TMI Blog2023 (10) TMI 771X X X X Extracts X X X X X X X X Extracts X X X X ..... wo years, no transfer pricing adjustment was made in the case of AEs for the simple reason that no transfer pricing reference was made by the AO in the first instance. We observe that the argument of likes have not been compared with like and the argument of similarity of agreement with BLNG were never taken before the Tax Authorities at any stage of the hearing. Accordingly, looking into the facts of the instant case, and respectfully following the decision in the case of Filtrex Technologies Pvt. Ltd [ 2018 (4) TMI 1957 - ITAT BANGALORE] the matter is being restored to the file of Ld. AO for determination of ALP in respect of the aforesaid transactions. The assessee is also directed to file the relevant supporting documents to substantiate that the price paid by the AEs to the assessee is at arm s length within the methods laid down in the Act and the judicial precedents rendered on this issue. TPO is directed to consider the same in accordance with the law, after affording an opportunity of being heard to the assessee. Revenue for grant of software license as royalty - addition u/s 9(1)(vi) and under Article 12 of India Netherlands tax treaty (Tax Treaty') - HE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recourse to the services of the assessee - there is nothing in the hand of the Tax Treaty or the judicial precedents on the subject to come to any such conclusion - thus such services do not qualify as fee for technical services under Section 9(1)(vii) of the Act read with Article 12 of the India-Netherlands Tax Treaty. Taxability of revenues received from Larsen Toubro (L T) - services broadly included engineering services related to manufacturing of coal gasification equipment by L T as provided in countries outside of India viz. Vietnam and China etc. and were in relation to overseas EPC projects undertaken by L T. - HELD THAT:- As decided in Motif India Infotech Pvt. Ltd. [ 2018 (12) TMI 1146 - GUJARAT HIGH COURT] which held that as per clause (b) of Section 9(1)(vii) the income by way of fees for technical services payable by a person who is a resident of India would be deemed to accrue or arise in India. This clause contains two exceptions namely where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India, or it is for the purpose of making or earning any income from any source outside India. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ductible at source, assessee s case was protected under India-USA DTAA as mere rendering of services could not be roped into FTS since assessee company utilising services was unable to make use of technical knowledge etc. of AE. Unless the services are rendered in the manner such that the technology is made available transferred to the assessee in such a manner that he is enabled to perform such services by itself in the future and does not require further services from the service provided, it is only then that such services would qualify as fee for technical services under the applicable Tax Treaty which specifically contains the make available clause. Thus we observe that nature of services are not which make available the technology to the recipient of services i.e. Shell India and further, the Department has also not placed on record any evidence to support that such services have made available the technology to the recipient of such services. - Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member For the Appellant : Shri S. N. Soparkar, Sr. Advocate And Shri Parin Shah Ms. Dhruvi Satoti, A.Rs. For the Respondent : Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked using CUP as the most appropriate method. The TPO observed that the personnel provided by the assessee to its AE were subsequently provided to a third party by the AE. The TPO observed that the average hour rate charged by the assessee to its AE was Euro 187.5 while average hour rate charged by the AE to the third party was Euro 338.25. During the course of proceedings before the TPO, the assessee took the argument that the assessee had charged a higher price for the aforesaid services from it s AE, it would have let to tax base erosion in India, however, the TPO rejected the arguments put forth by the assessee. Accordingly, the Ld. TPO made an upward adjustment of Rs. 13,49,53,506/- on account of the above transactions during the course of the proceedings. Similar adjustments were made for A.Ys. 2012-13 and 2013-14 by the Ld. TPO as well, against which the assessee is in appeal before us. With respect to the aforesaid issue of Transfer Pricing Adjustment the assessee has taken the following Grounds of Appeal:- ITA No. 780/Ahd/2016 (A.Y. 2011-12) 1. The Learned AO/Transfer Pricing Order( TPO ) has erred in and learned DRP has further erred in confirming action of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and in law, learned AO / TPO has erred and learned DRP has further erred in confirming the TP adjustment with respect to the income from services mentioned above, from HLPL, HPPL and SIMPL by not allowing the benefit of provisions of Article 9(1) of India -Netherlands Tax Treaty ('DTAA') being more beneficial to the Appellant than the provisions of the Income-tax Act, 1961 ('the Act') and by virtue of section 90(2) of the Act. ITA No.2935/Ahd/2017 (A.Y. 2013-14) Transfer Pricing Adjustment of Rs. 50,68,79,713 1.1. The learned AO / TPO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO / TPO on the fact and in law in applying the transfer pricing ('TP') provisions and making a TP adjustment to the value of international transactions entered into by the Appellant with Hazira LNG Private Limited ('HLPL'), Hazira Port Private Limited ('HPPL') in respect of rendering services in relation to operation of LNG storage and regasification. 1.2. The learned AO / TPO has erred on the facts and in law and learned DRP has further erred in confirming the action of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Article 12 of DTAA (as per Ground No. 4 below) is accepted, then the corresponding transfer pricing adjustment in relation to the services rendered to HLPL should also be reduced to the extent. 4. Before us, the Ld. Counsel for the assessee at the outset submitted before us that he shall not be pressing the argument with respect to base erosion since the issue is now covered against the assessee by order of Hon ble Special Bench of Kolkata Tribunal in the case of Instrumentarium Corporation Ltd. and also by the order of Divisional Bench of Hon ble Ahmedabad ITAT in appellant s own case for A.Y. 2007-08 to A.Y. 2010-11. However, the Counsel for the assessee submitted that since the transaction has been considered to be at Arm s Length Price in the hands of the Indian Associated Enterprise i.e. SHELL Indian Markets Pvt. Ltd. (SIMPL), Hazira Port Pvt. Ltd. (HPPL) and Hazira LNG Pvt. Ltd. (HLPL), no transfer pricing adjustments should be made in the hands of the assessee for the same transaction. In the case of HPPL, the Counsel for the assessee submitted that for A.Y. 2011-12 to A.Y. 2012-13 the transaction can be said to have been accepted at an Arm s Length Price in the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s case, then the same will lead to double taxation which is against the principle of taxation. Further, it was submitted before us that the assessee has rendered services with respect to LNG storage and re-gasification terminal to its AEs i.e. HLPL and HPPL. Similar services were also provided to third parties i.e. BLNG. The Counsel for the assessee submitted that the structure of these two contracts i.e. the Operating Services Agreement (OSA) with HLPL and HPPL as well as with BLNG are structured in a similar manner i.e. there is a fixed component of services along with annual quota of entitlements are for which there is a lumpsum annual fee and there is a provision to provide various optional services which would be invoiced basis the charged out rates for the employees under various job groups. However, it was submitted that the TPO has erred in quantification of TP adjustment i.e. fixed services have not been compared with fixed services and optional services have not been compared with optional services. Hence, it was submitted that likes have not been compared with likes and the assessee placed reliance on the decision rendered by ITAT Hyderabad in the case of M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be concluded that price paid by assessee in international transactions had to be accepted as at arm s length. In this case, while passing the order, the TPO made the following observations:- 19. We have given very careful consideration to the rival submissions. As far as Gr.No.8 raised by the Assessee in its appeal is concerned, the plea of the Assessee is that in the Assessment proceedings of FHPL and FIPL for the very same AY viz., AY 2012-13, the TPO has accepted that the income shown by FHPL and FIPL was (a) for services it rendered to the Assessee and (b) that the remuneration received was at Arm's Length. The AO of FHPL and FIPL while completing the assessment of FHPL and FIPL was fully aware of the fact that the transaction by which FHPL and FIPL received fees from the Assessee was a transaction between two Associated Enterprises (AE) and the same was an international transaction. The AO of FHPL and FIPL was therefore bound to determine income arising from the international transaction having regard to Arm's Length Price as per the mandate of Sec.92 of the Act. The AO was at liberty to make a reference to the TPO to find out the ALP of the internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. The guidelines discourage re-structuring of legitimate business transactions except where (i) the economic substance of a transaction differs from its form and (ii) the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner. The OECD guidelines should be taken as a valid input in judging the action of the TPO because, in a different form, they have been recognized in India's tax jurisprudence. It is well settled that the revenue cannot dictate to the assessee as to how he should conduct his business and it is not for them to tell the assessee as to what expenditure the assessee can incur (Eastern Investment Ltd. v. CIT [1951] 20 ITR 1 (SC), CIT v. Walchand Co. [1967] 65 ITR 381 (SC) followed). Even Rule 10B(1)(a) does not authorise di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITAT Bangalore in the case of UE Development India Pvt. Ltd. (supra). This decision was rendered prior to the decision of the Hon'ble Delhi High Court in the case of Cushman Wakefield India (P.) Ltd. (supra). The special Bench ITAT, Kolkata in the case of Instrumentarium Corpn. Ltd. v. Asstt. DIT [2016] 71 taxmann.com 193/160 ITD 1 had to deal with somewhat similar issue. The background in which this question has come up for the consideration before the special bench was that the Assessee Instrumentarium Corporation Limited (ICL-Finland, in short), was a company incorporated in, and tax resident of, Finland. The assessee was engaged in the business of manufacturing and selling medical equipment, and it has a wholly owned subsidiary in India by the name of Datex Ohmeda India Pvt Ltd (Datex India, in short) which acted as ICL-Finland's marketing arm for its products in India. On 26th August 2002, the assessee entered into an agreement, which was duly approved by the Reserve Bank of India, to advance an interest free loan of Rs 36 crores to Datex-India. The interest free advance by the assessee to its Indian subsidiary which is the subject matter of dispute before the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. Section-92C(1) of the Act lays down that the arm's length price in relation to an international transaction shall be determined by any one of the most appropriate methods set out in that section, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe. When the AO makes a reference to the TPO for determination of ALP, the provisions of Sec. 92CA(2) (3) of the Act makes it mandatory for the TPO to determine ALP of international transaction, whether it is referred to by the AO or any other transaction which comes to his notice. These provisions read thus: (2) Where a reference is made under sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provided further that where the total income of an associated enterprise is computed under this sub-section on determination of the arm's length price paid to another associated enterprise from which tax has been deducted or was deductible under the provisions of Chapter XVIIB, the income of the other associated enterprise shall not be recomputed by reason of such determination of arm's length price in the case of the first mentioned enterprise. 27. The CBDT in it's Circular No. No.14/2001 dated 9.11.2001 has explained the purport of the 2nd proviso to Sec. 92C(4) of the Act as follows: 55.13 The second proviso to section 92C(4) refers to a case where the amount involved in the international transaction has already been remitted abroad after deducting tax at source and subsequently, in the assessment of the resident payer, an adjustment is made to the transfer price involved and, thereby, the expenditure represented by the amount so remitted is partly disallowed. Under the Income-tax Act, a non-resident in receipt of income from which tax has been deducted at source has the option of filing a return of income in respect of the relevant income. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r tax base of the country would erode. The revenue can desist from doing so in the assessment of the other party to the said transaction wherever there would not be tax base erosion. It cannot therefore be said that consequent to acceptance of return of income filed by FHPL and FIPL, the price paid by the Assessee in the international transaction has to be accepted as at Arm's Length. 29. In the light of the above discussion and the decisions on the issue rendered after the decision in the case of UE Development India Pvt. Ltd. (supra), we are of the view that ALP has to determined in the hands of the Assessee irrespective of the acceptance of ALP in the hands of FHPL and FIPL. The question as to whether the payment for such services are at Arm's Length or commensurate with the benefit received by the Assessee are all matters which needs examination by the TPO. No such exercise has been carried out by the TPO. But that does not mean that the ALP has been established by the Assessee. We are therefore of the view that it would be just and proper to set aside the order of the Assessing Officer on this issue and remand the question of determination of ALP to the TPO for f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the aforesaid transactions. The assessee is also directed to file the relevant supporting documents to substantiate that the price paid by the AEs to the assessee is at arm s length within the methods laid down in the Act and the judicial precedents rendered on this issue. The Ld. TPO is directed to consider the same in accordance with the law, after affording an opportunity of being heard to the assessee. 8. In the result, Ground No. 1 (A.Y. 2011-12) Ground No. 1 (A.Y. 2012- 13) and Ground No. 1(2013-14) are allowed for statistical purposes. Ground No.2 (A.Y. 2011-12) (2012-13) and (2013-14) Software Royalty:- 9. The assessee has raised the following grounds of appeal:- 2. The learned AO based on the directions of the DRP has erred on the facts and in law in treating the revenues of Rs 94,57,189 received by the Appellant from Bharat Petroleum Corporation Limited (BPCL), Blural Oman Refineries Limited (BORL) and HPCL Mittal Energy Limited (HPCI. Mittal') for grant of software license as royalty under section 9(1)(vi) of the Act and under Article 12 of India Netherlands tax treaty (Tax Treaty'). 2. Income from software treated as royalty in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments by resident Indian and user / distributors to non-resident computer software manufacturers / suppliers as consideration for resale / use of computer software through distribution agreement is not payment for use of copy right in computer software and thus, same does not amount to income taxable in India. Accordingly, in view of the aforesaid decision, wherein the Hon ble Supreme Court has held that payments made the assessee to non-resident related to use of computer software was not royalty, this issue is decided in favour of the assessee. 13. In the result, Ground No. 2 of the assessee s appeal is allowed. Ground No. 3 (A.Y. 2011-12) and Ground No. 4 (A.Y. 2013-14):- DRP erred in treating revenues of Rs. 51,68,025/- received by the assessee from Hazira LNG Port Ltd., Hazira Port Pvt. Ltd. and Hindustan Petroleum Corporation Ltd. as fees for technical services under Section 9(1)(vii) of the Act and under Article 12 of the Tax Treaty. 15. The assessee has raised the following grounds of appeal:- 3. The learned AO based on the directions of the DRP has erred on the facts and in law in treating the revenues of Rs. 51,68,025 received by the Appellant from Hazim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usal of the relevant agreements and the order passed by the DRP, we are of the considered view that looking into the nature of services there is nothing to suggest that the condition of make available as provided in the India-Netherlands Tax Treaty have been satisfied. Further, looking into the nature of services, there is nothing to suggest that there was any agreement for transfer of any technical plan or design to the recipient of services under the aforesaid agreement as well. Further, looking into the nature of services, wherein the analysis done by the assessee is submitted in a form of report to the recipient of services, there seems to be nothing to suggest that the technology for providing the aforesaid services have been imparted to the recipient of services in a way that the recipient of services would not be required the services of the assessee further in the future and has been enabled by the assessee to perform such services on its own without any recourse or assistance of the assessee in the future. More specifically, with respect to Work Order No. 131965, we observe that the work performance on the analysis was done only with a view to advice HPCL to decide wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn purposes in the future. In our considered view, there is nothing in the hand of the Tax Treaty or the judicial precedents on the subject to come to any such conclusion. In the result, we are of the considered view that the aforesaid services do not qualify as fee for technical services under Section 9(1)(vii) of the Act read with Article 12 of the India-Netherlands Tax Treaty. 21. In the result, Ground No. 3 of the A.Y. 2011-12 and Ground No. 4 of A.Y. 2013-14 of the assessee s appeal are allowed. Ground No. 4 (2011-12) (2012-13) and Ground No. 5 (2013-14):- Taxability of revenues received from Larsen Toubro (L T):- 22. The assessee has raised the following grounds of appeal:- 4. The learned AO based on the directions of the DRP has erred on the facts and in law in treating the revenues of Rs. 8,18,82,400 received from Larsen Toubro Limited ( L T ) as taxable under section 9(1)(vii) of the Act. 4. Income from Larsen Toubro Limited ( L T ) treated as fees for technical services The learned AO/TPO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO/TPO on the facts and in law in treating the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion plant outside India namely in China and Vietnam. The Counsel for the assessee relied on the decision rendered by the Jurisdictional High Court in the case of Motif India Infotech Pvt. Ltd. in ITA No. 1177 of 2018 wherein the Gujarat High Court held that the source of income is outside India since assessee s customer work based outside India. Further, the Counsel for the assessee also placed reliance on the decision of Bangalore ITAT in the case of Titan Industries Ltd. 11 SOT 206 wherein it was held that when the customers of the company are located outside India, then the source is outside India. 25. In response, Ld. D.R. placed reliance on the observations made by the DRP and AO. 26. We have heard the rival contentions and perused the material on record. On going through the facts of the instant case, we observe that the assessee entered into contract for provision of engineering services related to coal gasification equipment to be installed at the plant site in Vietnam and China. We observe that the services were to be rendered primarily from the office of the assessee located at Germany. Further, from the terms of the services it is seen that the services on relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Section 209(1)(d) of the Act, the amount of income tax which is deductable or collectable at source can be reduced by the assessee while calculating advance taxes. Assessee s submissions before us is that for A.Y. 2011-12 and 2012-13, the wordings used in Section 209(1)(d) of the Act are deductable at source and not deducted at source and hence the assessee is not liable to pay interest under Section 234B of the Act for A.Y. 2011-12 and 2012-13. 30. We observe that the Hon ble Supreme Court in the case of Mitsubishi Corporation 130 taxmann.com 276 (SC) has held that Proviso to Section 209(1) issued by Finance Act, 2012 providing that if a non-resident assessee received any amount including tax deductible at source, assessee could not reduce such tax while computing its advance tax liability was applicable prospectively after Assessment Year 2012-13. The Hon ble SC while passing the order made the following observations: The dispute relating to the interpretation of the words 'would be deductible or collectible' in section 209(1)(d) can be resolved by referring to the proviso to section 209(1)(d), which was inserted by the Finance Act, 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for technical services - Rs. 15,58,83,228 3.1. The learned AO/TPO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO/IPO on the facts and in law in treating the revenues of Rs 15,58,83,228 received by the Appellant from Shell India Markets Private Limited (SIMPL) for Global P T Functional Services as Fees for technical services under section 9(1)(vii) of the Act and under Article 12 of DTAA. 3.2. Without prejudice to above mentioned Ground No. 3.1 above, The learned AO/TPO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO/FPO on the facts and in law in disregarding the fact that amount received for the above mentioned services is mere reimbursement of expenses incurred by the Appellant without any mark up and hence is in the nature of reimbursement of expenditure. 37. During the year under consideration, the assessee entered into an agreement with it s subsidiary Shell India Pvt. Ltd. to provide Global P T Functional Services. Broadly, the services included proceeding strategy support services, human resources services, legal services, providing advice relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 226 (Gujarat) the Gujarat High Court held that where assessee company availed diamond testing services for certification of diamond from U.S. company and claimed that payment was not tax deductible at source, assessee s case was protected under India-USA DTAA as mere rendering of services could not be roped into FTS since assessee company utilising services was unable to make use of technical knowledge etc. of AE. While passing the order, the Gujarat High Court made the following observations:- 6. Apparently reading the orders under challenge would indicate that based on factual appreciation especially the condition in the customer service agreement, the bank invoice and the Bank remittance advice a finding of fact has been arrived at that the assessee's case was protected under the India- USA DTAA and that mere rendering of services cannot be roped into FTS unless the person utilising the services is able to make use of the technical knowledge etc. Simple rendering of services as in the present case is not sufficient to qualify as FTS. 41. Accordingly, in view of the facts of the assessee s case and the judicial precedents on the subject which have consistently t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /IPO on the facts and in law in treating the revenues of Rs 21,62,65,463 received by the Appellant from Shell India Markets Private Limited (SIMPL) for Global P T Functional Services as Fees for technical services under section 9(1)(vii) of the Act and under Article 12 of DTAA. 3.2. Without prejudice to above mentioned Ground No. 3.1 above, The learned AO/TPO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO/FPO on the facts and in law in disregarding the fact that amount received for the above mentioned services is mere reimbursement of expenses incurred by the Appellant without any mark up and hence is in the nature of reimbursement of expenditure. 49. In view of our observation in Ground No. 3 for A.Y. 2012-13, Ground No. 3 of the assessee s appeal is allowed. Ground No. 4:- Income from HLPL treated as fees for technical services (Rs.2,84,20,716/-) 50. The assessee has raised the following grounds of appeal:- 4. Income from HLPL treated as fees for technical services Rs. 2,84,20,716 The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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