TMI Blog2021 (5) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... ents- even if, for example, as in this case, such secondary adjustments end up reducing the income of the foreign AE assesses as a result of partial repatriation of income. A lot of emphasis is then placed by the learned CIT(DR) on the claim that the action of the assessee, in partially refunding the royalty amount to the GIA India, i.e., Indian AE, was voluntary inasmuch as the assessee was not a party to the APA. Nothing, however, turns on this plea. Whether the refund was voluntary or under a legal obligation, it does not really make any difference as long as the refund is bonafide and particularly when its commercial expediency is not, and rightly so, even called into question. None of the objections taken by the DRP or raised by the learned CIT(DR), for the detailed reasons, set out above, really impresses us. Thus we are of the considered view that, in principle, the claim of the assessee deserves to be accepted. However, as learned CIT(DR) rightly points out, factual aspects with respect of these claims, i.e., with respect to verifications and quantum of actual refunds of royalties by the assessee, have not been examined at any stage. We, therefore, deem it fit an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong-with Neeraj Sheth and K K Ved For the Respondent : Sanjay Singh, Commissioner (DR) ORDER PER PRAMOD KUMAR, VP: 1. These six appeals pertain to the same assessee, involve some common issues, and were heard together. Therefore, all six appeals are being disposed of by a consolidated order as a matter of convenience. 2. While almost all the issues in these appeals are stated to be fully covered by a decision of the coordinate bench, in the assessee s own case for the assessment year 2010-11 [reported as Gemological Institute of America Inc Vs. ACIT [(2019) 178 ITD 620 (Mum)], there is one issue that is required to be decided by us on the first principles, and that is concerning the impact of Advance Pricing Agreement being signed by the assessee s Indian associated enterprises, namely GIA India Laboratory Pvt Ltd, with the Central Board of Direct Taxes, in terms of which a part of the royalty received by the assessee company from its Indian AE had to refund to the Indian AE. As learned representatives fairly agree, the short question requiring our adjudication, on this point, is whether the amount so refunded by the assessee company to its Indian AE, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lties from the said AE, i.e., GIA-India: Assessment year Amount (In INR) 2011-12 (Financial year ended 31st March 2012) 68,53,46,239 2012-13 (Financial year ended 31st March 2012) 79,48,51,211 2013-14 (Financial year ended 31st March 2012) 141,39,35,180 2014-15 (Financial year ended 31st March 2012) 157,13,38,680 2015-16 (Financial year ended 31st March 2012) 288,71,40,778 2016-17 (Financial year ended 31st March 2012) 261,86,26,595 4. The royalties so received by the assessee company were duly offered to tax, under article 12 of the India US Double Taxation Avoidance Agreement [(1991) 187 ITR (Stat) 102; Indo US tax treaty , in short], @ 15% on a gross basis. While the authorities below had no issues about the quantum of income so offered to tax, there were certain issues with regard to the manner in which the said income is to be taxed as the stand of the authorities below has been that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to in item (ii) of Para 3 of this agreement shall be considered to be at arm's length in a previous year in the Rollback Years and the APA Years (other than previous year 2009-10, when it was not payable), if the payment made by the applicant in respect of the said transaction does not exceed an amount which represents 53.5% of the operating profit of India Graded Segment of the relevant previous year. In respect of previous year 2017-18 the ALP so determined shall be subject to the condition that after payment of royalty the applicant shall, in the India Graded Segment of this year, have an operating profit of at least 33.37% of the operating revenue of said segment. Further, it is clarified that the operating profits for the purpose of this sub-item shall be the operating profit of India Graded Segment determined after reduction of payment for all operating expenses but before any deduction on account of royalty. In order to provide necessary clarity the manner of computation of payable royalty for different years and the additional income to be included in the modified return in this respect has been included in Appendix IV to this agreement based on the informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) For US (C * % ) 564,803,982 564,803,982 G Royalty (%) H 1) As per the 46.5 : 53.5 Split [= F (ii)/A] 25.61% ii) Actual paid ( = D / A ) 36.03% Primary Adjustment i) Actual Royalty (= D) 794,851,211 794,851,211 ii) Royalty as per Split [= F (ii)] 564,803,982 564,803,982 Primary adjustment (H) = [(i) (ii)] 230,047,229 230,047,229 The assessment year 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t [= F (ii)/A] 31.58% ii) Actual paid ( = D / A ) 46.41% Primary Adjustment i) Actual Royalty (= D) 1,571,338,680 1,571,338,680 ii) Royalty as per Split [= F (ii)] 1,069,355,468 1,069,355,468 Primary adjustment (H) = [(i) (ii)] 502,003,212 502,003,212 The assessment year 2015-16 Sr. No. Particulars FYE March 2015 F 46.5:53.5 Split (including Management Fees and excluding Royalty) i) For India (C * % ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) Actual Royalty (= D) 2,61,86,26,595 2,61,86,26,595 ii) Royalty as per Split [= F (ii)] 1,68,83,59,419 1,68,83,59,419 Primary adjustment (H) = [(i) (ii)] 93,02,67,176 93,02,67,176 The assessment year 2017-18 Sr. No. Particulars FYE March 2017 F 46.5:53.5 Split (including Management Fees and excluding Royalty) i) For India (C * % ) 3,02,77,98.811 3,02,77,98.811 ii) For US (C * % ) 3,48,35,96,482 3,48,35,96,482 G Royalty (%) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 168,83,59,419 93,02,67,176 2017-18 597,75,36,448 348,35,96,482 249,39,39,966 Total refund by the assessee to Indian AE, under the APA 586,67,93,216 9. The assessee now claims that the amounts so refunded by the assessee, to its AE in India- namely GIA-India, be reduced from the computation of its income from the royalties. So far as the assessment year 2017-18 is concerned, the claim for reduction in income has been accepted at the assessment level itself, and, in any event, we are not dealing with that assessment year in this bunch of appeals. In the first three assessment years before us, i.e., assessment years 2011-12, 2012-13, and 2013-14, this grievance is raised before us by way of additional grounds of appeal, and in the remaining assessment years, i.e., assessment years 2014-15, 2015,16 and 2016-17, this grievance was raised before the Dispute Resolution Panel. The Dispute Resolution Panel, however, rather summarily rejected the claim so made, and the brief observations made by the Dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal was admitted earlier and argued at length, and there is no reason not to admit the same for these proceedings now. Learned Departmental Representative does not dispute this submission, but vehemently opposes the admission of this additional ground nevertheless. Learned senior counsel for the assessee once again prays, on merits, for admission of this ground of appeal. He submits that this additional grounds of appeal has arisen because of subsequent developments and could not have been, therefore, raised earlier, that it involves a substantial legal issue which goes to the foundational aspect of quantification of income, and that it deserves to be admitted by us, in the light of the well settled legal position- particularly as laid down by Hon ble Supreme Court in the case of NTPC Vs CIT (229 ITR 383). It is submitted that the additional ground in question is raised bonafide. Learned CIT(DR) seriously oppose the admission of additional ground, and submits that quantification of the royalty income is as per the voluntary information furnished by the assessee in the return of income, and it cannot be revisited at this stage. It is also submitted that the relevant facts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents of the Indian AE s APA, the net royalty income of the assessee was only ₹ 49,08,99,451. The fact that the refund was made in a subsequent year does not really matter as it is admittedly on account of the royalty income booked in the assessment year 2011-12, and, therefore, it has to relate back to that assessment year. The royalty income for the assessment year 2011-12, which can be taxed in the hands of the assessee, is only ₹ 49,08,99,451. It was contended that by virtue of the APA, the fundamentals of the transactions between GIA India Lab and the assessee had undergone a change with the approval of the CBDT and the royalty which is payable by GIA India Lab and the only amounts which are receivable by the assessee are ₹ 49,08,99,451. It was contended that income can be said to accrue to the assessee only when the assessee has an indefeasible right to receive the same, and that in view the APA between GIA India Lab and CBDT, the appellant has a right to receive only ₹ 49,08,99,451 and not ₹ 68,53,46,239. It is contended that what can be brought to tax is the real income of an assessee and not hypothetical and notional income. Reliance was pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the AE. However, in contrast, the APA under section 92CC is a voluntary agreement between an assessee and the Department and is not a determination by the AO/TPO where the ALP declared by an assessee is found to be incorrect. Besides, the APA, as in the present case, has the effect of varying and altering the transaction and not varying the ALP of the transaction. Therefore, it is submitted that the corresponding benefit of an agreed amount ought to be given to the AE in case of APA. Our attention is invited to the decision of the Bangalore Bench of ITAT in the case of ACIT vs. EYGBS India Pvt. Ltd. [ITA No 2984/Bang/2018] , a copy of which was placed before us, in which an APA was entered into whereby an upward ALP adjustment of ₹ 8,66,80,000 was made to the income received by the assessee, and it was held that the prohibition contained in the first proviso to section 92C(4) would have no application to a case of APA. Similarly, it is submitted that the prohibition contained in the second proviso would also not have any application in the case of APA. On the strength of these submissions, learned counsel submits that only the net amount, i.e. originally billed royalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The claim of the assessee is in the nature of secondary adjustment since it pertains to the associated enterprise as a result of the primary adjustment. The proviso to sec. 92C(4) reads as provided further that where the total income of an associated enterprise is computed under this sub-section on determination of the arm s length price paid to another associated enterprise from which tax has been deducted or was deductible under the provisions of Chapter XVIIB, the income of the other associated enterprise shall not be recomputed by reason of such determination of arm s length price in the case of first mentioned enterprise . The Ld AR has relied on the decision of the Hon ble ITAT in the case of EYGBS to contend that section 92C(4) does not fetter the claim pursuant to the APA. It is submitted that facts in that case were different. It was a case of the same tax payer and not the other AE. Further, it was held that section 10AA does not restrict the claim and is worded widely to not be constrained by section 92C(4). It is humbly submitted that the reliance on this decision is misplaced in the facts of the assessee. 6. Your kind attention is drawn to section 92CE br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1(iii). This refers to the Appendix -I (1)(b)(iii). A perusal of the same shows that the determination was made keeping in view the operating profits resulting from the transactions. Thus, it is humbly submitted that the Advance Pricing Agreement is in the context of Transfer Pricing methodology and the directions which are the subject matter of APA falls under section u/s 92CC. Thus the determination under APA are nothing but transfer pricing adjustments based on ALP. 8. It was open to the assessee to join as a party to APA which it chose not do so. The APA has no binding force on assessee GIA Inc. It is up to the assessee whether to remit any funds to the Indian Party to the APA, which is a voluntary act on its part, but this has no bearing on the claim for reduction of income in the return of income filed since the APA is not binding on the assessee. In fact, the APA in Appendix-II para 5.3, does recognized and envisage a situation where the applicant GIA India can chose not to raise any invoice on the assessee GIA Inc, in previous years, for receiving back of payment made by it. In this case, certain additional income has been offered for which the formula has been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f an assessment year commencing on or before 01 April 2016 the years under consideration are Assessment Year 2011-12 to 2016-17 and therefore the provisions of section 92CE cannot have any application. Without prejudice to the above, even on merits this provision would have no application. Section 92CE (1) provides inter-alia that where a primary adjustment to the transfer price is determined by an APA entered into by the assessee u/s. 92CC on or after 01 April 2017, the assessee shall make a secondary adjustment. Thus, the primary as well as the secondary adjustments are to be made in the case of the same assessee. In other words, if section 92CE were to be applied post 1st April 2018, the question of making any secondary adjustment could only arise in the hands of GIA India Lab and not in the hands of the assessee. A reading of sub-section (2) of section 92CE shows that the secondary adjustment, which is envisaged in section 92CE(3)(v) is where, as a result of the primary adjustment, there is an increase in total income of the assessee (GIA India Lab) and the excess money is not repatriated to India by its AE (i.e. GIA US) within the prescribed time, such excess is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is, what is its impact on the income of the assessee. Obviously, these royalty refunds by, or royalty recoveries from, the assessee are not standalone events, which can be seen in isolation with the receipts of related royalties in the corresponding previous year. These refunds and recoveries of royalties are thus required to be seen in conjunction with the associated receipts of royalties from GIA India. In the period relating to the assessment year 2011-12, for example, the assessee had received ₹ 68,53,46,239 as royalties from GIA India, but since the assessee was bonafide called upon to refund ₹ 19,44,46,788, the actual income of the assessee, on account of royalty received from GIA India, was only ₹ 49,08,99,451. Any part of royalty receipt, which had to be bonafide refunded to the payer of the royalty, cannot be taxed in the hands of the assessee as this money did not eventually belong to the assessee. It is also important to note that corresponding refund to the GIA-India has been shown as an income of the GIA-India, and offered to tax as such, by way of a modified return in consequence of the APA, as were the terms of critical assumption 5.1 reprodu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders thereon as it thinks fit. As to whether such a new issue can be raised for the first time before us, we may refer to the observations made by Hon ble Delhi High Court, in the case of Orissa Cement Ltd Vs. CIT [(2001) 250 ITR 856 (Del)] , as follows: In Jute Corpn. of India Ltd.'s case (supra), while dealing with the powers of the AAC, it was held by the Apex Court that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the powers of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. The Court went on to further observe that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The AAC must be satisfied that the ground raised was bona fide an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is relevant for the assessee. In terms of the APA, a recovery of royalty is made from the assessee by the GIA-India. This shows that the recovery is bonafide . What is, however, even more material, from our perspective, is that as a result of this bonafide recovery of the part of royalty received by the assessee and offered to tax as such, income of the assessee stands reduced. The reduction in the quantum of royalty income is on account of this factor of actual reduction in income, and that is a reality- dehors the APA. Whether it happened on account of APA, or it was to happen otherwise, the fact remains that there is a reduction of royalty income in the hands of the assessee. And, if there is a reduction in royalty income, what should be brought to tax is only the actual, i.e., reduced, royalty income. Learned CIT(DR) has contended that since the claim of the assessee is in the nature of secondary adjustment since it pertains to the associated enterprise as a result of the primary adjustment, but proviso to sec. 92C(4) lays down the principle that that where the total income of an associated enterprise is computed under this sub-section on the determination of the arm s l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment years before us. It may be recalled that, as noted earlier, stand of the assessee is concerned, so far as secondary adjustments under section 92CE are concerned, these adjustments can only be made in the hands of the assessee and not its AE, and, therefore, the question of making any secondary adjustment could only arise in the hands of GIA India and not in the hands of the assessee . It is, therefore, necessary to briefly deal with the scope and impact of Section 92CE so far as the fact situation before us is concerned. 19. Section 92 CE, as introduced by the Finance Act 2017 w.e.f. 1st April 2018, provides that where a primary adjustment to transfer price has been made suo motu by the assessee in his return of income, made by the Assessing Officer has been accepted by the assessee, is determined by an advance pricing agreement entered into by the assessee under section 92CC, on or after the 1st day of April, 2017, is made as per the safe harbour rules framed under section 92CB; or is arising as a result of the resolution of an assessment by way of the mutual agreement procedure under an agreement entered into under section 90 or section 90A for the avoidance of dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an increase in the total income or reduction in the loss, as the case may be, of the assessee, the excess money which is available with its associated enterprise, if not repatriated to India within the time as may be prescribed, shall be deemed to be an advance made by the assessee to such associated enterprise and the interest on such advance, shall be computed as the income of the assessee , in the manner as may be prescribed . 45.5 It is also further provided that such secondary adjustment shall not be carried out if, the amount of primary adjustment made in the case of an assessee in any previous year does not exceed one crore rupees or the primary adjustment is made in respect of an assessment year commencing on or before 1st April, 2016. 45.6 Applicability: This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent years. [Emphasis, by underlining, supplied by us] 20. Quite clearly, Section 92CE is in the nature of an additional obligation on the assessee to either repatriate back to India the excess payment made (i.e. actual payment minus the arm s length price) or to pay additional income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out. It is also important to bear in mind the fact that no secondary adjustment can anyway be unilateral in nature. When an assessee is to raise an invoice on its AE abroad, that invoice is to be accounted for by the entity issuing the invoice as also by the entity receiving the invoice. These two facets of the transactions are two sides of the same coin Section 92CE(3)(v) aptly defines, consistent with the first principles as well, secondary adjustment means an adjustment in the books of account of the assessee and its associated enterprise to reflect that the actual allocation of profits between the assessee and its associated enterprise are consistent with the transfer price determined as a result of the primary adjustment, thereby removing the imbalance between a cash account and actual profit of the assessee . It is, therefore, not correct to say that when an APA requires an assessee to raise debit notes or invoices on its AE abroad, it is open to the AE abroad to ignore those invoices or debit notes and continue with computation of its income dehors these invoices or debit notes, because the said AE is not a party to the APA. The AE may not be party to the APA, yet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT(DR) on the claim that the action of the assessee, in partially refunding the royalty amount to the GIA India, i.e., Indian AE, was voluntary inasmuch as the assessee was not a party to the APA. Nothing, however, turns on this plea. Whether the refund was voluntary or under a legal obligation, it does not really make any difference as long as the refund is bonafide and particularly when its commercial expediency is not, and rightly so, even called into question. None of the objections taken by the DRP or raised by the learned CIT(DR), for the detailed reasons, set out above, really impresses us. 21. In view of the above discussions, as also bearing in mind the entirety of the case, we are of the considered view that, in principle, the claim of the assessee deserves to be accepted. However, as learned CIT(DR) rightly points out, factual aspects with respect of these claims, i.e., with respect to verifications and quantum of actual refunds of royalties by the assessee, have not been examined at any stage. We, therefore, deem it fit and proper to accept the claim of the assessee, in principle, but remit it back to the Assessing Officer for verification of fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusions unsupported by any relevant material to hold that the appellant had business connection in India. Further he also failed to consider the contrary material and evidence adduced by the Appellant. 3:4 The Appellant submits that the Assessing Officer's stand that the Appellant has business connection in India be struck down and he be directed to accept the total income as returned 26. Learned representatives fairly agree that these issues in appeal are squarely covered by a decision of the coordinate bench, in assessee s own case for the immediately preceding assessment year i.e. 2010-11, wherein the coordinate bench has observed as follows: 9. We have carefully considered the rival submissions, perused the relevant material, including the orders of the lower authorities as well as the case laws referred at the time of hearing. Notably, the controversy before us primarily revolves around as to whether or not the subsidiary of the assessee company i.e., GIA India Lab can be construed as its PE in India. The income-tax authorities have invoked section 9 of the Act and/or Article 5 of the India-US Treaty in order to say that the assessee company has a PE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contracts to e-Fund India or e-Fund India being reimbursed on a certain costplus basis or saving / reduction in cost by transferring business or back office operations to the Indian subsidiary or the manner and mode the payment of royalty transactions or e-Fund India providing support for carrying on core activities being performed by the taxpayer or associated transactions, cannot be the basis to construe the Indian subsidiary as PE of the foreign tax payer. Further, before the Hon'ble Delhi High Court, the Department had contended that the foreign company had a joint venture or partnership with Indian subsidiary as the businesses of the assessee company and the Indian subsidiary were inter-linked and closely connected (which is also contended in the case of the assessee before us) and therefore the Indian subsidiary was regarded as PE of foreign company in India. The aforesaid argument of the Revenue was repelled since the conditions under Article 5 of the DTAA were not met and it has been held that PE cannot be established merely because of transactions between associated enterprises or the principal sub-contracting or assigning the contract to the subsidiary. 11. Factu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Supreme Court has affirmed the decision of the Delhi High Court in E- Funds (supra) wherein it has been held that two employees deputed to e-Fund India fund India did not create a service PE as the entire salary cost was borne by e-fund India and they were working under control and supervision of e-fund India. In the facts of the instant case, since the said services are rendered outside India and none of the employees/ personnel of the assessee company has visited India and therefore, service PE is not triggered in the case of the assessee company. 13. In terms of Article 5(4) of the India US/DTAA, an agency PE is created where a person-other than an agent of an independent status to whom paragraph 5 applies - is acting in India on behalf of an enterprise of the USA, that enterprise shall be deemed to have a permanent establishment in India, if: (a) he has and habitually exercises in India an authority to conclude on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tudy Report). Hence, GIA India Lab is not acting in India on behalf of the assessee company. Further, GIA India Lab is not having any authority to conclude contracts and has neither concluded any contracts on behalf of the assessee company nor has it secured any orders for the assessee company in India. Thus, GIA India Lab cannot be regarded as agency PE of the assessee company in India. 16. Before parting, we may also note the reference made by the Ld. Representative to the assessment concluded by the Assessing Officer for assessment year 2009-10. It was explained that during the assessment proceedings for assessment year 2009-10, a similar query i.e. why GIA India Lab should not be construed as PE of the assessee company in India was raised, but after considering the detailed response furnished by assessee vide reply letter dated 02 November 2012, no addition whatsoever was made, which is evident from the Assessment Order (AY 2009-10) dated 26 March 2013. Thus, in this background it was all the more incumbent upon the Revenue in this year to discharge its onus as to why a different stand is being adopted, especially in the face of the fact that the nature and source of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave any permanent establishment in India under article 5 of the Indo US tax treaty, or business connection India under section 9 of the Income Tax Act, 1961. The assessee succeeds on this issue. 28. Ground nos. 2 and 3 are thus allowed. 29. In ground nos. 4 and 5, the assessee has raised the following grievance: Without prejudice to the foregoing 4:0 Re.: Attribution 4:1 The Assessing Officer/ the Dispute Resolution Panel has erred in holding that 50% of Receipts are attributable to the alleged PE of the Appellant in India. 4:2 The Appellant submits that considering the facts and circumstances of its case and the1aw prevailing on the subject no part whatsoever of its receipts are attributable to India and the stand taken by the Assessing Officer/ the Dispute Resolution Panel in this regard is incorrect, illegal, arbitrary, baseless, not in accordance with law and hence ought to be struck down. 4:3 The Appellant submits that the arbitrary action of the Assessing Officer/ the Dispute Resolution Panel be struck down and the Assessing Officer be directed to accept the total income as returned. Without prejudice to the foregoing: 5:0 Re.: Estimation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income as returned. 33. Learned representatives agree that once we come to the conclusion that there is no PE on the facts of this case, there will be no occasion of royalty being effectively connected with the PE or taxability of royalty under section 44DA. This issue is also, therefore, academic and infructuous in the present context. 34. Ground no. 6 is also thus dismissed. 35. In ground no. 7, the assessee has raised the following grievance: 7:0 Re.: Levy of interest u/s 234B of the Income-tax Act, 1961: 7:1 The Assessing Officer has erred in levying interest us. 234B of the Income-tax Act, 1961 on the Appellant. 7:2 The Appellant submits that considering the facts and Circumstances of its case and the law prevailing on the subject no interest u/s. 254B is leviable and the stand taken by the Assessing Officer in this regard is misconceived, incorrect, erroneous and illegal. 7:3 The Appellant submits that the Assessing Officer be directed to delete the interest u/s. 234B so levied on it and to re-compute its tax liability accordingly 36. Learned representatives fairly agree that since the assessment year before us pertains to the period prior to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be restricted to ₹ 49,08,99,451/ in accordance with the APA 9:3 The Appellant submits that the Assessing officer be directed to consider the royalty income, if any, connected to the alleged PE, only at ₹ 49,08,99,451/- and to re- compute its total income and tax thereon accordingly. 39. In view of the discussions earlier in the order, both the additional grounds of appeal are admitted for adjudication on merits, and in the lights of the discussions in paragraph 2-21 earlier in this order, this additional ground of appeal no. 8 decided in favour of the assessee, in principle, though the matter will go back to the Assessing Officer for verifications of factual aspects with respect of these claims, i.e., with respect to verifications and quantum of actual refunds of royalties by the assessee, which have not been examined at any stage. We, therefore, deem it fit and proper to accept the claim of the assessee, in principle, but remit it back to the Assessing Officer for verification of factual elements embedded in the claim of the assessee. Ordered, accordingly. As for second additional ground of appeal, i.e. ground no. 9, this is rendered infructuous in the ligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a and the stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is erroneous, misconceived and not in accordance with law. 3:3 The Appellant submits that the Assessing Officer has erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material to hold that the appellant had business connection in India. Further he also failed to consider the contrary material and evidence adduced by the Appellant. 3:4 The Appellant submits that the Assessing Officer's stand that the Appellant has business connection in India be struck down and he be directed to accept the total income as returned 45. While dealing with the assessment year 2011-12 earlier in this consolidated order, and respectfully following a coordinate bench decision in assessee s own case for the assessment year 2010-11, we have decided this issue in favour of the assessee and held that the assessee did not have any permanent establishment in India under article 5 of the Indo US tax treaty, or business connection India under section 9 of the Income Tax Act, 1961. The assessee succeeds on this issue. We see no reasons to take any other view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits are infructuous, and do not call for any adjudication by us. We, therefore, decline to deal with these issues on merits, and reject the same as infructuous. 49. Ground nos. 4 and 5 are thus dismissed as infructuous. 50. In ground no. 6, the assessee has raised the following grievance: 6:0 Re: Taxing the royalty received during the year u/s. 44DA of the Income Act, 1961: 6:1 The Assessing Officer the Dispute Resolution Panel has erred in holding that the royalty income is effectively connected with the alleged PE of the Appellant in India and is therefore taxable u/s. 44DA of the Income Tax Act, 1961. 6:2 The Appellant submits that considering the facts and circumstances of its case and law prevailing on the subject and in particular the provisions of the India-USA DTAA, the Assessing Officer/ the Dispute Resolution Panel the royalty received by it during the year under consideration is not taxable u/s. 44DA of the Income-tax Act, 1961 and hence the stand taken by the Assessing Officer/ the Dispute Resolution Panel in respect thereof is incorrect, erroneous, misconceived and illegal and hence ought to be struck down. 6:3 The Appellant submits tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the APA. 8:3 The Appellant submits that the Assessing Officer be directed to consider the royalty income worked out in terms or the APA and to re-compute its total income and tax thereon accordingly. 9:0 Re: Restricting the taxation of royalty income aft effectively connected to the PE only to ₹ 56,48,03,982 9:1 The Appellant submits that in case it is held that any part of royalty income is effectively connected to the alleged PE or the Appellant then such amount should be restricted to ₹ 56,48,03,982 which is in accordance with the APA dated 07 May 2018 entered into by GIA India Laboratory Private Limited. 9:2 The Appellant submits that considering the facts and circumstances of its case, and the law prevailing on the subject, the amount of royalty, if held to be connected to the alleged PE, should be restricted to ₹ 56,48,03,982 in accordance with the APA 9:3 The Appellant submits that the Assessing officer be directed to consider the royalty income, if any, connected to the alleged PE, only at ₹ 56,48,03,982 and to re- compute its total income and tax thereon accordingly. 57. In view of the discussions earlier in the order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its that the Assessing Officer has erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material to hold that the Appellant had a PE in India. Further he also failed to consider the contrary material and evidence adduced by the Appellant. 2:4 The Appellant submits that the Assessing Officer's stand that the Appellant has a PE in India be struck down and he be directed to accept the total income as returned. 3:0 Re.: Holding that the Appellant has a business connection in India: 3:1 The Assessing Officer/ the Dispute Resolution Panel has erred in holding that the Appellant has business connection in India. 3:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it has no business connection in India and the stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is erroneous, misconceived and not in accordance with law. 3:3 The Appellant submits that the Assessing Officer has erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material to hold that the appellant had business conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther income can be taxed in India as the alleged PF has been remunerated at an Resolution Panel in respect thereof is incorrect, erroneous, misconceived and illegal and hence ought to be struck down. 5:3 The Appellant submits that the Assessing Officer be directed to accept the total income as returned 5:4 Without prejudice to the foregoing and inspite of specific directions in this regard by the Dispute Resolution Panel, the Assessing Officer has erred in holding that 20.31% of the receipts attributable to the alleged Indian operations ought to be considered as profits of the PE and taxable in India. 66. Learned representatives fairly agree that in view of our conclusion that the assessee did not have any permanent establishment or business connection in India, the issues regarding attribution of profits or attribution of profits are infructuous, and do not call for any adjudication by us. We, therefore, decline to deal with these issues on merits, and reject the same as infructuous. 67. Ground nos. 4 and 5 are thus dismissed as infructuous. 68. In ground no. 6, the assessee has raised the following grievance: 6:0 Re: Taxing the royalty received during the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms or the APA and to re-compute its total income and tax thereon accordingly. 9:0 Re: R estricting the taxation of royalty income aft effectively connected to the PE only to ₹ 94,26,19,067 9:1 The Appellant submits that in case it is held that any part of royalty income is effectively connected to the alleged PE or the Appellant then such amount should be restricted to ₹ 94,26,19,067which is in accordance with the APA dated 07 May 2018 entered into by GIA India Laboratory Private Limited. 9:2 The Appellant submits that considering the facts and circumstances of its case, and the law prevailing on the subject, the amount of royalty, if held to be connected to the alleged PE, should be restricted to ₹ 94,26,19,067 in accordance with the APA 9:3 The Appellant submits that the Assessing officer be directed to consider the royalty income, if any, connected to the alleged PE, only at ₹ 94,26,19,067 and to re- compute its total income and tax thereon accordingly. 72. In view of the discussions earlier in the order, both the additional grounds of appeal are admitted for adjudication on merits, and in the lights of the discussions in paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons unsupported by any relevant material to hold that the Appellant had a PE in India. Further he also failed to consider the contrary material and evidence adduced by the Appellant. 2:4 The Appellant submits that the Assessing Officer's stand that the Appellant has a PE in India be struck down and he be directed to accept the total income as returned. 3:0 Re.: Holding that the Appellant has a business connection in India: 3:1 The Assessing Officer/ the Dispute Resolution Panel has erred in holding that the Appellant has business connection in India. 3:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it has no business connection in India and the stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is erroneous, misconceived and not in accordance with law. 3:3 The Appellant submits that the Assessing Officer has erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material to hold that the appellant had business connection in India. Further he also failed to consider the contrary material and evidence adduced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not have any permanent establishment or business connection in India, the issues regarding attribution of profits or attribution of profits are infructuous, and do not call for any adjudication by us. We, therefore, decline to deal with these issues on merits, and reject the same as infructuous. 82. Ground nos. 4 and 5 are thus dismissed as infructuous. 83. In ground no. 6, the assessee has raised the following grievance: 6:0 RE: Taxing the royalty received during the year u/s. 44DA of the Income Act, 1961: 6:1 The Assessing Officer the Dispute Resolution Panel has erred in holding that the royalty income is effectively connected with the alleged PE of the Appellant in India and is therefore taxable u/s. 44DA of the Income Tax Act, 1961. 6:2 The Appellant submits that considering the facts and circumstances of its case and law prevailing on the subject and in particular the provisions of the India-USA DTAA, the Assessing Officer/ the Dispute Resolution Panel the royalty received by it during the year under consideration is not taxable u/s. 44DA of the Income-tax Act, 1961 and hence the stand taken by the Assessing Officer/ the Dispute Resolution Panel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer for verifications of factual aspects with respect of these claims, i.e., with respect to verifications and quantum of actual refunds of royalties by the assessee, which have not been examined at any stage. We, therefore, deem it fit and proper to accept the claim of the assessee, in principle, but remit it back to the Assessing Officer for verification of factual elements embedded in the claim of the assessee. Ordered, accordingly. As for ground no. 8, this is rendered infructuous in the light of the findings earlier in the order that no part of the royalty income is to be treated as attributable to the PE, and taxed under section 44AD as such, as it has been held that there is no PE on the facts of this case. 88. Ground no. 7 is thus allowed for statistical purposes in the terms indicated above, and ground no.8 is dismissed as infructuous. 89. In ground no. 8, the assessee has raised grievance against levy of interest under section 234A on the facts of the case, but no specific arguments have been addressed on this issue. Ground no. 8 is thus treated as not pressed. 90. Ground no. 8 is thus dismissed as not pressed. 91. In the result, the appeal for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider the contrary material and evidence adduced by the Appellant. 3:4 The Appellant submits that the Assessing Officer's stand that the Appellant has business connection in India be struck down and he be directed to accept the total income as returned 95. While dealing with the assessment years 2011-12 2012-13, 2013-14 and 2014-15 earlier in this consolidated order, and respectfully following a coordinate bench decision in assessee s own case for the assessment year 2010-11, we have decided this issue in favour of the assessee and held that the assessee did not have any permanent establishment in India under article 5 of the Indo US tax treaty, or business connection India under section 9 of the Income Tax Act, 1961. The assessee succeeds on this issue. We see no reasons to take any other view of the matter than the view so taken by us above. We, therefore, uphold the plea of the assessee on these points. 96. Ground nos. 2 and 3 are thus allowed. 97. In ground nos. 4 and 5, the assessee has raised the following grievance: Without prejudice to the foregoing 4:0 Re.: Attribution 4:1 The Assessing Officer/ the Dispute Resolution Panel has erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earned for the year and to recompute its total income and tax thereon accordingly. Without prejudice to the foregoing: 7:0 Re.: Taxing the royalty received during the year u/s. 44DA of the Incometax Act. 1961: 7:1 The Assessing Officer/ the Dispute Resolution Panel have erred in holding that the royalty income is effectively connected with the alleged PE of the Appellant in India and is therefore taxable u/s. 44DA of the Income-tax Act, 1961. 7:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject and in particular the provisions of the India-USA. DTAA, the Assessing Officer / the Dispute Resolution Panel the royalty received by it during the year under consideration is not taxable u/s. 44DA of the Income-tax Act, 1961 since it does not have any PE in India and hence the stand taken by the Assessing Officer/ the Dispute Resolution Panel in respect thereof js incorrect, erroneous, misconceived and illegal and hence ought to be struck down. 7:3 The Appellant further submits that even if it be held that the royalty income is effectively connected to the alleged PE in India of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Establishment' ( PE) in India. 2:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it has no PE in India and the stand taken by the Assessing Officer/the Dispute Resolution Panel in this regard is erroneous, misconceived and not in accordance with law. 2:3 The Appellant submits that the Assessing Officer has erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material to hold that the Appellant had a PE in India. Further he also failed to consider the contrary material and evidence adduced by the Appellant. 2:4 The Appellant submits that the Assessing Officer's stand that the Appellant has a PE in India be struck down and he be directed to accept the total income as returned. 3:0 Re.: Holding that the Appellant has a business connection in India: 3:1 The Assessing Officer/ the Dispute Resolution Panel has erred in holding that the Appellant has business connection in India. 3:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it has no business connection in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, even if it is held that the Appellant has a PE in India no further income can be taxed in India as the alleged PF has been remunerated at an Resolution Panel in respect thereof is incorrect, erroneous, misconceived and illegal and hence ought to be struck down. 112. Learned representatives fairly agree that in view of our conclusion that the assessee did not have any permanent establishment or business connection in India, the issues regarding attribution of profits or attribution of profits are infructuous, and do not call for any adjudication by us. We, therefore, decline to deal with these issues on merits, and reject the same as infructuous. 113. Ground nos. 4 and 5 are thus dismissed as infructuous. 114. In ground no. 6 and 7, the assessee has raised the following grievances: 6:0 Re: Non-consideration of correct amount of royalty for the year: 6:1 The Assessing Officer / the Dispute Resolution Panel have erred in holding that the Appellant's income by way of royalty for the year is ₹ 261,86,26,600 6:2 The Appellant submits that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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