also, the foreign agent is a resident of UK from your the negotiations have been carried out for which the commission has been paid, and therefore, the issue before me is directly and squarely covered by the Apex Court decision. In view of the above mentioned facts and circumstances, it is held that the appellant was not liable to deduct tax on the commission of ₹ 1,78,24,000/-. The disallowance made by the A.O is accordingly directed to be deleted. 9. During the course of appellate proceedings before us, the ld. counsel has brought to our notice that on similar issue on identical facts in the case of the assessee company itself the Co-ordinate Bench of the ITAT vide ITA No. 467/Ahd/2014 for Assessment Year 2007-08 on 21st Sep, 2017 has adjudicated the matter in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year : 2007-08 to 2009-10 knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology making available , the technical knowledge, skill etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered made available when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which emb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer has made addition of ₹ 6,18,456/- as disallowance u/s. 14A to the total income of the assessee. 13. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. The relevant part of the order of the ld. CIT(A) is reproduced as under:- 5.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made a disallowance under section 14 A by applying the Provisions of Rule 8D. It was noted by him that the appellant had made investment in tax-exempt assets. The appellant has earned dividend income from Mutual Funds of ₹ 4780/-. The AO made disallowance out of administrative expenses by applying the Provisions of Rule 8D. The appellant on the other hand has submitted that it has already made a disallowance of ₹ 4309/- as expenses under section 14 A in the return of income which has been made on a scientific and systematic manner after considering the ratio of dividend income and the total revenue and allocating the expenses on that proportion. . On a careful consideration of the entire facts related to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A by applying the Provisions of Rule 8D is upheld in respect of the administrative expenditure which has been worked out by applying the third limb of the Rule. The ground of appeal is accordingly, dismissed. 14. During the course of appellate proceedings, the ld. counsel has submitted that identical issue on similar facts in the case of the assessee itself has been adjudicated by the Co-ordinate Bench of the ITAT vide ITA No. 364/Ahd/2016 against the assessee. The relevant part of the decision of ITAT is reproduced as under:- 17. In respect of Assessment Year 2008-09, it is important to bear in mind the fact that this is the year in which the Rule 8D had admittedly come into force and as per assessee's claim that it had sufficient interest free funds. No disallowance is made by the Assessing Officer in respect of interest payments. The disallowance has ITA Nos. 2371 2394/Ahd/2013, ITA Nos. 363, 364, 467 468/Ahd/2014 Assessee : Gujarat Gas Trading Co Ltd Assessment Year : 2007-08 to 2009-10 been made on the basis of the formula set out in Rule 8D in respect of administrative expenses and we see no infirmity in the order of CIT(A) in confirming this disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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