TMI Blog2022 (5) TMI 1103X X X X Extracts X X X X X X X X Extracts X X X X ..... and brand royalty payments on the basis of the US TP adjustments. If the Indian- CA, after the amendment with effect from 06.05.2020, has proceeded with the MAP according to the amended Rules, and if the Communication as per Annexure D is issued, with necessary approvals and conclusion of MA but without calling for details, the respondents cannot now contend that the provisions of unamended Rule 44G must apply and it must defer the implementation of the concluded MAP because the petitioner did not invite the attention of the Indian-CA to the Indian TP adjustments. The cost base, markup percentage and brand royalty payments are discussed and settlement is arrived at after due process. There could be consequential benefit to the Petitioner with loss of Revenue to the Department. However, the provisions of the amended Rule 44G(5) stipulate that there shall not be a decrease in the income or increase in the loss of an assessee in the return of income of a given year, if the MAP is invoked on account of action taken by any income tax authority in India. As rightly, argued by Sri S. Ganesh, this stipulation by converse excludes this rigor when MAP is because of the action taken by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. M. SHYAM PRASAD PETITIONER (BY SRI. S. GANESH, SENIOR ADVOCATE FOR SMT. TANMAYEE RAJKUMAR, ADVOCATE) RESPONDENTS (BY SRI.K.V. ARAVIND, ADVOCATE) O R D E R The petitioner has filed this petition for mandamus to the respondents, and their subordinates, to implement and give full effect to the Mutual Agreement Procedure [MAP] Settlement communicated to the petitioner by the Under Secretary [APA-1] and Foreign Tax Research-1, Central Board of Direct Taxes [CBDT] vide the Communication dated 16.10.2020 [Annexure- D], to reassess the petitioner s assessment for the Assessment Years 2010-11 to 2013-14 in accordance with the MAP Settlement and to refund excess amounts of tax paid by the petitioner. 2. The petitioner is a company incorporated under the Companies Act, 1956 and is engaged in providing Software Development and related services to its Group Companies as well as the third parties. During the financial years 2009-10 to 2012-13, the petitioner has rendered software development and related services to its Holding Company, M/s. Symphony Teleca Corporation, USA [presently, Harman International Industries Inc., USA, and for convenience is referred to eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contending that it believed that the action of the US-IRS is not in accordance with the Convention between the Government of India and the Government of the United States of America for avoidance of fiscal evasion. The MAP is commenced between the US Competent Authority [US-CA] and the Indian-Competent Authority [Indian-CA], and the first respondent has called upon the petitioner to furnish certain details. The petitioner has handed over an Accountant s Report to the first respondent in USB drive on 22.08.2019, and this is in addition to furnishing a Note on the petitioner s historical background and the details of the year end exchange rates 2 . 6. The first respondent has issued communication dated 16.10.2020 [Annexure-D] 3 informing the petitioner that both the US-CA and Indian-CA have agreed to certain TP adjustments by the US Tax Authorities for M/s. Symphony Inc for the assessment years 2010-11 to 2013-14. The petitioner is informed that the settlement is to split the US TP adjustment in the ratio of three months and nine months and the petitioner would also be given the corresponding correlative relief in India as per the MAP Settlement. The correlative relief to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner has also filed an application on 12.03.2018 in Form No.34F in accordance with Rule 44G of the Income Tax Rules, 1962 [IT Rules]. As per the settled practice in MAP, the US-CA provided their position paper in the month of March 2019 and this position paper detailed the TP adjustment made by the US Tax authorities but did not refer to any Indian TP adjustments. The petitioner also did not disclose the Indian TP adjustments. 9. The respondents have further averred that the negotiations were held between the US-CA and Indian-CA in New Delhi between 22nd and 26th April 2019 and they agreed upon a resolution. Thereafter, both sides have exchanged calculation with each other and have also discussed the finer points for Mutual Agreement [MA]. The US-CA sent the MA letter dated 07.05.2020 by e-mail. Though the mutual agreement letter is dated 07.05.2020, both the calculations and the language of the MA are agreed upon in April 2019 meetings. The period between May 2019 and October 2020 relates only to the procedural part of communication of acceptance to the US-CA. As such, the MA as per MAP is much before May 2020. 10. The respondents have relied upon Rule 44H(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld apply. This Rule did not place any onus on the Indian-CA to call for all the information when an application is made in the prescribed Form 34F. The Rule 44H, which enjoins the Indian- CA with the onus of calling for records/information with the view to give response to the CA of the other country, would apply only when a reference is received from a CA from outside India. It is emphasized that the first respondent did not have an opportunity to call for the TP adjustments either from the TPO or from AO because neither the letter/position paper nor the petitioner s application referred to any Indian TP adjustment. 13. Sri. Vivek Khemka, the petitioner s Vice President-finance, has filed an affidavit on 17.12.2021 stating that the petitioner has made enquiries with its associated company, M/s Symphony Inc [M/s Harman Inc] and the petitioner is informed that the discussions between the US and Indian-CAs were commenced in the month of April 2019, but the binding final MAP settlement was concluded only in October 2020. With the Rule 44G being amended with effect from 06.05.2020, the Indian-CA was bound to comply with the provisions of amended Rule 44G and to call for a report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) of the I-T Act 4 and Article 27(2) of the DTAA 5 , submits that the provisions of India-USA Double Taxation Avoidance Agreement [DTAA] and the terms of a MAP Settlement thereunder will prevail over the provisions of the I-T Act so long as they are beneficial to the concerned assessee. Sri. S. Ganesh, relying upon the aforesaid reading of the provisions of Section 90(2) of the I-T Act and Article 27 of DTAA and the aforesaid asserted facts, canvasses that once it is admitted that there is a MAP settlement as contemplated under DTAA and the settlement is beneficial to the petitioner, the respondents must implement such settlement notwithstanding any discrepancy in calling for the Indian TP adjustments for the relevant assessment years as that would only be a procedural aspect. 17. Sri S.Ganesh submits that the MA is concluded in the month of October 2020, and with the Rules 44G and 44H of the I-T Rules being amended with effect from 06.05.2020, the relief to the petitioner must necessarily be processed under the amended Rule 44G. This is also accepted by the respondents with the issuance of communication dated 16.10.2020 [Annexure-D] calling upon the petitioner to communic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the petitioner or take undue advantage of their own wrong. He relies upon the maxim that no man shall take advantage of his own wrong even to gain a favourable interpretation of law, and draws the attention of this Court to the decision of the Hon ble Supreme Court in Kushweshwar Prasad Singh v. State of Bihar [2007] 11 SCC 447 wherein it is held that: it is a settled principle of law that a man cannot be permitted to take undue and unfair advantage of his own wrong to gain favourable interpretation of law. It is sound principle that he who prevents a thing from being done shall not avail himself of the non performance he has occasioned. To put it differently a wrong doer ought not to be permitted to make a profit out of his own wrong 20. Sri Ganesh concludes that in the light of [i] the provisions of section 90(2) of the I-T Act which give precedence to the provisions of India-US DTAA when the terms of the agreement are beneficial to the assessee; [ii] the provisions of Article 27 of India-US DTAA which stipulate that any agreement shall be implemented notwithstanding time limits or other procedural limitations; [iii] the fact that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat even M/s Symphony Inc [M/s Harman Inc] has not informed the US-CA about the Indian TP for the assessment year 2013-14. Thus, a material circumstance is deliberately kept out and hence, the respondents are justified in awaiting appropriate communication from the US-CA before granting refund. 23. Sri. K.V. Aravind further submits that though the final computations and the language of MA are finalised only after May 2020, the MAP agreement was arrived at with the US-CA in the month of April 2019. Therefore, the questions whether the petitioner has deliberately suppressed material facts or whether the Indian-CA was under an obligation to call for the details of the TP adjustments by the TPO and the jurisdictional AO must necessarily be considered in the light of the provisions of the un-amended Rules 44G and 44H. When an application was filed in the prescribed Form 34F under the provisions of the unamended Rule 44G there was no onus, unlike in a reference received from another country as contemplated under the provisions of now omitted Rule 44H, to call for information or documents. As such, it was incumbent upon the petitioner the applicant - to disclose all relevant informat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner in terms of Annexure-D for the assessment years 2010- 11 to 2012-13 because admittedly there is no TP adjustment by the Indian authorities for these assessment years. 27. In rejoinder, Sri.Ganesh submits that the petitioner s application for MAP Settlement in Form 34F is because of the TP adjustment by the US-IRS in the assessment of M/s Symphony Inc [M/s Harman Inc]. The reference by the US-CA is also because of the USTP adjustment. As such, any Indian TP adjustment would be irrelevant and immaterial. The respondent s contention that the terms of the MAP Settlement has resulted in reduced assessment must necessarily be examined in the light of the provisions of amended Section 44G[5]. He submits that the provisions of this Rule clearly stipulate that if the MAP is invoked on the account of action taken by any Indian Tax authority, the MAP Settlement shall not result in decrease of the income or increase the loss; conversely, if the MAP Settlement is because of a reference by the US authorities, and is because of US TP adjustment, the embargo that the MAP Settlement shall not result in the decrease of income or increase of loss would not apply. 28. Sri. S. Ganesh su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olunteered such information. The reference by the US-CA and the petitioner s applications are prior to amendment to Rule 44G and Rule 44H. 31. It cannot be gainsaid that if MAP was initiated only by the US-CA, the same would be considered by the India-CA subject to the procedure under the now omitted Rule 44H, and if MAP was initiated only on the basis of the petitioner s application which is in the prescribed Form 34F, the same would be considered subject to the procedure under the unamended Rule 44G. The crucial difference between the procedure under Rule 44G and Rule 44H is that, under Rule 44H the Indian-CA is obliged to call for and examine the relevant records with the view to give his response to the CA of the other country outside India. This emerges on a conjoint reading of the unamended provisions of Rule 44 G and 44 H which are as follows: 44(G) Application for giving effect to the terms of any agreement under clause (h) of sub-section(2) of section 295. - . Where a resident assessee is aggrieved by any action of the tax authorities of any country outside India for the reason that, according to him, such action is not in accordance with the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the tax authorities of such country or specified territory, the Competent Authority in India shall convey his acceptance or otherwise for taking up the reference under mutual agreement procedure to the competent authority of the other country or specified territory. (3) The Competent Authority in India shall, with regard to the issues contained in Form No. 34F or in the reference from the competent authority of a country or specified territory outside India, call for the relevant records and additional document from the income-tax authorities or the assessee or his authorised representative in India, or have a discussion with such authorities or assessee or representative, to understand the actions taken by the income-tax authorities in India or outside that are not in accordance with the terms of the agreements between India and the other country or specified territory. (4) The Competent Authority in India shall endeavour to arrive at a mutually agreeable resolution of the tax disputes, arising from such actions of the income-tax authorities, in accordance with the agreement between India and the other country or specified territory within an average time period of twe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (13) The amount of tax, interest or penalty already determined shall be adjusted in accordance with the resolution arrived at under sub-rule (4) and in the manner provided under the Act or the rules made thereunder to the extent that such manner is not contrary to the resolution arrived at. Further, after this amendment with effect from 06.05.2020, the Central Board of Direct Taxes [CBDT] has issued MAP Guidance/2020 on 07.08.2020 stipulating that: The new rule is applicable w.e.f 6th May, 2020 and, accordingly, applies to all MAP case is pending with the CS of India as on 6th May, 2020. 33. Significantly, with the reference from the USCA, the petitioner is also called upon to furnish certain details before negotiations are completed. This is established by the emails relied upon by the petitioner. It is also seen from the original records made over to this Court that the Indian-CA has proceeded to hold discussions and negotiate with the US-CA on the basis of the reference by the US-CA and that there are certain emails exchanged between the Indian-CA and the USCA for closure of MAP. In this regard this Court must refer first to the email dated 21.04.2020 from the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 06.05.2020, has proceeded with the MAP according to the amended Rules, and if the Communication as per Annexure D is issued, with necessary approvals and conclusion of MA but without calling for details, the respondents cannot now contend that the provisions of unamended Rule 44G must apply and it must defer the implementation of the concluded MAP because the petitioner did not invite the attention of the Indian-CA to the Indian TP adjustments. 36. The cost base, markup percentage and brand royalty payments are discussed and settlement is arrived at after due process. There could be consequential benefit to the Petitioner with loss of Revenue to the Department. However, the provisions of the amended Rule 44G(5) stipulate that there shall not be a decrease in the income or increase in the loss of an assessee in the return of income of a given year, if the MAP is invoked on account of action taken by any income tax authority in India. As rightly, argued by Sri S. Ganesh, this stipulation by converse excludes this rigor when MAP is because of the action taken by an income tax authority of the other contracting country. 37. It is settled law that the terms of DTAA will have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly amend the assessment orders but also take necessary measures to refund the appropriate amount in terms of the correlative benefits along with interest permissible, and there would be no justifiable reason for denying the same. The petitioner, despite the MAP settlement and the benefit pursuant thereto, has not been given the same and therefore, the respondents must be directed to take necessary measures within a reasonable time. Hence, the questions framed for consideration is answered in favour of the petitioner and against the respondents, and the following: ORDER The petition is allowed. It is declared that the respondents cannot defer implementing or giving effect to the MAP Settlement as per Annexure D either for the assessment years 2010-11 to 2012-13, which is not contested, or for the subsequent assessment year 2013- 14. The respondents are directed to take necessary measures to amend the assessment orders for the assessment years 2010-11 to 2013-14 in conformity with the MAP settlement and allow refund as aforesaid with permissible interest in accordance with the prescribed procedure therefor. The respondents are directed to do needful in this regard and com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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