TaxTMI 
TaxTMI 
2023 (7) TMI 79
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....g adjustment by taking the comparable of Acropetal Technologies Limited ('Acropetal'). For this, assessee has raised the following Ground No.3:- 3. On facts and in law, the Ld. AO, Ld. TPO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by arbitrarily including Acropetal Technologies Limited ('Acropetal') as a comparable to the Appellant: 3.1 following the Rule of Estoppel, without considering the differences in the functions performed, assets employed and risks assumed by Acropetal vis-à-vis the Appellant 3.2 by incorrectly holding that Acropetal is predominantly involved in provision of engineering design, drawing and consultancy services and thereby ignoring the fact that the revenue from information technology services segment (83.59 percent) is significantly higher than the revenue from engineering design service segment (14.17 percent) 3. Brief facts are that the assessee company is engaged in the business of designing, building, installation and maintaining engineering plants with specialization in thermal and coal power plants. The assessee company renders engineering services to its associated enterprises Do....
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.... is 61.11% as against the PLI of manufacturing segment of the assessee is 10.48%. The ld.counsel stated that this higher margin was although considered by the DRP and he took us through the DRP's order and argued that firstly the DRP has not considered that such a higher margin company cannot be considered as comparable because high profit and high loss making companies cannot be considered as comparable as per various judicial decisions as well as OECD guidelines. Second reason given by ld.counsel is that the Acropetal Technologies Ltd., has earned significantly abnormal margin on year to year in its engineering design segment and apart from that, it enjoys significant benefit on account of intangibles developed and owned by it through its R&D centers whereas the assessee has not incurred any expenditure on R&D and hence, Acropetal Technologies Ltd., should not have been taken as comparable. The ld.counsel stated that the DRP has wrongly relied on Clause 8 of the agreement that all documents, data, engineering drawings and material will be submitted by the assessee to the AE and same will be the property of the AE. He also contested the finding of the DRP that intangibles created ....
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....as per clear cut finding of SEBI adjudicator, copy of which was filed before us, which is dated 05.11.2018. From the SEBI report, it is clear there are irregularities committed in the financials of the company by way of committing a fraud in utilization of funds raised in IPO and diverted majority of funds to non-business purposes which has a significant bearing on the operating margins. This is a very good reason for not accepting the Acropetal Technologies Ltd., as comparable and hence, we direct the TPO to exclude the same while computing operating margins of the assessee. In term of the above, we direct the TPO / AO accordingly. 7. The next issue in this appeal of assessee is as regards to exclusion of following three comparables:- i. Accuspeed Engineering Ltd. ii. Harita Techserv Ltd. iii. Kirloskar Consultants Ltd. The ld.counsel restricted his arguments to exclusion of these three comparables. For the exclusion of these three comparables, the assessee has raised following Ground Nos.4,5 & 6:- 4. On the facts and in law, the Ld. AO, Ld. TPO and Hon'ble DRP erred on facts and in law in rejecting Accuspeed Engineering Ltd. alleging ....
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....ce, the ld.counsel for the assessee drew our attention to the financials filed before us in regard to Accuspeed Engineering Services Ltd., at pages 56 to 57 of assessee's paper-book and in the case of Kirloskar Consultants Ltd., at pages 227 to 247. The ld.counsel stated that once these details are available now before Tribunal either Tribunal can decide the issue or matter can be referred back to the file of the TPO for reconsideration whether these two companies have sales or not. 9. On the other hand, the ld.CIT-DR has not objected for remitting the matter back to the file of the TPO but he stated that once there are no sales there is no purpose in sending back the matter to the file of the AO and he strongly supported the order of TPO and that of the DRP. 10. We have heard rival contentions and gone through facts and circumstances of the case. We noted that since the assessee now before us has filed financials of Accuspeed Engineering Ltd., and Kirloskar Consultants Ltd., and this is the finding of the DRP that these financials are not available either before the TPO or DRP, we feel that in the interest of natural justice, we remit back the issue of these two comparables ....
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....ot be considered as financially similar and therefore, TPO has rightly rejected this as a comparable. The ld.counsel for the assessee stated that the TPO has rejected for the reason that there is a negative PLI whereas DRP has rejected altogether on different reason that the company is not financially similar to that of the assessee. Now, the ld.counsel for the assessee before us filed details of engineering services and engineering and design background of the assessee company and stated that this can be considered by the TPO afresh. 13. On the other hand, the ld.CIT-DR supported the order of the TPO and that of the DRP. 14. After hearing rival contentions and going through the facts of the case, we noted that there is a contradiction in the order of TPO and that of the DRP. The TPO has simply rejected the comparable on the reason that it has a negative PLI whereas DRP has only considered that it is not financially similar whereas assessee now before us filed complete details that Harita Techserv Ltd., is also engaged in engineering design services and financially similar. This needs to be considered. We feel that let the matter be restored back to the file of the TPO in reg....
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....f business of profits under article 7 'of the DTAA. Since, Doosan Corporation does not have business activity in India, the same would not be taxable in India.' The submission of the assessee has been considered. The payment has been made to the AE as ocean freight charges for shipment of goods from various overseas ports to India. In its submission, the assessee has argued that the payment is in the nature of business income and not fees for technical service and hence, not taxable in India. But, there is no argument advanced by the assessee as to why this payment cannot be considered as royalty. Royalty is defined in Explanation 2 to section 9(1)(vi). As per clause 4(a) inserted by the Finance Act, 2001 with effect from 01-04-2002. Royalty means considered for the use of or right to use any industrial, commercial or scientific equipment, but not including the amounts referred to in section 44BB. As per article 12 of the DTAA, royalty means payments or credits made as consideration for the use of or the right to use any industrial, commercial or scientific equipment. The word 'equipment' is neither defined under the Act nor under the treaty. In view of mea....
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....ateral decision that the payments made by it are not sums chargeable to tax. To take this vies, the concurrence of the Assessing Officer as provided in section 195(2) is sine qua non. Section 195 is for tentative deduction of income-tax subject to regular assessment. By the deduction of tax the rights of parties are not, in any manner adversely affected. The judicial decisions relied upon by the assessee are in support of the contention that if the payment to the non-resident is not chargeable to tax in India, no TDS is required to be made. However, as it has already been held that the amount of payment is chargeable to tax in India as royalty, the decisions cited will not be of help to the assessee. At the other hand, the Jurisdictional Madras HC, in case of Poompuhar Shipping Corporation Ltd 360 ITR 257 has held that a ship can be regarded as equipment of business of a ship owner on a natural and ordinary meaning of word 'Equipment', in whatever name called either as an apparatus or as plant or machinery, so long as they are employed for purposes of one's income, same shall stand covered by clause (iva) of Explanation 2 to section 9(1)(ci). The Honorable Supreme Court in ....
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....195 of the Act but the obligation is limited only to appropriate proportion of income chargeable under the Act. 18.1 The ld.counsel for the assessee first of all drew our attention to the invoices raised and particularly drew our attention to pages 63, 64 & 65 of assessee's paper-book wherein as per invoices, the payment is on account of ocean freight charges and the ship hired by the assessee was travelling in international waters and it is not within India as is the case of Hon'ble Madras High Court in the case of Poompuhar Shipping Corporation Ltd., supra. The ld.counsel for the assessee drew our attention to the facts narrated by the Hon'ble Madras High Court in the case of Poompuhar Shipping Corporation that the freight charges paid by Poompuhar Shipping Corporation on hiring of ships was travelling within the territory of Indian waters and for this, he drew our attention to para 3. The facts narrated are as under:- "3. The appellant in Tax Case (Appeal) Nos.2206 to 2208 of 2006 is a Government of Tamil Nadu owned company engaged in the business of moving coal from various ports in India to Tamil Nadu Electricity Board, Chennai. For the purpose of transportation of....
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....s. The ld.counsel for the assessee also drew our attention to the judgment of Hon'ble Supreme Court in the case of DIT vs. A.P. Moller Maersk AS, Civil Appeal No.8040 of 2015 and particular observation of Hon'ble Supreme Court at para 12 which reads as under:- "12. Pertinently, the Revenue itself has given the benefit of Indo- Danish DTAA to the assessee by accepting that under Article 9 thereof, freight income generated by the assessee in these Assessment Years is not chargeable to tax as it arises from the operation of ships in international waters. Once that is accepted and it is also found that the Maersk Net System is an integral part of the shipping business and the business cannot be conducted without the same, which was allowed to be used by the agents of the assessee as well in order to enable them to discharge their role more effectively as agents, it is only a facility that was allowed to be shared by the agents." The ld.counsel for the assessee relied on Hon'ble Supreme Court judgment in A.P. Moller Maersk A S, supra, for the reason that it has a persuasive value of the above observation of the Hon'ble Supreme Court. The ld.counsel also stated that the reven....