TaxTMI 
TaxTMI 
2023 (9) TMI 1114
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....nder 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(a)(ia) - Ground 7 * Allowing foreign tax credit in respect of income pertaining to section 10A/10AA eligible units in India - Ground 8 * Restricting the TP adjustment made on account....
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....o 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 proceeded to make the disallowance towards the same. On appeal, the CIT(A) held that impugned amount being classified by the assessee as donation is not an item eligible for deduction under section 37(1). The CIT(A) appeals further he....
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....lowable 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 regard to the reliance placed by the Ld.AR in the case of Mysore Kirloskar Ltd (supra), the Ld.DR submitted that in that case, the payments were made to government agency and therefore, the same cannot be compared with the payments made by the assessee to private ....
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....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 the additional evidence and supported the order of the lower authority. 13. We heard the parties and perused the material on record. We notice that the issue of allowability of advertisement expenditure came up before the co-ordinate bench in assessee's case for A.Ys. ....
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....apital 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's claim vis-a-vis the additional evidences furnished before us, we restore the issue to the Assessing Officer for de novo adjudication after providing reasonable opportunity of being heard to the assessee. We make it clear, our aforesaid direction is only with regard to the experien....
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....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 taxmann.com 250 (ITAT, Kolkata) 18. The Ld.DR, on the other hand, submitted that the interest on deposits cannot be claimed to be eligible for deduction under section 10AA since the same is not derived from the business of the undertaking. The Ld.DR further submitted that though the Assessing Officer has not disputed including t....
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....e 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 from different specified activities in these provisions and other incomes may exclude interest income from the ambit of Deductions under these provisions, but exemption under Section 10-A and 10B of the Act encompasses the entire income derived from the business of export of such eligible Undertakings including interest income derived from the temporary parking o....
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....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 laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this i....
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....he 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 Court in the case of M/s. Motorola India Electronics (P) Ltd.(supra) and we do not agree with the view taken by the subsequent Division Bench on 10/04/2014 in the present case. 23. We further notice that a similar view is expressed by the Jurisdictional High Court in the case of Symantee Software India P Ltd (supra) while considering the deduction under section 10A of the Act. It is relevant to mention here that....
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....ise 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 relief either under section 90 or 91 of the Act. The assessee challenged the aforesaid decision of the Assessing Officer before the first appellate authority. 28. Learned Commissioner (Appeals), after considering the submissions of the assessee and taking note of the decision of the Hon'ble Karnataka High Court in Wipro Ltd. v/s DCIT, [2015] 62 taxmann.com 26 (Kar.) bifurcated the foreign tax credit into three parts i.e., tax paid in US....
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....icle 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 paid overseas in respect of section 10A/10AA eligible income. In support of his contention, the learned Sr. Counsel put strong reliance upon the decision of the Hon'ble Karnataka High Court in Wipro Ltd. (supra).The learned Sr. Counsel submitted, when no decision of the Hon'ble Jurisdictional High Court is available on the issue and the only decision of a High Court which is available is that of the Hon'ble Karnataka High Court, even though, the ....
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....responding 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 income which is taxed in USA. In similar context, the Court also referred to the tax treaty with Canada where the provisions does not allow credit for tax paid in Canada if the income is not subjected to tax in India. With regard to country's with which India does not have any agreement for avoidance of double taxation, the Court observed that as per section 91 of the Act, the assessee would be eligible to avail tax credit. Thus, on a careful reading of the aforesaid judgment of the Hon....
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....itional 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 both the sections provides that "in computing the total income of the assessee, deduction shall be allowed on certain percentage of profits and gains derived from ...................". The meaning of the term "Profits and gains" derived is expounded by the Hon'ble Supreme Court in the case of Vijay Industries Ltd 103 taxmann.com 454 (SC) that the same refers to profits which are commercial profits without deducting depreciation and investment allowance as per the Act. The Ld.AR further submitted that the similar view is expressed by the co-ordinate bench of the Tribunal in th....
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....1 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 for relief under sections 90 or 91 are not eligible for deduction, which otherwise would mean that as per provisions of section 40(a)(ii) r.w.s. 2(43) deduction for those taxes paid overseas which are not eligible for any relief as per provisions of section 90 or 91 is allowable. The Assessing Officer did not accept the submissions of the assessee and held that state taxes paid cannot be claimed as a deduction. The CIT(A) held that amendment brought to section 40(a)(ii) clearly shows the legislative intent that state taxes paid overseas can be claimed as a deduction. Accordingly, the CIT(A) hel....
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....e 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 State, City or County. Thus, it is ineligible for any relief under section 90 of the Act. The aforesaid submissions of leaned Sr. Counsel for the assessee, prima facie, is acceptable if one has to strictly go by the meaning of "tax", defined under section 2(43) of the Act, as it only refers to tax paid under the provisions of the Act. It is also worth mentioning, the State taxes paid by the assessee in DTAA countries are not eligible for relief under section 90 of the Act. Therefore, the issue which arises is, whether it can be allowed as deduction under section 37 of the Act. No doubt, in assessee's own case i....
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....ized 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 the disallowance made by the Assessing Officer. 41. The Ld.DR relied on the order of the Assessing Officer. The Ld.DR further submitted that the CIT(A) has followed the decision in the earlier years and has not given any independent finding. The Ld.DR further contended that the royalty is embedded in the software imported and, therefore, tax could have been deducted on the same. 42. The Ld.AR, on the other hand, submitted that the payment made by the assessee towards purchase of software is for acquiring of copyrighted article and not for transfer of any right in a copyright. Accordingly, it cannot be concluded as royalty un....
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....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 appellate authority. 9. Learned Commissioner (Appeals) following the order passed by the Tribunal in assessee's own case for the assessment year 2005-06, held that the expenditure incurred on software products acquired for internal use is a capital expenditure, hence, the assessee is entitled to depreciation thereon. However, in respect of payment made towards software products acquired for re-sale / trading purpose, learned Commissioner (Appeals) agreed with the Assessing Officer that it is in the nature of royalty, hence, the assessee was required to deduct tax at source." 7.2. We find that the ld. AR argued that the amendment brought out....
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.... 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 14 makes it clear that "copyright means the "exclusive right", subject to the provisions of the Act, to do or authorise the doing of certain acts "in respect of a work". In the case of computer programmes, section 14(b) specifically speaks of two sets of acts: the seven ads enumerated in clause (a) and the eighth act of selling or giving on commercial rental or offering for sale or for commercial rental any copy of the computer programme. All the seven acts set out in clause (a) delineate how the exclusive right with the owner of the copyright may be parted with. In essence, such right is referred to as copyright, and includes the right to reproduce the work in any material form, issue copies....
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....eas 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. the conclusion that when computer software is licensed for use under an end-user licence agreement, what is also licensed is the right to use the copyright embedded therein, is wholly incorrect. The licence for the use of a product under an end-user licence agreement cannot be construed as the licence spoken of in section 30 of the 1957 Act, as such end-user licence agreement only imposes restrictive conditions upon the end-user and does not part with any interest relatable to any rights mentioned in section 14(a) and (b) of the 1957 Act The ownership of copyright in a work is different from the ownership of the Physical material in which the copyrighted work may happen to be embedded. Any ruling on the more ex....
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....ee 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 'in respect of" copyright, the transfer of all or any rights in relation to copyright is a sine qua non under Explanation2 to section 9(1)(vi) of the Act. in short, there must be transfer by way of licence or otherwise, of all or any of the rights mentioned in section 14(b) read with section 14(a) of the 1957 Act. Indian tax laws use the expression "in respect of" as synonymous with the expression "on" the expression "in respect of", when used in a taxation statute, is only synonymous with the words "on" or "attributable to". This accords with the meaning to be given to the expression "in respect of" contained in Explanation 2(v) to section 9(1)(vi) of the income-tax Act, 1961 and would not in any manner make the expression otiose. STATE OF MADRAS V. ....
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....d 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 1994. It is equally Ludicrous for the amendment which also inserted Explanation 6 to section 9(i)(vi) of the Act, to apply with effect from June 1, 1976, when technology relating to transmission by a satellite, optic fibre or other similar technology was only regulated by Parliament for the first time through the Cable Television Networks (Regulation) Act, 1995, much after 1976. For all these reasons, it is clear that Explanation 4 to section 9(1)(vi) of the Act is no clarificatory of the position as of June 1, 1976, but in fact, expands that posit ion to include what is stated therein, by the Finance Act, 2012. Notification No, 21 of 2C'12 dated June 13, 2012 being issued after Explanation 4 was inserted could not be invoked to assert that Explanation 4 clarifies the legal position as it alway....
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....e 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 persons to deduct tax at source under section 195 of the Income-tax Act. This is reinforced by the fact that the OECD Commentary on articles 30 and 31 acknowledges the fact that the "entry into force" provisions, unlike the rest of the provisions in the OECD Mode! Tax Convention on Income and on Capital, depend on the domestic laws of contracting States. Persons are not obligated to do the impossible, i.e., to apply a provision of a statute when it was not actually and factually on the statute book. Thus the "person" mentioned in section. 195 of the Act cannot be expected to do the impossible, namely, to apply the expanded definition of "royalty" inserted by Explanation 4 to section 9(1 Xvi) of the Act, Or the assessment years. at a time when such Explanation was not actually and factually in the statute. CIT v. NGC NETWORKS (INDIA) P....
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....n 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 of the OECD Model Tax Convention. The OECD Commentary on royalty payments under article 12 states that in a transaction where a distributor makes payments to acquire and distribute software copies (without the right to reproduce the software), the rights in relation to these acts of distribution should be disregarded in analysing the character of the transact ion for tax purposes. Payments in these types of transactions would be dealt with as business profits. From the positions taken by India (in the capacity of an OECD non-member) with regard to article 12 of the OECD Model Tax Convention and the OECD Commentary, which use the language "reserves the right to" and "is of the view that some of the payments referred to may constitute royalties", it is not at all clear what exactly the nature of these positions is. This is in contrast with the categorical la....
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.... 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 distributors or end-users, on the question. whether amounts paid in/ the persons resident in India to non-resident, foreign-n software suppliers, amounted to royalty, and whether it constituted taxable income deemed to accrue in India under section 9(I)(vi) of the Income-tax Act, 1961 thereby making it incumbent upon all such persons to deduct tax at source and pay such tax deductible at source under section. 195 of the Act; Held, (i) that in all these cases, the licence" that was granted under the enduser licence agreement, was not a licence in terms of section 30 of the 1957 Act, which transferred an interest in all or an of the rights contained in sections 14(a) and 14(b) of the 1957 Act, but a licence" which imposed restrictions or conditions for the use of computer software. Thus, none of the end user licence agreements was referable to section 30 of the 1957 Act, inasmuch as section 30 ....
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....ftware, 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 LUCENT CANADA [2015] 372 ITR 476 (1.)(Delhi) affirmed. Decisions of the Karnataka High Court in CIT v. SAMSUNG ELECTRONICS Co. Ltd. 12012J 345 ITR 494 (Karn) and CIT v. SUNRAY COMPUTERS P. LTD. [2012] 348 ITR 196 (Karn) and ruling of the Authority for Advance Rulings in CITRIX SYSTEMS ASIA PACIFIC Pry. LTD., In re (2012] 343 ITR 1 (AAR) reversed. The real nature of the transaction must be looked at upon reading the agreement as a whole. 7.6. In view of the above, the ground No.1 raised by the Revenue is hereby dismissed. The real nature of the transaction must be looked at upon reading the agreement as a whole. 7.6 In view of the above, the ground No.1 raised by the Revenue is hereby dismissed." 44. Respectfully following the above decision of the coordinate bench the ground of the revenue is dismissed. 45. Since we have dismissed the revenue's ground for the reason that the purchase of software entitles the asses....
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....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 co-ordinate bench in assessee's own case for A.Y. 2012-13 (supra) where it has been held that - "8.1. We find that assessee had claimed an amount of Rs. 53,70,92,090/- as dividend income exempt u/s.10(34) of the Act. The assessee made voluntary disallowance of expenses of Rs. 51,58,068/- in the return of income. The ld. AO merely observed that he was not satisfied with regard to the correctness of the claim of expenditure made by the assessee and directly applied the computation mechanism provided in Rule 8D(2) of the Income Tax Rules and made disallowance as under:- (i) Under Rule 8D(2)(i) - Rs. 51,58,068/- (ii) Under Rule 8D(2)(ii) - Rs. 85,38,991/- (iii) Under Rule 8D(2)(iii) - Rs. 14,58,97,513/- Total Rs. 15,95,94,572/- Less voluntary disallowance made by the assessee - Rs. 51,58,068/- Amount disallowed u/s. 14A Rs. 15,44,36,504/- 8.2. We find that assessee had duly given the basis of its voluntary disallowance of Rs. 51,58,068/-....
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....lowance 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 being meager compared to the exempt income earned, cannot be construed as recording of satisfaction. Therefore, respectfully following the ratio laid down by the coordinate bench in assessee's own case, we hold that the CIT(A) has correctly deleted the addition made by the Assessing Officer for want of recording of objective satisfaction with cogent reasons. This ground of the revenue is dismissed. Advertisement Expenses (Brand building expenses) - Ground 4 51. The Assessing Officer noticed that the assessee has incurred a substantial amount of Rs. 125.59 crores towards advertising which is in the nature of promotional and publicity activities. The Assessing Officer held that these expenses are more in the nature of brand building expenses and called on the assessee to file the details and the reason as to why the same cannot be treated as capital in nature. The assessee filed the details of the expenses stating that these expenses are incurred towards advertisement in newspaper, marketing....
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.... 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 business name. The assessee submitted that TDS under section 194J is made on payments made to Tata Sons Ltd. The Assessing Officer held that the payment is for the overall brand building of the assessee company and accordingly, the same is in the nature of capital expenditure which is an intangible asset. The Assessing Officer allowed depreciation @25% on the payments and accordingly made a disallowance of R.29,34,75,023/-. On further appeal, the CIT(A) deleted the addition. 55. The Ld.DR relied on the order of the Assessing Officer. 56. The Ld.AR submitted that the expenditure in respect of payment towards brand equity is the business expenditure for the reason that the subscription fees paid is for the purpose of carrying out normal business activity of the company and that tax under section 194J has been deducted on the payment. The Ld.AR further submitted that the Tata brand is owned by Tata Sons Ltd and the payment is required to be made annually by all subscribers of the Tata group and, therefore....
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....hich 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 by the assessee on account of subscription paid to Tata Sons Ltd. towards TATA brand equity and promotion scheme. While justifying its claim for the said payment, the following submissions were mainly made on behalf of the assessee before the A.O:- * "By entering into the agreement, the assessee became entitle to use and associated itself with TATA name, marks and marketing Indica for the company"s products and services. * The Tata Sons Ltd., protects and enforces the collective image and goodwill of the Tata Group, organize corporate identity, coordinate major campaign involving promotion and development of Tata name, engage the service of specialist and professional consultants for energizing and enhancing the overall Tata brand etc. * By entering into the agreement, Tata Sons Ltd. had granted non exclusive and on assignable subscription to use TATA name and marketing Indica. * The assessee justified the payment stating that the main goal to formulate the scheme was to justify a diverse and diffuse enterprise and make it ca....
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.... forums. Consequently, final disallowance of Rs. 32,42,666/- was made by the A.O. on this issue. 5. We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. counsel for the assessee, at the outset, has invited our attention to the copy of relevant agreement entered into by the assessee company with Tata Sons Ltd. on 4th June, 2001 placed at assessee's paper book page No. 207 to 225 in order to point out the obligation of Tata Sons to look after the entire brand of TATA group. The said obligation being relevant in the present context are extracted below from page No. 210 and 212 of the assessee's paper book:- "a) To protect and promote the interests generally of the Subscriber both in India and abroad. To this end, the Subscriber hereby authorizes the Proprietor to act on its behalf in protecting and enforcing the collective image and goodwill of the Group and preventing any newly developed mark or symbol from being usurped and/or diluted in any way. b) To organize periodically as may be deemed necessary corporate identity and brand promotional activities and campaigns through various media including electronic /telecomm....
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....e support of Group companies to the extent and in a manner permissible under the prevalent laws. k) to encourage support to the Subscriber"s business from Group companies subject to the availability of products and services of a desirable quality at competitive rates. l) to undertake activities which in the opinion of the Board of Directors of the Proprietor Company are essential for the purpose of promoting, developing, maintaining, managing and legally protecting the Business Name, the Marks and Marketing Indica in India and abroad and thereby endeavor to promote the business of the Subscriber to achieve greater profitability and enhancement of stakeholder value. m) To undertake measures to preserve the stability of the management of the Subscriber in order to protect the larger interests of its stakeholders. n) To provide resources for availing services in the areas of 1. Financial and Strategic Management. 2. Legal and Economic matters. 3. Management Develop0ment and Human Resources. 4. Corporate Communications. 5. Community Services. o) For the purposes of promoting the business of the Subscriber to provide assistance in accessing the network of domestic an....
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..... It is pertinent to note that in the case of Tata Steel, another company belonging to TATA group, a similar subscription paid by the assessee company to Tata Sons Ltd. was proposed to be disallowed by the A.O. in the draft assessment order for A.Y. 2008-09 and when the assessee objected to the said disallowance before the DRP by relying on the decision of the Tribunal in the case of Rallis India Ltd. (supra), the DRP directed the A.O. to allow the said expenditure after verifying as to whether the department has accepted the said decision of the Tribunal. On verification, the A.O. found that no appeal was filed by the department against the order of the Tribunal passed in the case of Rallis India Ltd. giving relief to the assessee on the issue of brand equity subscription and accordingly he allowed similar subscription paid by Tata Steel Ltd. in the final assessment completed u/s 143(3) r.w.s. 144-C of the Act vide order dtd. 27-11-2010. It is thus clear that this issue is squarely covered in favour of the assessee by the decision of the co-ordinate Bench of this Tribunal in the case of Rallis India Ltd. which has also been accepted by the department. Respectfully following the sa....
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....issue has been considered by the co-ordinate bench and held in favour of the assessee from A.Y. 2009-10. 62. We heard the parties and perused the material on record. We notice that the co-ordinate bench in assessee's own case for A.Y. 2012-13 has considered the similar issue and held that - "10.1. We have heard rival submissions and perused the materials available on record. We find that assessee always submitted that it had made payment of commission to non-resident agents who are operating outside India. It was specifically submitted that no part of the agents" income arises in India. The payments are remitted directly abroad. The payments are not covered by any of the deeming provisions u/s.9 of the Act and the same is not in the nature of interest, royalty, fees for technical services etc., Accordingly, it was pleaded that the payment of commission to non-resident agents are not chargeable to tax in India u/s. 5 r.w.s. 9 of the Act in the hands of the non-residents and hence, there is no obligation on the part of the assessee to deduct tax at source in terms of Section 195(1) of the Act. 10.2. We find that this issue was the subject matter of adjudication in assessee's own....
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....at source as per the provisions of the Act. The Assessing Officer did not accept the submissions of the assessee and held that the provision of the Act pertaining to deduction of tax at source require the payer to deduct tax at source at the time of payment or credit whichever is earlier and that if the amount is credited to a suspense account or any other account of whatever name called, even then, is called for deduction of tax at source. Since in assessee's case not tax is deducted at source, the Assessing Officer made the disallowance under section 40(a)(ia) towards the entire provision made by the assessee. The CIT(A) by relying on his own decision for the earlier assessment year, deleted the disallowance made by the Assessing Officer. 65. The Ld.DR submitted that the claim of the assessee that the payees / parties are not identifiable while making the provision is not acceptable since assessee being a huge corporate entity would have proper internal systems to record each and every transaction. The Ld.DR further submitted that the provisions are claimed to be made on estimate basis in order to suppress profits and that the submissions of the assessee that correct amount is n....
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.... are reversed in the subsequent year are not liable for deduction of tax at source as such provisions are made only for the purpose of preparation of annual financial statements in accordance with applicable accounting principles/standards 16. I first take up the part I on the matter of disallowance u/s 40(a)(ia). The Assessing Officer called for explanation of the assessee who stated inter alia that a. Entry concerned is made as per accounting standards and policy b. The person concerned to whom sum is payable is not identifiable from the entry c. Tax deduction at source is effected when the person to whom sum payable is identified and thereafter Form 16A is issued. d. Certain case decision is cited The Assessing Officer overruled the assessee and reasons recorded by him included the following: A. Even when sum is credited to suspense account tax deduction at source is to be made B. Bangalore ITAT in case of IBM India Pvt Ltd [TS-305-ITAT-2015(Bang] has stated that even when sum is credited to suspense account tax deduction at source is to be effected and this included provision 17. The matter is examined. The primary requirement to effect disallowance under sectio....
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....provisions. The disallowance made sans valid reasons has no locus stand/. The heading of the disallowance and the computation statement mentions the same as disallowance under section 40(a)(i)2 which leaves doubt as to whether there is an unambiguous finding regarding eligibility under section 37. As an emphatic finding which is reason based is not; present in the assessment order, the alternate disallowance under section 37 is also held not in order, 20. Part III of the ground is against adding the same in computation of Book Profit under section 115JB. I had deleted the substantive addition on both counts. Keeping in view this decision, the Assessing Officer is directed to recompute book profit under section 115JB. 21. In view of discussion above, he Assessing Officer is directed to delete the addition of Rs 2,6551677,983.Parts I, II and III of the ground is disposed of accordingly." 18.2. We find that provision has been made in the books by the assessee as per the standard accounting practices followed by it and that since the accounts of the company are closed within short period after the end of the year, before which the data or invoice from the concerned vendor was not....
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.... of provision on which TDS was not paid. As per the AR bills for the said expenditure were not received during the year under consideration. As per the AR, the appellant company would make year-end provisions based on services rendered by various lenders/professionals. These provisions represented cost of various activities carried out by the company during the relevant financial period. Since, the company was following the Mercantile system of accounting it was required to account for such expenses, even though the concerned parties had not submitted their bills or such bills were pending for approval based on the internal system. At that point of time, since bills from the contractors had not been raised though that was owed by the company in favour of any specific party. Such a debt would be owed only on receipt of the bills and after it had been passed following the procedure. Only at that point of time relationship of debtor and creditor was established and was also an obligation to pay that would amount within the agreed period of time. The obligation, to deduct tax at source from the account of a specific party arose only at the time the bill was passed not before that. Citi....
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....iled in the earlier part of this order. Since the grounds raised by both parties are against the same adjustment for the purpose of adjudication the grounds raised by the assessee and the revenue are considered together. Ground 6 of assessee's appeal is general and does not warrant any adjudication. TP adjustment on provision of software and consultancy services - Ground 7 of assessee and Ground 9 of revenue 71. The assessee is a leading global information technology consulting services and outsourcing company having worldwide presence for more than 20 years. The assessee carries out overseas operations through a web of foreign subsidiaries, which act as marketing and sales support companies of the assessee. The assessee has entered into the following international and specified domestic transactions for the year under consideration. During the year under consideration, the assessee has entered into various international transactions and specified domestic transactions. With regard to the software consultancy services provided to the AE, the assessee in the transfer pricing study has agregated the transactions with AE for the purpose of benchmarking. The assessee applied Tran....
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....perations and hence not comparable with that of the assessee. However the TPO did not accept the submissions of the assessee and arrived at a TP adjustment of Rs. 745,55,81,840/-. On further appeal, the CIT(A) following his own orders for earlier assessment years upheld the action of the ld. TPO in taking AE as the tested party but held that the method adopted by TPO as incorrect. The CIT(A) further held that GP/sales is the appropriate PLI. Further the ld. CIT(A) analysed each of the comparable companies and provided detailed reasons for either inclusion or exclusion thereon. 74. The ld AR submitted before us that all the aspects of this TP adjustment has been duly considered by this Tribunal in assessee's own case for A.Y.2012-13 (supra). The ld DR relied on the orders of the TPO 75. We heard the parties. The relevant observations of the Tribunal in assessee's own case for A.Y.2012-13 (supra) are extracted below - "12. The ground No.5 raised by the assessee is with regard to transfer pricing adjustment made in respect of provision of software consultancy services. The ground No.9 raised by the Revenue for the A.Y.2012-13 is also challenging the transfer pricing adjustment....
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....nd accordingly, the transactions were at arm's length. 12.3. The assessee also made a comparable analysis in the TP study report to justify that its margin are better than the peers i.e. Wipro, Infosys, HCL Technologies, Patni Computers etc., to state that its transactions are at arm's length. The ld. TPO used the same set of comparables as were used by him in assessee's own case for A.Y.2006-07 and considered the AEs as the tested party. The ld. TPO selected companies based in US and considered the same set of US companies as comparable to all other AEs operating in different geographic region. The ld. TPO also computed the margins from the consolidated financials of the said comparable companies instead of looking into stand alone financials. The assessee state that the said comparable companies have got significant related party transactions and there is a huge difference in the scale of operations and hence not comparable with that of the assessee. However, these provisions were not considered and ultimately, the ld. TPO processed to make an adjustment of Rs. 946,91,61,694/- and made an upward adjustment thereon. 12.4. The ld. CIT(A) upheld the action of the ld. TPO in taki....
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....sidiaries are still making loss at net level which signifies that some risk is being borne by the AEs. It has further been brought on record that the manpower base of AEs performed various functions relating to marketing as well as client co-ordination. The AEs have developed sufficient competency to handle the marketing work independently. The entire contract related work is performed by the AEs, though, in cooperation with the assessee. Thus, it is quite natural that for being a sufficiently motivated work force, the AEs are compensated at return on sales and not merely on value added costs. Therefore, learned Commissioner (Appeals) was justified in directing the Transfer Pricing Officer to adopt the PLI of gross margin on sales. As regards consideration by the Transfer Pricing Officer, the outsourcing / subcontracting cost to assessee as a pass through cost, learned Commissioner (Appeals) was absolutely correct in observing that the decision of the Transfer Pricing Officer to exclude such costs while computing the margin of the AEs is incorrect. When similar cost incurred by the comparables were not excluded while computing their margin, a different treatment cannot be given to ....
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....9;s Ground 8 77. The TPO noticed that the assessee had given loan to its AE in the prior years primarily for acquisition of downstream subsidiary by the AE. The details of loan are as given below:- AE Currency Amount as on 01.04.2013 Amount as on 31.03.2014 TCS FNS Australia AUD 9341185 8141185 TCS Morocco USD 3663835 3410485 78. The assessee submitted that these loans are advances to AEs for the purpose of benefit of assessee itself and hence are cash equity in nature. The assessee also contended that there are business and commercial rationale for providing these loans. The assessee charged interest @5% on the loan given to TCS FNS Australia. With regard to the loan given to TCS Morocco, the assessee submitted that the loan was extended for the purpose of working capital requirement and that the business of TCS Morocco was in the process of liquidation during the relevant year and has been liquidated as on 31/05/2014. The TPO did not accept the submissions of the assessee and arrived at interest rate of 9.35% towards loan to TCS FNS Australia and 6.77% towards loan to TCS Morocco based on the LIBOR rate. Accordingly, the TPO arrived at an adjustment towards interest....
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....this context, the assessee has referred to OECD Transfer Pricing Guidelines as well as UK and Australian Regulations. It is evident from the impugned order of the learned Commissioner (Appeals), though, he sketchily referred to some of the submissions made by the assessee, however, he has not at all dealt with them in an effective manner. The learned Commissioner (Appeals), though, has observed that the loans advanced were not merely for downstream acquisition but for a variety of purpose including working capital requirement and other business uses, however, he has not elaborated as to for what other purpose loans were advanced. Without properly dealing with the factual aspect of the issue, learned Commissioner (Appeals) has jumped to the legal aspect and has held that the amount advanced by the assessee is in the nature of loan and has to be benchmarked as such. After considering the submissions of the parties and examining the material on record, we are convinced that various submissions made by the assessee before learned Commissioner (Appeals) have not at all been dealt with. The primary contention of the assessee that the advance made to the AEs is in the nature of quasi equi....
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.... the nature of shareholder activity. The TPO did not accept the submissions of the assessee and applied average of bankers" rate based on State Bank of India's rates to charge a guarantee commission @1.5%. Accordingly, the TPO arrived at a TP adjustment of Rs. 8,90,17,092/-. On further appeal the CIT(A) with respect to performance guarantee followed its own order for A.Y.2009-10 and held that charges should be levied only on the component of services performed by the AE. With respect to lease guarantee which is similar to performance guarantee the 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. 82. We heard the parties and notice that the similar issue has been considered by the coordinate bench in assessee's own case for AY 2012-13 (supra) where it is held that - 14. The ground No.7 raised by the assessee is challenging the transfer pricing adjustment made in respect of provision of guarantee. The ground Nos. 10-12 raised by the Revenue for A.Y.2012-13 are also in respect of transfer pricing adjustment made in respect of provision of guarantees in respect of pa....
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....Canto Cylinders Ltd. (supra), we direct the Assessing Officer to charge guarantee commission @ 0.5% per annum both on performance / lease guarantee as well as financial guarantee." 14.4. Respectfully following the same, ground No.7 raised by the assessee and ground Nos.10-12 raised by the Revenue for A.Y.2012- 13 are partly allowed. 83. Respectfully following the above decision of the coordinate bench we hold the provision of guarantee as an international transaction and direct the assessing officer to charge guarantee commission at the rate of 0.5% following the decision of the Hon'ble jurisdictional High Court. Adjustment made towards receipt of brand royalty from AE - Ground 11 of revenue's appeal 84. The TPO was of the view that the assessee has been recognized as one of the big 4 in the information technology for A.Y. 2013-14 and is a very powerful brand and the value of brand has been quantified at 8.2 billion USD as per the annual report. The assessee submitted before the TPO that the brand legally owned by the Tata Sons Limited and so the assessee has no right to charge for fees for the brand. 85. The assessee also submitted that the revenue sharing model it fo....