TaxTMI 
TaxTMI 
2023 (9) TMI 1114
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of MAT credit to be carried forward - Ground 3 (3.1) * Disallowance of claim of deduction under section 10AA in respect of interest income - Grounds 4 (4.1 & 4.2) * Foreign tax credit as per the provisions of section 90(1)(a)(ii) of the Act Ground 5 (5.1) * Transfer pricing adjustment - Ground 6 (6.1.1 to 6.1.6) * Provision of software and consultancy services - Ground 7 (7.1 to 7.6) * Granting of loans to AE - Grounds 8 (8.1 & 8.2) * Provision of guarantee to AEs - Grounds 9 (9.1 to 9.4) * General - Grounds 10 & 11 Revenue * Allowing deduction to State taxes paid overseas - Ground 1 * Allowing expenses disallowed by the Assessing Officer under section 40(a)(i) on account of non deduction of tax under section 19 -Ground 2 * Deleting the disallowance made under section 14A - Ground 3 * Allowing payment to Tata Sons Ltd towards brand equity subscription as revenue in nature - Grounds 4 & 5 * Allowing commission paid to non resident agents disallowed by the AO under section 40(a)(ia) - Ground 6 * Deleting the disallowance of year-end provisions made under section 40....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld not be added back to the income of the assessee. The assessee submitted that during the year, the assessee has started a joint research programme on Disruptive Innovation with CCI of USA. The purpose of the programme was to enable company employees to develop the management theories and application of this amongst others for future growth of company. As per the terms of the programme, the company employees will undergo intensive training at CCI and later on do the research. The research will be published by the Institute and the report will be developed for the company to address its questions and enable its future growth. The assessee submitted that during the year a sum of Rs. 3,00,31,600/- have been paid to CCI towards this research programme and since it is incurred for the purpose of business, the same is claimed as a deduction under section 37(1) of the Act. 6. With regard to the payment made to Royal Hospital for Women Foundation amounting to Rs. 12,92,516/-, the assessee submitted that this is paid towards sponsorship and not donation and hence is allowable under section 37(1) of the Act. The Assessing Officer did not accept the submissions of the assessee and proceed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uhati) * Kanhaiyalal Dudheria vs JCIT (113 Taxmann.com 217)(HC Karnataka) 9. The Ld.DR, on the other hand, vehemently argued that the assessee itself has accounted the impugned payments as donation and, therefore, the same cannot be treated as an allowable expenditure under section 37(1). The Ld.DR further submitted that the MOU entered into between the assessee and the CCI are dated beyond financial year relevant to the assessment year under consideration, that is, 08/06/2017 and 26/06/2017. The Ld.DR also submitted that the assessee did not produce any documentary evidence such as invoice in support of the payment and, therefore, the same cannot be allowed. With regard to the payment to Royal Hospital, the Ld.DR submitted that the payment is made towards sponsoring of a dinner and that since the hospital is located outside India, the claim of the assessee that the expenditure is incurred towards public welfare cannot be accepted for the reason that the beneficiaries are not in India. The Ld.DR also submitted that the onus is on the assessee to establish that there is a commercial expediency towards the payment which has not been established in the given case. With reg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ablish that the expenditure is incurred wholly and exclusively for the purpose of business, which, in our opinion, is not established by the assessee with respect to the payment made to Royal Hospital For Women. In view of the same, we hold that the amount of Rs. 12,92,516/- paid towards sponsoring of prize at the dinner of the Royal Hospital For Women Foundation cannot be held to be incurred for the purpose of the business of the assessee. Accordingly, we uphold the order of the CIT(A) to this extent. This ground raised by the assessee is partly allowed. Advertisement expenditure - Ground 2 12. The Ld.AR in this regard submitted that the expenditure in respect of advertisement in newspaper / magazine is routinely incurred for the ongoing business of the assessee and is not in the nature of any brand building. The Ld.AR further submitted that the assessee does not derive any enduring benefit by incurring the said expenditure and, therefore, should be allowed as revenue expenditure. The Ld.AR submitted additional evidence supporting the claim of the expenditure before the bench and prayed for admission of the additional evidence. The Ld.DR strongly objected to the admission of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e and amortized over a period of five years. To that extent, we agree with the decision of learned Commissioner (Appeals) on the issue. However, as regards experience certainty expenditure amounting to Rs. 5.28 crore, it appears that learned Commissioner (Appeals) has held it to be of capital nature on the basis that the assessee itself admitted so. However, before us, leaned Sr. Counsel for the assessee has vehemently argued that no such admission was made by the assessee before learned Commissioner (Appeals) and under a misconception, learned Commissioner (Appeals) has come to such conclusion. The leaned Sr. Counsel submitted, the experience certainty campaign was also for the purpose of advertisement only and in this context, he has furnished before us the details of such expenditure through additional evidences. Since, the additional evidences furnished by the assessee will have a crucial bearing in determining the nature of expenditure, we are inclined to admit the additional evidences. However, considering the fact that these evidences were not furnished before the Departmental Authorities, to afford a fair opportunity to the Department to verify the authenticity of assessee&....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion and, therefore, the contention that the same is required to b made only through a revised return, is not correct. On merits, the Ld.AR submitted that the assessee has shown the interest income as part of business income, which fact has not been disputed by the Assessing Officer. The Ld.AR drew our attention to the relevant provisions of section 10AA where though the sections provides that the profits derived from the undertaking is eligible for deduction, the method of computation of eligible profits as provided in sub section (7) of section 10AA provides that it is the profits of the eligible business that needs to be considered for the purpose of computing the deduction under section 10AA. Accordingly, the Ld.AR submitted that interest income which is part of the business income of the assessee should also be considered for the purpose of deduction under section 10AA of the Act. The Ld.AR relied on the following decisions:- * CIT vs Symantee Software India P Ltd - Appeal No.1534 of 2012 judgment dated 12th December, 2014 * CIT vs Hewlett Packard Global Soft Ltd 87 taxmann.com 64 (ITAT Mumbai) * Tech Mahindra Business Services Ltd vs DCIT 130 taxman....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 2009 (33 of 2009) shall have effect for the assessment year beginning on the 1st day of April, 2006 and subsequent assessment years." (emphasis supplied) 21. Plain reading of the computation mechanism as provided in subsection (7) of section 10AA leads to the conclusion that for the purpose of deduction under section 10AA, it is the profits of the business that needs to be considered. In assessee's case we notice that the Assessing Officer had not disputed the fact that the interest on deposits being part of profits from business of the assessee and therefore there is merit in the contention that while computing the deduction as per subsection (7) of section 10AA, the same is to included as part of the profits of the business. 22. We in this regard notice that in the Full Bench decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Hewlett Packard Global Soft Ltd (87 Taxmann.com 182) considered similar issue in the context of deduction under section 10A/10B of the Act where it is held that - 35. The Scheme of Deductions under Chapter VI-A in Sections 80-HH, 80-HHC, 80-IB, etc from the "Gross Total Income of the Undertaking", which may arise ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oner of Income Tax, Bombay, [(1992) 3 SCC 78], the Hon'ble Supreme Court held that:- "5. ... ..Since a provision intended for promoting economic growth has to be interpreted liberally, the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it. But that turned out to be the, unintended, consequence of construing the clause literally, as was done by the High Court for which it cannot be blamed, as the provision is susceptible of such construction if the purpose behind its enactment, the objective it sought to achieve and the mischief it intended to control is lost sight of. One way of reading it is that the clause excludes any undertaking formed by transfer to it of any building, plant or machinery used previously in any other business. No objection could have been taken to such reading but when the result of reading in such plain and simple manner is analyzed then it appears that literal construction would not be proper. ..." II] In R.K. Garg v. Union of India, [(1981) 4 SCC 675] = [1982 SCC (Tax) 30 p.690], the Hon'ble Apex Court has held as under:- "8. Another rule of equal importance is that la....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n that account alone it cannot be struck down as invalid." 37. On the above legal position discussed by us, we are of the opinion that the Respondent assessee was entitled to 100% exemption or deduction under Section 10-A of the Act in respect of the interest income earned by it on the deposits made by it with the Banks in the ordinary course of its business and also interest earned by it from the staff loans and such interest income would not be taxable as "Income from other Sources" under Section 56 of the Act. The incidental activity of parking of Surplus Funds with the Banks or advancing of staff loans by such special category of assessees covered under Section 10-A or 10-B of the Act is integral part of their export business activity and a business decision taken in view of the commercial expediency and the interest income earned incidentally cannot be delinked from its profits and gains derived by the Undertaking engaged in the export of Articles as envisaged under Section 10-A or Section 10-B of the Act and cannot be taxed separately under Section 56 of the Act. 38. We therefore affirm and agree with the view expressed by the first Division Bench of this Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of this Tribunal in assessee's own case for A.Y.2009-10 in ITA No.5713/Mum/2016 dated 30/10/2019 wherein it was held as under:- "26. In ground no.6, corresponding to ground no.7 of Revenue's appeal, the assessee has claimed foreign tax credit in respect of income pertaining to section 10A/10AA of the Act eligible units in India. 27. Brief facts are, in the course of assessment proceedings the assessee furnished countrywise statement of tax paid in support of its claim of tax credit under section 90 and 91 of the Act amounting to Rs. 93,48,94,709. It was contended by the assessee that the tax paid on income charged to tax outside India and in India would be eligible for deduction in terms of the applicable tax treaties as well as under section 91 of the Act. The Assessing Officer after examining the claim of the assessee and verifying the details allowed tax credit in respect of tax paid overseas on the income which was not only offered to tax abroad but was also subjected to tax in India to the extent not exceeding the rate of tax payable in India. However, in respect of income subjected to tax abroad but exempt from payment of tax in India, he did not grant r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-U.S. DTAA, the leaned Sr. Counsel submitted, the condition mandated in the treaty is that if any income derived and tax paid in USA on such income then tax relief / credit shall be granted in India of such tax paid in USA. He submitted, the aforesaid article does not speak of any income tax being paid by the resident assessee under the Indian Income Tax Act as a condition precedent for claiming the benefit of tax credit under DTAA. He submitted, like article 25(2)(a) of India-USA DTAA, similar clause also appear in various other tax treaties concluded by the Government of India with foreign countries from which the assessee has received income under section 10A / 10AA of the Act till assessment year 2009-10, such as, Denmark, Finland, Hungary, Norway, Oman, South Africa, Saudi Arabia, Taiwan. In this context, he drew our attention to the relevant clauses of the DTAAs with the above noted countries. Thus, he submitted, tax credit has to be provided for taxes paid in overseas jurisdiction in respect of section 10A/10AA eligible income in India as per the provisions of respective DTAAs. He submitted, even under MAT computation, the assessee should be allowed full credit for taxes pai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....DTAA countries and non-DTAA countries. On a careful reading of the decision of the Hon'ble Karnataka High Court in Wipro Ltd. (supra), it is noted, while dealing with identical issue the Hon'ble Court held that in the cases covered under section 90(1)(a)(ii) of the Act, it is not the case of income being subjected to tax or the assessee has paid tax on the income. The provision applies to a case where the income of the assessee is eligible to tax under the Act as well as in the corresponding law in force in the other country. The Court observed, though, income tax is chargeable under the Act, it is open to the Parliament to grant exemption under the Act from payment of tax for any specified period, normally, to incentivize the assessee the to carry on manufacturing activities or providing services. The Court thereafter referring to the treaty provisions with USA held that it is not the requirement of law that the assessee before he claims credit under the Indo-US convention or under the provision of the Act must pay tax in India on such income. The Court observed, as per the embargo placed in the DTAA, the assessee is entitled to such tax credit only in respect of that inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the coordinate bench, we hold that the foreign tax paid shall be eligible for the 9 countries as listed in the order of the co-ordinate bench. This ground of the assessee is allowed. 28. The assessee submitted two additional grounds with regard to the claim for deduction of education cess and deduction under section 10AA on commercial profit instead of "income from business or profession". 29. The Ld.AR did not press for the admission of additional ground with regard to the education cess and, therefore, the same is not admitted for adjudication. The second additional grounds with regard to deduction under section 10AA should be on commercial profit instead of "income from business or profession", the same does not require examination of new facts otherwise than on record and purely a legal issue. Therefore, placing reliance on the judgment of the Hon'ble apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), the additional grounds for substantial cause and justice is taken on record and we proceed to dispose of the same on merits. 30. The Ld.AR submitted that language of section 80HH and section 10AA are pari material inasmuch as bot....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... allowed for statistical purposes". 33. Respectfully following the decision of the co-ordinate bench, we remand the issue to the file of the Assessing Officer for de novo consideration of the issue keeping in mind the decision of the Hon'ble Supreme Court in the case of Vijay Industries Ltd (supra). This ground is allowed for statistical purpose. 34. Ground Nos. 6 to 9 raised by the assessee pertain to the Transfer Pricing adjustments. These grounds are taken up along with the grounds in revenue's appeal which are adjudicated in the later part of this order. Ground Nos.10 and 11 are general not warranting any separate adjudication. I.T.A. No.5904/Mum/2019 - Revenue's Appeal State taxes paid in overseas countries - Ground 1 35. In the computation of income of the assessee, the Assessing Officer noticed that the assessee has claimed a deduction of Rs. 17,13,82,113/- in respect of state taxes paid overseas. In this regard, the assessee submitted that the state taxes paid in the USA cannot be disallowed under the provisions of section 40(a)(ii) for the reason that the Explanation inserted with effect from April 1, 2006 provides that the taxes which are eligible f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s the claim of the assessee that the term "tax", as defined under section 2(43) of the Act would only include taxes chargeable under the Indian Income Tax Act. It is the further case of the assessee that since in respect of the State taxes paid overseas, the assessee is not eligible to claim relief under section 90 or 91 of the Act, it will not be covered under section 40(a)(ii) of the Act. On a perusal of provisions of sub-section (43) of section 2 of the Act, it becomes clear that the term "tax" has been defined to mean any tax paid under the provisions of the Act. Section 40(a)(ii) of the Act says that any rate or taxes levied on the profits or gain in any business or profession would not be allowable as deduction. Explanation-1 to section 40(a)(ii) of the Act inserted by the Finance Act, 2006, w.e.f. 1st April 2006, further clarifies that any sum eligible for relief of tax either under section 90 or 91 of the Act would not be allowable as deduction under section 40(a)(ii) of the Act. It is the say of the assessee that the tax eligible for relief under section 90 of the Act are only those taxes which are levied by Federal / Central Government and not by any local authority of St....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of grounds no.1.2 is required." 3.1. Respectfully following the same, the ground No.1 raised by the assessee for A.Y.2012-13 is disposed of in the above mentioned terms." 39. Respectfully following the decision of the co-ordinate bench, we see no reason to interfere with the decision of the CIT(A). The ground of the revenue is dismissed. Expenditure on imported software disallowed by the Assessing Officer under section 40(a)(i) - Ground 2 40. During the course of hearing, the Assessing Officer called on the assessee to furnish the details of software expenses particularly local and imported, whether utilized for internal use or included in project. The assessee, in this regard, made a detailed submission categorizing the software for internal use that are purchased domestically and imported software and also software, which are used for resale. The Assessing Officer treated the software purchased for internal use as being capital in nature and allowed depreciation on the same. With regard to the software for resale, the Assessing Officer disallowed the same for the reason that the assessee has not deducted any tax on the software imported. The CIT(A) deleted t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has claimed expenditure incurred in respect of purchase of software called upon the assessee to furnish the necessary details. On verifying the details furnished by the assessee, he found that the assessee had purchased software for its internal use amounting to Rs. 47,36,54,498, and for trading purpose amounting to Rs. 31,03,03,823. After perusing the details, the Assessing Officer was of the view that the amount paid towards acquiring software brought along with support service is in the nature of royalty as per section 9(i)(vi) of the Act. In this context, he referred to Explanation-3 to section 9(1)(vi) of the Act as well as CBDT Circular no.621 dated 9th December 2019. Having held so, the Assessing Officer observed that since the assessee had not deducted tax at source while making payment for purchases of software both for internal use as well as for trading purpose, the amount paid is liable for disallowance under section 40(a)(i) of the Act. Accordingly, he disallowed the entire amount of Rs. 78,39,58,321. The assessee challenged the aforesaid disallowance before the first a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... making certain observations. We find that while rendering this decision and also for the decision of A.Y.2010-11 in ITA No.974/Mum/2018 dated 18/08/2020, the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd., vs. CIT reported in 432 ITR 471 was not rendered. Now, we find that the issue in dispute before us has been fully settled by the aforesaid decision of the Hon'ble Apex Court in favour of the assessee by holding as under:- "By virtue of section 90 of the Income-tax Act, 1961, once a Double Taxation Avoidance Agreement applies, the provisions of the Act can only apply to the extent that they are more beneficial to the assessee and not otherwise. Further, by Explanation 4 to section 90, Parliament has clarified that where any term is defined in a DTAA, the definition contained in the DTAA is to be looke4 at. It is only where there is no such definition that the definition in the Ad can then be applied. UNION OF INDLA V. AZADI BACHAO ANDOLAN [7003] 763 1TR 706 (SC) relied on. The expression "copyright" has not been defined separately in the definitions section of the Copyright Act, 1957, yet, section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ramme for the purpose for which it was supplied, does not constitute an act of infringement copyright under section 52(1)(aa) of the 1957 Act. Section 52(l)(ad) is independent of section 52(1)(aa) of the 1957 Act, and states that the making of copies of a computer programme from a personally legally obtained copy of non-commercial personal use would not amount to an infringement of copyright. Section 52(1)(ad) of the 1957 Act cannot be read to negate the effect of section 52(1)(aa), since it deals with a subject matter that is separate and distinct from that contained in section 52(1)(aa) of the 1957 Act. There is an important difference between the right to reproduce and the right to use computer software. Whereas the former would amount to parting with a copyright by the owner thereof, the latter would not. When, under a non-exclusive licence, an end -user gets the right to use computer software in the form of a compact disk, the end-user only receives a right to use the software and nothing mare. The end-user does not get any of the rights that the owner continues to retain under section 14(b) of the 1957 Act read with .cubclauses (i) to (vii) of clause (a) thereof Thus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e DTAA. This position is also clarified by CBDT Circular No. 333 dated April 2, 19822 . Thus, by virtue of article 12(3) of the DTAA, royalties are payments of any kind received as consideration for "the use of; or the right to use, any copyright" of a literary work, which includes a computer programme or software. When article 12 of the DTAA defines the term "royalties" in paragraph (3) thereof, it does so stating that such definition is exhaustive : it uses the expression "means". Secondly, the term "royalties" refer to payments of any kind that are received as a considerate ion for the use of or the right to use any copyright in a literary work. The definition contained in Explanation 2 to section 90(1)(vi) of the Act, is wider in at least three respects it speaks of "consideration", but also includes a lump-sum consideration which would not amount to income of the recipient chargeable under the head "capital gains"; when it speaks of the transfer of "all or any rights", it expressly includes the granting of a licence in respect thereof; and it states that such transfer must be "in respect of" any copyright of any literary work. However, even where such transfer is '....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2 to section 9(i)(vi)of the Act. Explanation 4 to section 9(1)(vi) of the Act was inserted retrospectively to expand the scope of Explanation 2(v). In any case, Explanation 2(v) contains the expression, "the transfer of all or any rights" which is an expression that would subsume "any right, property or information" and is wider than the expression "any right, property or information". CBDT Circular No. 152 dated November 27, 19741 cannot apply to explain a position that existed even before section 9(1)(vi) was actually inserted in the Act by the Finance Act, 1976. In so far as section 9(1)(vi) of the Act relates to computer software Explanation 3 thereto refers to computer software for the first time with effect from April 1, 1991, when it was introduced, which was then amended by the Finance Act, 2000. Quite clearly, Explanation 4 cannot apply to any right for the use of or the right to use computer software before the term "computer software" was inserted in the statute. Likewise, even qua section 2(o) of the 1957 Act, the term "computer software' was introduced for the first time in the definition literary work, and defined under section 2(ffc) only in 19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons. Thus the charging and machinery provisions contained in sections 9 and 195 of the Act are interlinked. The person liable to deduct tax is only liable to deduct tax first and foremost if the non-resident person is liable to pay tax, and second, if he is so liable, he is liable to deduct tax depending on the rate mentioned in the DTAA. GE INDIA TECHNOLOGY CENTRE (R) LTD. v. CIT [20101 327 ITR 456 (SC) and VODAFONE INTERNATIONAL HOLDINGS B. V. V. UNION OF LNDJA [20121 341 ITR 1 (SC) relied on. The argument based on article 30 of the Double Taxation Avoidance Agreement between India and the United States of America that the DTAA's provisions in these cases would not apply at all, inasmuch as the provisions relatable to deduction of tax at source under section 195 of the Act do not refer to tax at all, but are deductions that are to be made before assessments to tax are made, would Lead to absurd consequences. Article 30 cannot be read out of context. The logic behind article 30 of the DTA.4 is for reasons connected with the municipal taxation laws of the United States of America and has nothing to do with Indian municipal law governing the liability of person....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ale by the author of a computer software to a distributor for onward sale to an end-user, cannot possibly be hit by the provision. Further, the distributor cannot use the computer software at all and has to pass on the software, as shrink-wrapped by the owner, to the end-user for a consideration., the distributor's profit margin being that of an intermediary, who merely resells the same product to the end-user. WARNER BROS. ENTERTAINMENT INC. V. SANTOSH V. G. [20091 SCC OnLine Del 835 approved. Double Taxation Avoidance Agreements entered into by India with other contracting States have to be interpreted liberally with a view to implement the true intention of the parties. The Agreements have, as their starting point, either the OECD Model Tax Convention on Income and Capital or the United Nations Model Double Taxation Convention between Developed and Developing Countries in so far as the taxation of royalty for parting with copyright is concerned. The OECD Model Tax Convention speaks of the importance of the OECD Commentary. The term "royalties" is defined in all the DTAAS in a manner either identical with or similar to the definition con tamed in article 12 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the E-Commerce Report 2016 submitted to the Government of India are recommendatory reports expressing the views of the committee members, which the Government of India may accept or reject. When it comes to DTAA provisions, even if the position put forth in these reports were to be accepted, a DTAA would have to be bilaterally amended before any such recommendation can become law in force for the purposes of the Act. On appeals arising in four categories of cases (a) cases in which computer software was purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer; (b) cases where resident Indian companies were distributors or resellers, purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling it to resident Indian end- users (c) cases where the distributor was a foreign, non-resident vendor, who, after purchasing software from a foreign, non-resident seller, resold it to resident Indian distributors or endusers; and d) cases where the computer software was affixed onto hard ware and sold as an integrated unit or equipment by foreign, non-resident suppliers to resident Indian distr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....PRADESH [2004] 271 ITR 401 (SC); [2004] 137 SIC 620 (SC) relied on. (ii) That given the definition of "royalties' contained in article 12 of the DTAAs there was no obligation on the persons mentioned in section 195 of the Act to deduct tax at source, as the distribution agreements and end-user licence agreements did not create any interest or right in such distributors or end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Act which deal with royalty, not being more beneficial to the assessees, had no application in the facts of these cases. The amounts paid by resident Indian end-users or distributors to non-resident computer software manufacturers or suppliers, as consideration for the resale or use of the computer software through enduser licence agreements or distribution agreements, was not royalty for the use of copyright in the computer software, and did not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Act were not liable to' deduct any tax at source under section 195 of the Act. Decision of the Delhi High Court in CIT v. ALCATEL LU....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Ld.AR drew our attention to the assessment order in which the Assessing Officer himself has reproduced the submissions made by the assessee with regard to the suo motu disallowance made by the assessee. Therefore, the Ld.AR agued that the Assessing Officer's recording of satisfaction is not tenable since the Assessing Officer has not brought out any finding with regard to why he is not satisfied with the correctness of the claim. The Ld.AR further submitted that merley by stating that the Assessing Officer is not satisfied with regard to the correctness of the suo motu disallowance, does not amount to recording of satisfaction. Accordingly, the Ld.AR submitted that the Assessing Officer has made the disallowance under section 14A without recording satisfaction and, therefore, the CIT(A) has correctly deleted the disallowance. The Ld.AR also submitted that in assessee's own case for A.Y. 2012-13, the co-ordinate bench has considered the similar issue and held the issue in favour of the assessee for the reason that the Assessing Officer has not recorded satisfaction. 49. We heard the parties and perused the material on record. We notice that the same issue is considered by the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ided in Rule 8D(2) of the Income Tax Rules and make disallowance u/s.14A of the Act. This issue is also addressed by the decision of the Hon'ble Apex Court in the case of Maxopp Investments reported in 402 ITR 640. Hence, the disallowance made by the ld. AO u/s.14A of the Act has been rightly deleted by the ld. CIT(A) for want of recording of objective satisfaction with cogent reasons. Accordingly, the ground Nos. 2 & 3 raised by the Revenue for the A.Y.2012-13 are hereby dismissed." 50. For the year under consideration, we notice that the assessee has made a very detailed submission before the Assessing Officer with regard to the suo motu disallowance (refer para 6.2 on pages 41 to 44 of assessment order). The Assessing Officer, in his finding, has simply stated that he is not satisfied with the correctness of the claim of expenditure since the amount disallowed by the assessee is very meager. It is the settled position that the Assessing Officer cannot invoke the provisions of disallowance under section 14A read with rule 8D without recording any cogent reasons as to why he is not satisfied with the correctness of the claim of the assessee. Mere recording that the amounts bein....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a denovo adjudication based on the details that are submitted by the assessee. Since the issue contended by the revenue is same this ground of the revenue is disposed of in the same terms. Disallowance of payment towards Tata brand equity subscription - Ground 5 54. The Assessing Officer noticed that during the year under consideration, the assessee has paid Rs. 76,95,471/- to Tata Sons Ltd towards Tata Brand Equity & Designs Promotion as per the agreement entered into between Tata Sons Ltd and the assessee. The Assessing Officer noticed that as per the terms of the agreement, the assessee is allowed to use Tata brand name and the logo. The Assessing Officer called on the assesee to justify as to why the payment made to Tata Sons Ltd should be treated as revenue expenditure. The assessee submitted that under the agreement entered into with Tata Sons Ltd, the assessee is under contractual obligation to make payment towards subscription fee. In consideration of the subscription fees a whole lot of shareable resources of the Tata group is made available to the assessee and provides assistance in accessing the network of domestic and international business contracts using the bus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....payment by the assessee. The ld. DR vehemently relied on the order of the ld. AO. 9.2. We find that this Tribunal in assessee's group concern's case of Tata Autocomp Systems Ltd., vs. ACIT in IT (TP)A No.7596/Mum/2012 for A.Y.200809 dated 12/06/2013 had addressed very same issue. The decision rendered thereon shall apply mutatis mutandis to this appeal except with variance in figures. The relevant operative portion of the Tribunal order dated 12/06/2013 referred to supra is reproduced hereunder:- 2. The issue raised in ground No. 1 relates to the disallowance of Rs. 32,42,666/- made by the A.O. on account of payment made by the assessee to M/s Tata Sons Ltd. on account of subscription towards "TATA" brand equity and business promotion scheme. 3. The assessee in the present case is a company which is engaged in the business of providing services to the global automotive industries. The return of income for the year under consideration was filed by it on 30-9-2008 declaring total income of Rs. 51,05,63,935/- which was subsequently revised to Rs. 52,34,36,910/-. In the profit and loss filed along with the said return, an amount of Rs. 32,42,666/- was debited....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ong. * As regards assessee's submission that the similar claim had been- allowed in past, it may be noted that this particular issue was never examined in past. Further, perpetuity of a mistake cannot be allowed to continue. Since, this issue had never been examined in past and had been allowed without any verification, with due respect to the ratio of the decision in the case of Radhasoami Satsang Vs. CIT (1992) 193 ITR 321 (SC), it is submitted that the same is not applicable to the present case. * The similar issue is involved in the case of Tata Chemical Ltd. a group- company of the Tata Group wherein, DRP have confirmed the proposed addition on the ground of disallowance of brand equity subscription. For the reasons given above, the A.O. proposed disallowance of Rs. 32,42,666/- on account of subscription paid by the assessee to Tata Sons Ltd. in the draft assessment order against which objection was filed by the assessee before the DRP. The DRP found the objection of the assessee to be unsustainable keeping in view that a similar issue was being agitated by the Department at various appellate forums. Consequently, final disallowance of Rs. 32,42,666/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nteracting closely with the participating TATA Companies in a certainly coordinated manner, engage and set up a team of senior personnel and/or advisors/consultants and/or specialists firms as well as provide them with the necessary supporting staff and facilities to perform their functions. g) To take steps to make available a pool of sharable resources of the TATA Group including managerial talent trained in TATA values to the Subscriber. h) To provide necessary guidance to the Subscriber in order to ensure appraise the performance of the Subscriber in various areas of its activity and to guide and assist the Subscriber in the attainment of higher standards of quality of its products, services and management. i) To adopt the JRD Quality Value and/or other such process as a means of appraise the performance of the Subscriber in various areas of its activity and to guide and assist the Subscriber in the attainment of higher standards of quality of its products. Services and management. j) To provide such support and assistance to the Subscriber as the Board of Directors of the Proprietor Company may consider necessary in certain circumstances inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the A.O. The ld. CIT(A), however, allowed the same and the Tribunal vide its order dtd. 30-8-2011 passed in ITA No. 5701/Mum/2008 for A.Y. 2004-05 upheld the order of the ld. CIT(A) on this issue. The copy of the said order is placed on record at page 1 to 21 of the compilation of the judgments filed by the ld. counsel for the assessee and a perusal of the same shows that a similar issue was decided by the Tribunal in favour of the assessee by agreeing with the view of the ld. CIT(A) that the payment in question not only permitted the use of TATA name but also gave an opportunity to the assessee to inform the business world that it was having the back up of excellence, with a code of conduct and a promise of quality. It was held that the fact that the TATA group was already having an infrastructure and brand equity was well established and by making such a contribution, the assessee company was benefited in its day-to-day business. The Tribunal also found that a similar issue was decided in favour of the assessee in case of Harrisons Malayalam reported in 19 SOT 363 wherein the payment made for acquiring non-exclusive licence to use the logo for the purpose of business was held to....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Assessing Officer held that the payment attracts TDS under section 195 of the Act and since the assessee has not deducted tax at source and the same is to be disallowed under section 40(a)(ia) of the Act. The CIT(A) deleted the disallowance. 60. The Ld.DR submitted that the payments made to non residents outside India, is income that accrues and arises in India and, therefore, tax should have been deducted at source under section 195 of the Act. Accordingly the ld DR submitted that the disallowance under section 40(a)(i) is warranted on the commission expenses. 61. The Ld.AR, on the other hand, submitted that since the non resident agents operate from outside India, no part of their income arises in India. The payment is remitted directly abroad and, therefore, the same cannot be held to have been received by or on behalf of the non resident agents in India. The payment is not covered by any of the deeming provisions under section 9 as it is not in the nature of interest, royalty or fees for technical services. The Ld.AR also submitted that the CBDT circular No.786/2000 clarified that where the non resident agent operates outside the country and the payments to them are made....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... paid to the non-resident agents is not chargeable to tax in India at their hands, there is no necessity for the assessee to withhold tax under section 195(1) of the Act on such payment. Accordingly, we uphold the decision of learned Commissioner (Appeals) on this issue. 10.3. Respectfully following the same, the ground No.6 raised by the Revenue for A.Y.2012-13 is dismissed." 63. The nature of payment being similar for the year under consideration, respectfully following the above decision of the co-ordinate bench, we hold that the CIT(A) has correctly deleted the disallowance. The ground raised by the revenue in this regard is dismissed. Year-end Provision - Ground 7 64. The Assessing Officer noticed that the assessee has made a provision of Rs. 265,56,77,983/- towards various expenses on which no tax was deducted at source. The assessee submitted before the Assessing Officer that the provision towards expenses for the year-end are made on estimate basis and the company is not in a position to identify the parties / creditors to whom the payment is to be made at the time of making the provision. The assessee further submitted that the provisions which are made o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t applicable tax is deducted at source at the time of payment against the invoices raised by the vendors. The Ld.AR relied on various judicial pronouncements and also the decision of the co-ordinate bench in assessee's own case for A.Y. 2013-14 in this regard. 67. We heard the parties and perused the material on record. We notice that the co-ordinate bench, while considering the similar issue for A.Y. 2013-14 in assessee's own case has held that - "18.1. We have heard rival submissions and perused the materials available on record. We find that assessee had made certain provisions for expenses at the end of the year for which deduction of tax at source has not been made. The ld. AO disallowed the same for non-deduction of tax at source invoking the provisions of Section 40(a)(ia) of the Act both under normal provisions of the Act as well as under the computation of book profits u/s.115JB of the Act. We find that the ld. CIT(A) had deleted the said disallowance by observing as under:- "This is a matter arising for the first time in the case of assessee and has three parts, I, II and III. The Assessing Officer deals with the same in para 14 of assessment order. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not carried out. As no default in deduction of tax at source is recorded, the question of disallowance does not arise. Hence on this count assessee succeeds on part I of the ground. 18. Part II is the disallowance of whole of the sum created as provisions. The Assessing Officer disallowed the same after recording reasons that",... Even then assessee cannot be a/lowed the deduction of provisions u/s 37 as in such situation provision is nothing but an ac/hoc provision, liability for which has ether not accured or cannot be ascertained ant thus the provision cannot be said to have been laid out or expended wholly and exclusively for the purposes of business". The written submission does not contain a specific comment on this part. In course of hearing, the appellant stated that this is a consistent method where income and expenses are accounted for following the principle of accrual and that this consistent method is disturbed without adequate recording of reasons or analysing facts. 19. I find from the assessment order that the views of appellant is not considered. The decision is taken without examining relevant facts. Verification of annual reports of the company ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vs DCIT in ITA No.8597/Mum/2010 for A.Y.2006-07 dated 2006-07 dated 06/06/2012 wherein this ground has been adjudicated as under:- "19. Next ground of appeal is about addition made under section 40a(ia) in respect of year-end provision of Rs. 4,25,52,623/-.AO on pages 104 (para 23) has discussed the issue as under- "It has been stated by auditors in note for clause 17(f) and auntie 7 (b) of form 3 CD audit report, that company is not detecting the TDS on year end provision as they are of the view that the liability of deducting TDS arises in subsequent year when Bill of the party is booked." 19.1. After considering the submissions made by the appellant AO held that same was not acceptable because expenses under consideration was liable to TDS and were squarely covered by the provisions of chapter XVIIB of the Act. He was of the view that once the assessee was debating the P&L account, it automatically was crediting the party account based on matching principle. 19.2. Before us ,AR submitted that amount in question was year-end accounting provision to book, expenditure incurred, but in respect of which there was no obligation to either pay or to deduct tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....have also considered the amendment made to Sec.40(a)(ia) by the finance act, 2008, with retrospective effect from 1.4.2005. We have also perused the case laws relied upon by the AR. Principles discussed in the said judgement is also support our view that provisions of tax deducted at source were not applicable in case consideration. Ground number 19 is decided in favour of the assessee." 18.3. Respectfully following the same, we find no infirmity in the order of the ld. CIT(A) granting relief to the assessee. Accordingly, the ground No.8 raised by the Revenue is dismissed." 68. The facts of the issue for the year under consideration is identical, and therefore, respectfully following the above decision of the co-ordinate bench, we dismiss the ground raised by the revenue and uphold the order of the CIT(A). Foreign tax credit in respect of income pertaining to section 10A/10AA - Ground 8. 69. This ground arises out of the partial relief given by the assessee towards Foreign Tax Credit claimed by the assessee and the issue contended is same as in Ground 5 of assessee's appeal. Therefore our decision in the Ground 5 of assessee's appeal would be mutatis mutan....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 4 Persistent Systems Ltd 28.94% 5 Vakrangee Softwares Ltd 14.96% 6 Wipro Ltd 21.95% 7 IBM India Pvt Ltd 10.98% 8 Yahoo Software Development India Pvt Ltd 23.37% 9 HCL Infosystems Ltd 20.09% Mean 22.51% 72. The assessee has corroborated the above with peer group- analysis and internal TNMM as detailed below: (Rs.in crore) Name of the company Operating income Operating expenses Operating profit OP/TC Infosys Ltd 44,341 32,696 11,645 35.62% H C L Technologies Ltd 16,497 9,665 6,832 70.68% Tech Mahindra Ltd 16,295 13,136 3,159 24.05% Cognizant Technology Solutions India Pvt Ltd 19,740 12,177 7,563 62.11% Wipro Ltd 38,757 30,386 8,471 27.55% TCS India 64,673 44,220 20,453 46.25% 73. On the basis of above comparisons carried out, the assessee has considered its transactions 3 with AE to be at arm's length. The TPO held that AE is the least complicated entity and, therefore, should be considered as the tested party. The TPO selected companies based in US and used the same set of comparables as were used in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see carries out its overseas operations through a web of foreign subsidiaries which act as marketing and sales support companies of assessee. The subsidiaries served as a hub in the realization of the international projects. Client service is carried out by the assessee in India. 12.2. In respect of provision of software, technical and consultancy services, the assessee in its Transfer Pricing Study Report (TPSR) had benchmarked the said transaction by selecting itself as a tested party by adopting Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) with Operating Profit / Operating Cost (OP/OC) as the Profit Level Indicator (PLI) for benchmarking the receipts from the said services. The assessee submitted that it had rendered software development, technical and consultancy services to its Associated Enterprises (AEs) on the basis of specific requests received from them by it. The assessee also submitted that the charges for the services rendered were determined on the basis of mutual negotiation between the parties. The assessee gave a complete description of functions performed, assets employed and risks assumed (FAR analysis) while rendering this....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owing three issues arise for consideration - (i) what should be the appropriate PLI; (ii) whether cost of outsourcing / sub-contracting to the TCS should be considered for computing the margin; and (iii) whether the alternative benchmarking furnished by the assessee by treating the AEs as tested party with comparables in the same geographical locations is acceptable. On a careful perusal of the facts on record as well as submissions of the learned Counsel for the parties in the course of hearing as well as in the written note, we are of the view that the decision of learned Commissioner (Appeals) on the aforesaid issues are unassailable. As regards the issue of appropriate PLI, we are of the view that considering the nature of activity performed by the assessee as well as the AEs, it cannot be said that the A.Es are not bearing any risk. Rather the facts on record reveal that the AEs performed the role of risk bearing distributors. It is well brought out by learned Commissioner (Appeals) in his order that the AEs are bearing credit risk and risk of default by client. In fact, the assessee through proper evidences has demonstrated instances where the credit risk with reference to pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....espective geographic locations furnished before the Transfer Pricing Officer were not properly considered. However, in course of appeal proceedings, the learned Commissioner (Appeals) examined them in detail and after a detailed analysis approved some comparables selected by the assessee and also added some new comparables. Whereas, the comparable selected by the Transfer Pricing Officer were not on the basis of any detailed search process. At least, no such analysis is either forthcoming from the order of the Transfer Pricing Officer or could be brought to our notice by learned Departmental Representative. On the contrary, on a thorough and careful reading of the impugned order of learned Commissioner (Appeals), we are of the view that learned Commissioner (Appeals) has taken pains to examine in detail the alternative benchmarking done by the assessee with foreign comparables and after detailed analysis has shortlisted the final comparables to be considered for comparability analysis. No convincing argument or evidence has been brought on record by the learned Departmental Representative to persuade us to disturb the finding of learned Commissioner (Appeals) on these issues. In vi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... restored to the file of the ld. AO for denovo adjudication by observing as under:- "37. We have considered rival submissions and perused the material on record. We have also carefully gone through the case law cited before us. Notably, right from the stage of transfer pricing proceeding itself the assessee has taken a stand that loans and advances to the AEs are in the nature of quasi equity, hence, cannot be treated as loan simpliciter. It is relevant to observe, the transfer pricing adjustment made on account of interest is in respect of loans advanced to four overseas AEs. From the details available on record, it is noticed that major portion of loans advanced to TCS Ibero America, is for acquisition of downstream subsidiary and about 20% of the advance was for working capital. Money advanced to TCS FNS Pty. Ltd., Australia, was purely for acquisition of downstream subsidiary. Similarly, advance to TCS Asia Pacific Pty. Ltd., is for acquisition of downstream subsidiary. Only the advance made to TCS Morocco is for working capital requirement. It is further noted, major part of advances made to TCS Ibero America, TCS FNS Pty. Ltd. and TCS Morocco have been converted to e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the advances made to the AEs. He should also examine the applicability of the ratio laid down in the case of DLF Hotel Holdings Ltd. (supra) and any other case laws which may be cited before him. The assessee must be afforded reasonable opportunity of being heard. Ground is allowed for statistical purposes." 13.8. Respectfully following the same, the ground No.6 raised by the assessee is allowed for statistical purposes. 80. For the year under consideration also we notice that the lower authorities have not considered the submissions of the assessee that extending the loan is part of shareholder activity. Therefore respectfully following the above decision of the coordinate bench we remit the issue back to the Assessing Officer / TPO for denovo adjudication after giving a reasonable opportunity of being heard to the assessee. This ground is accordingly allowed for statistical purposes. Provision of guarantee to AEs - Ground 9 of assessee's appeal and Ground 10 of revenue's appeal 81. The TPO noticed that the assessee has provided gurantees to third parties / bank on behalf of its AE. These guarantees include performance guarantee, corporate guarantee as we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....charges should be levied only on the component of services performed by the AE. 14.3. With respect to lease guarantee which is similar to performance guarantee, the ld. CIT(A) by following its order for A.Y.2012-13 in assessee's own case held that charges should be levied only on the portion of lease premises, occupied by the AE. The details of guarantees given i.e performance, financial and others are tabulated in page 32 of the order of the ld. TPO. The ld. TPO made transfer pricing adjustment in respect of guarantee services amounting to Rs. 28,74,94,665/- in his order. We find that the entire gamut of this issue has already been addressed by this Tribunal in assessee's own case in A.Y.2009-10 in ITA No.5713/Mum/2016 and IT(TP)A No.5823/Mum/2016 dated 30/10/2019 wherein it was held as under:- "43. We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. Insofar as the contention of learned Sr. Counsel for the assessee that provision of guarantee is not an international transaction as per section 92B of the Act, we are unable to accept such contention. In our considered opinion, after in....