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TMI Blog2025 (3) TMI 1086X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case and in law, the Ld. AO / Hon'ble D RP / Ld. TPO erred in making an adjustment to the extent of INR 10,81,27,623 in respect of international transaction pertaining to receipt of Intra Group Services CIGS') alleging that the same to be not at arm's length and erred in fact and law by: 2.1. Not appreciating that the subject transaction is closely linked to the main business activity of the Assessee, an aggregation approach using the Transactional Net Margin Method CTNMM') having Net Operating Profit Margin based on income CNPM') as the Profit Level Indicator CPLI') is the most appropriate transfer pricing methodology for benchmarking the subject transaction. 2.2. Exceeding their jurisdiction, by determining the Arm's Length Price CALP') of IGS at NIL, by applying the benefit test, not being a valid method prescribed u/s 92C of the Act, thus applying other method in incorrect manner. 2.3. Not appreciating the documentary evidence including allocation methodology/ information/ explanation as provided by the Assessee during the course of the assessment proceedings evidencing the actual receipt of services. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of TP proceedings, the TPO directed the assessee to file all the agreements entered by it relating to intra-group services and submit relevant documents for the services actually received by the assessee. In response, assessee has submitted various evidences vide its letter dated 07.12.2020 and 18.01.2022. After considering the submissions made by the assessee, TPO observed that various evidences submitted by the assessee contain list of various services provided by its AEs, however he observed that there is no evidence of actual services provided by them during the year. Basically he rejected all the evidences submitted by the assessee on the basis of benefit test. Further he observed that assessee has paid huge sum of Rs. 10.81 crores to its AEs for purported services, one would expect highly specialised services by necessary documentation by the assessee. Assessee has failed to file any worthwhile evidences of purported services. Assessee also failed to produce necessary documentation of services in this regard as per section 92B and Rule 10. He also rejected the claim of the assessee that TPO cannot go into benefit test or commercial expediency of the assessee by observing that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llocation agreement with Bio-Rad Laboratories Inc with effect from January 1.2009. (refer pg. no. 1089-1104 of the paperbook volume 2) b. Global Services and cost allocation agreement with Bio-Rad Laboratories (Singapore) Pte Ltd with effect from January 1. 2010(refer pg. no. 1130-1145 of the paperbook volume 2) 1.3. The details of the specific services rendered are mentioned at Page no 1103-1104 & 1116-1117 of paperbook volume 2. Further, it may also be noted that the AEs also agreed to a mark-up of 5 % on the cost incurred would be the appropriate remuneration for these services. 1.4. The Hon'ble Bench directed the Appellant to file the basis for allocating the cost by the AE i.e. the allocation keys. Accordingly, the details on the basis of which the allocations were made to the Appellant under each head is tabulated below for the Hon'ble Bench's ready reference: Service Group Allocation Keys/ Method Information technology services Headcount Sales and marketing services Revenue* Finance and accounting services Revenue Human resources Headcount - Regulatory Revenue Legal Revenue Education and Training Revenue Treasury Revenue Logistics Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (as impugned in the subject proceedings) were held to be is in the nature of management support services through which the AE's have rendered professional/expert services to the Indian AE (i.e. the Appellant in the subject case). It was further held that technical knowledge, experience, skill, know-how etc. were made available by the Appellant's AE to the Indian affiliate and therefore these services were in the nature of Fee for Technical Services being taxable under the provisions of the relevant DTAA. (refer page no 1172 to 1193 of the paperbook Volume 2 for the assessment order for Bio- Rad Singapore & refer 1213 to 1258 of the paperbook Volume 2 for the assessment order for Bio-Rad USA). Thus, from the above facts it is clearly evident that the finding of the TPO that the services were not rendered buy the AE is factually incorrect and liable to be rejected. It is also an undisputed fact that the agreements with the AEs in respect of the above stated services were in force from January 1, 2009 and January 1, 2010 respectively and such services were being received by the Appellant on a continuous basis. 1.11. During the course of hearing, the Appellant was directed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. 22. The Hon'ble Delhi High Court in the case of Guy Carpenter 346 ITR 504 [supra] on similar circumstances held as under: "9. A plain reading of Article 13(4)(c) of the DTAA indicates that 'fees for technical services' would mean payments of any kind to any person in consideration for the rendering of any technical or consultancy services which, inter alia, "makes available" technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. According to the Tribunal this "make available" condition has not been satisfied inasmuch as no technical knowledge, experience, skill, know-how, processes, have been made available by the assessee to the insurance companies operating in India. It also does not consist of the development and transfer of any technical plan or technical design. 10. The Tribunal examined the evidence available on record in order to return a finding on the issue as to whether the payments received by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, therefore, according to us, no substantial question of law arises for our consideration, particularly, because the learned counsel for the Revenue was unable to point out any perversity in the recording of such findings." 23. Similarly, the Hon'ble High Court of Karnataka in the case of De Beers India Minerals [P] Limited 346 ITR 467 has, inter alia, held as under: "Therefore the clause in Singapore agreement which explicitly makes clear the meaning of the word make available, the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but t should be made available to the person receiving the technical services. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know how or processes. To attract the tax liability, that technical knowledge, experience, skill, know-how or process which is used by service provider to render technical service should also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn in future without the aid of the service provider. In other words, to fit into the terminology 'making available', the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered 'made available' when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical edge, skills, etc., does not mean that technology is made available to the person purchasing the service within the meaning of paragraph (4)(b ). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as 'fee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, we are of the considered view that the receipts of the assessee on account of provision of information technology and other administrative services to its affiliate in India are not in the nature of Fees for Technical Services under the India Singapore Double Taxation Avoidance Agreement and we, accordingly, direct the Assessing Officer to delete the same. 29. In the result, the appeals of the assessee in ITA Nos. 995 & 997/DEL/2022 are allowed." 9. Respectfully following the above decision, we are inclined to allow Ground No.2 raised by the assessee. 10. With regard to Ground No.3, the relevant facts are, the TPO observed that during the current year, assessee has paid Rs. 17,03,82,112/- to its AEs for purchase of fixed assets. The payments are made to following AEs :- Name of AE Amount Rs. Bio Rad Laboratories Inc., USA 6,22,54,489 Bio Rad France 8,71,61,912 Bio Rad France 2,09,65,711 11. With reference to above, assessee was asked to file the documentary evidences and also asked to confirm whether the fixed assets are old or new. If these assets are used assets then provide the date of purchase by the AEs, cost of purchase by the AEs and written down value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclude that the international transaction pertaining to purchase of fixed assets is in compliance with the arm's length principal from an Indian Transfer Pricing perspective. Further, without prejudice to the above submission, Assessee has submitted detailed arguments (along with relevant judicial pronouncements) for adhoc and unjustified adoption of other method to benchmark the said transaction in section 1 (page no. 5 to 6) above" 12. After considering the submissions of the assessee, TPO observed that assessee has failed to respond any of the observations in the show-cause notice issue that assessee has provided only invoice copies, there is no details about the cost of purchase of these assets by the AEs and the time period for which it has been used by the AEs and also there is no valuation report of the independent valuer. The TPO rejected the plea of the assessee that it should be benchmarked at entity level margin or to adopt other method. Accordingly, he came to the conclusion that assessee has failed to maintain all the relevant information and the preliminary onus of establishing that an international transaction is at arms length is upon the assessee. Since assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purchased for the purpose of resale. However, a part of these traded goods were used for demonstration purposes. Accordingly, these assets were capitalized. Since, the transaction is closely interlinked and aggregated with the trading segment of the Appellant for the purpose of determination of ALP for the reason that the depreciation on these fixed assets was charged to the Profit & Loss account and the margins were arrived at after considering the impact of depreciation on such assets. It is also an admitted position of fact that the ALP of the trading segment has been accepted by the Ld. TPO to be at arm's length. Accordingly, a separate adjustment with respect to the purchase of fixed assets is unwarranted and liable to be deleted. 2.3. In addition to the above, the Appellant has also demonstrated that before your Honour's that by giving a comparative chart of similar assets by providing a unit price and invoice details which were purchased by the Appellant from the same AEs for both sale and trading at the same unit/ cost price. The chart is reproduced below for ready reference: Comparative pricing for assets purchased for Trading vis-it-vis Reagent business (Amt. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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