TMI Blog2022 (8) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... n Sultan Brothers Pvt. Ltd. [ 1963 (12) TMI 4 - SUPREME COURT] and that the lease deed is between related parties, the Ld. AO made the impugned disallowance which is confirmed by the Hon ble DRP. Testing the facts of the assessee s case on the touchstone of the various quoted decisions Tribunal recorded its unequivocal finding that the lease deed under consideration was composite one and that it answered the description under section 56(2)(iii) of the Act. Another objection of the Revenue that it is related party transaction has also been rejected by the Tribunal by saying that no adverse view has been taken in determination of ALP with AE by the Ld. TPO nor provisions of Section 40A(2) have ever been invoked. Admittedly, as Ld. AO says in para 4.3 of his order, in AY 2013-14 [ 2021 (6) TMI 538 - ITAT DELHI] also the facts of the case are similar to that of the earlier years. On such admitted fact situation, the co-ordinate benches of the Tribunal have decided this issue in earlier years as also in subsequent years in favour of the assessee. Therefore, there is no reason for us to deviate from the same in the absence of any fresh adverse material in the records. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t s AE being chargeable to tax at a higher rate in the US, there was no question of shifting of any profit from a low tax paying country to a high tax paying country. 5. That on facts and in law, the Hon ble DRP and the Ld. TPO/ Ld. AO have erred by not appreciating the correct functional profile of the Appellant and drawing an erroneous conclusion that the Appellant is engaged in providing high-end software services. 6. That on facts and in law, the Hon ble DRP and the Ld. TPO/ Ld. AO have erred by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Income-tax Act, 1961 ( the Act ) read with the Income Tax Rules, 1962 ( IT Rules/Rules ), and modifying the economic analysis for the determination of the arm s length price of Impugned Transaction I and Impugned Transaction II and holding that both the impugned transactions are not arm s length. 7. That on facts and in law, the Hon ble DRP and the Ld. TPO / Ld. AO have erred by a. Using single year data of companies to determine the arm s length price of the impugned transaction and disregarding the Appellant s claim for use of multiple year data for computing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re earning super normal profits, as being comparable to the Appellant. 13. That on facts and in law, the Hon ble DRP and the Ld. TPO/Ld. AO have grossly erred by not appreciating the fact that the Appellant operates as a risk free service provider and all the risks associated with the Impugned Transactions were borne by the foreign AE and not by the Appellant, thus, the Appellant is entitled to suitable adjustments to account for differences in its risk profile vis-a-vis the comparables 14. The Hon ble DRP has erred in confirming that the Ld. TPO has discharged his statutory onus to establish that the conditions specified in clause (a) to (d) of Section 92C(3) of the Act have been satisfied before disregarding the ALP determined by the Appellant and proceeded to determine the ALP himself. 15. The Hon ble DRP and the Ld. TPO/ Ld. AO has erred in law and in facts, by adding notional costs related to the Employee Stock Options and Employee Saving Plans of MS Corp, provided by MS Corp to the employees of MIRPL, to the cost base of the Appellant and thereby expecting the Appellant to earn a mark-up on such notional costs. Part II - Corporate tax matters 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r scrutiny under CASS. The Ld. AO completed the assessment under section 143(3) r.w.s 144C of the Income Tax Act, 1961 (the Act ) on 29.08.2017 on total income of Rs. 567,14,80,070/- including therein addition of Rs. 210,38,23,421/- on account of transfer pricing adjustments and Rs. 12,77,04,481/- on account of difference of rental income offered as other source. 4. Aggrieved, the assessee filed appeal before the Tribunal and all the grounds of appeal relate to the above mentioned addition to the income returned. 5. We have heard the Ld. Representatives of the parties, considered their submission and perused the material available in the voluminous record. We proceed, taking the grounds in seriatim for our consideration and disposal. 6. Ground No. 1 and 2 are of general nature not requiring adjudication. 7. Ground No. 3 to 15 relate to transfer pricing adjustments of Rs. 189,05,34,850/- and Rs. 21,32,88,571/- made by the Hon ble DRP and Ld. Transfer Pricing Officer ( TPO ) / AO to the income of the assessee in respect of international transactions pertaining to Contract Software Development Services and provision of IT Enabled Services (ITeS) respectively. 7.1 The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the Appellant s AE i.e., Microsoft Corporation. In view of Rule 44G(7) of the Income tax Rules, 1962 ( Rules ), the Appellant is required to communicate their acceptance or non-acceptance of the MAP resolution. In case of acceptance of such resolution, the Appellant is also required to withdraw the relevant grounds of appeal raised in relation to issues which were the subject matter of adjudication under MAP proceedings in accordance with Rule 44G(8) of the Rules. Accordingly, in view of Rule 44G(8) of the Rules and since the Appellant wishes to accept the aforesaid MAP resolution, the Appellant, hereby, wishes to withdraw Ground No. 3 to 15 (along with its sub grounds). However, MIRPL wishes to continue to agitate on additions made by AO on corporate tax issues (covered by Ground No. 1, 2 and 16 to 20 of the appeal filed) and above request of MIRPL for withdrawal for grounds of appeal pertaining to transfer pricing issues should not be construed as consent for withdrawal of entire appeal. We respectfully pray that we may be permitted to withdraw and not to press the grounds and contentions raised in the captioned appeal to the extent as mentioned herein ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO held that rental income earned by the assessee is assessable as income from house property and not as income from other sources claimed by the assessee in the revised return. Accordingly, the Ld. AO computed the income form house property at Rs. 13,51,23,771/- and reducing there from income from other sources declared by the assessee at Rs. 74,19,290/- made addition of Rs. 12,77,04,481/- to the income of the assessee. As the after effect, the assessee s claim of expenses made at Rs. 18,56,14,668/- under section 57(iii) of the Act was also rejected. 8.2 Against the aforesaid proposed addition, the objection of the assessee had been rejected by the Hon ble DRP vide order dated 30.06.2017. 8.3 Aggrieved, the assessee is in appeal before the Tribunal. 9. The Ld. AR submitted that the issue is covered in favour of the assessee by the order of the Tribunal in the assessee s own case for AY 2011-12 and 2012-13. Whereas the Ld. DR took lot of pains and in his written submission filed before us attempted to prove that the facts in the case of Sultan Brothers Pvt. Ltd. (supra) and in Jay Metals Industries Pvt. Ltd. 84 taxmann.com 11 (Delhi High Court) are different from the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixtures for the purpose of running hotel, barding and the lodging house, restaurant, confectionary and such other ancillary business in the said premises such as providing show-cases show windows, newspapers stall, dancing and other exhibition of arts, meeting rooms etc., and not for any other purpose without the previous permission in writing of the Lessors. It is clear from this clause that the building and the fixtures and furniture were to be used for one purpose, namely, for the purpose of running a hotel with them all tighter. Again cl.1 1(h) of the lessee's covenant provided that the lessee is not to remove any article of thing from the premises except for the purposes of and in the course of the hotel business which latter would be for effecting repairs to them or for replacing them where it was the duty of the lessee to do so under the lease. We think, therefore, that the lease clearly establishes that it was the intention of the parties to it that the furniture and fixture and the building should be enjoyed all tighter and not one separately from the other. The relevant clauses at page 5 para 1 of the lease deed in the present case unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Haryana Electricity Board. The water charges will be paid by the Lessee on the basis of the bill received from Haryana Water Authority. Both Electricity and water charges will be paid by the lessee directly to the departments on the basis of Bills received from time to time. 2(d) The Lessor shall hand over the office with furniture fixture 200 KVA diesel generator and adequate air conditioners to the Lessee in good working condition. The Lessee agrees to pay directly all charges towards maintenance of the premises including comprehensive maintenance of Generator. Air conditioner and other fixture and findings as per Annexure A'. At page 7 para 2- However, in the present case, as already discussed, it is plain that letting is not merely of the building but a composite letting of both, the building as well as the equipment, furniture etc. and thereby Section 56 (2) (Hi) of the Act was attracted. Applying the test laid down in Sultan Bros, (supra) the income from the letting in the hands of the Assessee was a new kind of income which could be considered to be income from house property since the income not from the ownership of the build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sultan Brothers (P) Ltd and Jay Metal Industries P Ltd are different and ratio is inapplicable to Microsoft India (R D) Ltd in the A.Y. 2013-14. The emphasis of the Ld. DR is that the rent is not composite as envisaged in section 56(2) of the Act. 10. We have carefully considered the rival submissions of the parties and perused the material available in the records. It is not in dispute that in preceding years the assessee has been claiming that the rental income earned by it from let out building space along with inbuilt infrastructure and other amenities is taxable as income from other sources and not as income from house property. The Revenue has been rejecting the assessee s claim on the flimsy ground that claim has not been made in the returns but the claim is made during the course of assessment proceedings. With a view to satisfy the Revenue and to overcome the above disability, the assessee after having filed the original return for AY 2013-14 filed revised return claiming therein that the rental income is assessable under the head income from other sources . Adopting the reasons given in earlier years, analyzing the nature of lease agreement, holding that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered view that in light of the facts discussed hereinabove, there can be no doubt that lease deed was composite one and rental receipt thereunder answered the description u/s 56(2)(iii) of the Income tax Act, 1961. 19. We find that the main thrust in rejecting the claim of the assessee by the Assessing Officer is that it is a related party transaction. The undisputed fact is that the assessment was subject to transfer pricing assessment for determination of ALP with AE and no such determination has been done by the TPO. We further find that though the Assessing Officer has discarded the claim of the assessee stating that it is a related party transaction, but the provisions of section 40A(2) of the Act have never been invoked. 20. In fact, the Assessing Officer himself has extracted the relevant clauses of lease deed himself showing that the lessor has agreed to provide services which have been enumerated hereinabove elsewhere. Therefore, considering the facts of the case in hand, we find that letting is not merely of the building but a composite let out of both building as well as equipment/furniture etc and thereby 56(2)(iii) of the Act is attracted. 21. Respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the description under section 56(2)(iii) of the Act. Another objection of the Revenue that it is related party transaction has also been rejected by the Tribunal by saying that no adverse view has been taken in determination of ALP with AE by the Ld. TPO nor provisions of Section 40A(2) have ever been invoked. 13. In subsequent AYs 2014-15 and 2015-16 also the same issue has been decided by the Tribunal in favour of the assessee in its order dated 24.09.2021 in ITA No. 8229/Del/2018 and 8143/Del/2019 wherein the Tribunal followed its decision dated 14.06.2021 for AY 2011-12 and AY 2012-13. 14. The AY under our consideration falls in between. 15. Admittedly, as Ld. AO says in para 4.3 of his order, in AY 2013-14 also the facts of the case are similar to that of the earlier years. On such admitted fact situation, the co-ordinate benches of the Tribunal have decided this issue in earlier years as also in subsequent years in favour of the assessee. Therefore, there is no reason for us to deviate from the same in the absence of any fresh adverse material in the records. Accordingly the modified ground No.1, 2.1 and 2.2 are decided in favour of the assessee with the direction t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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