TMI Blog2022 (4) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into by the assessee for import of software was done by the Assessing Officer or the DRP. There is no iota of doubt that payment for transfer of copyrighted article as against the payment for transfer of copyright does not qualify as royalty and thus the same is not taxable in India in the absence of PE of the seller. However, each case is decided on its own facts. It is also pertinent to note that the conclusion in favour of the taxpayer in Engineering Analysis Centre for Excellence Pvt. Ltd. [ 2021 (3) TMI 138 - SUPREME COURT] was also reached after considering relevant clauses of End User License Agreement. However, in the present case as is evident from the orders passed by the Assessing Officer and DRP, such factual aspects were not considered and claim of the assessee was denied merely by referring to judicial precedents and CBDT circular. In view of the above we deem it appropriate to restore this issue to the file of AO for de novo adjudication after examination of the agreements entered into by the assessee for import of software - In view of the above, ground no. 3 raised in assessee s appeal is allowed for statistical purpose. Disallowance made unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds Tata Brand Equity subscription - HELD THAT:- As per the Tata Brand Equity and Business Promotion Agreement , the assessee was under contractual obligation to make annual payment towards the subscription fees. According to assessee, in consideration of this subscription fees, Tata Sons Limited was, inter-alia, responsible for organising corporate identity and brand promotional activities and campaigns, engage professional consultants, make available a pool of sharable resources of the Tata Group to the assessee and provide assistance in accessing the network of domestic and international business contacts and also permit the assessee to use the business name. All the activities were predominantly the activities carried out or to be carried out by Tata Sons Limited to enhance the value of TATA Brand, which is owned by Tata Sons Limited and for same expenses were incurred by Tata Sons Limited and accounted in its books of account. In the present case, nothing has been brought on record to suggest that the subscription fee paid by the assessee to Tata Sons Limited under the Tata Brand Equity and Business Promotion Agreement is different in nature from the one considered in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deny the same in the relevant assessment year which is the fifth year of deduction claimed on SEZ unit under section 10AA of the Act. Thus, to this extent, we endorse the conclusion of the DRP and accordingly the Assessing Officer is directed to allow the deduction under section 10AA of the Act in respect of SEZ units commenced during the assessment years 2008 09, 2009 10 and 2010 11 as the same has already been allowed in the preceding assessment years. Thus, grounds no.9 and 10, raised in assessee s appeal are allowed. Grant of foreign tax credit as per the provisions of section 90(1)(a) read with provisions of the applicable Double Taxation Avoidance Agreement ( DTAA ) for taxed paid overseas in relation to income eligible for deduction under section 10A/10AA - HELD THAT:- As relying on own case [ 2019 (11) TMI 408 - ITAT MUMBAI] where the respective tax treaty provides for benefit for foreign tax paid even in respect of income on which the assessee has not paid tax in India, still, it would be eligible for tax credit under section 90 of the Act. Like Article 25 of the Indo USA treaty, treaties with various other countries such as Indo Denmark, Indo Hungary, Indo Norway, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king of the international transaction of provision of software consultancy services as per the findings of the Tribunal referred above. The TPO/Assessing Officer is also directed to consider the comparables selected by the CIT(A) in previous assessment years, for North American Region, APAC Region and Europe Region, for the purpose of benchmarking after necessary verification. Further, any transfer pricing adjustment should be restricted to the international transactions undertaken by the assessee. In view of the above, ground no.17 in assessee s appeal is allowed for statistical purpose. Transfer pricing adjustment in respect of provision of guarantee - HELD THAT:- As relying on own case [ 2019 (11) TMI 408 - ITAT MUMBAI] Following the decision in CIT v/s Everest Canto Cylinders Ltd.[ 2015 (5) TMI 395 - BOMBAY HIGH COURT] directed the Assessing Officer to charge guarantee commission @ 0.5% per annum. Deduction u/s 10A - Reduction of expenses incurred in foreign exchange from both export turnover and total turnover while computing the deduction under section 10A - HELD THAT:- We find that this issue is no longer res integra and has been decided in favour of the taxpayer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the claim of the assessee is that deduction under section 80HHE was previously claimed in respect of such units - HELD THAT:- We find that on identical issue in assessee s own case [ 2019 (11) TMI 408 - ITAT MUMBAI] held that old unit of assessee on which deduction under section 80HHE was claimed is entitled to claim deduction under section 10A of the Act from the profits of its units. TP Adjustment - adjustment in respect of loan to A.Es - HELD THAT:- Adjustment made by TPO by adopting rate of interest of 6% based on loan given by the assessee itself to another A.E. is not a valid CUP as the transaction is also between the related parties, thus to this extent order passed by the TPO and upheld by the DRP is set aside. Further, as we have already upheld the benchmarking of this transaction of loan to the A.Es., inter-alia, for the purpose of acquisition of downstream subsidiaries, for assessment year 2011-12 by applying the principle of LIBOR plus 300 to 400 basis points, we direct the TPO / Assessing Officer to compute the adjustment in respect of loan to A.Es. for the relevant assessment year by applying rate of interest of LIBOR, which will further be marked up with ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the case pertaining to this issue as emanating from the record are: The assessee had paid tax amounting to ₹ 19,73,51,059, to various local State authorities in USA. The assessee claimed deduction under section 37 of the Act on the aforesaid local tax paid. During the course of assessment proceedings, the assessee was asked to show cause as to why the claim of State tax paid in USA cannot be disallowed under the provisions of section 40(a)(ii) of the Act. The assessee submitted that as per Explanation 1 to section 40(a)(ii) of the Act only the sum eligible for relief of tax under section 90 or under section 91 of the Act are not eligible for deduction as per section 40(a)(ii) of the Act. The State and local taxes being outside the scope of ambit of the Double Taxation Avoidance Agreement ( DTAA ) are ineligible for relief under section 90 of the Act. The assessee further submitted that the term tax as defined under section 2(43) of the Act would only include taxes chargeable under the Act. The Assessing Officer, vide draft assessment order dated 16.02.2015, passed under section 143(3) r/w section 144C(1) of the Act did not agree with the submissions of the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub section (43) of section 2 of the Act, it becomes clear that the term tax has been defined to mean any tax paid under the provisions of the Act. Section 40(a)(ii) of the Act says that any rate or taxes levied on the profits or gain in any business or profession would not be allowable as deduction. Explanation 1 to section 40(a)(ii) of the Act inserted by the Finance Act, 2006, w.e.f. 1st April 2006, further clarifies that any sum eligible for relief of tax either under section 90 or 91 of the Act would not be allowable as deduction under section 40(a)(ii) of the Act. It is the say of the assessee that the tax eligible for relief under section 90 of the Act are only those taxes which are levied by Federal / Central Government and not by any local authority of State, City or County. Thus, it is ineligible for any relief under section 90 of the Act. The aforesaid submissions of leaned Sr. Counsel for the assessee, prima facie, is acceptable if one has to strictly go by the meaning of tax , defined under section 2(43) of the Act, as it only refers to tax paid under the provisions of the Act. It is also worth mentioning, the State taxes paid by the assessee in DTAA countries are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the aforesaid orders and no change in facts and law was alleged in the relevant assessment year, respectfully following the decisions of the Co ordinate Bench rendered in assessee s own case cited supra, we direct the Assessing Officer to verify as to whether the State Tax paid by the assessee overseas are eligible for any relief under section 90 of the Act and if it is not found to be so, the assessee s claim of deduction should be allowed. Accordingly, ground no.2 raised in assessee s appeal is allowed for statistical purpose. Consequently, no separate adjudication of ground no.2.1, raised in assessee s appeal is required. 11. Further as regards ground no.2.2, raised in assessee s appeal, in view of the above, the same is consequential in nature and shall be accordingly dealt by the Assessing Officer as per law. Accordingly, the same is allowed for statistical purpose. 12. The issue arising in ground no.3, raised in assessee s appeal pertains to expenditure incurred on import of software. 13. The brief facts of the case pertaining to this issue as emanating from the record are: During the relevant assessment year, the assessee imported software for its business. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture in respect of import of software and allowed depreciation on same to the assessee. Being aggrieved the assessee is in appeal before us. 16. During the course of hearing, learned Senior Counsel at the outset submitted that the issue whether payment for purchase of software is royalty is no longer res integra and has been decided in favour of the taxpayer by Hon ble Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. v/s CIT, [2021] 432 ITR 471 (SC). Learned Senior Counsel further submitted that the Co-ordinate Bench of Tribunal in assessee s own case for assessment year 2005-06 vide order dated 23.03.2017 also held that the amount paid for purchase of software product would not fall within the definition of royalty and accordingly, no TDS was required to be deducted. On the other hand, learned D.R. vehemently relied upon the draft assessment order. 17. We have considered the rival submissions and perused the material available on record. In the present case, the Assessing Officer vide draft assessment order treated the expenditure for import of software as royalty with the meaning of section 9(1)(vi) of the Act. In support of its conclusion the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of software is in the nature of royalty under section 9(1)(vi) of the Act and thus assessee was liable to deduct tax at source under section 195 of the Act. Though it has been submitted by the assessee that the payment for purchase of software is for acquiring of copyrighted article and not for transfer of any right in the copyright and payment cannot be construed as royalty under section 9(1)(vi) of the Act. However, no factual verification vis-a-vis relevant clauses of agreements entered into by the assessee for import of software was done by the Assessing Officer or the DRP. There is no iota of doubt that payment for transfer of copyrighted article as against the payment for transfer of copyright does not qualify as royalty and thus the same is not taxable in India in the absence of PE of the seller. However, each case is decided on its own facts. It is also pertinent to note that the conclusion in favour of the taxpayer by the Hon ble Supreme Court in Engineering Analysis Centre for Excellence Pvt. Ltd. (supra) was also reached after considering relevant clauses of End User License Agreement. However, in the present case as is evident from the orders passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he activities of the Treasury Department among all the four activities, salary cost of persons who were overseeing investment functions and 25% of the other expenditure of Treasury Department can be reasonably attributed for earning the exempt dividend income. Accordingly, the assessee offered a total expenditure of ₹ 71,98,280, for disallowance under section 14A of the Act. As regards the interest expenditure incurred by the assessee during the relevant assessment year, the assessee submitted that the same had no nexus direct or indirect with earning of exempt income. The Assessing Officer vide draft assessment order dated 16.02.2015, held that the expenditure suo motu offered for disallowance under section 14A of the Act by the assessee for earning the exempt income are very meager. Accordingly, the Assessing Officer made a further disallowance of ₹ 14,51,69,647, in addition to the disallowance offered by the assessee under section 14A of the Act, by treating 0.5% of average value of investment income towards expenditure for earning the exempt income and also interest not directly attributable to any particular income. The DRP vide directions dated 16.11.2015, upheld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have noted that the assessee furnished the working of suo moto disallowance of ₹ 53,18,829/-, which consist of ₹ 35,92,649/- (salary of the employee who is looking after investment functions) and ₹ 17,26,180/- (overhead expenses other than his salary). The AO has not examined the correctness of the claim of the assessee. No reason as to why the AO is not satisfied with the working of the assessee except recording that the expenses are very meager. The ld CIT(A) after considering the submissions and the material placed before him directed to delete the disallowance including the disallowance of Rule 8D(iii). The ld DR for the revenue failed to bring any material in our notice to take the other view, no contrary decision is also brought to our notice. Thus, we affirm the order of ld CIT(A). In the result this ground of appeal is dismissed. 26. The learned D.R. could not show us any reason to deviate from the aforesaid order and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the decision of the Co ordinate Bench rendered in assessee s own case cited supra, we direct the Assessing Officer to delete the disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and accordingly, treated the same as capital in nature. The Assessing Officer also granted depreciation @ 25% amounting to ₹ 12,43,72,723. 31. The DRP, vide its directions dated 16.11.2015, upheld the disallowance made in the draft assessment order on this issue. Being aggrieved, the assessee is in appeal before us. 32. During the course of hearing, the learned Sr. Counsel submitted that the expenditure incurred by the assessee in respect of advertisement in newspaper / magazine marketing of its product, etc., were routinely incurred for its on going business and the same was not in the nature of brand building. The learned Senior Counsel further submitted that the assessee did not derive enduring benefit by incurring the said expenditure. In support of his submissions, the learned Senior Counsel placed reliance on the orders passed by the Co ordinate Bench of the Tribunal in assessee s own case for the preceding assessment years. 33. On the other hand, the learned Departmental Representative vehemently relied upon the orders passed by the authorities below. 34. We have considered the rival submissions and perused the material available on record. As it is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, learned Commissioner (Appeals) has come to such conclusion. The leaned Sr. Counsel submitted, the experience certainty campaign was also for the purpose of advertisement only and in this context, he has furnished before us the details of such expenditure through additional evidences. Since, the additional evidences furnished by the assessee will have a crucial bearing in determining the nature of expenditure, we are inclined to admit the additional evidences. However, considering the fact that these evidences were not furnished before the Departmental Authorities, to afford a fair opportunity to the Department to verify the authenticity of assessee s claim vis a vis the additional evidences furnished before us, we restore the issue to the Assessing Officer for de novo adjudication after providing reasonable opportunity of being heard to the assessee. We make it clear, our aforesaid direction is only with regard to the experience certainty expenditure of ₹ 5.28 crore. The decision of learned Commissioner (Appeals) on this issue is modified to this extent only. 35. The learned D.R. could not show us any reason to deviate from the aforesaid order and no change in fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for organising corporate identity and brand promotional activities and campaigns, engage professional consultants, make available a pool of sharable resources of the Tata Group to the assessee and provide assistance in accessing the network of domestic and international business contacts and also permit the assessee to use the business name. All the activities were predominantly the activities carried out or to be carried out by Tata Sons Limited to enhance the value of TATA Brand, which is owned by Tata Sons Limited and for same expenses were incurred by Tata Sons Limited and accounted in its books of account. 40. In the case of sister concern of assessee, the Co-ordinate Bench of Tribunal in ACIT v/s M/s Rallis India Ltd.: ITA No. 5701/Mum/2008 vide order dated 30.08.2011 dismissed the appeal filed by the Revenue against the allowance of similar contribution to Tata Sons Limited under the Brand Equity and Business Promotion Scheme. In another sister concern s case, the Co-ordinate Bench of Tribunal in M/s Tata Autocomp Systems Ltd. v/s ACIT: ITA No. 7596/Mum/2012 vide order dated 12.06.2013, following the earlier decision in Rallis India Ltd. (supra), deleted the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly outside India. Thus assessee was not liable to deduct TDS under section 195 of the Act. On the other hand, learned D.R. vehemently placed reliance on the orders passed by lower authorities. 44. We have considered the rival submissions and perused the material available on record. We find that on identical issue, the Co-ordinate Bench of the Tribunal in assessee s own case vide order dated 30.10.2019, passed in ACIT v/s Tata Consultancy Service Ltd., ITA No. 5823/Mum/2016, for assessment year 2009-10, dismissed the appeal filed by the Revenue observing as under: 5. We have considered rival submissions and perused the material on record. The facts on record clearly reveal that commission has been paid to non resident agents located in their respective countries towards services rendered by them in those countries in relation to obtaining export contracts for the assessee. No material has been brought on record by the Assessing Officer to demonstrate that the non resident agents either have any business connection in India or have PE in India so as to bring the commission payment within the tax net. The factual finding recorded by learned Commissioner (Appeals) that the non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEZ units under section 10AA of the Act. During the relevant assessment year, the assessee had claimed deduction under section 10AA of the Act in respect of SEZ units which had commenced its operation during the earlier assessment year i.e., A.Y. 2008 09, 2009 10 and 2010 11. In addition, the assessee had commenced operation in respect of below mentioned new SEZ units in respect of which deduction under section 10AA of the Act was claimed by the assessee. Sr. no. Name of Unit Approval Number 1. Chennai EB3 Siruseri Unit II SEZ STPIC/SEZ/D001/U084/10 11/267 2. Chennai Chennai One Unit II SEZ STPIC/SEZ/D003/U072/09 10/803 3. Powai Kensington B Wing Phase III Hirnandani SEZ SEZ/IT/UTES/ER/U 12/ 2008 351 4. Kolkata Infospace Unitech Hi tech Structures SEZ SEZ/HIRA MM/(15)/LOA 15/2009 10 /25/5524 5. Vaverock AP II C, Nanakramguda H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer further held that over the years there have been substantial increase in employees and corresponding increase in revenue of SEZ units as compared to other units of the assessee. Accordingly, the Assessing Officer denied the deduction under section 10AA of the Act in respect of SEZ unit which have already commenced operation prior to relevant assessment year. 50. The DRP vide its directions dated 16.11.2015, held that the eligibility of deduction under section 10AA of the Act in relevant assessment year is dependent upon the final outcome on this issue in earlier assessment years and accordingly directed the Assessing Officer that the disallowance as proposed in the draft assessment year should be subject to final decision in the earlier assessment years. 51. During the course of hearing, the learned Sr. Counsel submitted that the CIT(A) has allowed the assessee s appeal for the assessment years 2008 09, 2009 10 and 2010 11 granting deduction under section 10AA of the Act in respect of SEZ units. It was further submitted that no appeal has been filed by the Department against the orders of the CIT(A). 52. On the other hand, the learned Departmental Representa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of deduction under section 80IB of the Act has observed as under: No doubt, certain qualifications are required only in the initial assessment year, e.g. requirements of initial constitution of the undertaking. Clause 2 limits eligibility only to those undertakings as are not formed by splitting up of existing business, transfer to a new business of machinery or plant previously used. Certain other qualifications have to continue to exist for claiming the incentive such as employment of particular number of workers as per sub-clause 4(i) of Clause 2 in an assessment year. For industrial undertakings other than small scale industrial undertakings, not manufacturing or producing an article or things specified in 8th Schedule is a requirement of continuing nature. [emphasis supplied] 55. Thus, it appears that the Hon'ble Supreme Court considered two types of conditions in order to decide the eligibility of deduction. The first are the conditions which need to be examined only in the initial year while the second are the conditions which need to be examined every year before allowing the deduction. Therefore, once the first set of conditions is established in the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit should be allowed, as per respective tax treaties in respect of taxes paid overseas, on income eligible for deduction under section 10A/10AA of the India. In support of the additional ground of objection, the assessee placed reliance on the decision of Hon ble Karnataka High Court in Wipro Limited v/s DCIT, [2016] 382 ITR 179. The DRP vide directions dated 16.11.2015 refused to render any directions on the additional ground of objection on the basis that the issue doesn t relate to the variation of the income and further is not emanating from the draft assessment order. Being aggrieved the assessee is in appeal before us. 58. During the course of hearing, the learned Sr. Counsel by placing reliance on the decision of the Hon ble Karnataka High Court in Wipro Ltd. (supra) submitted that the foreign tax credit should also be provided for taxes paid in overseas jurisdiction in respect of section 10A / 10AA of the Act eligible income in India as per the provision of respective DTAA. 59. On the other hand, the learned Departmental Representative vehemently relied upon the order passed by the DRP. 60. We have considered the rival submissions and perused the material availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinate Bench rendered in assessee s own case cited supra, ground no.11, raised in assessee s appeal is allowed with similar directions. This ground is allowed for statistical purpose. 63. Similarly, ground no.11.1 is also restored to the file of the Assessing Officer for de novo adjudication in accordance with law. 64. The issue arising in ground no.12, raised in assessee s appeal is regarding short credit for tax deducted at source. 65. As per the assessee, the Assessing Officer / DRP has erred in not granting credit for tax deducted at source to the tune of ₹ 5,19,89,049, even though the relevant TDS certificates were submitted by the assessee during the assessment proceedings. Thus, we direct the Assessing Officer to verify the claim of the assessee and grant credit for tax deducted at source after necessary verification and in accordance with law. Accordingly, ground no.12 raised in assessee s appeal is allowed for statistical purpose. 66. The assessee, vide separate applications dated 10.01.2020 and 16.06.2021, sought admission of additional grounds of appeal which involve following issues: (a) Deduction on account of education cess paid by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of additional ground is regarding claim of deduction under section 10AA of the Act on the basis of commercial profit instead of income from business or profession. 73. During the course of hearing, the learned Sr. Counsel for the assessee submitted that the issue is covered in favour of the assessee by the decision of the Co ordinate Bench of the Tribunal in Reliance Industries Ltd. v/s ACIT, ITA no.7299/Mum./2017, vide order dated 10.11.2020. 74. We have considered the rival submissions and perused the material available on record. We find that the Co ordinate Bench of the Tribunal in Reliance Industries Ltd. (supra), by following the decision of the Hon'ble Supreme Court in Vijay Industries v/s CIT, [2019] 412 ITR 001 (SC), came to the conclusion that the language of section 80HH of the Act, as was considered by the Hon'ble Supreme Court in Vijay Industries (supra) is pari materia to section 10AA inasmuch as both the sections provide that in computing the total income of the assessee deduction shall be allowed at certain percentage of profit and gains derived. The Co ordinate Bench further noted that the meaning of the term Profits Gains refers to profits which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is a leading global information technology consulting services and outsourcing company having worldwide presence. Assessee provides consultancy services, develops and implements products for customers covering on all matters pertaining to implementation of computer software and hardware system, management of data processing and information systems and data communication systems. During the relevant assessment year, assessee entered into following international transactions with its A.Es.: Lease of Officer Premises Purchase of Fixed asset Provision of Software, Technical and Consultancy Services Availing of services Interest received on account of loan outstanding Reimbursement of Expenses 80. As per the transfer pricing study conducted by the assessee in respect international transaction of provision of software, technical consultancy services, its subsidiaries outside India act as marketing and sales companies of the assessee. The subsidiaries serve as a hub for realization of the international projects. Client service are carried out by the assessee and its subsidiaries. The assessee has rendered software development, technical and consultancy se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Senior Counsel further submitted that PLI of gross margin on sales has been affirmed by the Co-ordinate Bench of the Tribunal in assessee s own case for earlier assessment years. Further, in respect of comparables for benchmarking the transaction, learned Senior Counsel submitted that comparables selected by the CIT(A) in previous assessment years, for North American Region, APAC Region and Europe Region, can be considered and sent to the TPO/AO for verification. On the other hand, learned D.R. vehemently relied upon the orders passed by TPO and DRP. 83. We have considered the rival submissions and perused the material available on record. It has not been disputed by the Revenue that the facts of the relevant assessment year are similar to preceding assessment years. Further, the TPO has also followed the approach adopted in assessment year 2010-11 while selecting the tested party, PLI and comparables for benchmarking the international transaction. We find that the Co-ordinate Bench of the Tribunal in assessee s own case in DCIT v. Tata Consultancy Services Ltd., ITA No. 1207/Mum/2018 for assessment year 2010-11 vide order dated 18.08.2020 dismissed the appeal filed by the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined not only by learned Commissioner (Appeals) but they were also produced before us. Thus, from the aforesaid facts, it becomes clear that significant marketing functions are being performed and distribution and marketing risk are being taken by the AEs. On examination of the financials of the subsidiaries it is revealed that some subsidiaries are still making loss at net level which signifies that some risk is being borne by the AEs. It has further been brought on record that the manpower base of AEs performed various functions relating to marketing as well as client co ordination. The AEs have developed sufficient competency to handle the marketing work independently. The entire contract related work is performed by the AEs, though, in cooperation with the assessee. Thus, it is quite natural that for being a sufficiently motivated work force, the AEs are compensated at return on sales and not merely on value added costs. Therefore, learned Commissioner (Appeals) was justified in directing the Transfer Pricing Officer to adopt the PLI of gross margin on sales. As regards consideration by the Transfer Pricing Officer, the outsourcing / sub contracting cost to assessee as a pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in appeal for AY 2009-10 on identical grounds of appeal, wherein all the contentions as raised by the ld DR for the revenue before us, has been considered by the Tribunal, while affirming the order of ld CIT(A). No variation in facts nor any contrary law is brought to our notice, hence, we uphold the order of ld CIT(A) on this ground of appeal. In the result this ground of appeals raised by revenue are dismissed. 84. Thus, in view of the aforesaid order passed by the Tribunal in assessee s own case for assessment year 2010-11, the order of the TPO and DRP on the issue of transfer pricing adjustment in respect of provision of software consultancy services cannot sustain and are accordingly set aside to this extent. Further the TPO/ Assessing Officer is directed to conduct the benchmarking of the international transaction of provision of software consultancy services as per the findings of the Tribunal referred above. The TPO/Assessing Officer is also directed to consider the comparables selected by the CIT(A) in previous assessment years, for North American Region, APAC Region and Europe Region, for the purpose of benchmarking after necessary verification. Further, any transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material on record. We have also applied our mind to the decisions relied upon. Insofar as the contention of learned Sr. Counsel for the assessee that provision of guarantee is not an international transaction as per section 92B of the Act, we are unable to accept such contention. In our considered opinion, after introduction of Explanation (i)(c) to section 92B of the Act, with retrospective effect from 1st April 2002, provision of guarantee to AEs has to be considered as an international transaction. Different Benches of the Tribunal have also expressed similar view on the issue. Therefore, we hold that the provision of guarantee to the AEs is an international transaction. In fact, the aforesaid view has been expressed by the Co ordinate Bench in WNS Global Services Pvt. Ltd. (supra). Therefore, following the aforesaid decision of the Co ordinate Bench and the decision of the Hon'ble Jurisdictional High Court in Everest Canto Cylinders Ltd. (supra), we direct the Assessing Officer to charge guarantee commission @ 0.5% per annum both on performance / lease guarantee as well as financial guarantee. 90. The learned D.R. could not show us any reason to deviate from the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Jurisdictional High Court in CIT v/s Gem Plus Jewellery India Ltd., [2011] 330 ITR 175 (Bom.) and directed the Assessing Officer to exclude the communication expenses both from export turnover as well as the total turnover. Being aggrieved, the Revenue is in appeal before us. 97. We have considered the rival submissions and perused the material available on record. We find that this issue is no longer res integra and has been decided in favour of the taxpayer by the Hon'ble Supreme Court in CIT v/s HCL Technologies Ltd., [2018] 404 ITR 719 (SC), wherein the Hon'ble Court held that the expenditure excluded from the export turnover while computing the deduction under section 10A of the Act should also be reduced from the total turnover. We also find that the Hon'ble Jurisdictional High Court in assessee s own case in CIT v/s Tata Consultancy Services Ltd., ITA no.1788 of 2016, vide order dated 18.03.2019, dismissed the appeal filed by the Revenue on this issue following the aforesaid judgment of the Hon'ble Supreme Court in HCL Technologies Ltd. (supra). In view of the above, we find no infirmity in the directions issued by the DRP and accordingly ground no.2, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese circumstances, the TPO is directed not to make any further adjustment on this issue. Thus, this ground of objection of the assessee company is accepted and the AO/TPO is directed to modify the draft assessment order accordingly. 101. Being aggrieved by the aforesaid findings of DRP, the Revenue is in appeal before us. During the course of hearing, learned Senior Counsel submitted that the directions of DRP are in conformity with the decision of the Tribunal referred therein. On the other hand, learned D.R. vehemently relied upon the order passed by the TPO. 102. We have considered the rival submissions and perused the material available on record. In the present case, the DRP found that the interest on loans charged by the assessee in the range of 4% to 5% by applying the principle of LIBOR plus 300 to 400 basis points is reasonable after observing as under: 17.8 However, the issue regarding quantum of spread over LIBOR rate is to be decided on the basis of peculiar facts of each case, after evaluating the terms of the loan i.e. period of loan, quantum of loan currency, creditworthiness of the borrower before borrowing, collateral( secured/unsecured loans). The rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record, we find that the issue for our adjudication is similar to the issue arising out of ground no.2, raised by the assessee in its appeal being ITA no.1650/ Mum./2016, for assessment year 2011 12. Consequently, our findings given therein shall apply mutatis mutandis to this issue also. Thus, ground no.1, raised by the assessee is allowed for statistical purpose. 109. The issue arising in ground no.2, raised in assessee s appeal pertains to disallowance of interest / penalty for delayed overseas return filing and delayed payment of overseas advance tax. 110. The brief facts pertaining to this issue, as emanating from the record are: The tax audit report at clause 17(e)(ii) mentions that the assessee has debited a claim of penalty of ₹ 65,51,580, being the amount paid for delayed overseas return filing and delayed payment of overseas advance tax. As the aforesaid payment was not disallowed by the assessee while computing its total income, the assessee was asked to justify such claim. In reply, the assessee submitted that the payment was neither on account of any offence committed or for any purpose which is prohibited by law and such payment was on account of compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 21,55,53,971 117. During the course of assessment proceedings, the assessee was asked to show cause as to why the expenditure incurred on import of software should not be disallowed under section 40(a)(i) of the Act as tax at source was not deducted from the payments made to overseas vendors. In reply thereto, the assessee submitted that payment for purchase of software cannot be considered as payment of royalty under section 9(1)(vi) of the Act. Thus, the assessee submitted that there was no withholding tax obligation on the assessee on the payments made to the non residents as no income was chargeable to tax in India. The Assessing Officer, vide draft assessment order dated 29.12.2009, held that the payment made for import of software is in the nature of royalty within the meaning of section 9(1)(vi) of the Act. The Assessing Officer also referred to Explanation 3 to section 9(1)(vi) of the Act as well as CBDT Circular no.621 dated 09.12.1991, in support of its conclusion. Accordingly, the Assessing Officer disallowed payment of ₹ 21,55,53,971 [i.e., ₹ 13,44,29,183 (+) ₹ 8,11,24, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dication after examination of the agreements entered into by the assessee for import of software in light of the law laid down by the Hon ble Supreme Court in Engineering Analysis Centre for Excellence Pvt. Ltd. (supra). Further, if it is found by the Assessing Officer that the assessee s case falls within the parameters laid down by the Hon ble Supreme Court in the aforesaid judgment then payment for import of software be allowed. Needless to mention that before passing the order on this issue adequate opportunity of hearing shall be granted to the assessee. In view of the above, ground no.3 raised in assessee s appeal is allowed for statistical purpose. 122. Ground no.4, relates to the expenditure incurred for purchase of software within India. During the course of hearing, the learned Senior Counsel expressed his intention not to press this ground. Consequently, ground no.4, is dismissed as not pressed. 123. The issue arising in ground no. 5 raised in assessee s appeal is with regard to disallowance of set off of loss of the STP units against the taxable business income. 124. The brief facts of the case pertaining to this issue as emanating from the record are: During t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost amendment, are for deduction and that u/s 10B, loss in an eligible unit could be set off against the profits of business. The provisions of section 10A and those of section 10B are, mutatis mutandis, undisputedly pari-materia inter- se. Therefore, Hindustan Unilever Ltd. is squarely applicable to the facts of the present case also. No decision contrary to this jurisdictional High Court judgment has been placed before us. Further, in Galaxy Surfactants Ltd. (supra), again rendered by the jurisdictional High Court and in the context of section 10B of the Act, it has been held that loss in an eligible unit can be set off against the profits of business. Hindustan Unilever Ltd. was referred to. 39. Besides, Yokogawa India Ltd. (supra), according to the assessee, is the assessee's own case, the decision wherein has been rendered by the Hon'ble Karnataka High Court. Therein, the scope of section 10A of the Act has been considered. Hindustan Unilever Ltd. (supra) has been referred to. It has been held that the principle in Hindustan Unilever Ltd. (supra), qua section 10B of the Act, equally applies to a case falling u/s 10A of the Act. 40. Since none of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A of the Act against the taxable business income. Accordingly, the ground no. 5(a) raised in assessee s appeal is allowed. In view of the above, no separate adjudication is required in respect of ground no. 5(b) being alternative in nature and the same is dismissed as infructuous. 128. The issue arising in ground no. 6 raised in assessee s appeal is with regard to claim of deduction under section 10A in respect of units on which deduction under section 80HHE of the Act was availed in past. 129. The brief facts of the case pertaining to this issue as emanating from the record are: During the relevant assessment year, the assessee claimed deduction under section 10A in respect of following units for which deduction under section 80HHE of the Act was claimed in the past: Sl. No. Name of the undertaking 1. SEEPZ ODC I 2. Chennai Sholinganallur STP 3. Delhi Gurgaon-II STP 4. Delhi Noida I STP 130. In past, deduction under section 80HHE of the Act was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction under section 80HHE was previously claimed in respect of such units. We find that on identical issue, the Co ordinate Bench of the Tribunal vide order dated 04.11.2015, passed in assessee s own case in DCIT v/s M/s Tata Consultancy Services Ltd., ITA no.7513/Mum./2010, for the assessment year 2005 06 held that old unit of assessee on which deduction under section 80HHE was claimed is entitled to claim deduction under section 10A of the Act from the profits of its units. Revenue s appeal against the aforesaid order of Co-ordinate Bench was dismissed by the Hon ble Jurisdictional High Court in ITA No. 1778 of 2016 vide judgment dated 18.03.2019 by observing as under: 6. Section 80HHE of the Act pertains to deduction in respect of profits from export of computer software etc. Sub-section (5) of section 80HHE provides that where deduction under said section is claimed and allowed in respect of the profits of the business referred in sub-section (1) for any assessment year, no deduction shall be allowed in relation to such profits under any other provision of the Act for the same or any other assessment year. What sub-section (5) of section 80HHE thus prohibits is the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, the profit and gain which had not been included prior to the introduction of Finance Act, 2000, such an undertaking would be entitled to deduction as per sub-section (1) only for the unexpired period of 10 consecutive assessment years. In plain terms, therefore, this proviso would apply to an industry which was already in existence, engaged in manufacturing and export of computer software when the said amendment was made in section 10A. However, such an industry would be eligible to claim that deduction in relation to profit and gain arising out of such activity only for remainder of the period of 10 assessment years, which could be claimed for consequent assessment years alone. 9. If the revenue's interpretation of sub-section (1) of section 10 were to be accepted, then, this proviso would be rendered redundant. 133. As there is no change in facts and circumstances in relevant assessment year, respectfully following the decision of Co-ordinate Bench as upheld by the Hon ble Jurisdictional High Court in assessee s own case cited supra, we direct the Assessing Officer to allow assessee s claim of deduction under section 10A in respect of units on which deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome determined under such regular assessment as reduced by the amount of,- ........... (ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India; (iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section; (iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and..... 139. Hon ble Jurisdictional High Court in CIT v/s Apar Industries Ltd.: [2010] 323 ITR 411, by referring to CBDT (Circular No. 14 of 2006) on 28.12.2006, held that the amendment brought about by the Parliament by the Finance Act, 2006 by substituting the Explanation 1 to section 234B was clarificatory or curative in nature and therefore will have retrospective effect. Thus in view of the aforesaid decision, we direct the Assessing Officer to compute the interest under section 234B of the Act, after giving credit of taxes paid under section 90 / 91 of the Act, as per law. As a result, ground no.12 raised in assessee s appeal is allowed. 140. The assessee vide application dated 04.03.2016 sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered aforesaid revised grounds of appeal filed by the assessee. 146. The issue arising in ground no.10, raised in assessee s appeal is regarding transfer pricing adjustment in respect of international transaction pertaining to provision of software consultancy services. Upon consideration of rival submissions and perusal of material on record, we find that this issue raised in assessee s appeal is similar to ground no. 17 raised in assessee s appeal being ITA No. 1650/Mum./2016 for assessment year 2011-12. Thus, our findings / conclusion in ground no.17, raised in the assessee s appeal for the assessment year 2011-12 shall apply mutatis mutandis to this ground also. Accordingly, ground no.10 raised in assessee s appeal is allowed with similar directions for statistical purpose. 147. The issue arising in ground no. 11 raised in assessee s appeal is with regard to provision of interest free loans by the assessee to its A.Es. 148. The brief facts of the case pertaining to this issue as emanating from the record are: During the relevant assessment year, the assessee had advanced interest free loans to its following A.Es.: (a) Tata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. 151. Thus, the TPO concluded that the interest free loans have resulted in benefit to A.E. without any benefit to the assessee and accordingly, made an adjustment of ₹ 4,10,28,373 by adopting rate of interest of 6% based on loan given by the assessee itself to another A.E. The Assessing Officer passed the draft assessment order dated 29.12.2009, inter-alia, on the basis of adjustment proposed by the TPO. The DRP, vide directions dated 29.09.2010 rejected the objections filed by the assessee and upheld the order of TPO/Assessing Officer on this issue. Being aggrieved, the assessee is in appeal before us. 152. During the course of hearing, learned Sr. Counsel submitted that the money was advanced to the subsidiaries as a share capital and therefore cannot be treated as interest free loan. Learned Senior Counsel further submitted that before the loan was granted its objective was clear. By referring to the order of the Tribunal in assessee s own case for assessment year 2009-10, learned Senior Counsel submitted that similar issue has been restored to the file of Assessing Officer for de novo adjudication. The learned D.R. vehemently relied upon the orders passed by l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... points, we direct the TPO / Assessing Officer to compute the adjustment in respect of loan to A.Es. for the relevant assessment year by applying rate of interest of LIBOR, which will further be marked up with basis points. We further direct that the quantification of markup shall be done by the TPO / Assessing Officer after hearing the assessee. As a result, ground no.11 raised in assessee s appeal is allowed for statistical purpose. 155. The assessee vide application dated 07.11.2014 sought admission of additional grounds of appeal in respect of transfer pricing adjustment. However, the additional grounds of appeal as well as other grounds in respect of transfer pricing adjustment were not pressed during the course of hearing being academic in nature and are accordingly dismissed. 156. Ground no. 12.2 pertaining to initiation of penalty is premature in nature and is accordingly dismissed. 157. In the result, appeal by the assessee is partly allowed for statistical purpose. 158. To sum up, cross appeals for assessment year 2011-12 as well as assessee s appeal for assessment year 2006-07 are partly allowed for statistical purpose. Order pronounced in the open court on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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