TMI Blog2018 (7) TMI 2209X X X X Extracts X X X X X X X X Extracts X X X X ..... resorted to. Respectfully following this Tribunal order, we restore the TP matter back to the file of AO/TPO for fresh decision with the same directions. The TP issue stands decided in this manner. Addition of relinquishment and compensation received for such relinquishment of lease option - Revenue or capital receipt - objection of the assessee is this that the lease option is not a tenancy right and therefore, section 55(2) is not applicable - whether the lease option is a capital asset or not? - HELD THAT:- As per the definition of capital asset in section 2(14) as reproduced above, property of any kind held by the assessee whether or not connected with his business or profession is covered by the definition of the term capital asset. There are some exclusions such as stock in trade andconsumable stores or raw materials held for the purposes of his business or profession, personal effects excluding jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and agricultural land situated at some places. These are excluded from the definition of capital asset and in addition to that, certain Gold Bonds, Special Bearer Bonds, 1991 and Gold Deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent agreement dated 08.05.2008, consideration of ₹ 34.90 Crores has accrued to the assessee and assessee has also received part payment of it and has relinquished its rights of lease option. By a subsequent event of reduction in agreed consideration, the accrued consideration does not get reduced and such reduction in accrued consideration in future has no relevance for the purpose of determining the capital gain in the present year. Hence on this aspect of the matter also, we find no merit in the claim of the assessee. Accordingly this issue is decided against the assessee. Disallowance of value of unendorsed FIRCs from export turnover of the company - addition only ground that the same have not been endorsed by the Authorised Dealer ( AD ) bank as on date - HELD THAT:- Disallowance was made by the AO for this reason that FIRCs amounting to ₹ 14,84,16,444/- had not been endorsed by authorized dealer bank as on date and before DRP, the assessee submitted that the endorsed FIRCs and DRP has decided the issue in favour of the assessee without obtaining any remand report from AO in this regard. In this view of the matter, we find force in the submission of ld. DR of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciated Enterprises (-AEs-) of ₹ 948,385,734 with respect to the IT Enabled services ( ITeS ) rendered by the tax payer u/s 92CA of the Income Tax Act. 2. The learned AO / learned TPO erred in rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant on invoking provisions of sub-section (3) of 92C of the Act contending that the information or data used in the computation of the arm's length price is not reliable or correct. In doing so: 2.a the learned AO / learned TPO erred in rejection of comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various filters in determining the arm's length price. 2.b the learned AO / learned TPO erred in rejecting companies that are comparable to the Appellant while performing the comparability analysis. Specifically, the Appellant believes that the following companies should have been included as comparable Lee Nee Software (Exports) Limited Caliber Point Business Solutions Limited R Systems International Limited 2.c the learned AO / learned TPO erred in including companies that do not satisfy the test of compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is distinguishable, whereas the principle arising therefrom. is squarely applicable to the case of the Appellant. 4. The learned AO has erred on facts in concluding that the Appellant has suppressed or concealed one of the crucial agreements executed on 8.5.2008, without appreciating the fact that, the information relating to such agreement is disclosed in the notes to accounts of the financial statements and the supplementary agreement dated 15.9.2008 furnished during the assessment proceedings summarizes the main terms of the alleged crucial agreement. 5. Without prejudice to the above, the learned AO has erred in considering ₹ 349,000,000/-being the initial compensation agreed upon, as consideration, without appreciating the fact final settlement amount received by the Appellant was ₹ 284,000,000. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided. 3. The grounds raised by the revenue are as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue has been finalized as per MAP and now this is the request of ld. AR of assessee before us that the price adopted for US transactions may be adopted for non-US transactions also and in support of this contention, reliance has been placed on Tribunal order rendered in assessee s own case for Assessment Year 2006-07. We, therefore first reproduce the relevant paras of this Tribunal order being para nos. 5, 9 and 10 and these paras are as under. 5. Use of contemporaneous data a) The Honourable DRP and the learned AO erred in concluding that the appellant ought to have employed contemporaneous data in the preparation of the Transfer Pricing report. b) The Honourable DRP and the learned AO erred in interpreting the word Shall in Rule 10B (4) to mean that data for the same Financial Year in which the international transaction was actually entered into is a mandatory requirement. Also the Honourable DRP and the learned AO ought to have appreciated that the transfer pricing regulations provide contemporaneous documentation to be mandatory, and not use of data for the same financial year. c) The Honourable DRP and the learned AO ought to have appreciated the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Tribunal that the same price may be adopted in respect of non-US AEs. The Tribunal has restored back the matter to the file of AO/TPO for fresh decision with the direction that the matter should be analyzed by AO/TPO on the same line for non-US transactions and if it is found that factors influencing the price are similar between US and non-US transactions, the price adopted for US transactions may be adopted for non-US transactions also. This was also directed by Tribunal that it was open to TPO to examine the validity of the proposition that price adopted under MAP mechanism can be adopted in respect of other countries also where MAP was not resorted to. Respectfully following this Tribunal order, we restore the TP matter back to the file of AO/TPO for fresh decision with the same directions. The TP issue stands decided in this manner. 7. Regarding the corporate tax issues in assessee s appeal, it was submitted by ld. AR of assessee that the only issue involved in assessee s appeal is regarding the addition made by the AO of ₹ 34.90 Crores in respect of relinquishment and compensation received for such relinquishment of lease option. In this regard, it was submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.2009. He submitted that as per supplementary agreement and the amended and restated supplementary agreement, the total consideration received by the assessee has been reduced and therefore, such amount should be considered and not initially agreed amount. 8. As against this, the ld. DR of revenue supported the order of AO and DRP. Our attention was drawn to pages 13 to 22 of the final assessment order and it was pointed out that as per the agreement dated 08.05.2008, it is stated that the lessee i.e. the present assessee in consideration of the compensation of ₹ 34.90 Crores payable by the lessor has expressed its willingness to relinquish the lease option as envisaged in the Memorandum of Agreement dated 31.01.2006 and reaffirmed vide Lease Deed dated 10.08.2007. She submitted that in fact, the assessee has expressed its willingness to relinquish the lease option and it is not a fact that the lessor has violated the terms of lease option and paid amount as damages. She also drawn our attention to MOU dated 31.01.2006 available on pages 605 to 635 of paper book and pointed out that granting of lease option has been agreed as per this agreement dated 31.01.2006 and the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt the right to exclusive possession of his land/building to the tenant or the lessee, for a fixed period, on the payment of rent. However, if the arrangement only gives a person a nonexclusive right to occupy another's land, it is a licence. The main difference between a tenancy/lease and a licence is that tenancy/lease creates an interest in land, whereas a licence does not. A licensee has only a personal interest and this interest can be revoked by the landowner at any time. 20.5 To further clarify that tenancy and lease are essentially the same. Reference is invited to the provisions of Transfer of Property Act, 1882, wherein lease is defined as under: Lease defined: A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. And tenancy is understood as a contract by which the owner of real property (the landlord), grants exclusive right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the act. The only dispute is as follows: 1. The definition of capital assets provided under section 55(2) does not specifically cover the capital asset in the nature of lease option. 2. The company was never a tenant in respect of the additional area which was yet to be built but it had only an option to take such additional area on lease once the building is complete. Further, no costs were incurred to acquire the lease option. 20.12 As discussed above the lease rights, tenancy rights as well as rights originatingfrom lease options are same and all of the above create a right to exclusive possession ofland/building oflessorin favourof lessee. Thustenancy rightsare inclusive of allsuch exclusive rights, including lease option rights, created in favour of lessee in the property of the lessor. Since section 55(2) provides for ascertaining the cost of tenancy rights therefore the capital asset in the nature of lease option does fall within the purview of section 55(2). The option to take such additional area on lease once the building is complete is also an exclusive right which restricts the possession of the property of the lessor in the same manner as other tenancy rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire lease option is NIL. Further the date on which such a lease option right was created is also ascertainable in the instant case. 20.17 So far as the alternative claim of the assessee that the full value of consideration should be taken as ₹ 28.4 crores being the final settlement amount and not ₹ 34.9 Crores is concerned, it is noted that the company has not received the entire compensation of ₹ 34.9 Crores as agreed in the relinquishment agreement dated 8th May 2008, and the assessee has received ₹ 15.9 Crores during the year under consideration and the final additional settlement amount of ₹ 12.5 Crores has been received during F.Y. 2009- 10. 20.18 Considering the above factual points, the AO is directed to verify the final consolidated amount of full value of consideration claimed at ₹ 28.4 Crores only and compute the capital gains based on the actual figure of the entire compensation received at ₹ 28.4 Crores only. 20.19 Thus considering the above position of law and facts, the stand of AO is justified and this objection is rejected subject to recomputation of capital gains based on final figure of full value of considered at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Explanation.-For the purposes of this sub-clause, population means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year; (iv) 6 per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government; (v) Special Bearer Bonds, 1991, issued by the Central Government ; (vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 3[or deposit certificates issued under the Gold Monetisation Scheme, 2015] notified by the Central Government. Explanation.-For the removal of doubts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ; (iii) in relation to the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset ; (iiia) in relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee ; and (iv) in relation to any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the aggregate of the amount of the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution, as the case may be, for acquiring such financial asset ; (ab) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised stock exchange in India under a scheme for demutualisation or corporatisation approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange: Provided that the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the meaning assigned to it in clause (v) of the Explanation to section 48; (d) recognised stock exchange shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43;] (b) in relation to any other capital asset,- (i) where the capital asset became the property of the assessee before the 1st day of April, 99[2001], means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of April, 1[2001], at the option of the assessee ; (ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1st day of April, 2[2001], means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April, 2[2001], at the option of the assessee ; (iii) where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to income-tax under the head Capital gains in respect of that asset under section 46, means the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat as per the definition of capital asset in section 2(14) as reproduced above, property of any kind held by the assessee whether or not connected with his business or profession is covered by the definition of the term capital asset. There are some exclusions such as stock in trade andconsumable stores or raw materials held for the purposes of his business or profession, personal effects excluding jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and agricultural land situated at some places. These are excluded from the definition of capital asset and in addition to that, certain Gold Bonds, Special Bearer Bonds, 1991 and Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 are also excluded from the definition of term capital asset but lease option is not an exclusion and therefore, lease option is definitely a capital asset because lease option is a valuable right in our opinion. Hence the first aspect of the issue is decided against the assessee and we hold that lease option is a capital asset. 13. Now the second aspect of matter to be decided by us is whether lease option is equivalent to tenancy right and therefore, section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was given lease option which could be exercised within 24 months from 01.12.2006. As per the agreement dated 08.05.2008, it is stated that the lease option under the MOU and the lease Deed is supposed to expire on 01.09.2008 and the lessee in consideration of the compensation of ₹ 34.90 Crores payable by the lessor has expressed its willingness to relinquish the lease option as envisaged in the Memorandum of Agreement dated 31.01.2006 and reaffirmed vide lease deed dated 10.08.2007. Hence it is seen that in the present case, the lease option has expiry date which means that the lease option can be exercised only up to this date i.e. 01.09.2008 and hence, in our considered opinion, whether the property is in existence or not has no relevance because the builder i.e. M/s. Vipul Ltd. has given an option to the assessee to acquire, exact area on lease and assessee decided to surrender and relinquish lease option for a consideration. It is also seen that the lease option was along with all rights and benefits arising there from, including but not limited to any right to sub-lease and any other right, interest benefit etc. consequential in nature, both under the Memorandum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee by the judgement of Hon'ble Karnataka High Court rendered in the case of CIT vs. Tata Elxsi Ltd., 349 ITR 98. Ground No. 2 is rejected by respectfully following this judgment of Hon ble Karnataka High Court. 17. Regarding ground no. 3, she submitted that this issue was decided by the DRP as per para 16.3 of its directions available on page no. 39 of DRP directions. She pointed out that from this para of DRP directions, it is clear that the endorsed FIRCs were placed before the DRP for the first time and DRP has decided the issue without obtaining remand report from the AO and therefore, on this issue, the matter should be restored back to the file of DRP for fresh decision after obtaining remand report from the AO. In reply, the ld. AR of assessee supported the DRP directions. 18. We have considered the rival submissions. First of all, we reproduce para 16.3 from the DRP directions for ready reference. The same is as under. 16.3 The ground of objections along with all the material placed on record has been perused. The AO disallowed the value of unendorsed FIRCs amounting to ₹ 148,416,444 from export turnover of the company on the only ground that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised towards software solution. Thereafter she drawn our attention to page no. 11 of the draft assessment order and it was pointed out that it is noted by the AO on this page of the draft assessment order that in order to claim the tax benefit u/s. 10A of IT Act, the assessee company should have either developed software or rendered IT enabled service given in the notification referred on the same page of the draft assessment order but it is noted by the AO that in the present case, the invoices submitted by assessee company has revealed the fact that the company has charged some service charges for software solutions from the sister concerns and this particular item was not listed as IT enabled service in the notification referred to by the AO. She submitted that in spite of this categorical finding of AO in the draft assessment order, the DRP has decided the issue in favour of the assessee on this basis that the assessee company had claimed deduction on profits earned from the Pune unit u/s. 10A for the earlier years also and the same has not been questioned. Thereafter the DRP has given a finding in para 19.4 that mere error of not completing the information sought in the Softe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport computer software and IT enabled service are governed under the Code 907. The softex submitted by assessee company of Pune unit did not mention about the nature of service rendered and the columns were not duly fined. Further it is also noticed that none of the invoices were raised against any IT enabled service Listed in the notification S0890[E] dated 26.9.2000. All the invoices were raised towards software solution. It is also noticed that the invoice did not mention about the purchase orders or contract agreements. The discrepancies listed above are discussed in detail with the AR of the assessee company on 5.3.2013 by reporting the case to 11.3.2013. However, neither the company nor the AR has appeared on the date of hearing. Hence a specific show cause notice dated 20.3.2013 was issued to the company by posted the hearing on 26.3.2012. On the date of hearing the AR of the assessee company has appeared and made further submissions: 1.2 Analysis of written submission: 1. As far as the bonus on ink and toner is concerned the assessee company has furnished the following reply: In point a of the notice dated 20th March 2013, in the copy of invoices submitted y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l multiplied by a fixed rate. Subsequently at the end of the year in March, an additional component (being referred to as bonus ) would be billed for the services rendered and billed already. Thus this is an additional billing done for services already rendered. Further the description is given as ink and toner based on the name of cost center under which the concerned transactions are recorded. 23. Now we also reproduce the finding of DRP in this regard from pages 46 47 of the order of DRP being paras 19 to 19.5 of such directions. The same is as under. 19. Ground of objection Disallowance of deduction under Section 10A claimed for Pune STP unit of the company. 19.1 The AO disallowed the deduction claimed under section 10A for Pune STP unit of the company amounting to ₹ 46,735,360 on the ground that the software solution services rendered from such unit is not in the nature of IT enabled services listed in the notification S0890[E] dated 26th September 2000. 19.2 On the other hand the assessee claimed that AO ought to have appreciated that the software solution services are in the nature of computer software as defined in explanation (2) (i) to section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order as reproduced above, it is seen that this is the reply of the assessee that initially the company has raised the invoices based on the call log report, wherein the bill amount was computed on the basis of number of minutes of call multiplied by a fixed rate and subsequently at the end of the year in March, an additional component being referred to as bonus would be billed for the services rendered and billed already. Now in the light of this reply, we examine the relevant invoices which is available on page no. 577 to 591 of paper book and we find that all these invoices are raised in the month of April and May, 2008. When as per the assessee s reply itself, the invoices for difference raised in the month of March, then the said explanation of the assessee is not relevant in respect of these invoices which are raised in the month of April and May 2008. Further this is also not clear from the invoices as to when the services were actually rendered for which Bonus is billed in the month of April and May 2008, what are the nature of services which were rendered for which these bonus invoices are raised is also not clear. It is also noted by the AO in the draft assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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