TaxTMI 
TaxTMI 
2014 (3) TMI 495
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....fer pricing issues, to begin with. 3. The first such issue is whether or not addition of Rs 5,739.60 crores (Rs 5739,60,05,089) made by the Assessing Officer with respect to the disallowance of loss on transfer of telecom infrastructure is justified, tenable in law and on the facts of this case. The related grievances, as set out in the memorandum of appeal, are as follows: 10. That the assessing officer erred on facts and in law in disallowing loss of Rs.5739,60,05,089 debited to the profit and loss account on account of transfer of infrastructure business while computing income under the normal provisions, disregarding the fact that the said amount was already added back by the appellant suo-moto in the return of income for the assessment year under consideration and that learned AO proceeded to frame the assessment not the basis of profit disclosed in the Profit & Loss Account but went on computing the income on the basis of computation of income as was furnished by the assessee company. 10.1. That the assessing officer has thus failed to appreciate that disallo....
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....usiness restructuring reserve', and thus there was no debit to the profit and loss account. The amounts were only in the inner columns and there was no net debit by way of entry in the outer column. It was explained that "the loss on sale of telecom infrastructure to BIL is corresponding to the amount credited to business restructuring reserve" and that "if this amount is not withdrawn from the said reserve, the profit of assessee company is lowered by Rs 5,739 crores for the year under consideration". None of these submissions impressed the Assessing Officer and, in the draft assessment order, the Assessing Officer proposed an addition of Rs 5739,60,05,089 in respect of the above loss. An objection was taken up by the assessee before the Dispute Resolution Panel as well and the same is reproduced below: The assessee objects to the proposed action of the Assessing Officer in not reducing from the computation of income, the credit of Rs 5739,60,05,089 to the profit and loss account of the amount withdrawn from the Reserve for Business Restructuring, ignoring the fact that loss of Rs 5739,60,05,089, which had been debited to the profit and loss account, had been added to the c....
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....l of the Profit & Loss Account at Page 242 will show that the profit before tax amounting to Rs.69,72,54,23,000 i.e. the figure which was starting of the computation of income at Page 3. Further perusal will show that a sum of Rs.5739,60,06,000 has been shown in the inner column as loss on transfer of telecom infrastructure and credited to Rs.5739,60,05,000 has been shown as a reduction on account of amount withdrawn from reserve for business restructuring. The net effect of these two entries is Nil. Therefore is does not have any impact in the Profit & Loss Account. The AO has added a sum of Rs.5739,60,05,000 to the figure of Profit and Loss Account but has not reduced the equivalent sum of Rs.5739,60,05,000/- from the computation of income. 5. It therefore submit that the computation of income assessed at Rs.1,53,72,70,00,713 is incorrect and therefore need to be reduced by the figure of Rs.5739,60,05,000 ." 6. Having noted these objections, however, the DRP proceeded to reject the same by making following brief, or rather cryptic, observations: 3.9.3....
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....ount. He thus concluded that "in view of the above and consequent upon verification of facts as directed by the learned DRP, the finding for addition of Rs 5739,60,05,089 in the computation of income by the Assessing Officer under the normal provisions of the Act is found to be correct for the assessment year under consideration". The assessee is aggrieved and is in appeal before us. 8. When this issue came up in hearing before us, learned counsel for the assessee submitted that it is a case of frivolous double addition on deliberate misconception of the facts. He took us through the year-end financial statements of the assessee and its computation of income to demonstrate that the impugned addition made by the Assessing Officer amounted to making an addition for loss on transfer of telecom assets whereas no deduction in respect of such loss was claimed by the assessee. He invited our attention to the observations made in the stay order to the effect that it is a case of "prima facie" double addition and it was also submitted that at the stage of hearing of stay petition in this case, the Assessing Office himself has accepted that it is a case of double addition. Learned Departm....
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....officers well versed with functioning of judicial forums, as the learned Departmental Representatives are, cannot even go through the convincing motions of defending the same before us, such unreasonable conduct of the Assessing Officer deserves to be scrutinized seriously. At a time when evolving societal pressures demand greater degree of accountability in the governance also, it does no good to the judicial institutions to watch such situations as helpless spectators. If it is indeed a case of frivolous addition, someone should be accountable for the resultant undue hardship to the taxpayer -rather than being allowed to walk away with a subtle, though easily discernable, admission to the effect that yes it was a frivolous addition, and, if it is not a frivolous addition, there has to be reasonable defence, before us, for such an addition. The case before us, for the reasons we will set out now, appears to be in the category of a wholly frivolous, and simply indefensible, addition to the income returned by the assessee. 10. Let us take a look at the related entry, as per the profit and loss account of the assessee, related note to the accounts and the treatment given by the as....
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.... Expense - Current Tax 8,835,340 [Includes Tax of Rs. 959,169 thousand for earlier years (March 31, 2007 Rs. 13,593 thousand] - Deferred Tax (1,682,365) (Refer Note 14 fin Schedule 20 end Note 27 on Schedule 21 - Fringe Benefit Tax 372.293 Profit after Tax 62,441,922 Transferred from Debenture Redemption Reserve 413,623 62,855,545 Profit: brought forward 55,339.252 Profit carried to Balance Sheet 118,194,797 Note 2 (b) to Schedule 21 of the annual accounts Scheme of arrangement for Transfer of Telecom Infrastructure The scheme of arrangement ("the Scheme") between Bharti Airtel Limited and Bharti Infratel Limited ('BIL') for transfer of assets and liabilities of passive telecom infrastr....
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....nt was carried out in the computation of income, the resultant income would have been the same, but the adjustments, if at all required for the sake of completeness and transparency, were required for both the entries, i.e. loss on transfer of assets as also amount withdrawn from business restructuring. This is precisely what the assessee has done. As much as the loss on transfer of assets is not a tax deductible item, the amount transferred from reserves is also not a taxable item. The assessee thus reversed both these entries, as depicted above, in the computation of income. The Assessing Officer has taken note of the fact that in the computation of income attached to the return of income, the assessee has first added Rs 5739,60,05,089 as "Loss on transfer of telecom infrastructure to Bharti Infratel Limited" and then reduced Rs 5739,60,05,089 as "amount withdrawn from Reserve for Business Restructuring", but then, instead of taking note of the unambiguous fact that these two distinct entries representing two facets duly reflected in the profit and loss account, the Assessing Officer assumes that since debit and credit of the same amount, resulting in neutralizing each other, he ....
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....e the Dispute Resolution Panel. The fact that even such purely factual issues are not adequately dealt with by the DRPs raises a big question mark on the efficacy of the very institution of Dispute Resolution Panel. One can perhaps understand, even if not condone, such frivolous additions being made by the Assessing Officers, who are relatively younger officers with limited exposure and experience, but the Dispute Resolution Panels, manned by very distinguished and senior Commissioners of eminence, will lose all their relevance, if, irrespective of their heavy work load and demanding schedules, these forums do not rise to the occasion and donot deal with the objections raised before them in a comprehensive and effective manner. While we delete the impugned addition of Rs 5739,60,05,089, we also place on record our dissatisfaction with the way and manner in which this issue has been handled at the assessment stage. Let us not forget that the majesty of law is as much damaged by not rendering justice to the conduct which cannot be faulted as much it is damaged by a wrongdoer going unpunished; not giving relief in deserving cases is as much of a disservice to the cause of justice and ....
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.... 18. Ground no. 12 is thus dismissed in the terms indicated above. 19. In ground no. 13, the assessee has raised the following grievances: 13. That the assessing officer/TPO erred on facts and in law in enhancing the income of the Appellant by Rs.33,10,161 on the ground that the commission suo-motu disallowed/offered to tax by the appellant @ 0.65 % to cover the corporate guarantee to lender bank (Deutsche Bank) on behalf of its AE [M/s. Bharti Airtel Lanka (P) Limited] does not satisfy the arm's length principle envisaged under the Act. 13.1 That the assessing officer/TPO erred on facts and in law in disregarding the fact that: (a) corporate guarantee been advanced by the appellant as a matter of commercial prudence primarily to protect the business interest of the group by fulfilling the shareholder's obligation as any financial incapacitation of the subsidiary would jeopardise the investment of Bharti Airtel Limited; (b) in the absence of corporate guarantee, the appellant being the holding company would have provided the funds to the subsidiary by increasing the share capital, hence provisi....
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....Bank, New Delhi Branch. This corporate guarantee is issued on behalf of its associated enterprise, Bharti Airtel (Lanka) Pvt. Ltd., and it guarantees repayment for working capital facility not exceeding Euro 3.6 million. The assessee's contention was that since the assessee had had not incurred any costs or expenses on account of issue of such guarantee, and the guarantee was issued as a part of the shareholder activity, the same was issued for NIL consideration. However, based on market quote of such corporate guarantee the appellant in it transfer pricing study determined arm's length commission for issuing such guarantee @ 0.65% p.a. of the guarantee amount and accordingly offered to tax Rs. 5,33,897. The TPO while benchmarking the international transaction of issue of corporate guarantee has relied on Para 7.13 of the OECD guidelines which state that "but an intra-group service would usually exist where the higher credit rating were due to a guarantee by another group member". The TPO observed that by issuing the corporate guarantee, the appellant has benefitted its associated enterprise by increasing its credit rating. The TPO held that such transactions being independ....
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....India v. Azadi Bachao Andolan (263 ITR 706), Dana Corporation In Re (321 ITR 178), but we need not deal with the same in great detail at this stage. Learned Departmental Representative, on the other hand, vehemently argues against this proposition and contends that this plea goes against the very fundamentals of the transfer pricing legislation as it seeks to determine the profits that the assessee would have made if the transactions were AEs were entered into at an arm's length price with a rank outsider. Our attention was also invited to some rulings by the coordinate benches when similar arguments were said to have been rejected by the coordinate benches. It was also contended that as regards the proposition that issuance of guarantees could be outside the ambit of scope of ' international transaction' itself, there were large number of judicial precedents from the coordinate benches upholding ALP adjustments in respect of corporate guarantees issued as also from foreign judicial forums, such as Tax Court of Canada, referred to in the transfer pricing order itself . Learned counsel for the assessee submitted that there is no judicial ruling, in the context of Indian ....
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....between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. Explanation1 -For the removal of doubts, it is hereby clarified that - (i) the expression "international transaction" shall include - (a) the purchase, sale, transfer, lease or use of tangible property including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing; (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature; (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketab....
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....rives its value from its intellectual content rather than its physical attributes.'. [1Inserted by the Finance Act 2012 with retrospective effect from 1st April 2002] 25. An analysis of this definition of ' international transaction' under Section 92 B, as it stood at the relevant point of time, and its break up in plain words, shows the following: 1. An international transaction can be between two or more AEs, at least one of which should be a non-resident. 2. An international transaction can be a transaction of the following types: a. in the nature of purchase, sale or lease of tangible or intangible property, b. in the nature of provision of services, c. in the nature of lending or borrowing money, or d. in the nature of any other transaction having a bearing on the profits, income, losses or assets of such enterprises 3. An international transaction shall include shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or ....
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....pportionment of, or any 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". That leaves us with two clauses in the Explanation to Section 92 B which are not covered by any of the three categories discussed above or by other specific segments covered by Section 92 B, namely borrowing or lending money. 29. The remaining two items in the Explanation to Section 92 B are set out in clause (c) and (e) thereto, dealing with (a) capital financing and (b) business restructuring or reorganization. These items can only be covered in the residual clause of definition in international transactions, as in Section 92 B(1), which covers "any other transaction having a bearing on profits, incomes, losses, or assets of such enterprises". 30. It is, therefore, essential that in order to be covered by clause (c) and (e) of Explanation to Section 92 B, the transactions should be such as to have beating on profits, incomes, losses or assets of such enterprise. In other words, in a situation in which a transaction has no bearing on profits, incomes, losses or assets of s....
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....t on profits, income, losses or assets of such enterprises is a pre-condition embedded in Section 92B(1) and the only relaxation from this condition precedent is set out in clause (e) of the Explanation which provides that the bearing on profits, income, losses or assets could be immediate or on a future date. The contents of the Explanation fortifies, rather than mitigates, the significance of expression ' having a bearing on profits, income, losses or assets' appearing in Section 92 B(1). 32. There can be number of situations in which an item may fall within the description set out in clause (c) of Explanation to Section 92 B, and yet it may not constitute an international transaction as the condition precedent with regard to the ' bearing on profit, income, losses or assets' set out in Section 92B(1) may not be fulfilled. For example, an enterprise may extend guarantees for performance of financial obligations by its associated enterprises. These guarantees donot cost anything to the enterprise issuing the guarantees and yet they provide certain comfort levels to the parties doing dealings with the associated enterprise. These guarantees thus donot have any im....
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.... enlarged with retrospective effect, but an anti-avoidance measure, that the transfer pricing legislation inherently is, is not primarily a source of revenue as it mainly seeks compliant behaviour from the assessee vis-à-vis certain norms, and these norms cannot be given effect from a date earlier than the date norms are being introduced. However, as we have decided the issue in favour of the assessee on merits and even after taking into account the amendments brought about by Finance Act 2012, we need not deal with this aspect of the matter in greater detail. 35. When it was put to the learned Departmental Representative that there could be a view that issuance of guarantees could be outside the ambit of scope of ' international transaction' itself, he submitted that there are large number of decisions in India and abroad, notably in Canada, dealing with the determination of arm's length price of guarantees. His argument seemed to be that even such a view is to be upheld, entire transfer pricing jurisprudence will be turned upside down. There does not seem to be any legally sustainable merits in this argument either. As for the decisions dealing with quantum ....
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....B and no judicial precedent, contrary to our understanding of these legal provisions, has been cited before us. There is a decision of the co-ordinate bench in the case of Mahindra & Mahindra (supra), referred to in the DRP order, but that decision does not deal with the scope of amended section 92 B and leaves the issue open by stating that post insertion of Explanation to Section 92 B, the matter will have to be examined in the light of the amended law. We have held that even after the amendment in Section 92 B, by amending Explanation to Section 92 B, a corporate guarantee issued for the benefit of the AEs, which does not involve any costs to the assessee, does not have any bearing on profits, income, losses or assets of the enterprise and, therefore, it is outside the ambit of ' international transaction' to which ALP adjustment can be made. As we have decided the matter in favour of the assessee on this short issue, we see no need to address ourselves to other legal issues raised by the assessee and the judicial precedents cited before us. 36. For the reasons set out above, and as we have held that the issuance of corporate guarantees in question did not constitute ....
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....the single-minded intention of making an addition to the returned income of the appellant. 14.2 That the assessing officer/TPO erred on facts and in law in rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant under section 92D of the Act and Rule 10D of the Rules and disregarding the Arm's Length Price ('ALP') as determined by the appellant in the TP documentation and further not appreciating that the rate of interest charged by the appellant was at arm's length in view of the fact that the interest received from its AEs was higher than rate of return on investments in fixed deposits and corporate bonds. 14.3 That the assessing officer/TPO erred on facts and in law in rejecting the alternate analyses, arguments, explanations, evidences, etc. submitted by the appellant in the form of internal CUP i.e. rates charged for the foreign currency loans taken by the appellant from unrelated parties and Transactional Net Margin Method ('TNMM') analysis, in support of the arm's length nature of its inter-company transaction of advancement of loans, without providing any cogent reasons for the same. 14.4 That the assessing....
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....be determined by following CUP method wherein the interest rate is determined under the circumstances in which the taxpayer and the subsidiaries are operating, i.e. what is the interest rate that would have been earned if such loans are given from surplus funds to unrelated parties under similar situations as that of the subsidiaries " and that, " since the tested party is taxpayer, the prevalent interest that could be earned by the taxpayer by advancing loan to an unrelated party in India with the same weak financial health as that of the taxpayer's subsidiaries is considered". It was in this backdrop, and after an elaborate survey of Indian financial market, that the TPO opined that a rate of interest of 14% could be considered reasonable and representative of market after considering corporate bond market and financial health of the subsidiary. When it was put to the assessee, the assessee objected to the same, inter alia, on the ground that the loans were in foreign currencies, and therefore interest rate on rupee loans have no relevance, that interest has been charged from the subsidiaries over and above the costs of borrowings and in accordance with the international mark....
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.... loans from unrelated parties. The TPO was of the view that the loans given by the assessee company cannot be benchmarked using LIBOR as a CUP. Having considered the arguments of the assessee and the findings of the TPO, the DRP is of the view that the TPO has rightly rejected the CUP used by the assessee. The rate of 14% charged by the TPO as a CUP is found to be based on sound methodology and needs no interference. 59. It was in this backdrop that the Assessing Officer made an ALP adjustment of Rs 10,11,786 to the interest charged from the AEs in respect of loans given to them. The assessee is aggrieved and is in appeal before us. 60. We have heard the rival contentions, perused the material on record, including elaborate written submissions filed by the assessee, and duly considered factual matrix of the case as also the applicable legal position. 61. We have noted, as has been noted in the assessment order, DRP order and TPO orders as well, that....
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....institutions which, according to him, states that, "for the foreign currency denominated term loans, the maximum rate of interest is 4% over 6 months LIBOR", and then proceeded to adopt this maximum interest rate as a fair basis for his computing the arm's length price. On the other hand, the assessee has taken two specific comparables of USD borrowings, i.e. L&T and Seri Infrastructure, on the interest rate of LIBOR + 150 bps and 1.4% to 1.7% band over LIBOR respectively. There is no material whatsoever, save and except for vague observations about weak financials of the subsidiaries - which are not supported by any specific facts and proceed on sweeping generalizations and assumptions, to reject the comparables taken by the assessee. When a Transfer Pricing Officer rejects comparables taken by the assessee, he has to set out specific, cogent and legally sustainable reasons for doing so. On this point, therefore, the stand of the Assessing Officer cannot be accepted. 63. As for the second adjustment of 300 points for transaction cost, this adjustment is sought to be justified by the following observations of....
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....ious customers. Thus, the difference between banker and non-banker is to be kept in mind while arriving at the arm's length CUP rate based on bank rates. 7.11 Adjustment for security Usually, bankers extending loans in foreign currency also insist on sufficient security. In this case, no security is offered by the AE. Keeping in view the financial health of the subsidiary, it may not be in a position to offer security. Thus an adjustment is required to be made for not offering a security. This may be computed as the difference between the interest rates prevailing for the bonds of equivalent credit rating of the AE and sovereign government bonds in the country in which the AE is located. This can also be considered as the guarantee cost payable to the taxpayer for giving guarantee for equivalent amount of loan given to the AE i.e. the rate differential for the difference in interest spread between the credit rating of the taxpayer and the AE. Thus after the above analysis, the equivalent interest rate is the interest rate including the transaction cost for a foreign currency loan, if given to the AE for its credit standing / rating. ....
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...., it is reasonable to assume that such rates can constitute valid comparable for similarly placed borrowings by the subsidiary as well - more so when subsidiaries are under management and control of the lender parent company, and the business risk is thus much lower. From this perspective also, and bearing in mind the fact that the borrowing costs by the parent company for similar foreign currency loans were admittedly much lower than the rate on which advances have been given to the subsidiaries, the impugned ALP adjustments to interest rate for loans to subsidiaries are not warranted. 69. In view of the above discussions, as also bearing in mind entirety of the case, we delete the impugned ALP adjustment of Rs 10,11,786 as well. The assessee gets the relief accordingly. 41. We see no reasons to take any other view of the matter than the view so taken by us for the immediately preceding assessment year. Following this judicial precedent, we uphold the grievance of the assessee and delete the impugned ALP of Rs 62,15,019. The assessee gets the relief accordingly. 42. Ground No. 14 is thus allowed. 43. In groun....
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.... 100% subsidiary companies and demonstrating an intention to arrive at a very high interest rate of 17.26% p.a. with the single-minded intention of making an addition to the returned income of the appellant. 15.3 That the assessing officer/TPO erred in relying upon the rate of interest charged by various domestic banks on advancement of foreign currency loans obtained by the TPO under section 133(6) of the Act, without affording opportunity to the appellant to rebut the same, in violation of principles of natural justice. 15.4 That the assessing officer/TPO erred in relying upon the information obtained under section 133(6) of the Act, without appreciating that such information was not available in the public domain and therefore, could not have been relied upon for the purpose of determining the arm's length price. 15.5 Without prejudice, that the assessing officer/TPO erred in computing the amount of interest at Rs.19,15,45,943, by applying rate of interest of 17.26% p.a. for the whole year on the c....
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....ending or borrowing of the money comes within the ambit of ' international transactions'. He thus justified determination of arm's length price of the transaction of, what he termed, as interest loans to the AEs. Reliance was placed on the decisions of the coordinate benches in the cases of VVF Ltd Vs DCIT (2010 TIOL 55 ITAT MUM TP) and Perot Systems TSI India Ltd Vs DCIT (2010 TII 3 ITAT TEL TP). The TPO then proceeded to determine ALP of the deemed interest free loans to the AE, but, for the reasons we will set out in a short while, it is not really necessary to deal with facts relating to ALP determination part. When assessee raised the objection before the DRP on this issue, it was rejected by observing that," we agree with the TPO that capital locked up for want of transfer of shares for reasonably long period would partake the nature of loan". It was in this backdrop that payments for share application money were treated as interest free loans given to the AEs and ALP adjustment was made for interest thereon. Aggrieved, assessee is in appeal before us. 46. We have heard the rival contentions, perused the material on record and duly considered factual matrix of ....
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....ant and the company to which capital contribution is being made. On these facts, it was unreasonable and inappropriate to treat the transaction as partly in the nature of interest free loan to the AE. Since the TPO has not brought on record anything to show that an unrelated share applicant was to be paid any interest for the period between making the share application payment and allotment of shares, the very foundation of impugned ALP adjustment is devoid of legally sustainable merits. 48. Let us also deal with two judicial precedents which have been heavily relied upon by the TPO, as also by the learned Departmental Representative, on which their case rests. None of these decisions, however, deal with the core issue before us i.e. whether a capital contribution can be deemed to be partly an interest free loan, for the period till the shares were actually allotted, and partly as capital contribution, after the subscribed shares were issued by the subsidiary in which capital contribution was made. In the case of Perot Systems TSI India Ltd v. DCIT (supra), a coordinate bench of this Tribunal had an occasion to deal with the arm's length price adjustment with regard to inter....
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....d partly as capital contribution (i.e. when the subscribed shares were allotted by the subsidiary). Revenue, therefore, does not derive any advantage from these judicial precedents either. 49. In any event, it is not open to the revenue authorities to recharacterize the transaction unless it is found to be a sham or bogus transaction. While there are no specific powers vested in the TPO to recharacterize the transaction, even under the judge made law, such rechracterization can be done by the revenue authorities when the transactions are found to be substantially at variance with the stated form. In the present case, there cannot even a suggestion to hold that this is a bogus transaction because admittedly the subscribed shares capital has indeed been allotted to the assessee. The transaction is thus accepted to be genuine in effect. 50. In view of these discussions, as also bearing in mind entirety of the case, we are of the considered view that the authorities below were in error in treating the payment of share application money, as partly in the nature of interest free loans to the AEs, and, accordingly, ALP adjustment based on that hypothesis was indeed devoid of legally....
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....red on facts and in law in disallowing interest expense of Rs.115,34,26,441 under section 40(a)(i) of the Act paid to ABN AMRO Bank, Stockholm, outside India. 4.1. That the assessing officer failed to appreciate that the interest paid to ABN AMRO Bank, Stockholm, outside India was not chargeable to tax under the provisions of the Act read with the overriding provisions of Article 11 of the applicable DTAA and therefore, there was no default in not deducting tax at source. 4.2. Without prejudice, that the assessing officer further failed to appreciate that disallowance under section 40(a)(i) of the Act was, in any case, not warranted, since: (a) no amount out of the interest expense under consideration was payable as on the last date of the previous year; and (b) non-deduction of tax at source was on account of bona fide view taken by the appellant. 4.3 Without prejudice, the assessing officer erred on facts and in law in not appreciating that the interest paid on loans taken by the appellant from ABN Amro, which were subsequentl....
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.... 4(1) of the Indo-Dutch DTAA clearly provides that "for the purpose of this Convention, the term ' resident of one of the states' means any person who, under the laws of that state, is liable to taxation therein by reasons of his domicile, residence, place of management or any other criterion of a similar nature". The requirements for fiscal domicile cannot be satisfied by mere liability to tax in that country, but as clearly provided by art. 4(1) of the Indo-Dutch DTAA, such a liability to taxation has to be on account of domicile, residence, place of management or any other criterion of a similar nature. The question, then, is as to what are the connotations of these terms and whether source taxability of dividend income per se can generate ' treaty entitlements' of the country in which such taxes on dividends have been paid. The wordings of art. 4(1) leave no doubt about the fact that merely because a person is tax-payer in one of the countries which are party to the Indo-Dutch DTAA, i.e. in India or in Netherlands, such a person cannot be treated as ' resident of one of the states' for the purposes of the DTAA. Coming to specific tests laid down in the D....
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.... in his Commentary to the Double Taxation Conventions, the term ' other criterion of similar nature' makes clear that the enumerated criterion of domestic law which attracts tax liability are no more than examples for the rule, but Dr. Vogel has further stated that, "The term should be understood to mean any locality-related attachment that attracts residence-type taxation." An illustration given in this commentary refers to "statutory seat which, under German law, serves as an alternative point of attachment in the absence of a place of management within the domestic territory." We are in considered agreement with Dr. Vogel's observation that ' any other criterion of similar nature' should be understood to mean any locality related attachment that attracts residence type taxation. In the light of these discussions, it is clear that only ' locality related attachment' ('locality related' being the genus to which expressions ' domicile' ' residence' and ' place of effective management' belong) can be covered by the scope of expressions ' any other criterion of similar nature' in terms of art. 4(1) of the Indo-Nether....
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....des that such interest may also be taxed in the State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 10 per cent of the gross amount, amongst other, in the cases of the interest on loans made or guaranteed by a bank or other financial institution carrying on bona fide banking or financing business. It is thus beyond doubt that the taxation of interest, even according to the revenue authorities, is being done in the hands of the beneficial owner. In these circumstances, the authorities below were clearly in error in treating ABN Amro Bank as recipient and as beneficial owner of the entire interest paid by the assessee remitted to ABN-S In our considered view, even though such interest is remitted to ABN-S, since ABN -S has mainly acted as a conduit, it is to be treated as having been paid to the beneficial owners of such interest i.e. original lenders under the financing arrangement - though through the ABN-S. The taxability of interest is to be examined in the light of factual findings to be so arrived at, and in the light of the applicable legal position as per the releva....
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....me under section 35ABB of the Act instead of allowing the entire expense as deduction under section 37(1) of the Act. 5.1. That the assessing officer failed to appreciate that the license fee being recurring expenditure, paid as fixed percentage of gross revenues was allowable in its entirety as revenue deduction. 5.2. That the assessing officer erred on facts and in law in not following the binding decisions of the Tribunal in the appellant's own case for the earlier assessment years 2000-01, 2001-02 and 2002-03, in gross violation of principles of judicial discipline. 59. This issue also came up for adjudication before us for the Assessment Year 2007-08 and vide our order of even date we have deleted the disallowance by inter alia observing as follows :- "5. As learned representatives fairly agree, the issue is now covered, in favour of the assessee, by Hon'ble Delhi High Court's judgment dated 19th December 2013, in assessee's own case. In this judgment, Their Lordships have, inter alia, held as follows: 47. In view of the aforesaid findings, the substantial questions mentioned above ..... are answered as follows: (i) The....
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.... deleted the disallowance by inter alia observing as follows :- "13. Having heard the rival contentions, and having perused the material before us, we find that the issue is now covered in favour of the assessee by a Special Bench decision in the case of Biocon Ltd v. DCIT (144 ITD SB 21) wherein the Tribunal has, inter alia, held as follows: 11.3. We, therefore, sum up the position that the discount under ESOP is in the nature of employees cost and is hence deductible during the vesting period w.r.t. the market price of shares at the time of grant of options to the employees. The amount of discount claimed as deduction during the vesting period is required to be reversed in relation to the unvesting/lapsing options at the appropriate time. However, an adjustment to the income is called for at the time of exercise of option by the amount of difference in the amount of discount calculated with reference the market price at the time of grant of option and the market price at the time of exercise of option. No accounting principle can be determinative in the matter of computation of total income under the Act. Th....
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.... view taken by the appellant. 7.5. Further, without prejudice, that the assessing officer further failed to appreciate that disallowance under section 40(a)(ia) of the Act should have, if at all, been restricted to the amount remaining as payable as on the last date of the relevant previous year. 7.6 Further without prejudice the Assessing Officer has erred both on facts and in law in applying the provisions of Section 40(a)(ia) of the Act ignoring the fact that the distributor has declared income in respect of the transactions of prepaid products and thus such income would have been subject to payment of income tax and the assessee would not be deemed to be an assessee in default under the proviso to sub-section (l) of Section 201." 67. This issue also came up for adjudication before us for the Assessment Year 2007-08 and vide our order of even date we have rejected the grievances of the assessee by inter alia observing as follows :- "31. Having heard the rival contentions and having perused the material on record, and having noted that the issue is covered against the assessee by Hon'ble High Court....
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....f, which, in any case, did not involve rendering of any technical services. 8.3. Without prejudice, that the assessing officer failed to appreciate that the telecom operators were only sharing their revenue in relation to use of their gateway/networks, which did not constitute ' technical service' within the meaning of section 194J of the Act. 8.4 Without prejudice, that the assessing officer further failed to appreciate that disallowance under section 40(a)(ia) of the Act was, in any case, not warranted, since non-deduction of tax at source was on account of bona fide view taken by the appellant. 8.5 Without prejudice, that the assessing officer further failed to appreciate that disallowance under section 40(a)(ia) of the Act should have, if at all, been restricted to the amount remaining as payable as on the last date of the relevant previous year. 8.6 Further without prejudice the Assessing Officer has erred both on facts and in law in applying the provisions of Section 40(a)(ia....
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....he assessee only shares a part of the charges recovered from the subscriber, and proceeded to argue the matter at length on merits. However, as the authorities below have not examined this matter at any of the stages nor this specific argument was taken before them, we are not inclined to take up this plea for adjudication on merits for the first time directly before this Tribunal. It is purely a factual matter which needs to be examined in detail. In our considered view, in such a situation, the matter deserves to be remitted back to the file of the Assessing Officer for fresh adjudication in the course of which the Assessing Officer will also give specific finding, by way of a speaking order, on assessee's plea to the effect that the payment of roaming charges is a revenue sharing arrangement. While doing so the Assessing Officer shall give due and fair opportunity of hearing to the assessee, decide the matter in accordance with the law and by way of a speaking order dealing specifically with all such contentions as the assessee may raise. We order so. 72. We see no reasons to take any other view than the view taken by us in the immediately preceding year i.e. 2007-08. In ....
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.... :- 19. Even as learned representatives have argued the matter at length on merits, we are not inclined to go into merits of the case for the simple reason that the Assessing Officer has not given any adjudication on merits and nor has he dealt with the contentions of the assessee by way of a speaking order. The Assessing Officer and the DRP have simply followed the order of the earlier years, and the matter for that year stands restored to the file of the Assessing Officer. In our considered view, in such a situation, it will be inappropriate for us to deal with the matter on merits. We, therefore, deem it fit and proper to remit the matter to the file of the Assessing Officer for adjudication on merits, by way of a speaking order specifically dealing with contentions of the assessee and after giving yet another opportunity of hearing to the assessee. We also make it clear that the assessee shall have the liberty to take up all the related issues, as the assessee may deem fit, and the Assessing Officer will be required to deal with all these contentions. We remit the matter to the file of the Assessing Off....
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....(1), has, however, not been considered for allowance as deduction while computing business income under the provisions of the Act. The applicant in this regard, respectfully submits that the tax liability has been borne ' under protest' and the legal issue of deductibility of tax at source on the specified transactions is pending adjudication before various appellate authorities. Further, part of the amount of tax demanded pursuant to orders passed under section 201 of the Act has, it is submitted, been paid by the applicant in various assessment years, without any admission of the liability to deduct tax at source, in the larger business interest, strictly in the capacity as a trader, in order to avoid any forceful/coercive steps by the Department. In the aforesaid circumstances, the applicant should be held entitled to deduction of the demands crystallized and/or paid during the year under consideration pursuant to orders passed under section 201 of the Act. In view of the aforesaid, it is respectfully prayed, that the amount of tax liability accrued/borne by the applicant in pursuance of the orders passed under section 201 (1), should be directed to be considere....