TaxTMI 
TaxTMI 
2014 (2) TMI 981
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....with the written submissions. 4. Briefly stated, assessee is a company which is engaged in manufacture of bulk drugs and pharmaceutical formulations. For the assessment year 2005-2006 it has filed return of income on 30.10.2005 showing loss of Rs.64,52,14,882/- but admitting book profit of Rs.51,08,78,443/-. In the course of assessment proceedings, the Assessing Officer noticed that assessee had advanced funds to its associate concerns and has earned interest. In order to examine the arms length price of such international transactions, the A.O. made a reference to Transfer Pricing Officer (in short "TPO") under section 92CA of the Act. The TPO accepted other transactions entered by the assessee with the AEs except transaction pertaining to interest receipts. It was the submission of the assessee that the funds are advanced to the sister concerns out of borrowals for the specific purpose and some out of accruals from the assessee's own source. Assessee submitted that it has charged interest linked to LIBOR rates and generally LIBOR+ a certain percentage points were considered as interest receivable on the loans advanced which is more than the interest paid on such loans. It has fu....
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....ore than interest paid. This issue was considered by the Coordinate Bench in the Order relied above, wherein vide paras 4.3 to 4.8 the issue was decided as under : "4.3 We have considered the issue and examined the facts. With reference to principle that labor + specific percentage points is to be considered as ALP, there is no dispute as this issue was decided by various coordinate benches of Tribunal in various cases. Few of them are as under: 4.4. In the case of Siva Industries & Holdings Ltd. 46 SOT 112 (Chennai) held that. "A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of 0 per cent optional convertible preferential shares. Thus it is noticed that the funds raised by the assessee company for giving the loan to India Telecom Holdings Ltd., Mauritius, which is its Associated Enterprises and which is the subsidiary company, is out of the funds of the assessee company. It is not borrowed funds. The assessee has given the loan to the Associated Enterprises in US dollars. The assessee is also receiving interest from the Associated Enterprises in Indian rupees. Once the transaction between the assessee and the Associated ....
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....ency loans." 4.6. In the case of M/s Four Soft Ltd Vs DCIT Circle-l(3), Hyderabad, ITA No. 1495/Hyd/2010 tribunal held that "We have considered the rival submissions and perused the materials available on record. We do not find any merit in the arguments of the learned departmental representative as we find that the ALP is to be determined for the international transaction, that is, on international loan and not for the domestic loan. Hence, the comparable, in respect of foreign currency loan in the international market, is to be LlBOR based which is internationally recognized and adopted. In our considered view, the DRP rightly directed the assessing officer to adopt the LIB OR plus tor the purpose of TP adjustment. Our view is fortified by the decision of the Madras Bench in the case of Siva Industries". 4.7. Similar view has been taken in the case of Tata Auto comp Systems Limited vs. ACIT, ITAT Mumbai, ITA NO. 7354/MUM/11(A. Y. 2007-08). 4.8. On the legal principles there is no dispute that LIBOR specific percentage points has to be considered as ALP. There is also no basis, as rightly observed by the DRP, to adopt corporate bonds rate at 17.26%. Therefore, in principle we ....
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....venture company, are multifold and include investment in equity, receivables for supplies made, non-compete fee and consideration for the brands and advance recovery. 12. During the course of assessment proceedings, it was explained that all these transactions were informed to the A.O. and the written off amount of Rs. 3 crores was only towards supplies made and not towards non-compete fee and sale of brands. Assessing Officer, however, did not allow the claim stating that assessee has transferred part of non- compete fee as loan and written off during the year as bad debt. Learned CIT(A), however, accepted that the amount of Rs. 3 crores was towards supplies made but did not allow the amount as he has considered that writing off was premature. 13. Learned Counsel reiterating the facts, submitted that assessee was justified in writing off the amount as the said company is not in the business and is not in a position to repay the debt. Consequent to the amendment brought into the provisions of section 36(1)(vii) of the I.T. Act, it is not necessary for the assessee to establish that debt has become irrecoverable and it is enough if the debt is written off in the accounts of the as....
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.... has charged more than LIBOR + 2% points, the same should be accepted as arms length unless the borrowals was at higher percentage points. Another case, where a benchmark is not done with LIBOR + 2% rate like 5 to 13% in some of the loans advanced, the same can be benchmarked at LIBOR + certain percentage as in last year and if there is any shortfall in the interest charged, the same can be considered for making adjustment in T.P. proceedings. Keeping in view the directions given in earlier years, this issue is restored to the file of the A.O. to examine the rates and benchmark with LIBOR + percentage points. Assessee's grounds are considered as allowed. 20. Grounds No. 5, 6 and 7 pertain to the issue of disallowance made under section 40(a)(ii) by the A.O. on the reason that assessee has not deducted TDS on the amounts paid to non-residents . 21. Briefly sated, facts are that the assessee has claimed various payments to non-residents which are as under: 1. Sales commission paid outside India Rs.7,69,18,166/- 2. Product registration and filing fee paid to agency of foreign countries Rs.3,38,11,125/- 3. Professional and consultancy charges Rs.1,68,10,581/- TOTAL Rs.12,75,3....
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....O is not applicable to the facts of the case under consideration, as in this case, the assessee made the payment directly to the non-resident agents for rendering services abroad. In view of the above, we do not see any infirmity in the order of the CIT(A) on this issue and the same is upheld." 26. Therefore, respectfully following the same, we hold that since no services are rendered in India, sales commission cannot be disallowed under the provisions of section 40(a)(ia. Even though there are orders favourable to the assessee, DRP however, did not consider the same. We have no hesitation in holding that amounts covered by sales commission are not accruing or arising to the non-residents in India. Accordingly, provisions of section 195 does not apply and consequently, section 40(a)(ia) cannot be invoked. The grounds to the extent of sales commission of Rs.7,69,18,166/- are allowed. 27. Coming to the other two issues viz., product registration and filing fee of Rs.3,38,11,125/- and professional and consultancy charges, the contention was that the payment was made for the services rendered outside India and the same does not represent income and hence, there is no need for deducti....
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..... Considering various Coordinate Bench decisions on the issue, we hold that LIBOR + certain percentage points can be benchmarked. As directed in A.Y. 2006-2007, the A.O. is directed to examine the issue and arrive at the addition if any to be made over and above the rate accepted by the assessee while providing loans to the subsidiaries. The issue is restored to the file of the A.O. to examine and decide as in earlier years (as decided by is in para No. 10 and 19 hereinabove). Ground No.2 is allowed for statistical purposes. 31. Ground No.3 pertains to issue of disallowing the claim under section 35D. Assessee claimed an expenditure of Rs.4,11,71,160/- as deduction under section 35D on issue of Foreign Currency Convertible Bonds (in short "FCCB"). The said sum was disallowed by the A.O. on the reason that FCCB are not on account of any public issue and only qualified institutional investors are offered the bonds. The A.O./DRP have opined that provisions of section 35D(2)(c) does not apply to the specific category of expenditure made by the assessee and accordingly, the disallowance was made. 32. After considering the rival contentions, we are of the opinion that assessee's conten....
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....presenting the amount due from Polaris Health Care Private Limited written off as Bad Debt. The said amount clearly represents dues from Polaris Health Care Private Limited for supplies made by the assessee which is evidenced by supporting evidence like invoices, delivery challan etc. These dues are outstanding for quite a long time and the assessee in spite of its best efforts could not recover the said dues. Considering the Financial position of the Debtor since there are no chances of recovery the assessee has charged this amount to Profit & Loss account as Bad Debt. In this connection, it was submitted that the debt was created on account of sales made by the assessee which were duly accounted for in the earlier years and the debt was continuing in the Books, since not recoverable was written off as bad debt. 35. The assessee company raised objections against the above addition before the Hon'ble Dispute Resolution Panel (DRP). DRP vide their order dated 26-08-2011 upheld the addition made by the AO towards bad debts written off. Learned Counsel submitted that the debt is created on account of sales made by the assessee which are duly accounted for in the earlier years and the....
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....he sources outside India. Most of the expenses pertain to and are in connection with product registration and filing which are required for marketing Company's products in various countries. 32.0 The Learned AO and DRP disallowed above professional and legal fees u/s 40(a)(i) stating that appellant should have deducted tax u/s 195 of the IT Act. The Learned AO/DRP ought to have appreciated that the payments made to non-residents were covered by the exception to Sec.9 (I) (vii) (b) and therefore did not require deduction of tax at source. 33.0 We draw your attention to the ruling of the Supreme Court ('SC')in GE India Technology Centre (P) Ltd v CIT(2010) 7 Taxmann.com 18 relating to Special Leave Petition filed by a few companies against the judgement of Karnataka High Court ('HC') in the leading case of CIT vs. Samsung Electronics Co. Ltd. (20 10) 320 ITR 209/(2009) 185 Taxman 313. The Supreme Court (SC) observed that "the most important expression in section 195(1) consists of the words chargeable under the provisions of the Act. A person paying interest or any other sum to a non- resident is not liable to deduct tax if such sum is not chargeable to tax under the IT Act. For i....
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....n were to be accepted, it would amount to the payer deducting tax on a payment that is not chargeable to tax under the provisions of the Act, for which the Act also does not have a mechanism for providing refund of tax to the payer, as only the recipient non-resident is entitled to the refund. 38.0 The revenue's argument that it would not be in a position to determine the taxability or otherwise of the payments was rejected by the se by again referring to the provisions of section 195 (1), which required TDS only on those sums that are chargeable to tax. The se also observed that the revenue can have access to the desired information when the payers are subjected to tax scrutiny in the audit of their taxable income. It was noted by the se that payments to non- residents, on which the requisite TDS has not been made, suffer disallowance and the taxable income of the payers is increased. It was, therefore, observed that this provision ensures effective compliance under section 195 whenever the remittances are chargeable to tax. In addition, the "Se observed that by way of the new section 195(6) introduced from April 1, 2008, the payers are now compulsorily required to transmit the i....
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....m lTAT) it was held that "if make available clause exists in the tax treaty strategic consultancy services cannot be treated as fees for technical services" (b) Mere provision of technical services is not enough to attract Article 12(4) (b) .It additionally requires that the service provider should also make available his technical knowledge, experience, skill know how etc known to the recipient of the service so as to equip him to independently perform the technical function himself in future without the help of the service provider. In other words, payment of consideration would be regarded as fees for technical/included services only if the twin test of rendering services and making technology available at the same is satisfied- Anapharm Inc ruling [2008] 305 ITR 394 405 AAR. (c) Reliance is also placed on the following case laws regarding make available clause (i) In Invensys Systems Inc .In re (2009) 317 ITR 438(AAR) the AAR observed that on an analysis of nature of functions enumerated in agreement, it is clear that services provided are managerial in nature and even if they are technical, they do not make available technical knowledge, etc., within meaning of article 12.4....