TaxTMI 
TaxTMI 
2020 (12) TMI 253
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....ining fact of the case relating to the grounds of appeal filed against the decision of ld. CIT(A) are discussed as follows:- Ground No. 1(Deleting addition of Rs. 4,73,06,676/- on account of transfer pricing adjustment) 3. The assessee company is engaged in the business of trading in natural gas. During the course of assessment, the Assessing Officer noticed that assessee company has entered into international transactions with its associate enterprise as per the details given below:- Sl. No. Name & address of the associate enterprise Description of transaction Amount (Rs.) 1 British gas energy Holding Ltd Payment for corporate guarantee commission 38,70,000 2 British gas energy Holding Ltd Payment for corporate guarantee commission 63,10,000 The assessee has filed a transfer pricing study report of the Authorized Representatives along with supporting documents and details. The Assessing Officer has not agreed with the submission of the assessee regarding conclusion drawn in respect of arms length transaction. The associated enterprise B.G. Energy Holding Ltd. had negotiated the transaction with Cairn Energy Group for purchase of natural....
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....ional transaction. In respect of commission payment, the assessee has submitted that benchmarking should be taken for the transaction for entire year as the agreement was made on a long term basis. The Assessing Officer has not agreed with the submission. He was of the view that associated enterprise BGEH was engaged in negotiating the purchase price of the gas from Cairn Energy and the purchase price of the gas was negotiated by the BGEH with the gas seller therefore the transaction was covered in the second limb of the definition of deemed international transaction. The Assessing Officer has also rejected the contention of the assessee to aggregate all the transactions and evaluate them on annual basis as a comparable price for benchmarking and Assessing Officer was of the view that transactions should be compared individually and not on aggregate basis. Accordingly, the Assessing Officer has determined the adjustment as under:- S. No. Date US Natural gas well headspot price (USD) Price in International transaction Difference Quantity Adjustment in USD 1 April 2009 3.180 3.9414 0.7614 238366.5 181492.3 2 May 2009 3.230 3.9414 ....
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....ice and made an adjustment of Rs. 4.73 crores to the income of the appellant on account of arm's-length adjustment of the international transactions. The appellant on the other hand has submitted that one of the BG Group's company, BG Energy Holdings Limited - BGEH, a company incorporated in the United Kingdom, used its skills and time for negotiating with Cairn Group for supporting purchase of gas from Lakshmi field located in India. Another BG Group Company, BG India Private Limited - BGIPL, a company incorporated in India, entered into an agreement for purchase of gas from Cairn. However, Gujarat Gas Company Limited - GGCL was desirous of entering into a contract for purchase of gas on a long term basis for its expansion plans and accordingly BGIPL nominated GGCL to enter into a long term gas supply agreement with Cairn. Subsequently, the said contract was assigned by GGCL to Gujarat gas Trading Company Limited - GTCL i.e., to the appellant. Since the appellant is the beneficiary of the long-term agreement for purchase of gas the payment of commission for negotiating purchase, corporate guarantee payment of commission was made by the appellant company. It has be....
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.... Therefore, I am of the considered opinion that the provisions of section 92B(2) are not applicable. The AO was accordingly not justified to treat the transaction of purchase of gas from Cairn group as international transaction. Without prejudice to the above observations if the process of comparison adopted by the AO in making the adjustment to the purchase price, is examined it is noted that he has compared the prices of the gas at the wellhead in United States. It is a known fact that the transportation of gas is a costly affair and substantial amount is to be spent by purchasing the gas and transporting it to the required destination. The prices which have been paid by the appellant is the delivery price in India. The gas which is being bought is produced in India. It has also to be noted that the gas at the same rate is also being bought by the appellant from other parties, who are not part of the contract, from the same gas field at the same price. This itself is sufficient and logical comparable instance. Further, it has also observed that the price paid by the appellant in subsequent contract was higher than the prices which have been taken for international....
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....nd there is no role of the associated enterprise to negotiate the price of the gas purchased by the assessee and the Assessing Officer has wrongly made the addition. 6. Heard both the sides and perused the material on record. The Assessing Officer noticed that assessee has entered into the following international transactions with its associated enterprises. Sl. No. Name & address of the associate enterprise Description of transaction Amount (Rs.) 1 British gas energy Holding Ltd Payment for corporate guarantee commission 38,70,000 2 British gas energy Holding Ltd Payment for corporate guarantee commission 63,10,000 The assessee has furnished the information in respect of the aforesaid international transaction as per the provision of section 92E of the Act. The assessee has stated that all the above international transaction was at arms length price. The BGEH is the associated company of the assessee incorporated in the United Kingdom and it has negotiated with the Cairn Group for purchasing of gas from Laxmi field which was located in India. Another company BGIPL incorporated in India had entered into an agreement for purchase of gas f....
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....1,80,000/- The Assessing Officer was of the view that the payment made as commission was nothing but the technical services rendered in India and provision of section 9(1)(vii) of the act were attracted in the case of the assessee. The Assessing Officer has reproduced the provision of the stated section 9(1)(vii) as under:- "For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provisions of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient of consideration which would be income of the recipient chargeable under the head "salaries". The Assessing Officer held that as per the provision of section 9(1)(vii) as above, the assessee has failed to deduct tax on the payment of Rs. 1,01,80,000/- being the fees for technical services, therefore, the same was added to the total income of the assessee u/s. 195 of the Act. 8. The assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has deleted the disa....
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....to appreciate that the payment to BGEH for rendering services for purchase of gas from Cairn does not constitute income in the hands of BGEH as it is not in the nature of fees for technical services within the meaning and scope of Section 9(1)(vii) of the Income The AO held that the appellant was liable to deduct tax on this payment being fees for technical services as per section 9(1 )(vii) read with section 195 of the Act. The appellant has submitted that the commission was paid to a non-resident company. The services rendered by BGEH were not in the nature of fee for technical services within the meaning and scope of section 9 and therefore, no withholding tax obligation was there on the appellant under section 195 of the Act. The company had no permanent establishment in India and the payment made to it towards commission was not liable to tax in India. It is also been submitted by the appellant that the payment is also covered by the DTAA between India and UK under Article 7. On a careful consideration of the entire facts it is noted that the similar additions/disallowances have been made in earlier assessment years also in respect of the same issue. The disa....
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.... income of the recipient chargeable under the head 'salaries'. Now it would also be useful to examine the meaning of word "commission'. The term commission has not been defined in the income tax act in section 2 of the Income Tax Act. However, Explanation below Section 194H of the Income Tax Act has defined commission as under: "Commission or brokerage includes any payment received or receivable, or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities." Similarly, Clause 2 of the explanation defines the expression professional services as under: "Professional services means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purpose of Sub Section 44AA" The above definitions show that the commission means the paym....
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....ion'. Accordingly the payment is beyond the scope and meaning of section 9( 1} (vii) and explanation 2 thereof. Further by following the similar logic it can also be held that the payment guarantee commission is also in the nature of 'commission' and not in the nature of technical services and is beyond the scope and meaning of section 9(l)(vii) and explanation 2 thereof. After having held that the payment was in the nature of commission and not a technical services it is now left to be decided whether the commission is taxable in India and accordingly the appellant should have deducted tax while making the payment. As per provision of section 195 of I.J Act, it is obligatory for every person to deduct the tax when a payment is made to non-resident if the income is chargeable under provision of l.T Act. The contention of the appellant is that the Income is neither liable to tax in India under provision of I.T Act nor under the DTAA between India and UK. As per the provision of Section 5(2) of IT Act, in the case of nonresident, scope of total income includes all income from whatever source which are received or deemed to be received in India or which a....
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....ntatives, we have gone through the decision of the Co-ordinate Bench in the case of the assessee itself for assessment year 2007-08 as referred on the similar issue and identical fact and relevant part of the decision is reproduced as under:- "12. In the present case, the commission payments have been made to an entity tax resident in United Kingdom. The benefit of Indo UK Double Taxation Avoidance Agreement [(1994) 206 ITR (St) 235] is thus clearly admissible to the recipient. Coming to the treaty provisions, it is not even the case of the Assessing Officer that the UK based entity had a permanent establishment in India, and the commission paid to this entity, therefore, cannot be taxed as business profits. It is only elementary that, in the absence of a PE, Article 7 of the applicable DTAA does not allow taxation of business profits in the source country. As for the taxability under the fees for technical services clause, it is important to bear in mind the fact that the Indo UK DTAA has a 'make available' clause in its article dealing with fees for technical services. As for the connotations of make available clause in the treaty, there are at least two non-juri....
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.... is satisfied.' 13. The rendition of services for earning commission cannot be of such a nature that there is a transfer of technology, in the sense it is required to fulfil the 'make available' clause in the Indo UK DTAA. It is also elementary that in a case in which the provisions of the DTAA are applicable, the provisions of the Income Tax Act apply only to the extent the same are beneficial to the assessee. In view of these discussions, quite clearly, even if the commission income in the hands of the recipient is taxable under the provisions of Section 9, the provisions of the Indo UK DTAA will come to the rescue of the assessee. Whichever way one looks at it, whether in the light of the provisions of the Act or the Indo UK DTAA, the conclusions of the CIT(A) do not call for any interference." Considering the decision of the Co-ordinate Bench on the similar issue and identical facts in the case of the assessee itself as supra, we do not find any error in the decision of ld. CIT(A), therefore, the appeal of the revenue on this issue is dismissed. 11. In the result, both the grounds of appeal of the revenue are dismissed. ITA No. 3069/Ahd/2014 for as....
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....s worked out by it by allocating the expenses in proportion to the ratio of exempt income and total revenue. However, the basis followed by the appellant is not scientific, as claimed by it. The basis of allocating the expenses in proportion to the income cannot be considered a scientific or systematic. The expenses can never be allocated in this manner. The appellant has not maintained any record to show that the expenditure incurred and estimated by it for earning the exempt income. As indicated in the preceding discussion that the appellant has not made the disallowance of expenditure for the purpose of section!4A on an actual basis but has made the disallowance on an estimate which is not supported by any documentary evidence or actual data to show that the disallowance made was correct. Therefore, in these circumstances also having regard to the accounts of the appellant, I am not satisfied with the correctness of the claim of the appellant in respect of the administrative expenditure in relation to income which does not form part of the total income under this Act that is the dividend income and income from Mutual Funds shown by the appellant. There....