9911796707
TMI Blog2022 (5) TMI 1103X X X X Extracts X X X X X X X X Extracts X X X X ..... P 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 either as M/s Symphony Inc or M/s Harman Inc]. The petitioner asserts it has received compensation for its services at the rate of 15% on costs until 31.03.2010, and with effect from 01.04.2010 at the rate, of 17.5%. 3. In the month of September 2013, the United States Internal Revenue Service [US-IRS] has initiated an audit of M/s Symphony Inc's transactions with the petitioner and has made Transfer Pricing [TP] adjustments for the years ending December 2010, December 2011 and December 2012 [the relevant assessment years in India being assessment years 2010-11 to 2013-14]. The US-IRS has made TP adjustments in the premise that M/s Symphony Inc has pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 petitioner by the Indian Income--tax authorities as mentioned in Annexure-D are as follows: Provision for Software Development [SWD] Assessment Year Correlative Relief to be given to the petitioner 2010-11 Rs.4,72,36,877/- 2011-12 Rs.17,40,86,934/- 2012-13 Rs.15,55,51,059/- 2013-14 Rs.13,69,38,696/- Total Rs.51,38,13,567 Royalty Payment Assessment Year Correlative Relief to be given to the petitioner 2010-11 Rs.14,14,699/- 2011-12 Rs.81,47,699/- 2012-13 Rs.2,03,24,244/- 2013-14 Rs. 2,37,09,041/- Total Rs. 5,35,95,682/- Thus, the petitioner is also informed of the refund entitlement, and the petitioner is called upon, citing Rule-44G of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules [which is now omitted with effect from 06.05.2020] to contend that when the MAP was invoked by the US-CA, the Indian-CA should call for and examine the relevant records as regards any action taken by any Income Tax authority in India. However, when MAP is commenced on an application by an assessee in the prescribed Form under the IT Rules, the Indian-CA is under no such obligation. Neither the letter/position paper from US-CA nor the petitioner's applications in Form No.34F mentioned anything about the Indian TP adjustments. Therefore, the Indian-CA did not have called for any information or record in terms of Rule 44H(1). But, the Petitioner, who was obliged to disclose all information without any concealment, in not furnishing the details of the Indian TP adjustment in the assessment year 2013-14 has suppressed material circumstances. 11. The respondents have next detailed the procedure/practice followed in a MAP with US-CA. It is stated that MAP case begins with a request to any or both of the CAs who may then accept/reject the MAP request or call for any additional information on a case by case basis. The CAs will inform the tax payer and the treaty partner if there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the TPO and the jurisdictional AO. Even otherwise, the general practice in every MAP case is to call for a report from the TPO and the jurisdictional AO. M/s Symphony Inc [M/s Harman Inc] has informed the petitioner that the US-IRS has implemented the MAP settlement giving full effect thereto and the entire differential tax amount consequent to the MAP settlement has been recovered from M/s Harman Inc. 14. The first respondent has filed additional Statement of Objections stating that the Indian-CA has now ascertained that even M/s Harman Inc [M/s Symphony Inc] did not disclose the Indian TP adjustments to the US-IRS. Both the Indian and US - CAs were blind sighted [sic] during MAP. The first respondent has enclosed certain emails exchanged with the US tax authorities stating that the copies of these emails have not been shared with the petitioner because of Article 28 of the India-USA Double Taxation Avoidance Agreement [DTAA]. 15. This Court must record at this stage that though there were some initial objections to the first respondent relying upon emails that are not disclosed to the petitioner, Sri Ganesh, the learned Senior counsel for the petitioner, was categorical that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the MAP settlement citing the provisions of amended Rule 44G(7) and further stipulating that, as contemplated under amended Rule 44G(6), the petitioner must communicate such acceptance within 30 days from the date of receipt of the communication. The petitioner is also called upon to file proof of withdrawal of the appeal in accordance with the amended Rule 44G(8). 18. Sri S.Ganesh argues that with the petitioner complying with these requirements, the respondents cannot now contend that the petitioner's request for refund must be examined in the light of the unamended provisions of Rule 44G. The CBDT has issued MAP Guidance/2020 on 07.08.2020 stipulating that the "new rule is applicable w.e.f May, 2020 and, accordingly, applies to all MAP cases pending with the CS of India as on 6th May, 2020". The respondents, with the issuance of this Guidance, cannot even contend that the onus was on the petitioner to disclose the Indian TP adjustment or there is concealment because the same is not mentioned in the petitioner's applications in the prescribed Form 34F. 19. Sri Ganesh summarizes that the respondents cannot contend that they must revisit the MAP settlement with the US-C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be on the Indian-CA both according to the applicable statutory provisions and the general practice; [iv] the fact that the petitioner is called upon to signify acceptance of the MAP settlement and comply with the conditions as required under relevant provisions of amended Rule 44G and [v] the fact that the petitioner has complied with those conditions, respondents cannot resile from the MAP settlement contending that the petitioner has not disclosed the Indian TP adjustments authorities. Hence, this Court must direct the respondents to refund to the petitioner the entire correlative relief in terms of the Annexure-D with appropriate interest for the assessment years 2010-11 to 2013-14. 21. Sri K V Aravind, learned counsel for the respondents, submits that the petitioner cannot dispute that the MAP Settlement is commenced also because the petitioner has filed applications in the prescribed Form 34F. These applications are filed in the month of February 2018. The provisions of Rule 44G, as it existed as of the date of the petitioner's applications, and unlike the amended Rule 44G(2), did not impose any onus on the Indian-CA to call for the records. The onus to call for record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accuracy of the information included in a request [under the provisions of un-amended Rule 44G] would have a direct impact on the time required for the competent authorities to carry out the MAP process and the effectiveness of the process. A competent authority would need sufficient details to analyse, understand and ultimately prepare to discuss a position with both the taxpayer and the other competent authority. An assessee's cooperation and transparency/ accuracy in the information disclosed are the touchstones for conclusion of MAP Settlement. The petitioner in concealing Indian TP adjustments has neither co-operated nor has been transparent. This has resulted in accepting a settlement in MAP without consideration of all the relevant circumstances. 25. Sri. K.V. Aravind, relying upon the provisions of Article 28 of the DTAA submits that the Competent Authorities are required to endeavour to resolve the case by mutual agreement when it appears inter alia that an assessee's objection is justified. In the absence of the details of the Indian TP adjustments, the assessment of the justifiability of the objections would be incomplete and therefore the mutual agreement would its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f to the petitioner even insofar as the assessment year 2013-14 on the ground that the respective claims in the proceedings pending before the Tribunal are not disclosed. This Court, notwithstanding the current submission on behalf of the respondents that the MAP settlement for the assessment years 2010-11 to 2012- 13 as per Annexure -D would be implemented, this Court must direct the respondents to refund the respective amounts with interest. 29. In view of a categorical statement on behalf of the respondents-authorities that they do not contest the MAP Settlement insofar as the assessment years 2010-11 to 2012-13 and the terms of the resolution as per annexure-D for these assessment years will be implemented, the petitioner will have to succeed to this extent. It is clarified in unison that consequentially the assessment orders for these assessment years 2010-11 to 2012-13 will have to be amended. In the light of these circumstances therefor, and the rival submissions, the questions for consideration would be: [a] Whether, in the facts and circumstances of the present case, it is lawful and permissible for the respondents - Tax authorities - to defer implementation of the MAP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia seeking to invoke the mutual agreement procedure, if any, provided therein, in terms of Form No. 34F 44H Action by the Competent Authority of India and procedure for giving effect to the decision under the agreement. - (1) Where a reference has been received from the competent authority of a country outside India under any agreement with that country with regard to any action taken by any income-tax authority in India, the Competent Authority in India shall call for and examine the relevant records with a view to give his response to the competent authority of the country outside India8. The underlining is by this Court 32. If the dispute was at a stage prior to the amendment of Rule 44G and the omission of Rule 44H, the petitioner, who has not disclosed the Indian TP adjustments, could perhaps have been called upon to explain the import of the failure to disclose the same and held to the consequences of such failure, if material. However, the provisions of Rule 44G are amended and the provisions of Rule 44H are omitted. The amendment in this regard is with effect from 06.05.2020, and with this amendment, the MAP both on a reference by the CA of the other country and on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a previous year shall not result in decreasing the income or increasing the loss, as the case may be, of the assessee in India, as declared by him in the return of income of the said year. (6) If a resolution is arrived at under sub-rule (4) between the Competent Authority in India and that of the other country or specified territory, the same shall be communicated in writing to the assessee. (7) The assessee shall communicate his acceptance or non-acceptance of the resolution in writing to the Competent Authority in India within thirty days of receipt of the communication under sub-rule (6). (8) The assessee's acceptance of the resolution shall be accompanied by proof of withdrawal of appeal, if any, pending on the issues that were the subject matter of the resolution arrived at under sub-rule (4). (9) On receipt of acceptance under sub-rule (7), the Competent Authority in India shall communicate the resolution arrived at under sub-rule (4) and the acceptance by the assessee alongwith proof of withdrawal of appeal, if any, submitted by the assessee under sub-rule (8), to the Principal Chief Commissioner or the Chief Commissioner or the Principal Director Gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and US CA's during 22.042019 to 26.04.2019. Insofar as the reduction in the cost base, markup percentage and brand royalty, the decision is as follows: "India considered the adjustments made in the US and the proposal by the US side. India agreed to the reduction in the cost base of the Indian entity but asked for a markup of 17.5% on such reduced costs. Secondly, India offered to pay a brand royalty at the rate 1.5% on third party sales instead of 5% royalty. US and India agreed to apply a 15% markup to the reduced cost base and a reduced royalty of 1.5%. This agreement reduced the income adjustment in the hands of the US entity to about USD 11 million. India would provide a corresponding adjustment of this amount in the hands of the Indian taxpayers. India requested the US side to provide the detailed calculations." In view of the above this Court must opine that as of 06.05.2020, a decision was taken on the MAP settlement between the Indian-CA and US-CA. 34. Thereafter, the communication dated 06.10.2020 [Annexure-D], with the necessary approvals, is issued to the petitioner informing that it must communicate its acceptance of the terms MAP settlement within 30 days and mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... division bench of this Court in Wipro Ltd and others v the Deputy Commissioner of Income Tax and others - reported in [2016] 236 Taxmann 209 Kar. and also of the Delhi High Court in Director of Income Tax v. Infrasoft Ltd based on the decision of the Hon'ble Supreme Court in Union of India and another v. Azadi Bachao Andolan and another (2004) 10 SCC 1. The Division Bench of the Delhi High Court has held as follows: "Section 90 of the Act gives relief to the taxpayer who have paid the tax to a country with which India has signed the double taxation avoidance agreement. Section 90 confers the power on the Central government to enter into any agreement with the government of another country for granting relief to an Assessee who has paid income tax under this Act and also income tax in that other country and also in respect of income tax which is chargeable under this Act and under the corresponding law of that country. This has been done with a view to promote mutual economic relations, trade and investment and for avoidance of double taxation of income under this Act as well as the act of the said contracting country. Section 90(2) lays down that where the Central Government has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08.04.2022 have stated that the MAP proceedings were invoked by the US Competent Authorities by its Letter of October 2000 addressed to the Indian Competent Authorities. 2. In this regard, the petitioner has relied upon certain e-mails exchanged in the month of July 2019. 3. This Communication forms the basis for this writ petition. 4. The provisions of section 90(2) of the IT Act reads that where the Central Government has entered into an agreement with the government of any country outside India, or a specified territory outside India, under subsection (1) for granting relief of tax or avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of the I-T Act shall apply to the extent they are more beneficial to that assessee. 5. Article 27(2) of the DTAA reads that any agreement "shall be implemented notwithstanding any time limits or other procedural limitations in the domestic law of the contracting states" 6. The declaration is: "I also declare that to the best of my knowledge, I have not concealed any fact or information which could be relevant for deciding my application" 7. Sri. K V Aravind relies upon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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