TMI Blog2022 (8) TMI 858X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to Tekla Corporation for purchase of license, upgrades and maintenance - HELD THAT:- In the present case, though during the course of hearing, learned AR placed reliance upon the aforesaid order passed by the coordinate bench of Tribunal and prayed for similar directions, however, despite adequate opportunity being granted the assessee did not file any additional evidence as were filed in preceding assessment years. Be that as it may, since, as submitted, similar issue is still pending before the Assessing Officer pursuant to aforesaid remand in preceding assessment years, in the larger interest of justice we deem it appropriate to remand this issue, in the present appeal, to the file of Assessing Officer for de novo adjudication with similar directions as were passed by the coordinate bench of Tribunal in aforesaid order. AO further directed to examine the documentary evidence either presented by the assessee or gathered by the Assessing Officer through enquiries which he may deem fit in the facts of the case. Needless to mention that no order shall be passed without affording opportunity of hearing to the assessee. As a result, grounds No. 12 to 15 raised in assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il. Benefit Test 5. erred in bolding that the Appellant has failed to demonstrate that it has received management services, without appreciating relevant documen-tary evidence to substantiate the receipt of management services by the Appellant from its AE. 6. erred in bolding that the Appellant has filed to demonstrate that it has benefited from the management services availed by it, by disregarding the submissions/emails/ correspondences filed by the Appellant, without providing any cogent reasons for the same. 7. erred in not appreciating the fact that benefit test is not a condition for benchmarking the international transaction with AE Commercial substance 8. erred in not appreciating the commercial rational/ expediency of the Appellant for availing of management services. erred in rejecting the Appellant's benchmarking analysis 9. erred in disregarding the benchmarking analysis undertaken by the Appellant in its Transfer Pricing Study for determining the arm's length nature of the international transaction of availing of management services by the Appellant from its AE. 10. erred in not appreciating that international transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning to this issue, as emanating from the record, are: The assessee is a company registered in India and is in the business of distribution of software products. Tekla Corporation is the tax resident of Finland. Tekla Corporation develops and markets specialised off the shelf software products, which are used in industries like building, construction, energy distribution and infrastructure management. For the year under consideration, assessee filed its return of income on 30/09/2011, declaring total income of Rs. 10,77,000. On 20/01/2008, assessee entered into Distribution Agreement with Tekla Corporation, Finland (i.e. its associated enterprise) to distribute and sublicense shrink-wrap software products developed by the associated enterprise. Assessee also entered into Service Agreement dated 01/01/2008, with its associated enterprise whereby support and guidance was provided to the assessee in the area of marketing, communications, quality management as well as information management services. During the relevant assessment year, assessee entered into following international transactions with its associated enterprise: Nature of international transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties would not have updated and detailed knowledge of the group s operations and that the services being unique in nature and adhering to the global standards have to be undertaken centrally for the benefit of the services recipient and cannot be procured locally. Learned AR also submitted that certain costs incurred centrally by the associated enterprise were allocated to the group entities including the assessee. The learned A.R. further submitted that arm s length price of the impugned international transaction was arrived at Nil without adopting any of the prescribed method. 10. On the other hand, learned Departmental Representative ( learned DR ) vehemently relied upon the orders passed by the lower authorities. 11. We have considered the rival submissions and perused the material available on record. As noted above, assessee entered into Service Agreement dated 01/01/2008, with its associated enterprise for availing the administrative services in the nature of marketing, communications, quality management as well as information management services, in respect of which management fees was payable by the recipient. In its submissions before the lower authorities, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, etc.) of Tekla group. The work relates to internal and external communications which benefits all Tekla group companies. 12. The assessee further submitted that the managerial service availed from the associated enterprise would not have been able to be performed with the same level of efficiency and effectiveness by a 3rd party vendor given the fact that these services are unique for the group and requires expertise and experience in the relevant field and it would have involved very high cost and also huge amounts in hiring third-party vendors. The assessee also submitted that the administrative services (as done by the group) involve exchange of confidential information, which is integral to the group and involving a third party vendor would pose legal and competitive risk. The TPO as well as the learned DRP treated the arm s length price of this transaction at NIL on the basis that assessee has failed to justify/prove rendition, receipt and benefit of this expenditure. The learned DRP termed it as benefit test and the willingness to pay test , which was alleged to be not satisfied by the assessee. Further, the additional evidence filed by the assessee in form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Further, accrual of benefit to assessee or the commercial expediency of any expenditure incurred by the assessee cannot be the basis for disallowing the same, as held by Hon ble Delhi High Court in the case of EKL Appliances Ltd. [2012] 345 ITR 241 (Del.). 14. We further find that Hon ble jurisdictional High Court in CIT v/s Lever India Exports Ltd. [2017] 246 Taxmann 133 (Bombay), observed as under: 7. We note that the Tribunal has recorded the fact that the respondent assessee has launched new products which involved huge advertisement expenditure. The sharing of such expenditure by the respondent assessee is a strategy to develop its business. This results in improving the brand image of the products, resulting in higher profit to the respondent assessee due to higher sales Further, it must be emphasized that the TPO's jurisdiction was to only determine the ALP of an International Transaction. In the above view, the TPO has to examine whether or not the method adopted to determine the ALP is the most appropriate and also whether the comparables selected are appropriate or not. It is not part of the TPO's jurisdiction to consider whether or not the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this regard, it is relevant to note following details of Operating Other Expenses forming part of the financials of the assessee: Schedule 10 Operating Other Expenses March 31, 2011 March 31, 2010 Electricity 4,74,727 3,79,215 Rent 37,31,718 19,65,538 Repairs and maintenance others 6,93,975 5,27,295 Brokerage and commission expenses 6,97,000 Rates and taxes 15,27,110 10,34,449 Traveling and conveyance 47,75,571 73,33,508 Communication 9,26,916 13,15,995 Postage and courier 3,27,020 3,22,111 Printing and stationery 8,41,844 34,57,033 Management fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Purchase of licenses upgrade and service cost 1396,061,088.000 Personal expense 20,343,932 Operating and other expenses 62,924,402 Depreciation and amortisation 2,460,845 Less: Loss on discarding of fixed assets (517,904) Less: Finance charges (3,316,322) Total operating costs (B) 221,136,841 Operating profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Tekla Finland, which are used in industries like building and construction, energy distribution and infrastructure management. Tekla Finland is the license holder to use the various software products and owns all the intellectual property rights related to the software. As per the aforesaid agreement, the assessee had to distribute and sublicense software products developed by Tekla Finland to the customers within Indian Territory and to provide training and sales support to the customers. In terms of the agreement, in relation to the software products, assessee made remittance to Tekla Finland without deduction of taxes. During the course of assessment proceedings, assessee was asked to show cause as to why the payment made by the assessee to Tekla Finland for purchase of licenses and upgrades and services would not qualify as Royalty as per the provisions of the Act as well as India Finland tax treaty. In reply, assessee submitted that the payments made to Tekla Finland are not in the nature of royalty and hence not subjected to tax in India, as the payment made by the assessee are towards the purchase of a copyrighted article. The Assessing Officer vide draft assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is vehemently claimed by the appellant before us that on facts, no such activity has been undertaken by the assessee during the period under consideration. It is sought to be emphasised that no such localised features were developed, and, on the basis of sample copies of documents, the entire sequence starting from initiation of transaction with the customer who intends to purchase the software, obtaining the from Tekia Finland and finally selling it to the customer, it has been explained that assessee has merely acted as a distributor of the product. We find that this aspect was not specifically raised by the assessee before the lower authorities and in this background, assessee has prayed for admission of such evidence as additional evidence in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963. At the time of hearing, both sides were asked to give their say on the importance of the aforesaid evidence in order to determine the correctness of the tax liability of the assessee. Of course, the assessee sought to justify the consideration of such Additional evidence on the on the ground that it will enable the assessee to prove its point that the impugned paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n preceding assessment years. Be that as it may, since, as submitted, similar issue is still pending before the Assessing Officer pursuant to aforesaid remand in preceding assessment years, in the larger interest of justice we deem it appropriate to remand this issue, in the present appeal, to the file of Assessing Officer for de novo adjudication with similar directions as were passed by the coordinate bench of Tribunal in aforesaid order. The Assessing Officer is further directed to examine the documentary evidence either presented by the assessee or gathered by the Assessing Officer through enquiries which he may deem fit in the facts of the case. Needless to mention that no order shall be passed without affording opportunity of hearing to the assessee. As a result, grounds No. 12 to 15 raised in assessee s appeal are allowed for statistical purpose. 24. Grounds No. 16 and 17 pertains to levy of interest under section 234B and 234D of the Act, which is consequential in nature. Therefore, the said grounds are allowed for statistical purpose. 25. Ground no. 18 raised in assessee s appeal is pertaining to initiation of penalty proceedings, which is premature in nature and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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