TaxTMI 
TaxTMI 
2017 (2) TMI 650
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....r referred as 'the TPO') are bad in law and void ab initio. 2. That, on the facts and in law, the Dispute Resolution Panel erred in assuming jurisdiction to enhance the total income assessed by the Assessing Officer in the draft assessment order. 2.1 Without prejudice, on the facts and in law, the Dispute Resolution Panel erred in not granting a proper opportunity of being heard and thereby violating the well settled principles of audi alteram partem. 3. That, on the facts and in law, the Assessing Officer/Transfer Pricing Officer/Dispute Resolution Panel erred in making/proposing/upholding an addition to the total income of Rs. 75,40,19,301 under Chapter X of the Income-tax Act, 1961 (hereinafter referred as 'the Act'). 4. That, on the facts and in law, the Assessing Officer/Transfer Pricing Officer/Dispute Resolution Panel erred in making/proposing/upholding the transfer pricing adjustment of Rs. 75,40,09,515 on account of advertisement, marketing and sales promotion expenses. 4.1 That, on the facts and in law, the Assessing Officer/Transfer Pricing Officer/Dispute Resolution Panel erred in not appreciating that in the absence of a 'transaction' ....
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.... (i) Cosmic Global Ltd. (ii) Informed Technologies India Ltd. 5.1 That, on the facts and in law, the Transfer Pricing Officer erred in not using the comparable companies used by him in proceedings relating to the earlier assessment years. 6. That, without prejudice on the facts and in law, the Transfer Pricing Officer/Dispute Resolution Panel erred in making/upholding the applicability of a mark-up of PLR + 2.5 per cent. (i.e., 15 per cent.) on the alleged excessive advertisement, marketing and promotion expenses incurred by the appellant on behalf of the associated enterprise. 7. That, on the facts and in law, the Transfer Pricing Officer/Assessing Officer/Dispute Resolution Panel erred in proposing/making/upholding an adjustment of Rs. 9,786 on account of notional interest attributable to delayed payments receivable from the associated enterprise. 8. That, on the facts and in law, the Transfer Pricing Officer/Dispute Resolution Panel erred in not appreciating that once the international transactions executed by the appellant under the distribution agreement with Amadeus Spain have been accepted to be at the arm's length price applying the transactional net margin ....
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....ling expenses (AMP). Ground Nos. 6 and 7 challenge the action of the lower authorities in making an addition of Rs. 9,786 under Chapter X of the Act on account of notional interest attributable to delayed payments receivable from the associated enterprise. Ground No. 8 challenges the action of the lower authorities in adopting a non-aggregation approach while performing benchmarking analysis on the international transactions entered into by the appellant. In ground No. 8, the appellant is aggrieved by the action of the Assessing Officer in disallowing the deduction under section 10A of the Act on data processing receipts of Rs. 22.60 crores pertaining to unit II of the appellant. Ground No. 9 challenges the levy of interest under section 234B and section 234D of the Act. Both parties agree that the levy of interest will be consequential in the nature. Since no specific adjudication is required on this issue ground No. 9 is rejected as such. Broadly following the additions/disallowances are required our adjudication in the present case : (a) Transfer pricing adjustment on account of the AMP adjustment of Rs. 75,40,09,515. (b) Transfer pricing adjustment of Rs. 9,786 on account o....
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....xpenses. The Transfer Pricing Officer considered the fact that in the year under consideration the percentage of advertisement, marketing and promotion (including payment for incentives) with revenue of the appellant was 39.12 per cent., whereas the percentage of advertisement, marketing and promotion with revenue of comparable companies was 0.08 per cent. Accordingly, the Transfer Pricing Officer held that the appellant had spent a sum of Rs. 65,41,24,677 on promotion of marketing intangibles owned by associated enterprise. Thereafter, applying a mark-up of PLR + 2.5 per cent. a cumulative adjustment on account of brand building of Rs. 75,40,09,515 was proposed by the Transfer Pricing Officer in his order dated January 16, 2013. In performing the above benchmarking analysis the comparable set chosen by the Transfer Pricing Officer is as under : Cosmic Global Ltd. 0.16% Informed Technologies India Ltd. 0.00% Average 0.08% 4.3 The learned Assessing Officer in his draft order of assessment incorporated the above transfer pricing adjustment. Aggrieved by this the appellant filed detailed objections before the learned Dispute Resolution Panel in which it was stated that the adve....
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....cy' and it is for wholly and exclusively for the business and is an allowable expense. Reliance is placed on among other on the following decisions, viz.- (a) S. A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1 (SC); [2006-TIOL-179-SC-IT] (b) Sassoon J. David and Co. Pvt. Ltd. v. CIT [1979] 118 ITR 261 (SC); [2002-TII-36-SCINTL] (c) CIT v. Adidas India Marketing (P.) Ltd. [2010] 195 Taxman 256 (Delhi); [2009-TII-37-HC-DEL-INTL] (d) Nestle India Ltd. v. Deputy CIT [2007-TII-4- ITAT-DEL-TP] (I. T. A. No. 2755/Delhi/2003) 10. Expenses of Rs. 61.70 crores on incentives given to the sub scribers in India is in the loyalty agreement so that the subscribers commits to use Amadeus CSR and not of their competitors. Further, this incentive expenditure does not fall within the expression 'advertisement, marketing and promotion'. 11. By relying on the decision of the Special Bench in the case of L. G. Electronics India P. Ltd. v. Asst. CIT I. T. A. No. 5140/Del/2011 [2013] 22 ITR (Trib) 1 (Delhi) [SB]; [2013] 140 ITD 41 (Delhi) [SB] the expenditure on incentive cannot be brought within the ambit of AMP for determining the cost/value of the international transaction. S....
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....e is under it a person acting for it, even though the enterprise may not have a fixed place of business. Thus, there can be two forms of permanent establishment : (i) fixed place or (ii) through the dependent agent. What an enterprise can do directly but if not so done directly but done through an agent appointed for the purpose it will be deemed to have been done indirectly. Even in such a situation it can be said that the enterprise carrying on the business through the efforts of such agent and, hence, can be said to have established a permanent establishment. However, all the persons other than agent of an independent status cannot be deemed to be a permanent establishment of the enterprise. The agents can be considered as permanent establishment only and only if when a person other than agent of an independent status (i) has and habitually exercises in that State an authority to conclude contract, or (ii) though he has no such authority but habitually maintain stock of goods from which he regularly delivers goods on behalf of the enterprise. AIPL is totally dependent on the appellant. The entire business of AIPL is to provide data processing and software development services to....
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.... with the appellant, yet the revenue could not have been generated but for the subscribers using the "Amadeus products". In a way the revenue is generated from the participants but only on the basis of use of CRS by the subscribers. But for such use no revenue would accrue to the appellant. Thus, the agreements entered into by the AIPL with the subscribers under an authority granted to it are contracts relating to operations which constitute business proper and not merely in the nature of internal operations. Such contracts are habitually exercised and there is nothing on record to suggest that such authority was cancelled at any point of time. Therefore, AIPL is a dependent agent of the appellant who has habitually exercised the authority to conclude contracts on behalf of the appellant. To that extent the appellant has a permanent establishment in India.' From the above decision in the case of taxpayer's associated enterprise, which is confirmed by the High Court also, it is very clear without any iota of doubt that : (a) Amadeus India is totally dependent on the associated enterprise. (b) Amadeus India's business is to provide data processing and software devel....
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....d that the advertisement, marketing and promotion activities carried by it did not amount to international transaction as no transaction was made with the associated enterprise. This doubt, have been clarified by the amendment of the Income-tax Act by the Finance Act, 2012, through the Explanation below section 92B to provide the definition of the expression 'international transaction' and 'intangible property'. The relevant extract of the Explanation is given below : . . . . 5.3.7 Thus, this Panel, confirm the action of the Transfer Pricing Officer that excessive advertisement, marketing and promotion expenses incurred by the taxpayer constitutes an international trans action. The Transfer Pricing Officer has rightly held that for this effort of the taxpayer, the associated enterprise needs to compensate it as it has been found that the taxpayer has incurred the excessive advertisement, marketing and promotion expenses and there is a case of receiving suitable compensation from the associated enterprise." 5. During the course of hearing before us, the learned authorised representative, Shri Tarandeep Singh, submitted that in the absence of a "transaction" as d....
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....ropriate marketing and development resources, communication facilities and promotion material at no cost to the assessee. (e) Upon expiration or termination of this agreement pursuant to article XIV of this agreement, Amadeus India shall cease to be an authorised distributor of the Amadeus products. (f) Upon the termination of the agreement Amadeus India will immediately discontinue the distribution of all Amadeus products and the use of the Amadeus systems, all licensed proprietary marks, and any names, marks or signs that may be confusingly similar thereto, and all other materials that may indicate that Amadeus India is or was representing or otherwise associated with the Amadeus group. . . . 10.1 In the transfer pricing context, the additional burden of the AMP expenditure of Rs. 65,55,60,171 in the year was on the assessee. It is an admitted fact no part of the advertisement, marketing and promotion expenditure was reimbursed by the associated enterprise in the year under consideration. It is evident from above findings that the assessee has developed marketing intangibles for the distribution of Amadeus products offered by Amadeus Global in India by incur ring huge adver....
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....for providing such services. The paragraphs 10.02 and 10.05(b) are reproduced hereunder for your reference : '10.02 Amadeus shall provide Amadeus India with appropriate marketing and development resources of the Amadeus group and the communications facilities of the Amadeus system and the full range of Amadeus products as they become available in accordance with the terms of applicable licences and subject to technical constraints. 10.05 Amadeus shall provide Amadeus India with the following continuing services . . . (b) Amadeus shall at its discretion and as it might deem reasonable, make available to Amadeus India, from time to time, promotional materials produced by Amadeus for use by NMCs, at no cost to Amadeus India except for delivery costs between Madrid and Territory.' J.4 It is submitted that the assessee had incurred expenditure on AMP solely for the purpose of running its business in India effectively. Such AMP expenditure was neither incurred at the instance of the overseas associated enterprise, nor is there was any mutual agreement, understanding or arrangement as to allocation or contribution by the overseas associated enterprise towards reimbursement....
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.... of the Amadeus group, communication facilities of the Amadeus system, i.e., CRS itself and Amadeus products. The assessee does get these marketing supports from Amadeus Spain time to time. Further, the Amadeus website (www.amadeus.com) maintained by Amadeus Spain, is an important means of promotion of products and services offered by Amadeus Spain. The cost of maintaining and upgrading of the website is borne by associated enterprise. The agreement nowhere obligates Amadeus Spain to reimburse the marketing expense incurred by the assessee. M.3 The assumption of the learned Transfer Pricing Officer that the legal ownership of the marketing intangibles would get transferred to the associated enterprise without any consideration on termination of the contract is submitted to be incorrect. Clause 8.01 of the distribution agreement provides that 'Amadeus India shall be responsible for contacting and contracting with subscribers in the territory'. Consequently, Amadeus Global will have no contractual arrangement whatsoever with the subscribers. Further, sub-clause (e) of clause 8.02 provides for the assignment of the subscriber contracts but this is subject to the provisions o....
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....behalf so that a "transaction" requiring benchmarking under the provision of Chapter X can be presumed on facts of the instant case. In support of his submissions following decisions of the honourable jurisdictional High Court were relied upon and a gist of conclusions drawn therein was submitted as under : "1. Maruti Suzuki India Ltd. v. CIT reported in [2016] 381 ITR 117 (Delhi); [2016] 237 Taxman 256 (Delhi); [2015-TII-58-HC-DEL-TP] (pages 54 to 81) - SQL at page 70.1, paragraph 31 - Sony decision pertained to cases of distributors wherein none of the parties appearing before High Court questioned the existence of an international transaction. page 72, paragraphs 43 to 45 - Bright line test is not a method, which can be used for bench marking. Sony Ericsson Mobile decision [2015] 374 ITR 118 (Delhi) followed . . . page 72, paragraph 47 - Existence of international transaction only on account of quantum of the advertisement, marketing and promotion expenditure- argument of the Revenue negated. . . page 73, paragraph 51. - Advertisement, marketing and promotion expenditure not an international transaction as per section 92B(1). The Revenue has to show existence of an....
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....ring bright line test no material/evidence with revenue to show that there existed a transaction . . . page 12, paragraph 25 - Maruti Suzuki and Whirlpool followed. . . . pages 14 to 16 4. Bausch and Lomb Eyecare (India) Pvt. Ltd. v. Addl. CIT reported in [2016] 381 ITR 227 (Delhi); [2015-TII-65-HC-DEL-TP] (pages 18 to 36) - Manufacturer and trader . . . page 21, paragraph 4/page 32, paragraph 47 - authorised representative argued that in Sony subsidy received by Sony from "associated enterprise" no such case in Bausch and Lomb/Concession in the case of Sony on transaction issue . . . page 29, paragraphs 32 and 33 -High Court upholds these arguments at page 32, paragraph 48. - Maruti Suzuki [2016] 381 ITR 117 (Delhi) and CIT (LTU) v. Whirlpool of India Ltd. [2016] 381 ITR 154 (Delhi) followed 5. Goodyear India Ltd. v. Deputy CIT reported in [2016] 70 tax mann.com 67 (Delhi-Trib); [2016-TII-255-ITAT-DEL-TP] (pages 98 to 150) - Relevant issue discussed at page 121, paragraph 19 onwards- conclusions at page 130, paragraph 22 onwards - Maruti Suzuki followed. . . . pages 133-136, paragraphs 37 and 38." 5.3 Without prejudice to the above submissions, it was submitted by....
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....al aspect are already on record. It was submitted that both the authorities below, i.e., the learned Transfer Pricing Officer and the learned Dispute Resolution Panel have categorically given a conclusion that there existed a transaction in the instant case for brand promotion, which required benchmarking as per the provision of the Act. Being a jurisdictional issue it was submitted by the learned authorised representative that this aspect required adjudication by the Tribunal and only if this Tribunal was of the opinion that there did exist a transaction of brand promotion between appellant and its associated enterprise that the matter required a fresh examination in the light of the honourable Delhi High Court decision in the case of Sony Ericsson Mobile Communications [2015] 374 ITR 118 (Delhi). In support of the above submissions the learned authorised representative also relied upon the decision of the honourable Delhi High Court in the case of Diakin Airconditioning India P. Ltd. v. Asst. CIT reported in [2016-TII-42-HC- DEL-TP]. 8. We have considered the submissions made by the parties and have also perused the material available on record. Undisputedly, the main data proce....
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.... 5090/DEL/2010 for the assessment year 2006-07 is set aside and the said appeal is restored to the file of the Income-tax Appellate Tribunal ; (b) The Income-tax Appellate Tribunal will first decide the question regarding the existence of an international transaction involving AMP expenses between the assessee and its associated enterprise. This question will not be remanded by the Income-tax Appellate Tribunal to any other authority for decision. If the said question is answered in favour of the assessee, then no other question would arise. If answered against the assessee, then the Income-tax Appellate Tribunal will decide the further issues that arise in the appeal in accordance with law." 8.1 The case records further show that both the lower authorities have categorically given a finding that there existed a "transaction" for brand promotion between appellant and its associated enterprise. This is also under challenge before us. Hence, it cannot be said that necessary facts are not on record. With regard to the submissions of the learned Departmental representative that the issue of advertisement, marketing and promotion expenses be restored back to the file of the learned T....
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....price discovery methods specified in section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the arm's length price and make the transfer pricing adjustment by substituting the arm's length price for the contract price. Section 92B defines 'international transaction' as under : '92B. Meaning of international transaction.-(1) For the purposes of this section and sections 92, 92C, 92D and 92E, "international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment 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 anyone or more of such enterprises. (2) A transaction entered in....
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....as been provided by one party to the other would by itself constitute a transaction irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual agreement to not charge any compensation for the service or benefit'. This was negatived by the court by pointing out (page 144) : 'Even if the word "transaction" is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to section 92F(v), which defines "transaction" to include "arrangement", "understanding" or "action in concert", "whether formal or in writing", it is still incumbent on the Revenue to show the existence of an "understanding" or an "arrangement" or "action in concert" between MSIL and SMC as regards advertisement, marketing and promotion spend for brand promotion. In other words, for both the "means", part and the "includes" part of section 92B(1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC.' In Whirlpool of India Ltd. [2016] 381 I....
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....otion expenditure of a comparable entity that an international transaction exists and then proceeding to make the adjustment of the difference in order to determine the value of such advertisement, marketing and promotion expenditure incurred, for the associated enterprise. In any event, after the decision in Sony Ericsson [2015] 374 ITR 118 (Delhi), the question of applying the bright line test to determine the existence of an international transaction involving the advertisement, marketing and promotion expenditure does not arise. There is merit in the contention of the assessee that a distinction is required to be drawn between a 'function' and a 'transaction' and that every expenditure forming part of the function, cannot be construed as a 'transaction'. Further, the Revenue's attempt at recharacterising the advertisement, marketing and promotion expenditure incurred as a transaction by itself when it has neither been identified as such by the assessee or legislatively recognised in the Explanation to section 92B runs counter to the legal position explained in CIT v. EKL Appliances Ltd. [2012] 345 ITR 241 (Delhi) which required a Transfer Pricing O....
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....price to it and then deducing that since it is not an arm's length price, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed "price" of such transaction and thereafter ask whether it is an arm's length price. If the answer to that is in the negative the transfer pricing adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the associated enterprises involved may seek to shift from one jurisdiction to another. An "assumed" price cannot form the reason for making an arm's length price adjustment. Since a quantitative adjustment is not permissible for the purposes of a transfer pricing adjustment under Chapter X, equally it cannot be permitted in respect of advertisement, marketing and promotion expenses either. As already noticed hereinbefore, what the Revenue has sought to do in the present case is to resort to a quantitative adjustment by first determining whether the advertisement, marketing and promotion spend of the assessee on application of the bright line test, is excessive, there....
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....es. The strength of a brand, which could be product specific, may be impacted by numerous other imponderables not limited to the nature of the industry, the geographical peculiarities, economic trends both international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary checks against arbitrariness while at the same time addressing the apprehension of tax avoidance.' In the absence of any machinery provision, bringing an imagined transaction to tax is not possible. The decisions in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC); [2002-TIOL-587-SC-IT-LB] and PNB Finance Ltd. v. CIT [2008] 307 ITR 75 (SC) make this position explicit. Therefore, where the existence of an international transaction involving AMP expense with an ascertainable price is unable to be shown to exist, even if such price is nil, Chapter X provisions cannot be invoked to undertake a transfer ....
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....18 (Delhi) for submitting that events which would transpire on termination of distribution require a transfer pricing adjustment at that stage but the same will be immaterial to presume the existence of an agreement, arrangement or understanding in the year under consideration. In this regard the honourable High Court at paragraph 153 of its reported judgment has been pleased to be hold as under (page 217) : "Economic ownership of a brand is an intangible asset, just as legal ownership. Undifferentiated, economic ownership brand valuation is not done from moment to moment but would be mandated and required if the assessed is deprived, denied or transfers economic ownership. This can happen upon termination of the distribution cum-marketing agreement or when economic ownership gets Transferred to a third party. Transfer pricing valuation, therefore, would be mandated at that time. The international transaction could then be made a subject matter of transfer pricing and subjected to tax." 8.3 As held above, the appellant has raised objections before the learned Dispute Resolution Panel that none of the above clauses of the agreement make it mandatory for the appellant to incur the....
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....ia Ltd. [2016] 381 ITR 154 (Delhi) wherein it is held by the honourable High Court as under (pages 175, 179 of 381 ITR): "The provisions under Chapter X do envisage a 'separate entity concept'. In other words, there cannot be a presumption that in the present case since WOIL is a subsidiary of Whirlpool USA, all the activities of WOIL are in fact dictated by Whirlpool USA. Merely because Whirlpool USA has a financial interest, it cannot be presumed that the advertisement, marketing and promotion expense incurred by the WOIL are at the instance or on behalf of Whirlpool USA. There is merit in the contention of the assessee that the initial onus is on the Revenue to demonstrate through some tangible material that the two parties acted in concert and further that there was an agreement to enter into an international transaction concerning the advertisement, marketing and promotion expenses . . . . As already mentioned, merely because there is an incidental benefit to Whirlpool, USA, it cannot be said that the advertisement, marketing and promotion expenses incurred by WOIL was for promoting the brand of Whirlpool, USA. As mentioned in Sassoon J. David [1979] 118 ITR 261 (S....
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....osed an adjustment of Rs. 3,08,653. 9.1 Being aggrieved the appellant filed detailed objections before the learned Dispute Resolution Panel. The learned Dispute Resolution Panel formulated the following issues for its consideration : "(i) Whether the law provides for benchmarking of the interest on receivables as per the provisions of the Income-tax Act. (ii) Whether the Transfer Pricing Officer was justified in charging interest on receivables at the arm's length price beyond a period of 30 days. (iii) Whether the rate of interest charged by the Transfer Pricing Officer at the rate of 15.77 per cent. was justified." The learned Dispute Resolution Panel records the following conclusions on the above issues. "For determining the issue at (i) above, the analysis of law as carried out by the Transfer Pricing Officer make it amply clear that under the existing provisions of the Income-tax Act, the Transfer Pricing Officer was fully justified in considering the aforesaid trans action as international transaction and examining if the receivables from the associated enterprises were within the arm's length range or not. The issue at (ii) above was considered and found ....
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....urrency in which the loan is denominated is a key determinant in identifying the relevant interest rate to be used for benchmarking purposes and in view of the same, the relevant interest rate should be compared and the LIBOR while determining the arm's length price. To the understanding of this Panel, this contention of the assessee is out of context. This is not a case where the loan has been extended by one associated enterprise to another in a foreign currency. Here is a case where all the transactions of the assessee with its associated enterprise have been benchmarked in Indian currency and as such the currency of receivables are considered to be Indian currency. Accordingly, the base on which benchmarking of interest is required to be carried out necessarily has to be in Indian currency. The Transfer Pricing Officer has rightly given a finding in his order that the entire cost to the Indian entity or opportunity cost to the Indian entity will be with reference to the interest rates prevailing in India. In these circumstances, the Transfer Pricing Officer was justified in adopting the prime lending rates of SBI to be an appropriate comparable uncontrolled price. On the is....
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....ansfer Pricing Officer. Considering this, we find that the ratio laid down by the Mumbai Income-tax Appellate Tribunal in Rusabh Diamonds' case [2016] 48 ITR (Trib) 707 (Mum) is clearly applicable to the facts of instant case. In the said judgment, it has been held by a co-ordinate Bench of the Tribunal as under (headnote from [2016] 68 taxmann.com 141) : "The interest income is an integral part of the PBIT inasmuch as interest income, in cases other than finance companies, is required to be included in the 'other income' and thus affects the profit before interest and taxes. While profit before interest and taxes does not take into account 'interest expenditure', it does take into account 'interest income' because the interest income is part of the 'other income', under pre-amended as well as post-amended Schedule VI to the Companies Act, which is duly taken into account into computation of PBIT. In a way PBIT is a misnomer, as while PBIT does not take into account interest expenditure, it does take into account interest income appearing in the other income. Once the profitability, as per PBIT, is found to be comparable, there cannot be a sepa....
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....s amendment, inter alia, implies that capital financing of any type, including by way of 'deferred payment or receivable or any other debt arising during the course of business' will constitute an international transaction under section 92B. Going by this definition 'any debts arising during the course of business' will constitute an international transaction. A trade debt is, accordingly, covered by this definition. However, since the assessment year that one is dealing with is prior to the assessment year 2012-13, the next important question is whether this amendment could be held to be applicable in the assessment year before as well. Undoubtedly, the amendment is said to be retrospective but then the question really is whether just stating the law to be retrospective will make it retrospective in effect. (paragraph 29) It is very important to bear in mind the fact that right now one is dealing with amendment of a transfer pricing related provision which is in the nature of a SAAR (specific anti-abuse rule), and that every anti-abuse legislation, whether SAAR (specific anti-abuse rule) or GAAR (general anti-abuse rule), is a legislation seeking the taxpayers to....
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....d as prospective in effect, i.e., with effect from April 1, 2012, onwards. (paragraph 39) For the detailed reasons set out above, the amendment in section 92B, at least to the extent it dealt with the question of issuance of corporate guarantees, is effective from April 1, 2012. The assessment year being an assessment year prior to that date, the amended provisions of section 92B have no application in the matter. (para graph 43)." Respectfully following the above, ground Nos. 7 and 8 of the appeal are allowed and the Assessing Officer is directed to delete the addition of Rs. 9,786. 12. The next issue requiring our deliberation arises out of ground Nos. 8 to 8.2 of the appeal and pertains to the disallowance of deduction under section 10A of the Act. The facts in brief in this regard are that in the profit and loss account appellant had credited following items of revenue : Data processing/software export receipts Rs. 1,64,98,72,986 IT support services Rs. 2,05,94,756 Call centre receipts Rs. 49,58,61,100 In the return of income following note was appended by the appellant in support of its claim for deduction under section 10A of the Act : "Amadeus India Pvt. Ltd. wa....
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....carrying on data processing activities from the two units, i.e., unit I and unit II. Unit I had already exhausted the period of exemption under section 10A of the Act and during the year under consideration claim for deduction under section 10A of the Act was made by the appellant only as regards unit II, which is located at D-1, Local Shopping Centre No. 2 Vasant Vihar, New Delhi. Along with the return of income certificate from a chartered accountant in Form 56F as per statutory requirements was also submitted in which it was certified that during the year under consideration the appellant had made claim for deduction under section 10A on data processing receipts of Rs. 25,36,64,616 being that eligible export turnover of unit II. Therefore, out of the total data processing receipts of Rs. 1,64,98,72,986 credited by the appellant in its profit and loss account deduction under section 10A has been claimed for an export turnover of Rs. 25,36,64,616 pertaining only to unit II. The learned Assessing Officer accepted the claim made by the appellant in the draft assessment order, however, during the course of proceedings before the learned Dispute Resolution Panel an enhancement show-ca....
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.... No. of data processors/other personnel providing services eligible under section 10A No. Minimum required qualification No. Minimum 3required qualification No. Minimum required qualification Please give details to establish that you have employees which can render and are rendering services eligible for exemption/deduction under section 10A. 5. Please give complete working of various receipt from the associated enterprise in terms of appendix A of distribution agreement. And also give the copy of invoices and establish the nature of services mentioned on these invoices with evidence. 6. Please provide the qualification and experience of the personnel to whom managerial remuneration of Rs. 9.19 crores has been paid. 7. Please provide the details of data processing charges paid to your subsidiaries amounting to Rs. 9.86 crores including the type of services received, basis of payment, copy of agreement. In case, the services which have been claimed to be exported is an account of data processing carried out by the subsidiary the details mentioned in paragraphs 3 and 4 may be given for subsidiary also. In case no response to the above requirements is r....
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....reement, the appellant is appointed as a national marketing agent the remuneration received by it as per annexure A of the agreement is not in the nature of software development but a distribution fee for promotion of business conducted by Amadeus Spain. The learned Dispute Resolution Panel was further of the opinion that the Delhi Tribunal in the case of Amadeus Global Travel Distribution S. A. v. Deputy CIT reported in [2008] 113 TTJ (Delhi) 767; [2010-TII-202-ITAT-DEL-INTL] has held that the appellant is a dependent agency permanent establishment (DAPE) of Amadeus Spain in India, hence, the remuneration derived by it from Amadeus Spain in form of distribution fee was for services rendered by it in India as an agent of the foreign company. In this regard, in its order it was held by the Dispute Resolution Panel as under : "11. The taxpayer was required to submit copies of invoices raised for provision of services to it. Sample copy has been furnished along with the letter dated November 29, 2013. From the perusal of invoice it is observed that the taxpayer has mentioned in the particulars : 'charges for export of process data/software' during the month of February, 2009....
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....ired to provide the details of various divisions in the company, their work profile, number of engineers, software developers and data processors in each division along with the minimum qualification required for such division. The taxpayer has furnished the details of employees wherein the total number of employees have been informed to be 747 as under :- Division Number Operations 518 Accounts/Administration 40 Business development 103 Marketing and corporate communications 08 Utility staff 78 Since the taxpayer has not furnished the specifications of the divisions, the number of persons carrying out operations does not make it clear that what operations they were carrying out. Moreover, from the above table, it could be observed that the number of employees carrying out business development activity is 103 and those into marketing and corporate communications are 8. 15. It is observed from the accounts of the assessee that the taxpayer has paid distribution fee to its subsidiaries in Srilanka, Nepal and Bangladesh as under : Name of the party Amount paid (Rs.) Amadeus Lanka Pvt. 330,94,509 Global Travel Distribution Pvt. Ltd. 4,83,22,266 Amadeu....
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....ishment in India or not. We find that all the authorities below, after taking into consideration various facts, have arrived at the finding of fact that the taxpayer is having permanent establishment in India. This being a finding of fact, no question of law arises.' The said order arose out of the decision dated November 30, 2007, of the Income-tax Appellate Tribunal Delhi in the case of Amadeus Global Travel Distribution, SA v. Deputy CIT [2008] 113 TTJ (Delhi) 767; [2010-TII-202-ITAT-DEL-INTL], for the assessment years 1996- 97 to 1998-99, which has decided various issues about the taxability of the foreign company, namely, Amadeus Global Travel Distribution SA. One contentious issue before the honourable Income-tax Appel late Tribunal was that if the Indian company AIPL/taxpayer is a dependent agent permanent establishment of the foreign company or not ? This has been adjudicated by the Income-tax Appellate Tribunal in paragraphs 23.3 and 23.4 of the said order and the headnotes of the said decision have been reproduced earlier while discussing the issue of the arm's length price above in paragraph 5.3.2. In view of the above, it is evident beyond doubt that the dec....
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....he share of 46 per cent. is on the transactions which are handled/done by the various subscribers (travel agents) sitting independently on various locations who are independently getting compensation from airlines, etc., and also incentives from the associated enterprise, these transactions are not from the Amadeus India's system/computer or facilities. Hence, by any stretch of imagination the revenue of Rs. 164.98 crores is not on account of export of software for which the taxpayer can claim deduction under section 10A. However, since this Panel has given a finding in the above para graphs that information technology support services of Rs. 20.59 crores and call centre receipt of Rs. 4.58 crores could be in nature of receipts which could be eligible for deduction under section 10A, the taxpayer is directed to provide all the details/certificate(s) in support of its claims of deduction under section 10A for unit II only to the Assessing Officer. The Assessing Officer is further directed to allow deduction under section 10A on the profits to the above receipts corresponding to this unit only, provided that the basic eligibility criteria of deduction under section 10A is satisfi....
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.... travel agents and was performing the functions of a programme exporter. It was submitted by the learned authorised representative that the Tax Department has accepted the Tribunal's decision for the assessment year 1996-97 and no further appeal has been filed against this before the honourable High Court. The learned authorised representative also highlighted that allegations similar to those levied by the learned Dispute Resolution Panel in the instant case were also raised by the learned Assessing Officer during the course of the assessment proceedings for the assessment years 1997-98 and 1998-99 which were not accepted in further appeals by the Tribunal in the assessment year 1997-98 and by the learned Commissioner of Income-tax (Appeals) in the assessment year 1998-99. The learned authorised representative has placed copies of the earlier year assessment orders and appellate orders before us in the paper book. It was submitted that these orders have also become final and no further appeal has been filed by the Tax Department. It was clarified by the learned authorised representative that in the earlier years claim for deduction under section 80HHE/10A was made by the appel....
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....seeking the Software Technology Parks of India approval for unit II (copy enclosed at pages 446 to 454 of paper book) (ii) Software Technology Parks of India approval dated June 8, 2005, for setting up unit II (copy enclosed at page 455 of paper book) (iii) Annual return filed by the appellant with the Software Technology Parks of India authorities for unit II activities (copy enclosed at pages 457 to 460 of paper book) (iv) Copy of submission dated November 9, 2011 (copy enclosed at pages 461 to 463 of paper book) filed before the Assessing Officer during the course of assessment proceedings for the assessment year 2008-09 wherein it is submitted as under : "As would be evident from the explanation on record besides the direct expenses for each of the units the expenses pertaining to the head office have been apportioned between the two units in the ratio of the turnover. Considering the nature of activities of the two units, the fact that unit I had 26 locations while unit II had only one location and that the number of employees of unit I (which has been in business for over a decade) are about 10 times these of unit II (which has been in business for three years only th....
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....ed they do not deprive the assessment year 1996-97 the Tribunal decision from its authenticity. 13.4 Lastly, it was submitted by the learned authorised representative that unit II was set up by the appellant in the assessment year 2006-07 and in that year the claim for deduction under section 10A has been allowed by the Tax Department. It was submitted that as per the principle of consistency qualifications to conditions specified under section 10A have to be determined in the year in which the unit is set up and the deduction cannot be denied in a subsequent year without undermining the basis on which deduction was granted in the initial assessment year. Reliance in this regard was placed upon the decision of the honourable jurisdictional High Court of Delhi in the case of CIT v. Delhi Press Patra Prakashan Ltd. (No. 2) reported in [2013] 355 ITR 14 (Delhi). 14. On the contrary, the learned Commissioner of Income-tax (Departmental representative) vehemently opposed the submissions made by the learned authorised representative. Placing reliance upon the order passed by the learned Dispute Resolution Panel it was submitted by the learned Commissioner of Income-tax (Departmental re....
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....oice. The nature of activity of M/s. Amadeus (I) (Pvt.) Ltd. is as data entry/data processing job. Data entry/data processing is a software development as defined by Customs Notification No. 10/96, dated February 17, 1997, issued by the Ministry of Finance, Department of Revenue." Expert opinion of Electronic and Computer Software Expert Promotion Council (ESC) on appellant's activities In the meantime the assessee had also referred the issue to Electronics and Computer Software Export Promotion Council (ESC). The assessee filed a copy of the opinion received from ESC which, inter alia, stated as under : "It is to confirm and clarify that data processing job is well covered within the scope of the definition of computer software. To substantiate this we enclose herewith a copy of Customs Notification No. 7/98 and Customs notification dated February 11, 1998. Further, Customs Notification No. 10/96, dated February 17, 1997, also clarifies that data entry are well covered within the scope of computer software. Since the Ministry of Finance has given a detailed definition of computer software (for Customs Act) it would be appropriate that benefit under section 80HH....
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....sallowed, the assessee made a reference to ESC also. ESC, vide their letter dated March 10, 1998, addressed to the Assessing Officer opined as under : "If you go by the definition of section 80HHE of the Income-tax Act, that also clearly says that section 80HHE is applicable to a person who is engaged in the business of export out of India of Computer Software . . . Since, the Ministry of Finance at various occasions have given elaborate definition of computer software after detailed consultations with the technical authority like Department of Electronics, it would be appropriate that benefit under section 80HHE are extended to M/s. Amadeus India Pvt. Ltd. against their export of computer software to which they are entitled. In case of any doubt it is requested that matter may kindly be referred to the Department of Electronics before any decision is taken in this regard." Expert reports followed by the Income-tax Appellate Tribunal 26. We also find that when the Assessing Officer was not satisfied with the explanation of the assessee he had made a reference to software technology park. The Assistant Director, Software Technology Parks of India, vide his letter dated Fe....
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....se. In the present case, at one end, we have the Amadeus group of companies with a mega computer at Erding into which they have fed various programmes and built-up a huge database of various kinds of information relating to several airlines and service providers. At the other end we have the travel agent with a computer who merely accesses or utilises relevant information which appears on the database of the computer. In a sense, he also adds to and alters the database available on the computer when he books a ticket for a client by typing in the data regarding his customer such as airline, fare, ticket, nature of services, etc., for such entries will be added to the database and become available for other operators on computers working on the system all over the world. A view may perhaps be taken that what the travel agent does is not "programming" as he merely makes use of adds to or alters the information on the database but does not touch the process by which such information is brought on to the host computer. 35. The assessee which occupies a position mid-way between the two fulfils, it will be clear from the facts stated above, the functions of a programme exporter,....
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....09-10 and disallowing the claim for deduction under section 10A in the instant case is contrary to the decision of the honourable jurisdictional High Court of Delhi in the case of CIT v. Neo Poly Pack (P.) Ltd. reported in [2000] 245 ITR 492 (Delhi) wherein the honourable court has held as under (page 494) : ". . . we are of the view that no fault can be found with the order of the Tribunal declining to make reference on the proposed question. It is true that each assessment year being independent of the other, the doctrine of res judicata does not strictly apply to the Income-tax proceedings, but where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner, for the sake of consistency, the same view should continue to prevail in subsequent years unless there is some material change in the facts. In the present case, the learned counsel for the revenue has not been able to point out even a single distinguishing feature in respect of the assessment year in question which could have prompted the Assessing Officer to take a view different from the earlier assessment years in which the same income was brought to tax as inc....
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....in any other location (refer page 447 of the paper book). The annual return to the software Technology authorities also clarify that unit II was operating only from one location. Registration granted by the Software Technology Parks of India authorities to unit II is solely for manufacture of "computer software/information technology enabled services". Once the Software Technology Parks of India authorities do not doubt the factum of export activities of unit II, we fail to apprehend how the learned Dispute Resolution Panel can take a contrary view. We may refer here to the decision of the Special Bench of the Tribunal in the case of Inspecting Assistant Commissioner v. Mitsui and Co. Ltd. reported in [1991] 39 ITD 59 (Delhi) [SB] wherein it is held as under : ". . . One is not to be led away by the enormity of the expenditure incurred in running an office in India. That would depend upon the level of the country to which the office belongs. We have to judge the expenditure incurred from that angle and not from our angle. It is not the case of the Revenue that the expenditure incurred was so camouflaged as to cover the expenditure incurred in a trading activity to show it as expe....
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....#39;s agreements with Amadeus Spain since the inception from the assessment year 1996- 97. Hence, it does not wipe out the past history of the case. It is admitted by the learned Dispute Resolution Panel that the facts are common and there is no change in the modus operandi. Hence, the action of the learned Dispute Resolution Panel in now doubting the claim made when after a detailed technical examination of the appellant's activities, eligibility of its sole data processing activity for claiming the deduction under section 10A has already been settled by the Tribunal in the assessment year 1996-97 and accepted by the Tax Department is unsustainable. 15.3 The view adopted by the learned Dispute Resolution Panel has further been influenced by the fact that Amadeus Spain has a permanent establishment in India in the form of Amadeus India P. Ltd., (i.e., the appellant). We find that this fact is totally irrelevant in adjudication of the appellant's claim for deduction under section 10A. The foreign company's dependent agency permanent establishment and dependent agent are two separate taxable entities as per law. Dependent agency permanent establishment is a creation of a....
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....e but it is by the virtue of a dependent agent that the general enterprise is deemed to have a permanent establishment, a dependent agent permanent establishment though, in the other Contracting State. We are of the considered view that in addition of the taxability of the dependent agent in respect of remuneration earned by him, which is in accordance with the domestic law and which has nothing to do with the taxability of the foreign enterprise of which he is dependent agent, the foreign enterprise is also taxable in India, in terms of the provisions of article 7 of the Tax Treaty, in respect of the profits attributable to the dependent agent permanent establishment. As we have elaborated earlier in this order, a dependent agent permanent establishment is distinct from the dependent agent. While computing the profits of this dependent agent permanent establishment, a deduction is to be allowed for the remuneration paid to the dependent agent as that is cost of operation of the dependent agent permanent establishment and as it has been incurred for generating the revenues attributable to such hypothetical permanent establishment . . ." The Tribunal has also maintained the above d....
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.... Quotient, which is a competitor of the appellant. Both the assessees have similar business model and are rendering data processing activity. The factual allegations levied by the authorities below are also the same. In the said order, after following the Tribunal's decision of the appellant for the assessment year 1996-97 (supra), the Tribunal has opined as under : "We find that the learned Commissioner of Income-tax (Appeals) while dealing with the issue has basically followed the decision of the Income-tax Appellate Tribunal in the case of Amadeus India (supra). He has elaborately discussed the terms of distribution agreement between the assessee and Galileo and has compared the activities of the assessee with that of Amadeus India before coming to the conclusion that the assessee before us is very much eligible for claiming deduction under section 10AA of the Act with this finding that the Assessing Officer was not justified in denying the claimed deduction under section 10AA of the Act in the present case. In paragraph 5.2, the learned Commissioner of Income-tax (Appeals), firstly, has discussed the terms of the distribution agreement and on the basis of those descriptio....
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....pellate Tribunal noted further that the export of software as per the statutory requirement are also declared on exporters declaration form SOFTES (specimen of SOFTES Form has been filed). The competent authority, i.e., Department of Electronics authorised official also certified that the software described in the SOFTES form was actually transmitted and the export value declared by the exporter has been found to be in order and accepted by the authorised officer. Similar are the functions of the assessee in the present case before us and similar types of certificates have been issued to the assessee about the transmission of software and the export value declared by the exporter has been found to be in order and accepted by the authorised officer. We are thus of the view that the learned Commissioner of Income-tax (Appeals) was justified in equating the facts of the present case with that of the Amadeus India, also in the same line of business and following the decision of the Income-tax Appellate Tribunal on an identical issue, in the case of Amadeus India, in paragraph 5.2 of the first appellate order reproduced hereinabove, the learned Commissioner of Income-tax (Appeals) has s....
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....se groups had evolved and were maintaining a computer reservation system (CRS), the requisite software and a huge database comprising a variety of information relating to several airlines and other travel services provides, for providing international travel related facilities. The core computer system/server were established at overseas locations at the US, Germany or Spain as the case may be. The travel agent, with a computer, merely accesses or utilises travel information drawn from the database of the computers. The travel agent also adds to, and alters the data available on the computer when he books a ticket (or other travel facilities like cab services, accommodation at hotels/resorts, etc.) for a customer by feeding in the data regarding the customer such as airlines, hotel, local travel fare, tickets, the several intermediary and eventual destination; and the nature of services to be provided, etc. This data enters the composite databased stream and becomes available to other operators via computers operating on Amadeus or Galileo system, all over the world, whenever a fulfilling transactions occurs at the travel agents end. The assessee's role like the present assesse....
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....in the case of Galileo International Inc. v. Deputy CIT (supra) While deciding the issue of holding of any permanent establishment of Galileo International Inc. in India to examine its income to be taxable in India. This decision of the Income-tax Appellate Tribunal has been upheld by the honourable High Court. 7.8 The honourable Delhi High Court in the case of CIT v. ML Outsourcing Services (P) Ltd. [2014] 271 CTR (Delhi) 553 in the paragraph 9 of the decision has been pleased to make observation on the Central Board of Direct Taxes Notification No. S. O. 890(E), dated September 26, 2000 ([2000] 245 ITR (St.) 102), in relation to deduction under section 10A, reproduced as under : '9. A perusal of the said notification would indicate that the Board has included several distinct types of services under the expression, 'product or service of similar nature, information technology enabled product or services' in the fifteen clauses. The Board, in the notification, has used the expression, 'information technology enabled product or services'. Thus, the Board has understood that product or services, to be included within clause (b) of Explanation 2 to section 10A....