TMI Blog2020 (1) TMI 1620X X X X Extracts X X X X X X X X Extracts X X X X ..... m to pass an order afresh on the issues emanating from the above grounds of appeal after giving reasonable opportunity of being heard to the appellant. We direct the appellant to file the relevant documents/evidence before the AO. Thus the 1st 2nd grounds of appeal are allowed for statistical purposes. Non-deduction of tax at source u/s 195 - foreign remittances reflected in Annual Information Report (AIR) downloaded from Income Tax System for the financial year (FY) 2010- 11, wherein on certain payments tax was deducted and tax was not deducted on certain payments - HELD THAT:- We agree with the contentions of the Ld. counsel that (i) no income can be said to be accrued or deemed to be accrued in India on account of remittance towards participation fees for a conference held outside India ; (ii) the payment can be characterized as FTS u/s 9(1)(vii) of the Act, only when a person pays to another person a payment for rendering of services which is in the nature of consultancy, technical or managerial in nature; further, professional services is not covered by the definition of FTS u/s 9(1)(vii) of the Act. Thus the said payments in the instant case cannot be characterized as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyee as the same has not been passed through the profit and loss account. In this regard, the question of disallowance of the said expenses shall not arise. Payment to Hoffman La Roche Inc, USA towards reimbursement of salary - No tax is required to be deducted again at the time of reimbursing salary cost to Roche Group companies; otherwise, the same will result in double taxation i.e. one at the time of payment of salary/social security to the employees in India and second at the time of reimbursement to group companies. Payment to Roche Germany towards other reimbursement viz. travel and stay, conference participation fees and web access charges it is a mere reimbursement of expenses and cannot be construed as a fee for services rendered since what is achieved by a reimbursement is mere repayment of what has been already spent and is not a reward or compensation for services rendered. Further, the transactions relating to reimbursement of expenses to AE have been subject matter of TP assessment and the fact that the reimbursement of various expenses are at actual cost, with no profit element has been accepted by the TPO. Further, the DRP has granted relief in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount and the business between the them is on a principal-to-principal basis and the role of JL Morison is to promote sales of products of the appellant and not to manage the appellant s business -appellant had submitted copies of debit notes, third party invoices, salary agreement of the employee and TRC of JL Morison and these documents establish that the payments pertain to pure cost reimbursements. Reimbursement of special discounts - actual amount of such special discount i.e. the difference of local sales price of JL Morison and the discounted price at which JL Morison has sold the products as directed by the appellant is recovered from the appellant. Also the appellant has not adjusted the said special discount against sales to JL Morison and instead recorded it as a separate transaction. Reimbursement of cost of manager - It is found that as per the agreement the appellant will provide the technical, scientific and marketing support including training of engineers, salesmen to JL Morison for the sale of its product and Mr. Sujeewa Kruppu has been appointed in Sri Lanka exclusively for advertisement and promotion of the appellant s products and for providing various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing activity as opposed to the appellant, which is engaged in trading activity. b TTK Healthcare has earned abnormally high margin beyond industry standards for trading activity. c Related party transactions of TTK Healthcare account for 21% of its revenue, which is exceeding 15% and hence, it should not be considered as a comparable to ensure reliable comparability analysis. 3. The above grounds of appeal are discussed together as they address a common issue. Roche Diagnostics India Pvt. Ltd. ( Roche India or the Appellant ), is engaged in distribution of biomedical equipment, reagents and spares for such equipment in India. The main products for the critical care segment are Blood Gas and Electrolyte Analyzers. It also provides marketing support services for diagnostic equipments distributed by Roche Diagnostics Asia Pacific Pte. Limited ( RDAP ). As per the transfer pricing (TP) study prepared by the appellant, its operating profit margin was worked out at 4.39% as against the average industry margin of comparables at 3.77% under Transactional Net Margin Method (TNMM). Therefore, the international transaction of the appellant was claimed to meet the Arm s Len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Healthcare as comparable. In this regard, he makes reference to the relevant pages of the Paper Book which contains the concerned TP orders. Also it is stated by him that in subsequent year viz. AY 2012-13, the appellant had submitted a presentation on TTK Healthcare downloaded from the Bombay Stock Exchange Website which makes it clear that TTK Healthcare is engaged in manufacturing of medical devices. Thus it is submitted by him that after considering the submissions, the TPO in AY 2012- 13 excluded TTK Healthcare and passed favourable order without any adjustment. Reliance is placed on the decision of the Hon ble Bombay High Court in the case of Pr. CIT v. Aptara Technology Pvt. Ltd. (ITA No. 1209 of 2015), wherein it is held that a company which was included by the TPO as comparable in preceding year cannot be rejected, if revenue is not able to establish any difference in the facts from that existing in earlier year. Further reliance is placed by him on the order of the ITAT, Mumbai in the case of M/s Samsonite South Asia Pvt. Ltd. v. DCIT (ITA No. 1934/Mum/2017), where the principle of consistency is upheld in transfer pricing case. 4. On the other hand, the Ld. Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be mentioned here that two companies can be treated as comparable when both are discharging the overall similar functions, though there may be some minor differences in such functions, not impacting the otherwise comparability. Notwithstanding the functional similarity, many a times a company ceases to be comparable because of other reasons as well. To cite an example, if company X , though functionally similar to company Y , but has related party transactions breaching a particular level, then, such company cannot be considered as comparable to company X in the year in which related party transactions breach such a level. If, however, in subsequent year, the related party transactions fall below that barrier, then such company would again become comparable. In the same manner, a company might have been treated as non-comparable due to the TPO adopting its entity level results for comparison with the segmental results of the case before him, but in a later case, the TPO may take only the related segment results. In such a later case, the company treated as non-comparable to the first company may become comparable to the second company. To sum up, the comparability of ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.2,64,09,027/- u/s 40(a)(i) on the ground of non-deduction of tax at source u/s 195 of the Act. 8. Before us, the Ld. counsel for the assessee reiterates his submission before the DRP. On the other hand, the Ld. Departmental Representative (DR) supports the order passed by the AO. 9. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. 9.1 The appellant has made remittance of Rs. 1,48,016/-to Duo Contrusting (Tax resident of Germany) and Rs.1,97,529/- to Right Management (Tax Resident of Singapore) towards participation of its employees in conference/seminar held in Hong Kong and Singapore respectively. It has made payment to Duo Contrusting towards fees for its employees viz. Mr. Arora Bobby, Mr. Sanjay Singh and Mrs. Pranjal Sharma for participation in conference held on 14 and 15 December 2010 in Hong Kong. Further, the appellant has paid participation fees to Rights Management towards participation of its employee viz. Dr. Bhuwnesh Agrawal in seminar held in Singapore. We agree with the contentions of the Ld. counsel that (i) no income can be said to be accrued or deemed to be accrued in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther, as per Article 12(4)(b) of the said DTAA, consideration towards technical knowledge, skill etc. would be considered as FTS only if the technical knowhow, skill etc. is made available to the recipient of the services. Further, Right Management has not transferred or made available any technical knowledge or skills to the appellant and therefore, payments made to Right Management are not in the nature of FTS and not liable to tax in India having regard to the provisions of the said DTAA. Since participation fees for attending seminar is not taxable in India, the question of TDS on aforesaid payment does not arise. 9.3 In respect of payments to Global Data Ltd. for obtaining market analysis and forecast report of Rs.1,36,032/- we find that the said expenses were booked in the FY 2009-10 and only remittance was made during the FY under consideration i.e. FY 2010-11 and as such the question of disallowance of expenses which has not been claimed for the FY under consideration i.e. FY 2010-11 shall not arise. 9.4 In respect of payments to F. Hoffman La Roche AG, Switzerland ( F. Hoffman Switzerland ) towards reimbursement of taxes of employee viz. Dr. Bhuwnesh Agarwal of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for services rendered. Further, the transactions relating to reimbursement of expenses to AE have been subject matter of TP assessment and the fact that the reimbursement of various expenses are at actual cost, with no profit element has been accepted by the TPO. Further, the DRP has granted relief in case of reimbursement of expenses of similar nature paid to other Roche group companies against which the Department has not filed appeal before the Tribunal. In this context we rely on the decision by the Hon ble Supreme Court in the case of DIT v. A.P. Moller Maersk A S (2017) 78 taxmann.com 287 (SC), the decision by the Hon ble Bombay High Court in the case of DIT (IT) v. Krupp UDHE GmbH [2010] 38 DTR (Bom)251. 9.7 Regarding payments to Genentech Inc towards reimbursement of relocation expenses of Rs.7,51,149/- to Mrs. Rita Kale, we observe that reimbursement of expenses does not constitute income and accordingly should not be subject to TDS. 9.8 In respect of reimbursement of expenses of Rs.57,58,247/- to Sanofi Aventis Bangladesh Ltd. ( Sanofi ), it is found that Sanofi is acting as an exclusive distributor of the appellant s diagnostic products in Bangladesh and it also un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sanofi has recovered the actual salary cost of Mr. Mostafa and other related costs incurred by Sanofi from the appellant. Further, even if the aforesaid payments are considered as FTS, the same should not be subject to tax in India in the absence of specific Article of FTS in India-Bangladesh DTAA. 9.12 Regarding the reimbursement of expenses to JL Morison Sons Jones (Ceylon) Ltd. ( JL Morison ) of Rs.11,87,799/-, it is observed that as per the arrangement between JL Morison and the appellant, the former buys products and re-sells them on its own account and the business between the them is on a principal-to-principal basis and the role of JL Morison is to promote sales of products of the appellant and not to manage the appellant s business. Also out of the above expenses, a sum of Rs.3,79,805/- has been booked in FY 2009-10 and therefore, the disallowance in the impugned assessment year does not arise. In respect of the disallowance of the balance amount of Rs.8,07,994/- we find that the appellant had submitted copies of debit notes, third party invoices, salary agreement of the employee and TRC of JL Morison and these documents establish that the payments pertain to pure co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 195 of the Act without appreciating the fact that the said expenses were booked in earlier Financial Year ('FY') 2009-10 and only. 10.1 The details regarding the expenses disallowed by the AO are as under : Name of the foreign payee Nature of remittance Date of remittance Date of invoice/debit note Amt (in FC) Amount (in INR) Global Date Ltd. Market analysis forecast report 15-Apr-10 17 Mar 10 3,030 136,032 Sanofi Aventis Bangladesh Ltd. Reimbursement of sales discount and cost of manager 30-Jun-10 31 Dec 09 20,001 929,746 J. L. Morisons Sons Jones (Ceylon) Ltd. Reimbursement of expenses towards sales promotion, special discount and cost of manger 28-Jun-10 31 Dec 09 3,000 1,38,860 27-Sep-10 31-Dec-09 5,203 2,40,945 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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