TaxTMI 
TaxTMI 
2015 (4) TMI 548
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....by the AO, the Transfer Pricing Officer (TPO) accepted six international transactions at arm's length price (ALP). As regards the international transaction of `Payment of export commission', the TPO held that no service was rendered by the AE to deserve export commission. That is how, he determined the ALP of this international transaction at Nil. As regards the international transaction of payment of total royalty amounting to Rs. 336,26,07,000/-, the TPO accepted the payment of royalty at arm's length price in respect of domestic sales and export sales made to non-AEs. However, he disputed the payment of royalty on exports made to AEs. In doing so, the TPO held the assessee to be a `Contract manufacturer'. Accordingly, he opined that since the assessee is making a part of its sales to the related parties and the benefit of producing components is reaped by AE, the payment of royalty did not conform to the arm's length principle. He, therefore, proposed the TP adjustment amounting to Rs. 4,62,98,283/- in respect of payment of royalty for exports to AEs. The AO made the above additions by adopting the figures from the TPO's order as such without any further evaluation. The assessee....
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.... some automobile models during the year under consideration, which was capitalized as an `Intangible asset' and depreciation was claimed thereon. The AO observed that between the date of credit of acquisition price and the date of actual payment, the exchange rate of rupee and Japanese yen fluctuated, as a result of which the assessee suffered a forex loss of Rs. 5,22,71,487/-. The cost of acquisition of the said asset which was originally recorded at Rs. 141,47,84,832/- swelled to Rs. 146,70,56,319/-, the incremental amount being the forex loss of Rs. 5.22 crore. The AO observed that the assessee deducted tax at source u/s 195 of the Act only on the payment of Rs. 141.47 crore and no tax at source was deducted from the additional payment of Rs. 5.22 crore on account of fluctuation in foreign exchange rate. The assessee's contention that no tax at source was required to be deducted on additional liability falling on the assessee due to variation in the fluctuation in the foreign currency rate at the time of payment, did not find favour with the AO. He, therefore, disallowed depreciation on the corresponding amount of Rs. 5.22 crore, which resulted into disallowance of Rs. 130,67,87....
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....or draft or by any other mode, whichever is earlier deduct incometax thereon at the rates in force.' When we read section 40(a)(i) in juxtaposition of section 195, the position which follows for disallowance u/s 40(a)(i) is that there should be a sum on which tax is deductible at source and the assessee fails to deduct the same. The stage of deduction of tax at source has been set out by section itself. It clearly provides that the deduction should be made `at the time of credit of such income to the account of the payee or at the time of payment..., whichever is earlier.' Thus it is clear that the deduction of tax at source on a single transaction is contemplated at the earlier of the dates of credit or payment to the payee. It is not on both the occasions. Once deduction of tax at source has been made at the time of credit, which event occurs first, then there can be no question of once again making deduction of tax at source on full or in part at the time of payment. This position has been made clear by Rule 26 of Income-tax Rules, 1962 with the heading `Rate of exchange for the purpose of deduction of tax at source on income payable in foreign currency', which provides as under....
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....tax is required to be deducted at source is `the time of credit of such income to the account of payee or at the time of payment thereof ...., whichever is earlier'. This shows that the tax is required to be deducted at the first stage when the amount of income is credited to the account of payee and, hence, deduction of tax at source is also contemplated at that stage alone which is to be done by converting foreign currency into TT buying rate at that particular date. There is no warrant for accepting the Revenue's contention that the deduction of tax at source should have been made at the later stage also on the additional liability when the assessee made payment. In our considered opinion, the Act does not require two phased deduction of tax at source on one transaction, one at the time of credit and second at the time of actual payment. Deduction of tax at source is required to be made only on one occasion, which in the context of section 195 is, earlier of the time of credit or the time of payment. Under such circumstances, the assessee cannot be called upon to deduct tax at source on the additional liability arising because of foreign exchange loss. If we take the contention ....
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....assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment- (a) towards the whole or a part of the cost of the asset; or (b) towards repayment of the whole or a part of the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset along with interest, if any, the amount by which the liability as aforesaid is so increased or reduced during such previous year and which is taken into account at the time of making the payment, irrespective of the method of accounting adopted by the assessee, shall be added to, or, as the case may be, deducted from- (i) the actual cost of the asset as defined in clause (1) of section 43; .................. and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid:' 13. The mandate of this provision is that where an assessee has acquired any asset from a country outside India and due to change ....