TaxTMI 
TaxTMI 
2018 (10) TMI 583
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder the Companies Act, 1956. The assessee is a wholly owned subsidiary of AT &S Austria Technologie & Systemtechnik Aktiongesellschaft ('AT &S Austria') and is primarily engaged into the business of manufacture and sale of printed circuit boards. AT &S Austria undertakes distribution of PCB manufactured-by AT &S India and earns commission for distribution functions. 1.1 The assessee filed e-return of income for the previous year relevant to the assessment year 2011-12 on 29th November, 2011 declaring total loss of INR 74,11,66,860/-. During FY under consideration, the assessee reported international transactions representing payment made towards CCA for services, purchase of raw material and sale of finished goods. 1.2 For purposes of benchmarking international transactions of purchase/ sale, the assessee adopted AT &S Austria as tested party and TNMM as MAM with OP/Sales as PLI. Using AMADEUS database, the assessee selected certain companies as corn parables based in different jurisdictions in Europe and worked out average profit margin of 2.79% as against profit margin of 2.57% in case of AT &T Austria, thereby demonstrating that foreign AE has drawn le....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h language). Table No. 1 - Nature of IT products and related services secured from IBM Sl.No. Nature of IT Products Particulars 1. IBM e-business Hosting and e- business Hosting Centers provide the Web hosting services to the AT&S group worldwide (including the assessee). For the purpose receiving the aforesaid service, IBM installs various information technology products (hardware and software) at the premises of the group companies. List of IBM products installed (Windows, i5/OS, AIX) as mentioned in page no. 317 of the paperbook List of software and other information technology products installed (Worldwide Tool Set, Operating System, back-up and recovery media services, media and storage extension, Performance Tools Manager, Application Development Manager, etc.) as mentioned in page no. 318 of the paperbook. 2. IBM helps manage and monitor the IBM products, SAP products and Microsoft products installed at AT&S group companies (including the assessee) List of information technology products [SAP enterprise, BW (SAP), SCM (SAP), DB2.90 (IBM), Windows 2003 Server (Microsoft)] managed and monitored by IBM as mentioned in page no. 319 of the pape....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ish, maintain, implement and review security controls defined in GSD331 exist. b). Agreements with Microsoft (Austria) The Microsoft Premier Support Agreement (sample) and Microsoft Volume Licencing Agreement (sample) and the nature of support received under the aforesaid agreements for the group companies (including the assessee) are described in nutshell below: Sl.No. Particulars Paperbook page reference Microsoft Premier Support Agreement 1. Support Account Management Software 386 2. Premiere Online Website: AT&S group companies are Microsoft Premier Online user. 389 3. Support Webcast Software: Operations guide for Microsoft Windows Server Update Services 389 4. Infrastructure Support Assistance Software Development Support Assistance Software for training programmes, workshop and laboratories 390 5. Customer Support manager 394 6. System Management/Security Software 394 7. Preferred support team from Microsoft 395 Microsoft Volume Licencing Agreement 1. The select licensed program 399 (Simple Google Translation Enclosed) 2. Licensing-What accession companies can ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elecommunication solution to assure that the requirements for availability, security, data consistency and performance would be met. In spite of proactive management, occurring problems were documented, analysed and solved. Call-charges are charged to the cost centre. The charging unit was IP Phone. Video Conferencing Facility: This category of service includes provision of video conferencing facility at the office premise. F). Help Tickets The assessee under the CCA received IT services from independent serviceproviders viz., Siemens and ATOS during the relevant financial year. The AT&S AG, in order to resolve day- to-day IT related problems (e.g. Lotus Note related problems, SAP related problems etc.), entered into service contracts with Siemens (for example, 'SAP Application Management Framework Contract' signed with Siemens) and ATOS. The assessee enclosed sample copies of help tickets. Independent Auditor's Certificate The assessee enclosed independent auditor's certificate on benefit received and allocation of cost under the CCA. The independent auditor PwC Wirtschaftsprufung GmbH certified that the allocation keys used f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... analysis. Further, nothing was found in the TPO's order which was indicative of the existence of any of the circumstances prescribed under clause (a) to (d) of section 92C (3) of the Act which would necessitate intervention of the AO/TPO for determination of arm's length price of an international transaction. It is further pertinent to mention that the TPO had not applied any of the methods prescribed under sub-section (l) read with sub-section (2) of section 92C of the Act for determining the arm's length price of the aforesaid international transactions at NIL value. My aforesaid view has been confirmed by the Hon'ble Kolkata Tribunal in the case of NLC Nalco (India) Ltd (supra)." 7. Aggrieved, the Revenue is in appeal before us on the following grounds:- 1) "Where the Ld DRP has erred in law and in facts in concluding that the intra-group services provided by the AE under the head of IT services are not in the nature of stewardship activities, ignoring the details of IT services provided by the AE, which clearly indicate that the services were meant for exercising overall control and supervision over the assessee company and in the nature of stewards....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Income Tax Act, 1961 and the TPO placed reliance on US Transfer Pricing Regulations. Reliance was placed on the judgement of the Hon'ble Supreme Court in the case of CIT vs A.Gajapathy Naidu [1964] 53 ITR 114 and M.C.Mehta vs Union of India AIR 1987 SC 1086 (SC) for the proposition that Indian Income Tax Act, 1961 (in short "Act") should be construed on its terms, without drawing any analogy from foreign statues and from the decision of foreign Courts. (b) The TPO has not complied with the relevant provision of Chapter X of the Act and specifically to sub-section 1,2,3 of section 92CA r.w.s. subsection (3) of section 92C. It was submitted that the TPO is authorised to proceed to determine the ALP in relation to the international transactions, only when any circumstances mentioned in Clause (a) to (d) of section 92C(3) of the Act is satisfied. Reliance is placed on the following decisions:- (i) NLC Nalco (India) Ltd. vs DCIT, Circle-10, Kolkata [2016] 71 taxmann.com 57 (Kolkata Tirb.) (ii) CIT vs EKL Appliances [2012] 24 taxmann.com 199 (Delhi) (c) Reliance was also placed on the judgement of Hon'ble Delhi High Court in the case of CIT-I vs Cushm....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appellant AT&S India Private Limited ("appellant") is engaged in the business of manufacture and sale of printed circuit boards ('PCBs'). Ground No.1 to ground no. 6 are interlinked grounds relating to the adjustment made by the AO/TPO in respect of the international transaction involving payment of shared IT service cost (Rs.4,31,39,000/-) by the appellant to its associated enterprise AT&S HK. 2. The appellant, along with other companies belonging to the AT&S group, entered into the 'Cost Contribution Agreement' ('CCA') the detailed terms and conditions of which are mentioned in the Ld. TPO's order. On perusal of this agreement, it is noted that all the parties to the aforesaid agreement combined together and contributed to a common fund for financing the object of arranging various services including the information technology ('IT') services for all the parties to the said agreement. It is further noted that the price of the globally rendered services under the CCA was calculated on the basis of the total costs of each service on actual basis divided by applicable allocation keys as agreed under the CCA and no profit element was added to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re made by the Ld.AO. It is also noteworthy that the Ld. TPO did not apply any of the methods prescribed under sub-section (1) read with sub-section (2) of section 92C of the Income-tax Act, 1961 for determining the arm's length price of the aforesaid international transaction at 'NIL' value. 6. The appellant's contention is that the Ld. TPO in his order determined the arm's length price of the international transaction under consideration at 'NIL' based on benefit test drawing reference to the US Transfer Pricing Regulation, various judicial precedents in the USA and OECD guidelines/reports/commentaries. In this connection, the appellant placed reliance on the decision of the Hon'ble Supreme Court in the matter of Hon'ble Supreme Court of India in the matter of CIT v. A. Gajapathy Naidu reported in [1964] 53 ITR 114 wherein the Court interalia held that the provisions of the Indian Income-tax Act shall be construed on their own terms without drawing any analogy from English statutes whose terms may superficially appear to be similar but on a deeper scrutiny may reveal differences not only in the wording but also in the meaning a particu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the circumstances prescribed under (a) to (d) of sub-section (3) of section 92C of the Act which would necessitate intervention of the AO/TPO for determination of arm's length price of an international transaction. Hence, the TPO's computation of the arm's length pace of the aforesaid international transaction at 'NIL ' value as aforesaid had no valid basis. In this connection, the appellant placed reliance on the decision of the Kolkata Tribunal in the matter of N L C Nalco (India) Ltd vs DCIT reported in [2016] 71 taxmann.com 57 (Kolkata - Trib.). 10. In rebuttal of the allegation that the intra-group activity performed under the CCA constituted 'stewardship activity', the Ld A.R for the appellant further submitted as under: "Your kindself may please note that the TPO wrongfully applied the principle enunciated Group) is one of the world's largest diversifying financial services companies. Morgan Stanley and Co., USA (hereinafter referred to as 'MSCo ') is an investment bank engaged in the business of providing financial advisory services, corporate lending and securities underwriting. One of the group companies of Morgan ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he IT services were pro video through the CCA for regular maintenance and upgrading of the IT infrastructure of the CCA participants including the appellant. Further, the CCA team resolved the IT related problems faced by the personnel of the appellant on regular basis in their day to day activities. However, as held by the Hon'ble Supreme Court in the aforesaid decision, the stewards were not involved in day to day management or in any specific services to be undertaken by MSAS. In view of the above, your kindself may please appreciate that the aforesaid decision of the Hon'ble Supreme Court does not apply on the facts of the appellant's case and hence, the services rendered under the CCA cannot be termed as stewardship activities." 11.It was further the contention of the appellant that the AO/TPO allowed the payment made by the appellant for receipt of shared IT services under the CCA for the previous year relevant to the assessment year 2008-09. Thus the AO/TPO violated the 'principle of consistency' enunciated by the Hon'ble Supreme Court of India in the case of Radhasoami Satsang v. CIT reported in [1992] 193 ITR 321/60 Taxman 248 and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... foreign company in India. Attention is further invited to the decision of the Hon'ble Delhi High Court rendered in the case of CIT v Industrial Engineering Projects Pvt Limited reported in 202 ITR 1014, therein the Hon'ble Delhi High Court by taking the cue from the Hon'ble Supreme Court decision in the case of CIT v Tejaji Farasram Kharawalla Ltd (67 ITR 95) has held that the reimbursement of actual expenses would not be taxable in the hands of the person receiving the reimbursements. Reference is invited to the recent decision of the Hon'ble Bombay High Court in the case of Director of Income Tax vs. A.P. Moller Maersk reported in [2015] 59 taxmann.com 105 (Bombay). The assessee was a foreign company engaged in shipping business. It had three agents in India to book cargo. In order to help them in the business, the assessee had procured and maintained a global telecommunication facility called Maersk Net against some payments by agents which were treated as reimbursement of expenses. The Assessing Officer field that the amounts paid by these three agents to the assessee were considerations / fees for technical services rendered by the assessee a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... In this connection, attention is invited to the decision of the Hon'ble Bombay High Court in the matter of Vodafone India Services (P.) Ltd. v. Union of India reported in [2014] 50 taxmann.com 300/228 Taxman 25/[2014] 368 ITR 1 (Bom.). The Hon'ble Bombay High Court has interalia held that Chapter X of the Income-tax Act is a computation provision /machinery provision to arrive at the arm's length price. The income arising from an international transaction must satisfy the test of income under the Income-tax Act, 1961 and must find its home in charging provisions. In the event the charging provisions are not applicable, then computation provision / machinery provision would not be attracted. Computation provision / machinery provision cannot replace or substitute the charging provisions. It is pertinent to note that the Income Tax Department did not file any appeal against the decision rendered by the Hon'ble Bombay High Court in the higher forum. In the instant case, since the costs recovered by the associated enterprise from the appellant did not constitute income chargeable to tax in India in the hands of the associated enterprise, the same had not attracted the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere was complete identity between contributors and participators in relation to the aforesaid agreement. Your kindself may please note that all the parties to the aforesaid agreement belonged to the AT&S Group. No independent party participated in the services arranged globally under the CCA. The actual costs incurred under the CCA were allocated only to the group companies who were recipient of services under the CCA and no surplus / profit element was added to the costs while the same was recovered from group companies (including the appellant) using appropriate allocation keys. The fund contributed by the group companies was not spent for any purpose which was not within the scope of the aforesaid agreement. As mentioned hereinabove, the cost allocation process was certified by the independent auditor of the parent company of the appellant, namely, PwC Wirtschaftsprufung GmbH for the relevant year. In view of our above submissions, it may please be appreciated that in the instant case, the three conditions for applicability of the principle of mutuality, as directed by the Hon'ble High Court of Delhi in the case of Delhi Gymkhana Club Ltd (supra), are satisfied. Hen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Tribunal in the case of NLC Nalco (India) Ltd, discussed above. In view of the above, the Ld. AO is directed to delete the addition of Rs. 4,31,39,000/-. The aforesaid grounds of appeal are allowed." 14. The findings of the Ld.CIT(A) for AY 2011-12 and the finding of the Hon'ble DRP for AY 2011-12 have been extracted by us in para 5 and para 6 of this order. The factual finding concur with the conclusion drawn by the Ld.CIT(A) for AY 2009-10. 15. The factual findings of the Ld. DRP that I.T. services were utilized by the assessee for its own business purpose and any independent enterprise would have to ask and pay for such services is not disputed. We agree with the view of the Ld.CIT(A) that there services are not stewardship services. The arguments and facts have been analysed in details. We do not find any infirmity on the same. Services were rendered and the assessee received benefits. Hence, we hold that the order of Ld.CIT(A) for AY 2009-10 & 2010-11 and Ld. DRP of AY 2011-12 are upheld. 16. Coming to the submissions of the Ld.DR that the issue should be remanded back to the file of the TPO for fresh adjudication, we find that the payment in question was admit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nternational transactions under review at 'NIL' value, based on his main allegation that the benefits claimed to have been received by the assessee from Nalco Pacific under the agreement would not be ones for which an independent enterprise would be willing to pay. In this connection Ld. Counsel referred to the decision of the Hon'ble Delhi High Court in the case of CIT v. EKL Appliances [2012] 24 taxmann.com 199 (Delhi), wherein the Hon'ble High Court has examined the issue as to whether the TPO has power to restrict the value of an international transaction to nil when he was supposed to have determined the arm's length price of the international transaction. The Hon'ble High Court after examining the facts of the case held as under: "19...... In CIT v. Walchand& Co. etc. [1967] 65 ITR 381, it was held by the Supreme Court that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of business, reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue. 22. Even Rule 10B(1)(a) does not authorize disal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Revenue the expenditure was un remunerative. The Hon'ble High Court has further held that the quantum of expenditure can be examined by the TPO as per law and so long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. But in the present case before us, the TPO judged the reasonableness of the aforesaid intra-group service charge and computed the arm's length price of the international transactions under review at 'NIL' value based on his main allegation that the benefits claimed to have been received by the assessee from Nalco Pacific under the aforesaid agreement would not be ones for which an independent enterprise would be willing to pay. The CIT (A) also confirmed his order. 21. Attention was further invited to the decision of Hon'ble Delhi Tribunal of McCann Erickson India (P.) Ltd vs. Addl. CIT [2012] 24 taxmann.com 21 (Delhi), wherein the Tribunal, following the aforesaid decision of the Hon'ble Delhi High Court, has interalia held that: "9. We have heard both sides and have also gone throu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Co-ordinate bench decision of Mumbai Tribunal in the matter of Dy. CIT v. Diebold Software Services (P.) Ltd. [2014] 48 taxmann.com 26/151 ITD 463 was referred, wherein the principle laid down by Tribunal along with brief facts are as under: * The assessee received information technology (in short, 'I.T.') services from its associated enterprise and paid service charge to the latter. The assessee clubbed the aforesaid international transaction together with other international transactions, applied the TNMM as the most appropriate method and selected a set of external comparables. As per this analysis, the international transactions covered under the TNMM, were at arm's length. The aforesaid analysis by assessee was not disputed by the TPO. * The assessee was called upon by TPO to provide the basis of pricing of these transactions. The assessee was also required by the TPO to provide necessary details along with allocation keys and basis of calculation of payment made for I.T. support services. According to TPO, the assessee, however, failed to comply with these requirements and the ALP of the relevant transactions therefore was determined by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e details filed by assessee and based on such examination, he held in his order that the pacing of the aforesaid agreements was justified by assessed on the basis of the TNMM. We find that the TPO did not make any adverse comments in his order upon the arm's length analysis carried out by assessee under the TNMM as per section 92C of the Act read with rule IOB of the Rules. Accordingly, we feel that TPO made proper enquiry and applied his mind to the details brought on record by assessed. He had agreed with the assessed that the international transactions covered by the TNMM analysis (including the intra-group service change paid/payable to Nalco Pacific) adhered to the arm's length principle Transfer Pricing Regulation. 24. Further, it is also a fact that the aforesaid intra-group service charge was allowed as deduction by TPO for the assessment years 2005-06, 2006-07, 2007-08 and 2008-09. In this connection, Ld. Counsel referred to the decision of the Hon'ble Calcutta High Court in the case of CIT vs Britannia Industries Ltd. [2002] 257 ITR 225/[2003] 132 taxman 16, wherein Hon'ble Calcutta High Court has held that the Department cannot take a. c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, Nalco Pacific operated as the regional headquarters company in relation to Nalco Asia Pacific group of companies including assessed. It functioned as a group service centre and recruited regional employees, though located in Singapore, exclusively for the purpose of rendering services to Namco Asia Pacific group of companies including assessed. Nalco Pacific incurred expenses for the payment of salaries & other benefits to the regional employees. We find that the services rendered by Nalco Pacific to assessee under the agreement were similar to the services mentioned in paragraph no.7.14 of the OECD Guidelines. In view of this, we appreciate that the services rendered by Nalco Pacific to assessee were intragroup services for which independent enterprises would have been willing to pay for or to perform in-house for themselves and hence, the value of the aforesaid services in comparable uncontrolled transactions could not be 'nil'. The paragraph no. 7. 12 of the OECD Guidelines provides that there are some cases where an intra-group service perforated by a group member such as a shareholder or coordinating centre relates only to some group members but incidentall....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the TPO at "nil' without applying any of the prescribed methods and the entire payment made by the assessed for availing the IT support services from its AE was added as TP adjustment. In the case of Merck Ltd. V. Dy. CIT [2014] 148 ITD 513/[2013] 37 taxmann.com 433 (Mum. Trib.) cited by the Id. Counsel for the assessee, similar facts were involved inasmuch as the assessed had applied TNMM to show that the margin earned by it from the relevant transactions with its AE was higher than the comparable companies. The TPO, however, did not accept the TP analysis made by the assessed without giving any reasons and made TP adjustment without applying any prescribed methods. The TPO also did not make any Charts to determine the market value of services received by the assessee from its AE in order to show that the assessee had paid more to its AE as compared to any independent party for the same services. In these facts and circumstances, the coordinate bench of this Tribunal held that the addition made by way of TP adjustment was not sustainable as it was not permissible under Transfer Pricing Regulation to make TP adjustment on account of any international transaction with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ictory. If no services were rendered, which services the authorities below hold that the assessee could have performed on its own. There is also evidence for visits by the representatives of the group entity, i.e SEl-F, for rendition of these services The cost allocation agreement and detailed documentation support for the services availed under the cost contribution arrangement were placed before us at pages 106 to 258, and. upon perusal of the same, we have no doubts about the actual rendition of services and bona6tdes of arrangement. As for the TPO's observation that ""if the services are in the nature of stewardship activities or shareholder activities, the same need not be charged by the AEs of the assessee", OECD Transfer Pricing Guidelines indeed state that "Stewardship activities covered a range of activities by a shareholder that may include provision for services to other group members, for example services that would be provided by a coordinating centre", that "These latter type of non-shareholder activities could include detailed planning services for particular operations, management or technical advice (trouble shooting) or in some cases assistance in day to day m....