TMI Blog2021 (11) TMI 1148X X X X Extracts X X X X X X X X Extracts X X X X ..... - AR argued extensively as to how adjustment with regard to interest on receivables cannot be resorted to - HELD THAT:- Primarily, we find that the assessee is a debt free company and has no claim of interest payable. Hence, in the specific financial conditions of the assessee, we hold that no adjustment is required on this ground. Incorrect Computation of Margins - HELD THAT:- TPO erred in not giving effect to the directions of ld. DRP who directed to verify and take correct margins of the comparables and adopted an inconsistent approach while computing operating margin of the comparable companies used in the determination of the ALP resulting in incorrect margins of the comparable companies. Detailed computation of margins of comparables provided to TPO pursuant to ld. DRP directions. As perused the same in the paper book at page nos. 1709 to 1747. The AO is directed to re-compute the margins. Claim of education cess as an allowable expenditure - Interpretation of provisions of Section 40(a)(ii) - Deduction u/s 37(1) - HELD THAT:- Education Cess is not of the nature described in sections 30 to 36, Education Cess is not in the nature of capital expenditure, Education C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive and comparative analysis and inter alia selecting the following company as comparable to software development services rendered by the Appellant which is functionally different: a. Killick Agencies Mktg. Ltd. iii. Rejection of companies selected as comparable to the Business support services: The DRP erred in upholding the TPO s action of not undertaking an objective comparative analysis and inter alia rejecting the following companies as comparable to the software development services rendered by the Appellant: a. India Tourism Development Corporation Ltd. b. MCI Management (India) Ltd. c. Concept Public Relations India Ltd. iv. Interest on outstanding receivables: The DRP erred in upholding the TPO s action of making transfer pricing adjustment and imputing the interest on outstanding receivables as on 31st March 2015 relating to provision of services to the AEs: a. Not appreciating the fact that the receivables are consequential/closely linked to provision o services to the AEs; b. Not appreciating the facts and circumstances surrounding the receivables and re-characterizing the outstanding receivables as loans advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons and based on the fresh analysis concluded that the price received by QIPL for provision of Software, IT support and BSS is not at Arm s length. Further, the TPO has also proposed adjustment on account of interest on the outstanding receivables of ₹ 16 ,20,061/-. 5. The summary of the arm s length range determined by the TPO and the adjustment made to the ALP of the international transactions of the company in the TP order is summarized in the table below: Particulars Software IT Support BSS Average unadjusted margin of comparable companies as determined by the TPO 24.53% 21.16% 28.81% Transfer price of the international transactions of the assessee 25,982.11 930.25 532.72 ALP for the international transactions as determined by the TPO 28,135.22 980.09 623.84 Adjustment made by the TPO 2153.11 49.84 91.12 6. Aggrieved wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... policies. 11. With regard to the marketing strategy functions includes those activities that determine the positioning of a firm s product in a market and that establish marketing techniques that bring the products to the customers attention. The AEs are responsible for branding activities to ensure that a consistent message is conveyed across the globe. Further, the business unit leaders of the AEs develop market strategies and relay this information to QIPL so that QIPL may undertake market research and business development activities on behalf of the AEs in India, and augment the AE s efforts in raising awareness of Qualcomm s technology to manufacturers in India. 12. Thus, on going through the functions, we find that the comparable Killick is functionally different from the assessee, hence, we hereby direct the same may be excluded from the list of final comparables. Inclusion of Comparables: 13. The assessee has argued for inclusion of three comparables namely, India Tourism Development Corporation (ITDC), Concept Public Relations India Ltd. (CPRIL) and Management (India) Ltd. (MIL). The assessee did not press for inclusion of ITDC. 14. With regard to C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sesa Goa Ltd. Vs JCIT (ITA No. 1718 of 2013). 21. Before us, it was argued that a legal ground can be taken up any time before the higher authorities. The ld. AR relied on the judgment of the Hon ble Apex Court in the case of National Thermal Power Co. Ltd. Vs CIT (1998) 229 ITR 383. Admission of the additional ground has been opposed in principle by the ld. DR. 22. Keeping in view, the judgment of the Hon ble Apex Court in the case of National Thermal Power Co. Ltd. Vs CIT (1998) 229 ITR 383, the additional ground filed by the assessee is accepted. The relevant portion of the judgment is as under: 5. Under Section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. 8. The reframed question, therefore, is answered in the affirmative, i.e., the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee on the merits. 23. Respectfully following the above judgment of the Hon ble Apex Court, the additional grounds taken up by the assessee are hereby admitted. 24. Reading the provisions of Section 40(a)(ii), the assessee argued that education cess paid on Income Tax doesn t come under the purview of the definition as it is levied on the amount of Income Tax but not on profits of business. The ld. AR relied on the Circular No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The effect of the omission of the word cess is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards. 3. The Board desire that the changed position may please be brought to the notice of all the ITOs so that further litigation on this account may be avoided. 31. The similar issue of allowability of cess u/s 37 has been examined by the Co-ordinate Bench of ITAT in ITA No. 685/Cal./2014 wherein the amount of the cess paid has been held to be an allowable deduction. 32. Further, we find that the Hon ble High Court of Judicature for Rajasthan at Jaipur in ITA No. 52/2018 in the case of Chambal Fertilizers and Chemicals Ltd. held that in view of the Circular of CBDT where the word cess is deleted, the claim of the assessee for deduction is acceptable. In that case, the Hon ble High Court held that there is difference between the cess and tax and cess cannot be equated with the cess. 33. We have also gone through the provisions of Sec. 115 of the Income Tax act 1961 which are as under: Explanation 2 to section 115JB (2) of the Act defines the term 'Income-tax' in an inclusive manner, which includes cess. Provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... `tax', a `fee' and `cess' in the following passage: The neat and terse definition of Tax which has been given by Latham, C. J., in Matthews v. Chicory Marketing Board (1938) 60 C.L.R. 263 is often cited as a classic on this subject. A Tax , said Latham, C.J., is a compulsory exaction of money by public authority for public purposes enforceable by law, and is not payment for services rendered . In bringing out the essential features of a tax this definition also assists in distinguishing a tax from a Fee. It is true that between a tax and a fee there is no generic difference. Both are compulsory exactions of money by public authorities; but whereas a tax is imposed for public purposes and is not, and need not, be supported by any consideration of service rendered in return, a fee 1 AIR 1954 SC 282 2 1961 (2) SCR 537 is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. If specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area, and as a condition precedent for the said services or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee, it is mandatory for it to pay Education Cess and for the purpose of computation of Education Cess, the Income Tax is taken as the criteria for computational purpose. Thus, the expense of Education Cess is mandatory expenses to be paid but does not fall under capital expense and personal expenditure and hence may be allowed as deduction. 41. We have also gone through the various judgments of judicial authorities pan India wherein the fresh claim of the assessee is considered and the deduction u/s 37 of Education Cess has been allowed. The Hon ble High Court of Bombay held that the appellate authorities may confirm, reduce, enhance or annul the assessment or remand the case to the AO, because the basic purpose of a tax appeal was to ascertain the correct tax liability in accordance with the law. To mention a few, DCIT Vs M/s. Agrawal Coal Corporation Pvt. Ltd ITA Nos. 801 to 803/Indore/2018. Atlas Copco India Ltd. Vs ACIT in ITA No. 736/Pune/2011 Tata Autocomp Hendrickson Vs DCIT in ITA No. 2486/Pune/2017 Symantec Software India Pvt. Ltd. Vs DCIT in ITA No. 1824/Pune/2018 Sicpa India Pvt. Ltd. Vs ACIT in ITA No. 704/Kol/2015 Ph ..... X X X X Extracts X X X X X X X X Extracts X X X X
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