TaxTMI 
TaxTMI 
2016 (8) TMI 1412
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....ntly the Ld. DRP and Ld. AO have erred in not following the Hon'ble Delhi ITAT's ruling of the previous years in the assessee's own case on the sole ground that the tax department is in appeal before the Hon'ble Delhi High Court. GROUNDS OF APPEAL AGAINST TRANSFER PRICING ADJUSTMENTS Liaison office 4.0 The Ld. TPO has erred in law in applying the transfer pricing regulations on the LO of the assessee. 5.0 That the Ld. TPO and consequently DRP/AO erred in law in holding that LO is providing services to its Head Office and is required to receive a markup on total cost of 16.21% based on certain comparables found by the TPO. 6.0 Without prejudice to ground 5 above, the Ld. AO has grossly erred in law in applying a markup of 27.08% instead of 16.21% as proposed by the Ld. TPO in its order. 7.0 The TPO and consequently, the AO and DRP have grossly erred in law and in the facts of the assessee's case in not appreciating the Functions, Assets and Risks (FAR) of the LO of the assessee which are not equivalent to a commercial establishment providing services as alleged by Ld. TPO. 8.0 The TPO and consequently, the AO and DRP have grossly erred in law and in t....
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....e Gain 3,601,893/- vi. Interest on income tax refund 10,554,212/- vii. Income from insurance deductibles 13,724,655/- viii. Miscellaneous 159,171/- 3,23,11,917/- 16.0 Without prejudice to the ground 15 above a) Interest on foreign bank of Rs. 32,50,114/- is interest on deposits in UK bank accounts and is not liable to be taxed in India. b) Interest on Indian bank accounts of Rs. 6,76,476/- has already been considered as Other Income as per computation of income and taxed accordingly. c) Profit on sale of fixed assets Rs. 1,22,643/- has already been considered under head capital gain in computation of income and cannot be held to be Other Income & taxed on gross basis. Grounds for EPC Godavari Project 17.0 That the Ld. AO/DRP has grossly erred in law in proposing tax on a gross basis on the other income of the assessee from its EPC Godavari project of Rs. 44,59,4667- from which Rs. 1,72,320/- has already been shown as income from other sources in computation of income. 18.0 That the Ld. AO7DRP has grossly erred in law in proposing tax on gross basis on the Interest Income on the foreign bank deposits of Rs. 42,87,146/- (included ....
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....t of the matter so these deserve to be admitted in view of the ratio laid down by the Hon'ble Supreme Court in the case of National Thermal Power Company Ltd. Vs CIT (1998) 229 ITR 383 (supra) wherein it has been held as under: "The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assessee correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commission of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be prevented from considerin....
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....f the assessee vide order dated 04.05.2012 of the ITAT Delhi Bench "F", New Delhi in ITA Nos. 1410 to 1413/Del/2007, 1682 & 1683/Del/2008 and 1297/Del/2008 for the assessment years 1998-99 to 2004-05 respectively in assessee's own case. 11. In his rival submissions the ld. DR supported the order of the AO. 12. We have considered the submissions of both the parties and perused the material available on the record. It is noticed that the issue under consideration has been decided in favour of the assessee vide paras 53 & 54 of the order dated 04.05.2012 in ITA Nos. 1410 to 1413/Del/2007 for the assessment years 1998-99 to 2001-02 respectively, ITA Nos. 1682 & 1683/De/2008 for the assessment years 2002-03 & 2003-04 respectively and ITA No. 1297/Del/2008 for the assessment year 2004-05 and relevant findings given therein read as under: "53. In addition to our holding that the assessee is liable to tax on net basis, under Art. 26 of the Indo- UK Treaty, the assessee which is a non-resident company and is undertaking the Works Contract is being discriminated against and subjected to tax on gross basis @ 30% by artificially invoking section 44D read with section 115A of the Income Tax ....
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....rom the contract that there was no personnel envisaged to be present in the facility during its operation by the assessee. There was no close coordination of the personnel of the assessee and Spectrum as was the case before the Supreme Court in Continental Construction and Oberoi Hotels. The basic element of passing of technical knowledge, skill to the client is wholly absent in this case. The Ericsson's case proceeded on completely different line wherein in that case 214 ITR page 211 para 2, the case proceeded on the basis that Ericsson was rendering consultancy and technical services to Indian companies in the field of its specialty and receiving remuneration therefor. There was no dispute in that case before AAR that it was fees for technical services. The dispute was as it was fees for technical services, would it under the Swedish Treaty be taxed on gross basis or net basis. The Swedish Treaty did not contain any provision available for FTS of making available the technical skills to the client. We, therefore, do not see Ericsson's case to have any bearing on the case at hand. Similarly, in the Tri-star's case, the question was completely different where technical services wer....
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....ompany would lead to discrimination. This would also amount to unfavourable treatment being meted out to a U.K. company vis-à-vis the Indian company doing identical business in India. Accordingly the assessee is entitled to protection of Art. 26 of the Indo-UK Treaty and should not have been subjected to tax on gross basis, but on net basis. The net profit was to be determined in accordance with the Indian Income Tax Act provisions for determining profits and gains of business from sections 28 to 43 -B of the Income Tax Act i.e. limits laid down in the domestic law of allowance of expenditure u/s. 30,31,32,36,37,40,43B etc would have to be taken in to account. In our view this is the purport of Article 7.5 read with Article 26 of the DTAA between India and UK." So, respectfully following the aforesaid referred to order, this issue is decided in favour of the assessee. 13. Vide Ground No. 6, the grievance of the assessee relates to the application of mark-up of 27.08% instead of 16.21% proposed by the TPO. 14. The facts related to this issue in brief are that the matter relating to the determination of Arm's Length Price of the services rendered by the Liaison Offices was....
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.... 28 of the said order and read as under: "62. Apropos Ground No. 3(d), it has been observed by the Tribunal that income of Godavari (O&M) Project is to be assessed on a net basis and therefore, such incomes get netted from expenses and are, therefore, allowed in the relevant year. The findings of the Tribunal are as under:- "In the instant case, the assessee has undertaken a work contract for operation and maintenance of power plant for its owner M/s Spectrum vide contract dated 14.3.1995. For undertaking the work contract, the assessee got a price for producing power by operating and maintaining the power plant. It has not rendered any technical services to M/s Spectrum so as to come within the meaning of FTS. The income so received for executing the work contract did not fall within the definition of FTS u/s 9(1)(vii) Explanation 2 of the IT Act nor as defined in Article 13(4) of DTAA between India and UK. The assessee had also not "make available" any knowledge, skill etc. to M/s Spectrum within the meaning assigned to it under Article 13(4)(c) of the DTAA to FTS under the treaty. Accordingly, assessee cannot be taxed on gross basis and Section 44AD has no application to the....
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....he power plant. It has not rendered any technical services to M/s Spectrum so as to come within the meaning of FTS. The income so received for executing the work contract did not fall within the definition of FTS u/s 9(1)(vii) Explanation 2 of the IT Act nor as defined in Article 13(4) of DTAA between India and UK. The assessee had also not "make available" any knowledge, skill etc. to M/s Spectrum within the meaning assigned to it under Article 13(4)(c) of the DTAA to FTS under the treaty. Accordingly, assessee cannot be taxed on gross basis and Section 44AD has no application to the facts of the instant case. Furthermore, Article 13(4)(c) read with Article 26 of DTAA does not permit the revenue authorities to discriminate against the assessee, a UK registered company and accord it less favourable treatment than a domestic company and therefore, section 44AD cannot be invoked in assessee's case. Thus, looking from any angle, the income received by the assessee from M/s Spectrum was not a fee for technical services, we therefore direct the AO to compute assessee's income and profit and gains of business from operation and maintenance of power plant of net profit and loss basis. We ....
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.... these incomes were not related to execution of any projects as relevant projects are stated to have been completed and Art. 12(2) of DTAA gives taxing rights to the source state in respect of income that arises in that state and profits on such interest may be taxed on gross basis at a rate not exceeding 15%. The stand of the assessee is that the interest has mainly arisen in respect of bank balances in U.K., viz., in Nat West Bank and Chase Manhattan Bank. Therefore, applying the source Rule as opined by the CIT(A) under Art. 12(2), the interest received by the assessee in U.K. on bank accounts maintained in U.K. cannot be taxed in India. We find force in the submissions of the assessee as on the point of law there is no dispute between the assessee and the Revenue. The assessee has only current account in India and all the interest amount has arisen out of bank accounts in U.K. and, therefore, the same should not have been subjected to tax in India at all. We allow this ground of appeal. The AO is directed to exclude interest earned outside India under Article 12(2) of the DTAA and tax interest earned in India as normal income. AO is at liberty to examine such interest income wh....
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.... balances in U.K. viz., in Nat West Bank and Chase Manhattan Bank. Therefore, applying the source rule as opined by the CIT(A) under Art. 12(2), the interest received by the assessee in U.K. on bank accounts maintained in U.K. cannot be taxed in India. We find force in the submissions of the assessee as on the point of law there is no dispute between the assessee and the Revenue. The assessee has only current account in India and all the interest amount has arisen out of Bank accounts in U.K. and, therefore, the same should not have been subjected to tax in India at all. We allow this ground of appeal. The AO is directed to exclude interest earned outside India under Article 12(2) of the DTAA and tax interest earned in India as normal income. AO is at liberty to examine such interest income whether taxable as income from other sources or as business income. We direct accordingly." 28. In view of the above these issues are decided in faour of the assessee. 29. It is also noticed that the issue agitated by the assessee vide Ground No. 16(c) is covered vide paras 46 & 47 of the aforesaid referred to order dated 04.05.2012 for the assessment years 2007-08 and 2008-09. The relevant f....
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....balance other income requires to be taxed on net basis. 49. With regard to Ground No. 1(e), the Tribunal has held that income of Godavari (O&M) Project is to be assessed on a net basis and that therefore, such incomes get netted from the expenses, due to which, they are allowed in the relevant year. 50. The Tribunal's findings in this regard are as follows:- "In the instant case, the assessee has undertaken a work contract for operation and maintenance of power plant for its owner M/s Spectrum vide contract dated 14.3.1995. For undertaking the work contract, the assessee got a price for producing power by operating and maintaining the power plant. It has not rendered any technical services to M/s Spectrum so as to come within the meaning of FTS. The income so received for executing the work contract did not fall within the definition of FTS u/s 9(1)(vii) Explanation 2 of the IT Act nor as defined in Article 13(4) of DTAA between India and UK. The assessee had also not "make available" any knowledge, skill etc. to M/s Spectrum within the meaning assigned to it under Article 13(4)(c) of the DTAA to FTS under the treaty. Accordingly, assessee cannot be taxed on gross basis and ....
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....resaid directions given in the said order dated 04.05.2012. 33. Other issue agitated by the assessee vide Ground No. 15(vi) relates to the taxing the interest on Income Tax Refund @ 40% of gross basis. 34. The facts related to this issue in brief are that the assessee earned an income of Rs. 3,23,11,917/- which also included interest on Income Tax Refund. The AO was of the view that no expenses as claimed by the assessee in its profit and loss account for O&M Project office can be attributed to the above income. Hence, the entire amount of Rs. 3,23,11,917/- was income of the assessee. The aforesaid view taken by the AO was affirmed by the DRP. 35. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the interest income was chargeable under Article 12(2) of the DTAA as same income not related to execution of any project conducted during the year. Therefore, profit on such interest may be taxed on gross basis at the rate not exceeding 15% as per DTAA between India and UK. It was further submitted that the interest on Income Tax Refund may be taxed as business income on a net basis, since PE existed in the current year. However, in the future years where n....