TaxTMI 
TaxTMI 
TaxTMI 
2021 (10) TMI 92
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....nsactions. The TPO accepted all the transactions at ALP. During the course of draft assessment proceedings, the AO observed that total receipts of the assessee from Indian operations amounted to Rs. 30,40,10,666/-, against which it had shown only receipts of Rs. 6.29 crore as income. The assessee was show caused as to why the remaining revenue amounting to Rs. 24,10,95,476/- be not charged to tax. In the absence of any detail or explanation forthcoming from the side of the assessee, the AO held the remaining amount of Rs. 24.10 crore as receipts in the nature of Royalty/Fees for Technical Services (FTS) within the meaning of section 9(1)(vi)/9(1)(vii) and added it to the total income. The assessee approached the Dispute Resolution Panel (DRP) which allowed relief in respect of some of the items of revenue. For the remaining items of the revenue, the assessee has come up in appeal before the Tribunal. 3. We have heard the rival submissions and gone through the relevant material on record. The four items of revenue included by the AO in the total income which have been assailed in the extant appeal are as under: i. Capital goods sales - Rs. 96,58,128/- ii. Reimbursement of trave....
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....ame of Vendor Doc No. PO number Amount of invoice (USD) Paper book reference number 4-Nov-14 PTC Inc 55037910 384945 368,886 ITAT-1929 and ITAT 1939 to ITAT-1940 4-Nov-14 PTC Inc 55037910 384945 18,813 12-Nov-14 Product Space Solutions Inc. 55037934 384987 11,750 ITAT-1931 13-Nov-14 CDW Computer Centers Inc. 55037936 384995 1,186 ITAT-1936 13-Nov-14 CDW Computer Centers Inc. 55037936 384995 784 13-Nov-14 CDW Computer Centers Inc. 55037936 384995 795 13-Nov-14 CDW Computer Centers Inc. 55037936 384995 144 12-Sep-14 Product Space Solutions Inc., 55038026 385037 11,750 ITAT-1932 2-March-15 Product Space Solutions Inc., 55038354 385110 11,750 ITAT-1933 20-Mar-15 Product Space Solutions Inc., 55038306 385143 11,750 ITAT-1934 30-Apr-14 Trainer expense 18003822 NA 313 ITAT-1945 15-Jan-15 Trainer expense 25018692 NA 5,177 ITAT-1945 Total 443,098 Entity name Allocation Key No. of employees Allocation Total (USD) HUS 32 172,916.16 172,916.16 ITAT-1921 Auto WK 10 54,....
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....rs Inc. Pattern of invoices from the three companies indicates that a specific number of licenses of each software product were purchased by the assessee without acquiring any copyright therein and it was allowed user of such licenses by its group entities including India for which it got reimbursement of cost. Thus it is obvious that the licensors permitted the assessee only to install, operate and use their software products to the extent of copies purchased by it. 7. The primary contention of the assessee has been that the receipt is in the nature of reimbursement and hence not taxable. In principle, chargeability is attracted on the income element embedded in a revenue receipt. A receipt de hors profit element, which is only Reimbursement, is not taxable. However, we need to examine from the facts if it is really a case of Reimbursement. The assessee made factual submission before the DRP, as has been reproduced on page 23 of its Direction, to the effect that: 'Husco USA centrally negotiates and procures standardized software from third party vendors, without any customization or modification, for the use of self and for use by Husco group entities globally and distributes....
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....rred total costs at 4,43,098 USDs for which vendors invoices have been placed on record. Such amount has been cross charged to five entities including self and the Indian entity. The charge to the Indian entity is 1,35,090.56 USDs (about 30% of total cost) on the basis of proportion of number of its employees to the total employees of five entities taken together. It is not a case of identical recovery of the exact cost of the designated number of software purchased and transferred to the Indian entity. The very fact that the Indian entity has been charged on the basis of number of employees, divorced from the actual number of software products transferred to it, amply proves that there is no one-to-one correlation between the out-go and in-come of the assessee on this score, thereby jeopardising the concept of Reimbursement. If the Indian entity is charged higher or lower than what is actually due from it with the corresponding downward or upward adjustment in the share of allocation to the entities situated in other foreign destinations, the dented share of revenue from the Indian entity will affect the Indian income tax due from the non-resident assessee notwithstanding the fact....
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....ntities. It hardly needs to be accentuated that no one can transfer a better right in a product than he himself has. Since the assessee itself obtained only a limited access to the software products de hors the right to copy the same, the sequitur is that it could not have transferred anything more than that to its entities globally including India. Ergo, there can be no question of treating the amount received from the Indian entity on transfer of copyrighted articles as Royalty in the hands of the assessee within the meaning of Article 12(3) of the DTAA. Respectfully following the ratio decidendi in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (supra), we hold that the authorities below were not justified in including the amount in question in the total income of the assessee as Royalty by relying on the judgment in the case of Samsung (Karn)(supra), which is no more a good law after the advent of the Engineering Analysis (SC)(supra). Resultantly, the receipt is held to be not taxable notwithstanding the rejection of the contention of Reimbursement. 11. The next moot question is that if the receipt from the Indian entity is not Royalty, can it be charged to ta....
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....iately next page of the paper book contains break-up of such charges. Seven employees of the Indian entity availed this benefit whose names along with the amount charged by M/s. Crystal Migration Services Corporation have been given on the next page totaling 1920 USDs. It is this amount that has been charged to the Indian entity. The next invoice is of GO Riteway Transportation group with total 5,655.85 USDs. A copy of such invoice has been placed at page 1960 of the paper book. Details on the invoice indicate three employees of the Indian entity and the charge is towards their transportation. The amount pertaining to only these three employees has been recovered as such from the Indian entity. Again, there is another invoice of GO Riteway Transportation at page 1963 of the paper book with value of 8,898.04 USDs. Employees of the Indian entity have been named at two places in such an invoice. The exact amount as charged by GO Riteway Transportation group from the assessee has been recovered from the Indian entity. This invoice is also for transportation. Similar is the position regarding other invoices which are in relation to Lodging and Boarding of Indian employees recovered from....
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....of management charges; Installation of capital goods; Insurance charges; Engineering charges; Software charges; and Interest income of Rs. 27,64,952/-. The interest income was separately offered for taxation. We are concerned only about the rate at which the remaining income of Rs. 6,01,50,239/- should be charged to tax. The assessee offered such income under Article 12 of the DTAA @15%. Schedule OS of the Income-tax return with the caption 'Income from other sources', fairly indicates that the assessee offered such income of Rs. 6.01 crore as "Income from Royalty and Technical services". The AO taxed such income at the offered tax rate of 15% in the draft order. The assessee contended before the DRP that the income of Rs. 6.01 crore was wrongly offered for taxation at 15% as per the provisions of the DTAA and the same should be charged to tax at lower rate of 10% plus surcharge and cess as per section 115A of the Act. The DRP, relying on the judgment of Hon'ble Supreme Court in Goetz (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC), held that the claim of the assessee was not maintainable because it had not filed a revised return with the correct rate of tax. That is how, ....