AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (12) TMI 200
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....ppropriate manner. With the consent of the parties, we take up these revised grounds of appeal. 5. In the first ground of appeal, the assessee has raised the following grievance: On the facts and in the circumstances of the case and in law, the Learned AO / TPO has erred in and learned DRP has further erred in confirming an upward TP adjustment amounting to INR 10,45,32,855 on account of corporate guarantee by considering the charge of 2.52 percent for the guarantee provided by the Appellant to the banks for the loans availed by Associated Enterprises ('AE'). 6. Briefly stated, the relevant material facts are as follows. The assessee before us is a leading name in pharmaceutical, diagnostics and allied businesses in India, and it has its presence, through a number of associated enterprises, in several countries around the world. During the course of the proceedings before the Transfer Pricing Officer, it was noticed that the assessee has extended corporate guarantees, on behalf of its AEs abroad, and charged a guarantee fees of 1%. These corporate guarantees included guarantees extended to BNP, in respect of Zydus Healthcare Brazil Ltd (Guarantee amount: US $ 3 million;....
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....ees. While TPO agreed that there could be circumstances in which the value of corporate guarantee will be NIL, but that will only be the situation in which no funds are actually raised against such guarantees. That is not the case here, and, therefore, guarantee is to be suitably benchmarked. As regards the shareholder activity service being rendered to the AEs, the TPO rejected the same on the ground that the Zydus Netherlands is the holding company and not the assessee company. He noted that Zydus Netherlands has earned EUR 1.5 million in profits, and not the assessee company, on account of these acquisitions abroad. Learned TPO also noted that the order of the DRP is in appeal and has not thus attained finality. Using the three External CUPs, namely (i) SBI guarantee commission rates at 2.75%, (ii) Bank of India guarantee commission rates at 2.16%, and (iii) difference between coupon rates of A rated bonds and BB rated bonds at 2.66%, the TPO proceeded to take an average of these external comparable rates, which worked out to 2.52%, the TPO proceeded to make an ALP adjustment as follow: Sr. No Name of the AE to whom guarantee provided Bank Amount Guarantee Date on which ....
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....en decided in favour of the assessee for preceding years but confirmed the action of the Assessing Officer to keep the issue alive. It was also noted that the stand of the DRP has been challenged before the Income Tax Appellate Tribunal and thus the matter is yet to reach finality. While rejecting the cross objections raised by the assessee, the Dispute Resolution Panel observed as follows: 14.2.1 However, we find that the Department has not accepted the decision of the DRP for AY 2010- 11. The Department has raised the following issue before the Hon'ble 1TAT, Ahmedabad. 14.2.2 We may observe here that the DRP is a continuation of assessment proceeding as it is only the draft assessment order which is being challenged before it. The final assessment order is yet to be passed by the assessing officer. Hence, the DRP is not an appellate authority and the proceeding before the DRP is continuation or assessment proceedings. This view is fortified by the decision of the division bench of the Hon'ble High Court of Bombay in the Writ Petition No. 1877 of 2013 in the case of Vodafone India Services Pvt. Ltd. vs. Additional Commissioner of Income Tax & Ors. (2014) 264 CTR 0030 (....
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.... the stand that 1% is a reasonable guarantee commission, there is no reason for us to deviate from the said stand as parties to the guarantees are broadly the same and most of these guarantees are continuing guarantees. We, therefore, see no reasons to disturb the accepted past history of the case and disturb the corporate guarantee commission rate adopted by the assessee. As regards the TPO's observation that the concept of shareholder activity will apply only in respect of Zydus Netherlands as it was the holding company, and not the assessee company, all we can say is that admittedly the assessee company is the parent company for this holding company as well and the end beneficiary, therefore, is the assessee company. The observation made by the Assessing Officer is thus incorrect. In any case, the methodology adopted by the TPO for computation of arm's length price of these guarantees is wholly erroneous. The TPO has proceeded on the basis that the guarantee commission charges by the State Bank of India and Bank of India are static rates which hold good in all circumstances, but then, in reality, the guarantee commission rates vary on a large number of factors and vary from clie....
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....ional interest rate 6m Euro LIBOR+400 bps), EUR 5.5 million (12th December 2009; conditional interest rate 6m Euro LIBOR+400 bps), US $ 3 million (2nd February 2010; conditional interest rate USD LIBOR + 550 bps), US $ 5 million (26th August 2010; conditional interest rate 6m Euro LIBOR + 400 bps) and US $ 3 million (7th February 2011; conditional interest rate 6m Euro LIBOR+275 bps). All these loans were for five year tenures, all these loans were optionally convertible into equity capital at par anytime during the loan tenure, and all these loans were to enable the Irish subsidiary to make investments in step down subsidiaries out of funds so provided to the subsidiary. In case of repayments, however, the assessee was to get interest at the rates agreed to, as mentioned above, from the subsidiary. In none of the cases option for conversion was not exercised, and no interest was charged. The TPO was of the view that the assessee has given loans to the AE in the form of quasi equity, and such a recharacterization for, what the TPO termed as, "self-benefit" is not permissible. It was explained by the assessee that the convertible loan is at the option of the assessee at any time til....
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....s not a substitute to Section 5; it is not a charging section, but it gives the TPO an authority to go behind a related party transaction which has an impact on the profits of the assessee ad if there has been a mispricing resulting into improper allocation of profits to the two parties, he has authority to change such an allocations". The TPO then observed that "on this case, ZIPL (i.e. the AE) has benefitted unduly from this transaction as the balance sheet and profit and loss account of ZIPL indicates" and that 'the company has allowed significant fund to flow to the subsidiary under the garb of a convertible loan. The TPO then referred to the decision of US Supreme Court in the case of Pepsi Cola Bottling Co of Puerto Rico Inc (Docket Nos. 13676-09, 13677-09; order dated 20th September 2012) which is said to have come out with certain tests on whether the debentures are in the nature of debt or equity, he applied these tests on the facts of this case and concluded that the character of the instrument is predominantly debt rather than equity. His analysis was as follows: 7.4.6 The treatment of such instruments by the Reserve Bank of India gives an insight into their charac....
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....rom time to time." 7.4.7 The above categorization clearly indicates that only fully and mandatorily convertible preference shares are to be treated at par with equity and would follow the route prescribed for 'Investments". Other categories of debentures/loans are in the nature of debts and are to be as per guidelines applicable for "External Commercial Borrowings". This categorisation gives us a tool to analyse the character of an instrument, whether inbound or outbound. In light of such clear guidelines, the averment made by the assessee that the convertible loans have passed muster of RBI are of no consequence. The assessee has produced no document to show that the loan has been accepted by RBI to be in the nature of equity. Worse still, it clearly fails the test of equity in light of the guidelines issued by RBI. The contention of the assessee that RBI has different yardsticks for the inbound and outbound investments/loans is not borne out of the guidelines issued by it. 7.4.8 While funds advanced by the parents to their subsidiaries have to be examined for the purpose of intent in each case separately, the actual stated nature of the instrument is one of the main crite....
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....the transaction reflects a loan. We have the option to either convert the loan into equity at par or opt for repayment. In case of repayment which can be exercised any time during the tenure of the loan not exceeding five years, we would get interest retrospectively. Thus it can be that we have considered the financial well being of the AE. Thus the nature of instrument is in the nature of Equity as per this test. No relation with well being of the AE before conversion. Till time of conversion, in nature of loan. 4 Right to enforce payments A definite obligation to repay an advance, including interest thereon, suggests a loan obligation. We understand that if a instrument does not provide its holder with any means to ensure payment of interest, it is a strong indication of a equity contribution rather than debt. In our case, if we exercise the option of repayment, there is a definite obligation on ZIPL to repay the loan along with interest. Thus the nature of the instrument is in the nature of a loan as per this test. The amount can be redeemed any time. This is fixed rate of contractual interest payable on repayment. 5 Participation in management as a result of the a....
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....espect of the loan of USD 8 Mn the intention will manifest only in subsequent years. Hence this factor is Neutral. 8 Identity of interest between creditor and stockholder If advances are made by stockholders in proportion to their respective stock ownership, an equity capital contribution is indicated. We understand that the test applied when there is a consortium of lenders Not Applicable to the facts of our case. Not made in proportion to stockholder. Character of loan. 9 " thinness" of capital structure in relation to debt The purpose of examining the debt to equity ratio in characterizing an advance is to determine whether a corporation is so thinly capitalized that repayment would be unlikely. We understands that loan to a thinly capitalized company would be indicative of equity rather than a loan. We submit that the capital of ZIPL at the time the loan of USD 27 Mn was granted was INR 119.33 crores as compared to the loan of INR 120.25 crores. Thus, this test flows towards Loan. Loan. The AE is sufficiently capitalized. 10. Ability of the corporation to obtain credit from outside sources The touchstone of economic reality is whether an outside lender wo....
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.... computed below: 7.5 In light of the above discussion, the amounts advances to ZIPL are treated as loan and are benchmarked as proposed in the show cause notice. However, the 6 month LIBOR come to 0.58 one year LIBOR come to 0.90 to 6 month E LIBOR come to 1.636. Accordingly, the correct interest is computed as below. AE Loans Loan in INR (cr) Duration Rate of Int. (Conditional) Rate of Interest Duration Arm's Length Interest Conv loan to ZIPL USD 8 m 39.98 26/12/2008 6m US libor +550 6.08% 365 24307840 Conv loan to ZIPL USD 10 m 49.72 13/05/2009 US libor+ 550 6.40% 365 31820800 Conv loan to ZIPL Euro 1.3 m 8.94 12/12/2009 6m E libor+ 400 5.636% 365 5038584 Conv loan to ZIPL Euro 5.5 m 37.30 12/12/2009 6m E libor + 400 5.636% 365 21022280 Conv loan to ZIPL US$ 3 m 13.87 02/02/2010 US libor+550 6.40% 265 8876800 Conv loan to ZIPL US$ 5 m 23.33 26/08/2010 6m E libor + 400 5.636% 217 7817224 Conv loan to ZIPL US$ 3m 13.66 07/02/2011 6m E libor+ 275 4.38% 53 868776 Total 9,97,52,304 7.6 In light of the above discu....
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....he option after 5 years and decides to become a shareholder, whether the option will be effective from the date of advance. We think no. The assessee will not be issued shares retrospectively. The loan will remain a loan only unless and until it is converted into equity. This again brings us to the point that the interest, which would be payable on such a loan in an uncontrolled scenario, has been forgone to have the option to convert the loan into equity at a future date. The assessee then must establish that arm's-length price of such an option is equivalent to the interest forgone. This has not been done. 15.5.5 To conclude we reject the assessee's objection. 15.3.6 The facts of the case remain the same during the year under reference. The options of converting the loan into equity has not been exercised during the year and the loan has not been converted into equity Hence, there is no reason to deviate from the decision of the DRP tor the preceding year. 15.3. In view of the foregoing, the objection raised by the assessee is rejected. 16. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the ....
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....e under transfer pricing regulations, we may refer to the observations made by a coordinate bench of this Tribunal- speaking through one of us (i.e. the Accountant Member), in the case of Soma Textile & Industries Ltd. v. Asst.CIT [2015] 154 ITD 745/59 taxmann.com 152 (Ahd.), as follows: '5.. . . . . . . The question, however, arises as to what are the connotations of expression 'quasi capital' in the context of the transfer pricing legislation. 6. Hon'ble Delhi High Court, in the case Chryscapital Investment Advisors India Ltd. v. ACIT [(2015) 56 taxmann.com 417 (Delhi)], has begun by quoting the thought provoking words of Justice Felix Frankfurter to the effect that "A phrase begins life as a literary expression; its felicity leads to its lazy repetition; and repetition soon establishes it as a legal formula, undiscriminatingly used to express different and sometimes contradictory ideas". The reference so made to the words of Justice Frankfurter was in the context of the concept of "super profits" but it is equally valid in the context of concept of "quasi capitals" also. As in the case of the super profits, to quote the words of Their Lordships, "many decisio....
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....ate applicable on the loan transactions simplictor which, under the transfer pricing regulations, cannot be compared with a transaction which is something materially different than a loan simplictor, for example, a non-refundable loan which is to be converted into equity. It is in this context that the loans, which are in the nature of quasi capital, are treated differently than the normal loan transactions. 9. The expression 'quasi capital', in our humble understanding, is relevant from the point of view of highlighting that a quasi-capital loan or advance is not a routine loan transaction simplictor. The substantive reward for such a loan transaction is not interest but opportunity to own capital. As a corollary to this position, in the cases of quasi capital loans or advances, the comparison of the quasi capital loans is not with the commercial borrowings but with the loans or advances which are given in the same or similar situations. In all the decisions of the coordinate benches, wherein references have been made to the advances being in the nature of 'quasi capital', these cases referred to the situations in which (a) advances were made as capital could not....
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....Puerto Rico Inc (Docket Nos. 13676-09, 13677-09; order dated 20th September 2012). It has been referred to by the TPO as decision of the US Supreme Court but in fact it is a decision of the US Tax Court, broadly at the same level of judicial hierarchy as this Tribunal. This decision deals with the limited question whether a particular transaction is required to be treated as debt or as equity. The precise question, which came up for consideration of the US Tax Court, were (1) whether advance agreements issued by Pepsi Co's Netherlands subsidiaries to certain Pepsi Co domestic subsidiaries and PPR are more appropriately characterized as debt than as equity; and, (2) if the advance agreements are characterized as debt, whether, and to what extent payments on the advance agreements constitute original issue discount, relating to contingent payment debt instruments under section 1.1275-4(c), Income Tax Regulations. This provision is a deduction provision and not a provision relating to determination of arm's length price. Nothing, therefore, turns on this decision. In any event, it is nobody's case that the transaction before us is of the debt. The case of the assessee is t....
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....ommercial practice nor the case before us. The cost of raising funds is determined much before the returns from funds so raised is even known. To hold that cost of funds raised should have been higher because the returns from funds employed by the enterprise is higher is putting cart before the horse. In the commercial world, interest does not represent any participation of profits, and it does not vary because of the profits made by the borrower from monies so raised. In any event, while determining arm's length price of a transaction, it is immaterial as to what 'benefit' an AE subsequently derives from such a transaction. What is to be determined is the consideration of a transaction in a hypothetical situation, in which AEs are independent of each other, and not the benefit that AEs derive from such transactions. It is not even the case of the authorities below that in the event of hypothetically dealing with an independent enterprise, no independent enterprise would not have given him an interest free loans even if there was an option, coupled with such a deal, to subscribe to the capital of the AE on the terms as offered by the AE to the assessee. Unless that happ....
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....ment of legal expenses, to the extent of Rs. 40,12,577 in respect of reimbursement of stability charges and to the extent of Rs. 10,11,443 in resect of reimbursement of analytical and testing charges. When he probed the matter further, he found that so far as the product liability insurance charges were concerned, the supporting evidence included debit notes from Marsh USA Inc, and the policyholder indicated therein was the US AE of the assessee- i.e. Zydus Pharmaceutical (USA) Inc, and that there was nothing to show that these expenses were incurred for the business of the assessee levied in e. The claim of the assessee that "Cadila has reimbursed insurance costs to its AE since the product liability claim would be levied in case of manufacturing and quality issues which is responsibility of Cadila" and that "being a limited risk distributor with a targeted operating margin, the distributor entities cannot be expected to bear the product liability and quality risks", were simply brushed aside. These expenses, the TPO held, "donot relate to the business activity of the assessee company (and) therefore the ALP of this transaction is taken as NIL". As regards legal expenses of Rs. 18....
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.... same as an arm's length expense. The ALP adjustment was thus restricted to Rs. 3,90,071. We may also add that, as pointed out by the assessee, similar reimbursement of expenses to the US based AEs were made in the period relating to the assessment years 2010-11, 2011-12, 2013-14, 2014-15 and 2015-16, but no such arm's length price adjustments were made in any of these years. Aggrieved, assessee raised the objections before the DRP on this issue as well, but without any success. Learned DRP confirmed the action of the TPO and held that there is no res judicata in the tax proceedings, and, therefore, similar expenses having been allowed in past and future would not mean that the same treatment is to be accorded in this year. Accordingly, the Assessing Officer proceeded to make this ALP adjustment of Rs. 21,43,79,368. The assessee is aggrieved and is in appeal before us. 22. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 23. We find that the TPO has, in essence, proceeded to make disallowance under section 37(1) by holding that there was no commercial expediency in making these....
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....approach and this explanation. When AE is only doing distribution, it is entirely a commercial call of the assessee as to which type of product related expenses are to be borne by the assessee. These expenses thus clearly pertain to the assessee as the US AE is admittedly, and beyond dispute, only an LRD. The same is the position with respect to the legal expenses. It has been specifically explained by the assessee, and this explanation has not even been called into question, that the US AE was holding the ANDAs and patents, as a trustee and in fiduciary capacity, for the assessee company. It would, therefore, be wholly immaterial as to who is holding the patents and the ANDAs- the assessee or the US AE, because, at the end of the day, the beneficiary is only the assessee company. Yet, the TPO has held the legal expenses to be not at an arm's length price only because the ANDA in question was held by the US AE. Whosever owns the IPRs in question, it is related only for the business of the assessee company and not the US AE. The approach adopted by the TPO is erroneous for this reason also. Similar is the position with respect to stability charges and analytical charges. The TPO has....
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....20/06/2011 9,924,684 21/07/2011 9,904,692 23/08/2011 4,199,024 25/11/2011 2,601,367 Sub total (a) 45,320,847 Pharmanet Canada Inc., (Earlier Anapharm Inc., Canada) 25/11/2011 1,154,412 15/03/2012 1,507,489 Sub total (b) 2,661,901 Cetero Research, USA 11/10/2011 5,615,817 Sub total (c) 5,615,817 Hilltop Research, USA 10/10/2011 5,443,832 19/10/2011 3,807,832 08/12/2011 6,208,215 23/03/2012 5,991,810 Sub total (d) 21,451,689 Impopharma Inc., Canada 21/02/2012 2,336,320 Sub total (e) 2,336,320 Lambda Therapeutic Research, Canada 03/06/2011 4,773,195 Sub total (f) 4,773,195 Bio Innvoa and Synchron Co. Ltd., Thailand 20/10/2011 8,600,122 Sub total (g) 8,600,122 Novum Pharmaceuticals Research, USA 20/06/2011 1,554,864 27/07/2011 2,320,320 02/09/2011 4,599,427 14/09/2011 4,178,616....
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.... to Thai company for this purpose could not be brought to tax. As regards payments for online access to database and publications, the assessee relied upon a number of judicial precedents in support of the contention that such an online access could not be taxed. As regards purchase of software from US based entity, assessee once again referred to several judicial precedents in support of its contention that the same could not be taxed in India. Similarly, as regards exports commission and survey expenses, it was pointed out that the work was entirety done outside India, without involving any taxability in India even under the domestic law, and that similar disallowances have been deleted in the assessment year 2010-11 in assessee's own case by DRP itself. The Assessing Officer noted certain contentions of the assessee, and rejected the same. In particular, he noted that the payments made to Millies International Ltd UK and Swiss Biogenics Ltd, Srilanka, were for conducting market survey about products of the assessee. He was apparently of the view that the tax under section 195 was deductible from these payments nevertheless. It was in this backdrop that the Assessing Officer. Yet....
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....olding the disallowance only because the disallowance is in consonance with the stand taken by another lower functionary amounts to preferring to the guided by the wisdom of a lower authority without application of own mind. Such an approach is wholly unsustainable in law. It also results in a situation that the view taken at the assessment stage travels in appeal directly to us, without independent scrutiny of the same by the CIT(A) or the DRP. That is much less than an ideal situation, and it does not meet our approval. We have noted that, so far as the stand taken by the ITO (International Taxation) in the proceedings under section 201(1) is concerned, many of these issues have come up before coordinate benches of this Tribunal, in assessee's own cases, and the stand taken by the ITO has not been approved by several coordinate benches in judicial scrutiny. We have also noted that the assessee has made detailed submissions about these sixteen sets of foreign remittances, which are reproduced at pages 174 to 177 of the paper-book filed before us, but the authorities below have simply declined to deal with the matter or, for that purpose, decline to deal with the factual elemen....
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....any technical know-how. Hence, it is not in the nature of Fees for technical services under Article 12 of DTAA in entered into between India and Canada as the 'make available' exception applies in this case. 6 Lambda Therapeutic Research (Canada) 47,73,195 Fees for Clinical Trials/ Clinical Testing Remittance is made in respect of carrying out of clinical trials & testing. It does not involve any transfer of technical knowledge, information or providing any technical know-how. Hence, it is not in the nature of Fees for technical services under Article 12 of DTAA in entered into between India and Canada as the 'make available' exception applies in this case. 7 Novum Pharmaceuticals (USA) 1,88,20,283 Fees for Clinical Trials/ Clinical Testing Remittance is made in respect of carrying out of clinical trials & testing. It does not involve any transfer of technical knowledge, information or providing any technical know-how. Hence, it is not in the nature of Fees for technical services under Article 12 of DTAA in entered into between India and United States as the 'make available' exception applies in this case. 8 Bio innova & Synchron Co. (Thailand) 86,00,122 Fe....
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....y on such payment does not arise. 13 Cambridge Soft Corp. (USA) 18,74,364 Consultancy Services Remittance is made in respect of consultancy services. It does not involve any transfer of technical knowledge, information or providing any technical know-how. Hence, it is not in the nature of Fees for technical services under Article 12 of DTAA entered into between India and USA as the ' make- available' exception applies in this case. 14 Cambridge Soft Corp. (USA) 3,16,81,125 Purchase of Software Remittance is made to the non-resident party in respect of purchase of software. The same is not in the nature of Royalty as per Article 12 of the DTAA with USA. The payment would be covered under Article 7 (Business Profits). Since the non-resident does not have a PE in India, the question of taxability on payment does not arise. 15 Millies Internationl Ltd. (U.K) 28,27,006 Commission for Export Remittance is made to the non-resident party in respect of commission for export, in connection with the Sri Lankan market. Therefore, the payment made to nonresident party in respect of commission for export for services rendered by such party outside India is not liable t....
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....C USA FTS 04.09.2009 11,35,398 Bioequivalenc e study 18.09.2009 11,35,398 2 ANAPHARM INC Now PHARMANET CANADA INC CANADA FTS 12.02.2010 24,46,032 Bio analysis 3 BIO RELIANCE UK FTS 15.10.2009 17,77,161 Bio analysis 23.12.2009 22,74,601 4 GATEWAY MEDICAL RESEARCH INC USA FTS 24.12.2009 12,55,400 Bio analysis and bio availability 5 MDS PHARMA SERVICES, USA USA FTS 22.03.2010 32,53,036 Bio analysis 6 AAIPHARMA INC, USA USA FTS 11.09.2009 16,52,877 Bioequivalenc e study 4. The Assessing Officer was of the view that the services so rendered by the non resident entities are highly technical in nature and are required to be taxed as such in the hands of the recipients of these payments. The Assessing Officer took note of the assessee's stand that in all the related tax treaties (i.e. with UK, USA and Canada), there is 'make available' clause in the provision for taxability of fees for technical services, and that mere provision of technical services is not enough to attract the taxability as "it additionally requires that the se....
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....services.' The AR stated that Article 12 of the DTAAs with USA and Canada and Article 13 of the DTAA with U.K. is not applicable since the non-resident parties did not 'make available' any technical knowledge, skill, experience, know-how or process. 9. It is a matter of record that even the AO has not disputed the fact that none of the non-resident parties have any PE in India. Considering the facts of the case and the submissions and decisions as relied upon by the appellant, I am of the view that the services rendered in this case, although technical in nature, can be said to be 'fees for included services', only if they "make available" technical knowledge or skill to the recipient of the service or where the recipient can apply the same on its own in future, without recourse to the service provider. In this connection, the ratio as laid down by the ITAT Hyderabad in the case of Dr. Reddy's Laboratories Ltd. 35 taxmann.com 339 squarely applies to the facts of the appellant's case, since it relates to rendering of Bio-Analytical services by the non-resident party and under the framework of the same language of Article 12(4)(b) of the India-USA and India-....
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....y the same of his own. In the absence of the same, such service would not fall within the ambit of the included service in the light of decision of the Authority for Advance Rulings (Income-tax), New Delhi in the case of Anapharm Inc., In re (supra), the decision of the Coordinate Bench in the case of Wockhardt Ltd. vs. ACIT (supra) and the decision of Hon'ble High Court of Karnataka in the case of CIT vs. De Beers India Minerals (P.) Ltd. (supra). The Revenue has not placed any material on record to rebut the findings of the Id. CIT(A) that the services were actually made available to the assessee and would be taxable. Under these facts, we do not see any reason to interfere with the findings of the Id.CIT(A), same is hereby upheld. Thus, ground raised by the Revenue is rejected." 11. Considering the above, the issue under consideration has been elaborately dealt with, I see no reason to take a different view in the matter. Accordingly, I hold that the payments made to non-resident parties are not liable to TDS u/s. 195 of the I.T. Act, since they are not in the nature of fees for technical services as per the relevant articles of the DTAAs with USA, U.K. and Canada. 12. A....
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....ce the appellant is in any case entitled to the benefit of the relevant articles as per the DTAAs, as discussed hereinbefore." 5. Aggrieved by the relief so granted by the CIT(A), the Assessing Officer is in appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal positon. 7. We find that the relevant provisions in the relevant tax treaties, which govern the taxability of fees for technical services, are as follows: India UK tax treaty Article 13: Royalty and fees for included services 4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term "fees for technical services" means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for ....
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....er. It is in this context that we have to examine the scope of expression 'make available'. 9. As for the connotations of make available clause in the treaty, this issue is no longer res integra. There are at least two non-jurisdictional High Court decisions, namely Honble Delhi High Court in the case of DIT Vs Guy Carpenter & Co Ltd ([(2012) 346 ITR 504 (Del)] and Honble Karnataka High Court in the case of CIT Vs De Beers India Pvt Ltd [(2012) 346 ITR 467 (Kar)] in favour of the assessee, and there is no contrary decision by Honble jurisdictional High Court or by Honble Supreme Court. In De Beers case (supra), Their Lordships posed the question, as to "what is meaning of make available", to themselves, and proceeded to deal with it as follows: The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into th....
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....ed. 31. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench in assessee's own case. Respectfully following the same, the payments made to the US based and Canada based entities, which are covered by make available clauses in both the Indo US as also Indo Canadian tax treaties- see item no. 1 to 7, are taken outside the ambit of disallowance under section 40(a)(i). 32. As for the item nos 8 and 9 in the chart above, i.e. payments made to two Thailand based entities- namely Bio Innova & Synchron Co and International Bio Services Co Ltd, these payments are admittedly for clinical trials and testing. As learned counsel for the assessee rightly contends, there is no FTS clause in the India Thailand DTAA, and, therefore, in the absence of a PE of the recipient companywhich is admittedly not the case here, the income embedded in payments made to Thai entities cannot be taxed in India. This issue is also covered, in favour of the assessee, by a coordinate bench decision in the case of DCIT Vs Ford India Ltd [(2017) 56 ITR(T) 433 (Chennai)], wherein the coordinate bench has, inter alia, observed as follows: 7. There is no dispute that th....
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....ate. Such items of income may also be taxed in the Contracting State where the income arises. 9. To understand the scope of these treaty provisions, which are broadly in pari materia with the provisions of article 21 of UN Model Convention, we find guidance from the OECD Model Convention Commentary which states that "The Article covers income of a class not expressly dealt with in the preceding articles (e.g. an alimony or a lottery income) as well as income from sources not expressly referred to therein (e.g. a rent paid by a resident of a Contracting State for the use of immovable property situated in a third State). The Article covers income arising in third States as well as income from a Contracting State In other words, an income is of such a nature as, on satisfaction of conditions specified in the related provision, could be taxed under any of these specific treaty provisions, cannot be covered by this residuary clause. Take for example, income earned by a resident of a contracting state by carrying on business in the other contracting state. When, for example, article 5 provides that the income of resident of a contracting state, from carrying on business in the other co....
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....e. article 6 to 21) of the treaty. The income earned by these entities was in the regular course of their business, and there is no dispute about this fundamental aspect. There cannot also be dispute about the fact that in the event of these entities satisfying the conditions regarding existence of permanent establishment in India, the amounts so received by these entities would have been taxable as business income. The income in question is thus clearly dealt with by article 7 read with article 5 and the reason why it has not been taxed is that the entities concerned did not have permanent establishments in India. Clearly, therefore, the income in question is covered by the provisions of the Indo Thai tax treaty but is not taxable on the facts of the case before us as the recipients did not have a PE in India. Once we come to the conclusion that the income embedded in the payments in question is of such a nature which is covered by articles 6 to 21 of the treaty but is not taxable in India as the condition precedent for the taxability under the related article is not satisfied, it is an inevitable corollary of this finding that article 22 cannot be pressed into service in respect ....
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....f the above discussions, in our considered view, even though the remittances in question are in the nature of fees for technical services in the hands of Thai entities, the income embedded in these remittances is not taxable in India in the hands of these entities, in terms of the provisions of Indo Thai tax treaty. The plea of the Assessing Officer, for invoking the domestic law provisions in respect of fees for technical services, as the Indo Thai tax treaty does not specifically deal with the same, already stands negated by Hon'ble jurisdictional High Court in the case of Bangkok Glass Industries (supra), in the context of Indo Thai tax treaty itself. It is only elementary that under article 90(2) where the Government has entered into a tax treaty with any tax jurisdiction, in relation to the assessee to whom such treaty applies, "the provisions of this (i.e. Income Tax) Act shall apply to the extent they are more beneficial to that assessee". While on this issue, we may also take note of the landmark Special Bench decision in the case of Motorola Inc. v. Dy. CIT [2005] 95 ITD 269/147 Taxman 39 (Delhi) (SB) wherein the Tribunal had, inter alia, observed that "DTAA is only an....
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....copyright that the taxability can be triggered in the source country. In the present case, the payment is for the use of copyrighted material rather than for the use of copyright. The distinction between the copyright and copyrighted article has been very well pointed out by the decisions of Hon'ble Delhi High Court in the case of DIT v. Nokia Networks OY [2013] 358 ITR 259/212 Taxman 68/25 taxmann.com 225. In this case all that the assessee gets right is to access the copyrighted material and there is no dispute about. As a matter of fact, the AO righty noted that 'royalty' has been defined as "payment of any kind received as a consideration for the use of, or right to use of, any copyright of literary, artistic or scientific work" and that the expression "literary work", under section 2(o) of the Copyright Act, includes 'literary database' but then he fell in error of reasoning inasmuch as the payment was not for use of copyright of literary database but only for access to the literary database under limited non exclusive and non transferable licence. Even during the course of hearing before us, learned Departmental Representative could not demonstrate as to h....
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....s Tribunal, and there was no decision, contrary thereto, by Hon'ble jurisdictional High Court. In view of these discussions, we are of the considered view that the assessee was not under any obligation to deduct tax at source from this payment, and, therefore, the disallowance under section 40(a)(i) does not come into play. 38. As for payment of Rs. 28,27,006 to Millies International Ltd for payment of exports commission, there are number of decisions of the coordinate benches, including in the case of DCIT Vs Welspun Corporation [(2018) 55 ITR(T) 405 (Ahd)], which hold that such incomes in the hands of foreign commission agents cannot be taxable in India. We see no reasons to take any other view of the matter than the view so taken by the coordinate benches. Respectfully following the same, we hold that the assessee did not have any obligations to deduct tax at source from these payments, and, accordingly, disallowance under section 40(a)(i) does not come into play. 39. Finally, so far as payment of Rs. 76,28,381 to Swiss Biogenic Ltd, Srilanka, is concerned, we have noted the claim of the assessee that the claim of the assessee is that it was for a market survey to find out pro....
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....thus in appeal before the higher authorities. It was in this backdrop that he treated the aggregate amount of Rs. 11,83,70,291as capital expenditure, but allowed depreciation of Rs. 1,99,68,460 thereon, and disallowed net amount of Rs. 9,84,01,831. The assessee did raise objection against this treatment but without any success. The assessee is now in appeal before us. 43. Having heard the rival submissions and having perused the material on record, we are of the considered view that the assessee does indeed deserve to succeed on this point for the short reason that even the Assessing Officer has admitted that the issue is covered by the binding judicial precedents in assessee's own case and the additions have been made, so to say, keep the issue alive. Learned representatives fairly agree that this issue is settled in favour of the assessee by decisions of the coordinate benches in assessee's own case, and Hon'ble High Court has declined to admit appeal against such decision, as in the esteemed views of Their Lordships, no question of law arises from these decisions. The relief granted to the assessee on this point in past has thus achieved finality. In this view of the ma....
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.... against such decision, as in the esteemed views of Their Lordships, no question of law arises from these decisions. The relief granted to the assessee on this point in past has thus achieved finality. In this view of the matter, we uphold the plea of the assessee, and direct the Assessing Officer to treat the product registration expenses and product support service expenses as revenue expenditure, and to, therefore, delete the impugned disallowance of Rs. 9,84,01,831. The assessee gets the relief accordingly. 48. Ground no. 6 is thus allowed. 49. Ground no. 7 is not pressed by the assessee, and is thus dismissed for want of prosecution. 50. In ground no. 8, the assessee has raised the following grievance: That the learned Assessing Officer erred in law and on facts in making an addition of Rs. 39,39,31,000/- by holding that the appellant was not entitled to the weighted deduction for expenditure on Scientific Research u/s. 35(2AB) in respect of Clinical Trial and Bio-equivalence Study 51. The facts relating to this ground of appeal are also somewhat similar, in many respects, to the preceding two grounds of appeal. During the course of the scrutiny assessment proceedings, t....
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....relief accordingly. 53. Ground no 8 is also thus allowed. 54. In ground no. 9, the assessee has raised the following grievance: That the learned Assessing Officer erred in law and on facts in disallowing depreciation of Rs. 9,14,174/- on the cost of Hummer H2 imported motor car, alleging that the vehicle was owned by the Director and not by the appellant. 55. Learned representatives fairly agree that this issue is also covered, in favour of the assessee, by a coordinate bench decision in assessee's own case for the assessment year 2010-11. In the said decision, the coordinate bench has, inter alia, observed as follows: 130. In ground No. 7, the Assessing Officer has raised the following grievance: The DRP has erred in allowing depreciation of Rs. 12,65,293/- on Hummer Car despite the fact that the same was in the name of the Director and there was no evidence to show that the same was used wholly and exclusively for the purpose of business. The provisions of section 32 were therefore not satisfied. 131. As far as this grievance of the Assessing Officer is concerned, there is no dispute that the car was not legally owned by the assessee company but by the director, even t....
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....lding that "the assessee's claim for deduction of Rs. 142 crore u/s. 28(v) is found to be not in accordance with law and the same is rejected and accordingly treated as Income u/s.56 of IT Act". 59. So far as this grievance of the assessee is concerned, the relevant material facts are as follows. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed a deduction of Rs. 142 crores under section 28(v) of the Act. The stand of the assessee was that the assessee has received this amount from Zydus Healthcare Sikkim- a partnership firm in which the assessee company has 96% ownership, and, as partner's remuneration, this amount is exempt from tax under section 28 (v) read with proviso thereto. The Assessing Officer was of the view that while addendum dated 1st April 2007 to the partnership deed dated 1st March 2007 does provide that the company has agreed to discharge functions as an active partner and be thus entitled to remuneration, "a company is not entitled to remuneration from a firm in which the company is a partner, and the addendum to the partnership deed is only a device to camouflage the nature of receipt of t....
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....reat and undertaken to discharge certain functions relating to procurement of inputs, marketing and distributions, after sales services and collection of dues from customers in respect of the products manufactured by the firm and provide assistance in other areas for business activities of the firm. With a view to carry out more efficient operations of the business of the firm. The relevant clause of the addendum reads as under 4) with the object of enabling the firm to market and distribute its products more efficiently, to enable the firm to expand its market share and improve overall sales and earnings (so as to earn higher profits for the firm and thereby enjoying has shares in the profit of the firm as its partner), the party of the 1st part as part of the firm has added to discharge the following functions as an active partner for and on behalf of the firm: a. Providing services relating to promotions and marketing of the firm's products including providing of marketing infrastructure, product development and promotion, information database, and other system support and inventory and supply chain management for the same. b. Functioning as 'consignment and sales ....
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....crore being remuneration paid to the assessee on the ground that the assessee company is not a working partner. In the return of income the assessee company, therefore claim the said amount of Rs. 170 crore is allowable under the proviso to section 28 (v) of the Act. 11.11..... .....The amount of Rs. 170 crore paid by the firm M/s Zydus Healthcare Sikkim repairers towards services rendered by the assessee for business or silly marketing services, after sales services et cetera and not a recommendation to the partner....... .....It is also pertinent to point out here that when the assessee company was not eligible as a working partner, the addendum brought on to the partnership authorising remuneration to the partner i.e. the assessee company is beyond comprehension when the original partnership deed does not provide any clause to provide remuneration to partner which is aligned with destination-4 to section 40 (b) of the act which reads-a "working partner"means an individual who is actively engaged in conducting the affairs of the business profession of the firm of which is a partner. 12.3.4 Therefore, the AO rejected the assessee's claim deduction of Rs. 170 crore unde....
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....ill depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter". 12.3.8 We may also refer to the decision of the Hon'ble SUPREME COURT OF INDIA in the case of COMMISSIONER OF INCOME TAX vs. DURGA PRASAD MORE wherein it is held that: "10. Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, other-wise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document ether executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing....
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....token consideration of Rs. 1/- for the period of 5 years. The Assessing Officer, in the assessment order of SPI has discussed this issue and he has valued the royalty of Jammu and Dadra plant at a substantial sum, and noticed that the SPI has not paid any management fees to the appellant I company although three of its Directors and Key Management personnel | viz. Shri Dilip Sanghvi, Shri Sudhir Valia and Shri Shailesh Desai, have been i looking after the business of appellant as well as SPI/SPS. Accordingly, the I management fees for Jammu & Dadra and Sikkim units, respectively, was | estimated and accordingly was reduced from the profit of SPI/SPS for computation of deduction u/s. 80IB(13). As a matter of fact, the appellant has not charged any royalty from SPI/SPS for allowing use off | various trademark/brands and technology. A copy of Trademark license/user Agreement dated 10.04.2003 between the appellant and SPI was collected and examined during the course of appellate proceedings for A.Y. 2008-09 by the CIT(A)-IV, Ahmedabad. After considering the terms of the agreement, it has been held in A.Y. 2008-09 that the so called "remuneration" was nothing but it was fee for permitti....
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....nership deed read with supplementary partnership deed. It is also an undisputed fact that the said partnership deed read with supplementary deed has not been treated as sham or unlawful deeds. The First Appellate Authority emphasized on the entire transaction as a device of tax evasion. The partnership firm SPI has claimed Rs. 40.12 crores as remuneration to the assessee company but at the same time, it did not claim the same as deduction as it was not paid to a whole time partner as provided in the Act. It is true that the appellant company has also not offered the same for taxation taking a shelter behind the provisions of Section 28(v) of the Act. No doubt, the profits of the partnership firm are exempt u/s. 80IB(4) of the Act. Even, if the partnership firm had not charged Rs. 40.12 crores as remuneration to the appellant company, the profits of the firm would have increased by this amount. Since the assessee is holding 97.5% share in the profits of the partnership firm, this amount of 40.12 crores would have otherwise come to the assessee in the firm of share of profit which again is exempt from taxation u/s. 10(2A) of the Act. Therefore, in our considered opinion, the allegati....
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....llowing the above judicial precedent. Respectfully following the views of the coordinate bench, we uphold this plea of the assessee as well. The impugned disallowance of Rs. 142 crores thus stands deleted. 64. Ground no. 10 is thus allowed. 65. In ground no. 11, the assessee has raised the following grievance: That the learned Assessing Officer erred in law and on facts in making an adjustment of Rs. 14,31,53,793/- in respect of disallowance u/s.14A for purposes of computation of book profit u/s. 115JB. 66. As regards this grievances of the assessee, learned representatives fairly agree that the issue is covered, in favour of the assessee, by a coordinate bench in assessee's own case for the assessment year 2008-09, which in turn has followed the assessment years 2006-07 and 2007-08. The DRP itself has noted this factual position, and yet confirmed the action of the Assessing Officer, in making this adjustment, so as to keep the issue alive. Aggrieved, the assessee is in appeal before us. 67. Having heard the rival submissions and having perused the material on record, we are of the considered view that the assessee does indeed deserve to succeed on this point for the sho....
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....ate bench of this Tribunal, and, vide order dated 3rd March 2017, it has been upheld by the coordinate bench. The copies of these orders were placed before us as. As to what is a fair arm's length price for issuance of corporate guarantee for the group entities of the assessee group is a factual aspect, and once in the earlier years a coordinate bench has approved the stand that 1% is a reasonable guarantee commission, there is no reason for us to deviate from the said stand as parties to the guarantees are broadly the same and most of these guarantees are continuing guarantees. We, therefore, see no reasons to disturb the accepted past history of the case and disturb the corporate guarantee commission rate adopted by the assessee. As regards the TPO's observation that the concept of shareholder activity will apply only in respect of Zydus Netherlands as it was the holding company, and not the assessee company, all we can say is that admittedly the assessee company is the parent company for this holding company as well and the end beneficiary, therefore, is the assessee company. The observation made by the Assessing Officer is thus incorrect. In any case, the methodology adopted by....
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.... the assessment year 2012-13 will apply mutatis mutandis for this assessment year as well. Vide our order above, and dealing with ground no. 2 in 2012-13, we have held as follows: 17. Learned representatives fairly agree that this issue is covered, in favour of the assessee, by decisions of the coordinate benches in assessee's own cases for the assessment years 2009-10 and 2010-11. Learned Departmental Representative, however, submits that even though the issue is covered in favour of the assessee, and to that extent that decision binds us, he nevertheless relies upon the stand of the Assessing Officer and would like to justify the same. We find that a coordinate bench, vide order dated 3rd March 2017 for the assessment year 2009-10, has, inter alia, observed as follows: 10. There is no dispute that the transactions in question are not of the transactions of lending money to the associated enterprises. The amounts advanced to the AEs are attached with the obligation of the AEs to issue share capital, in case the assessee exercise option for the same, on certain conditions, which are admittedly more favourable, and at an agreed price, which is admittedly much lower, vis-à....
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....is equally valid in the context of concept of "quasi capitals" also. As in the case of the super profits, to quote the words of Their Lordships, "many decisions of different benches of the ITAT indicate a rote repetition (in the words of Felix Frankfurter J, quoted in the beginning of this judgment a "lazy repetition") of this reasoning, without an independent analysis of the provisions of the Act and the rules" the same seems to be the position with regard to "quasi capitals" There are several decisions of this Tribunal, including in the cases of Perot Systems TSI v. DCIT [(2010) 130 TTJ 685 (Del)]., Micro Inks Ltd. v. ACIT [(2013) 157 TTJ 289 (Ahd)], Four Soft Pvt. Ltd. v. DCIT [(2014) 149 ITD 732 (Hyd.)], Prithvi Information Solutions Pvt. Ltd. v. ACIT [(2014) 34 ITR (Tri) 429 Hyd.] , which refer to the concept of 'quasi capital' but none of these decisions throws any light on what constitutes 'quasi capital' in the context of transfer pricing and its relevance in ascertainment of the arm's length price of a transaction. Lest we may also end up contributing to, as Hon'ble Delhi High Court put it, "rote repetition of this reasoning without an independent a....
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....e to the advances being in the nature of 'quasi capital', these cases referred to the situations in which (a) advances were made as capital could not subscribed to due to regulatory issues and the advancing of loans was only for the period till the same could be converted into equity, and (b) advances were made for subscribing to the capital but the issuance of shares was delayed, even if not inordinately. Clearly, the advances in such circumstances were materially different than the loan transactions simplicitor and that is what was decisive so far as determination of the arm's length price of such transactions was concerned. The reward for time value of money in these cases was opportunity to subscribe to the capital, unlike in a normal loan transaction where reward is interest, which is measured as a percentage of the money loaned or advanced.' 12. It is thus quite clear that the considerations for extending a loan simplictor are materially distinct and different from extending a loan which is given in consideration for, or mainly in consideration for, option to convert the same into capital on certain terms which are favourable vis-à-vis the terms avail....
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....Nothing, therefore, turns on this decision. In any event, it is nobody's case that the transaction before us is of the debt. The case of the assessee is that since in consideration of this transaction, the assessee is entitled to own the capital at certain admittedly favourable terms, the true reward of this debt is the availability of such an option, and, therefore, it cannot be compared with a debt simplictor for the purpose of determining arm's length price. Nothing, therefore, turns on this decision, and whatever be its persuasive value, or lack thereof, the authorities below were in error even in relying upon this decision 14. We have noted that, as noted by the TPO, it is wholly immaterial as to whether or not the assessee, by the virtue of this transaction, is entitled to subscribe to capital of the AE on certain concessional terms, because, in any case, the AE is a wholly owned subsidiary of the assessee and none else can subscribe to the AE's capital. What has been overlooked, however, in this process of reasoning is that the very concept of arm's length price is based on the assumption of hypothetical independence between AEs. Essentially, what is, there....
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....even if there was an option, coupled with such a deal, to subscribe to the capital of the AE on the terms as offered by the AE to the assessee. Unless that happens, there is not even a prima facie case made out for an ALP adjustment. 16. We have also noted that, in any event, whenever the assessee's right to exercise the option of converting the loan into equity comes to an end, the assessee is entitled to interest on the commercial rates. It is not even the case of the authorities below that the interest so charged by the assessee, in a situation in which the right to exercise the option has come to an end, is not an arm's length price. Keeping in mind all these factors, as also entirety of the case, we deem it fit and proper to delete the arms length price adjustment of Rs. 5,00,35,270 in respect of interest which, according to the revenue authorities, should have charged on the optionally convertible loan granted to the AEs. 18. The views so expressed by the coordinate bench were also followed for the assessment year 2010-11 as well. It is also an admitted position, as fairly accepted by the learned Departmental Representative, that all the material facts and circums....
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....indings and in the light of judicial precedents on the related issues in assessee's own cases for the preceding and other earlier years. While most of the related payments are essentially similar to the payments in immediately preceding year, as discussed earlier in the order, and whatever we have decided in our order thereon, as set out earlier, the difficulty preventing our adjudication on merits at this stage is that a parallel proceeding on the same issue, under section 201 r.w.s. 195 has taken place, and the details of the same have not been produced before us. In these circumstances, the matter being remitted to the file of the Assessing Officer for fresh adjudication will be more appropriate. We, accordingly, remit the matter to the file of the Assessing Officer for adjudication de novo on merits, by way of a speaking order, in accordance with the law and after affording a fair and reasonable opportunity of hearing to the assessee. Ordered, accordingly. 83. Ground nos. 2 and 3 are thus allowed for statistical purposes in the terms indicated above. 84. In ground no. 4, the assessee has raised the following grievance: That the learned Assessing Officer erred in law and on ....
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....ion of law arises from these decisions. The relief granted to the assessee on this point in past has thus achieved finality. In this view of the matter, we uphold the plea of the assessee, and direct the Assessing Officer to treat the product registration expenses and product support service expenses as revenue expenditure, and to, therefore, delete the impugned disallowance of Rs. 9,84,01,831. The assessee gets the relief accordingly. 86. We see no reasons to take any other view of the matter than the view so taken by us for the immediately preceding assessment year, and observations made therein will apply mutatis mutandis for this assessment year as well. Respectfully following the same, we uphold the plea of the assessee and direct the Assessing Officer to delete the impugned disallowance of Rs. 21,07,52,058. 87. Ground no 4 is thus allowed. 88. In ground no. 5, the assessee has raised the following grievance: That the learned Assessing Officer erred in law and on facts in making an addition of Rs. 6,95,33,042/- by holding that the Trademark Registration Fees and Patent Registration Fees incurred by the appellant were capital in nature, merely eligible for depreciation u/s....
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....er to treat the product registration expenses and product support service expenses as revenue expenditure, and to, therefore, delete the impugned disallowance of Rs. 9,84,01,831. The assessee gets the relief accordingly. 90. We see no reasons to take any other view of the matter than the view so taken by us for the immediately preceding assessment year, and observations made therein will apply mutatis mutandis for this assessment year as well. Respectfully following the same, we uphold the plea of the assessee and direct the Assessing Officer to delete the impugned disallowance of Rs. 6,95,33,042 91. Ground no 5 is thus allowed. 92. In ground no. 6, the assessee has raised the following grievance: That the learned Assessing Officer erred in law and on facts in making an addition of Rs. 22,64,38,000/- by holding that the appellant was not entitled to the weighted deduction for expenditure on Scientific Research u/s 35(2AB) being non-eligible expenditure. 93. So far as this grievance of the assessee is concerned, the relevant material facts are like this. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed revenue ex....
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.... (for PTC) and 16.07.2012 (for VTC) 4.4 On the basis of the above physical applications, DSIR granted recognition to the respective units on 20.11.2012. However, as regards approval u/s. 35(2AB) the applicant was advised to file online applications which came to be filed on 21.06.2013. Thereafter, the approval u/s. 35(2AB) was finally granted on 09.10.2013. 4.5 The applicant was under the bonafide understanding that since its physical application bad been made in June/July 2012 and even recognition for both the units were grunted in November 2012, it would be given approval with effect from the dale of its application being June/ July 2012. However, the approval u/ s 35(2AB) for PTC & VTC came to be granted by DSIR only with effect from 01.04.2013. 4.6 Immediately on receipt of the DSIR order dated 09.10.2013, the applicant addressed a letter dated 20.10.2013 to the DSIR (attached herewith-as Annexure B) explaining that on facts and in the circumstances of its case as narrated hereinabove, it should be granted recognition for the two new additional facilities with effect from 01.04.2012. On the basis of the same the applicant also claimed deduction u/s. 35(2AB) for the expend....
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....before the Hon'ble Delhi High Court the approval was directed to be effective, from the date of application. Even though the same fell in the year preceding the year, during w0hich recognition was grranted by the DSIR. It is respectfully submitted that facts in the case of the applicant being identical the ratio of the aforesaid judicial pronouncement of the Hon'ble Delhi High Court would be squarely applicable for the present issue under consideration before the Hon'ble DRP" 95. None of these submissions, however, impressed the DRP. Learned DRP confirmed the action of the Assessing Officer, and, while doing so, observed as follows: 9.3.1 In respect of Ground No. 4A, we have considered the submission of the assessee and the reply received from the AO as remand report. It is an admitted fact that the approval u/s. 35(2AB) of the Act for PTC & VTC had came from the DSIR only w.e.f. 01.04.20.13 and despite of the request made by the assessee to the DSIR to grant approval in respect of these units from 01.04.2012, no such approval have been received till the completion of the assessment proceedings. The AR's of the assessee could not produce such revised approval from the DSIR b....
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....ow that the assessee claimed weighted deduction under section 35(2AB) of the Act on the expenditure incurred for setting up research and development facility. This was backed by the approval granted by the concerned authority with respect to such facility. The Revenue authorities i.e. the Assessing Officer and the CIT (Appeals) were of the opinion that such deduction cannot be granted for the period prior to the effective date of approval. The Tribunal however, thought that the facts are somewhat contradictory. It was not clear when the application for approval was made and when actually approval was granted. The Tribunal therefore, remanded the proceedings for fresh consideration by the Assessing Officer. 8. The assessee has challenged this decision of the Tribunal on the basis of two judgments. One of this Court in case of Claris Lifesciences Ltd. (supra) already referred earlier and other of Delhi High Court in case of Maruti Suzuki India Ltd. v. Union of India [2017] 397 ITR 728/250 Taxman 113/84 taxmann.com 45 (Delhi). Revenue however contends that both these judgments are distinguishable on facts. It was canvassed that in case of Claris Lifesciences Ltd. (supra), the expend....
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....ver, this was not the basis on which the Court has confirmed the decision of the Tribunal. There is nothing in the said judgment to suggest that had these events fallen in different years, the view of the Court would have been any different. 11. Judgment of this Court in case of Claris Lifesciences Ltd. (supra) was followed by Delhi High Court in case of Maruti Suzuki India Ltd. (supra) in order to grant the assessee's claim of deduction under section 35(2AB) of the Act. The Court held that for availing deduction under section 35(2AB) of the Act, what is relevant is not the date of recognition or the cut-off date mentioned in the certificate of the prescribed authority or even the date of approval, but the existence of recognition. The Court observed as under : "41. Section 35(2AB) clearly provides that any expenditure incurred by a party on its R&D facility, except, insofar as it relates to land and building is liable to be allowed to be claimed as deduction (twice the amount of expenditure). A perusal of the scheme of the Act especially Sections 35(2AB), 35A and 35AB reveals in no uncertain terms, that the purpose behind these provisions is to provide impetus for research....
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.... which the expenditure was incurred. No such indication was given by this Court in case of Claris Lifesciences Ltd. (supra), none appears from the judgment of the Delhi High Court in case of Maruti Suzuki India Ltd. (supra). 13. In the result, appeal is allowed. Question is answered in favour of the assessee. Decision of Assessing Officer to restrict the assessee's claim for deduction on the expenditure which was incurred prior to 1.4.2008 is set aside. The Assessing Officer shall recompute such deduction and give its effect to the assessee for the relevant assessment year. 99. Respectfully following the esteemed views of Hon'ble jurisdictional High Court, we hold that the expenses incurred even prior to the date of approval, though after the date of application for approval, are to be allowed as deduction under section 35 2AB, as long as the approval is eventually granted. The disallowance must thus stand deleted. Ordered, accordingly. 100. Ground no. 6 is thus allowed. 101. In ground no. 7, the assessee has raised the following grievance: That the learned Assessing Officer erred in law and on facts in making an addition of Rs. 67,00,09.438 by holding that the appellant ....
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...., dilute the binding nature of judicial precedents, as on now, by the coordinate benches of this Tribunal. Learned representatives fairly agree that this issue is settled in favour of the assessee by decisions of the coordinate benches in assessee's own case. These decisions hold good as on now, and we are respectfully bound by those decisions as on now. Of course, whatever we hold does, and shall always, remain subject to what Hon'ble Courts above decide- as and when that happens. In this view of the matter, we uphold the plea of the assessee, and direct the Assessing Officer to delete the impugned disallowance of Rs. 39,39,31,000. This disallowance must stand deleted as on now. The assessee gets the relief accordingly. 103. We see no reasons to take any other view of the matter than the view so taken by us for the immediately preceding assessment year, and observations made therein will apply mutatis mutandis for this assessment year as well. Respectfully following the same, we uphold the plea of the assessee and direct the Assessing Officer to delete the impugned disallowance of Rs. 67,00,09,438. 104. Ground no 7 is thus allowed. 105. In ground no. 8, the assessee has rai....
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....was owned, in substance, by the assessee and the vehicle was used for the purposes of its business, there cannot be any legally sustainable reasons for declining the depreciation. ........... 107. We see no reasons to take any other view of the matter than the view so taken by us, in assessee's own case, for the preceding year. We, therefore, uphold the plea of the assessee and direct the Assessing Officer to delete the impugned disallowance of Rs. 7,77,048 on account of depreciation on Hummer car. The assessee gets the relief accordingly. 108. Ground no. 8 is thus allowed. 109. In ground no. 9, the assessee has raised the following grievance: That the learned Assessing Officer erred in law and on facts in making an adjustment of Rs. 18,77,51,234/- in respect of disallowance u/s.14A for purposes of computation of book profit u/s. 115JB. 110. As regards this grievances of the assessee, learned representatives fairly agree that the issue is covered, in favour of the assessee, by a coordinate bench in assessee's own case for the assessment year 2008-09, which in turn has followed the assessment years 2006-07 and 2007-08. The DRP itself has noted this factual position, and ye....