TaxTMI 
TaxTMI 
2022 (8) TMI 1502
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....nt Commissioner of Income Tax/Income-tax Officer, National e-Assessment Centre, Delhi ('Ld. AO') are bad in law. 2. Ld. AO has erred on facts and in law in determining total income of the Appellant at INR 7,218,234,160 as against a returned income of INR 5,526,284,370. Part I - Transfer Pricing Matters 3. That on facts and in law, Hon'ble DRP and the Ld. TPO/Ld. AO erred in making an adjustment of INR 1,569,263,482 to returned income of the Appellant in respect of international transaction pertaining to contract software development services ('SWD' or 'Impugned Transaction') 4. Transfer pricing adjustments made to the Impugned Transaction by Ld. AO based on order of Ld. TPO giving effect to the directions issued by Hon'ble DRP is bad in law inter-alia as the Appellant's AE was being charged to tax at a higher rate in the US and there was no advantage of shifting of any profit from a low tax paying country to a high tax paying country. 5. That on facts, Ld. AO/Ld. TPO erred in providing full effect to the directions issued by Hon'ble DRP in relation to computation of operating margin of tested party....
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....ent losses for last 3 years including FY 2015-16. 10. Hon'ble DRP and Ld. TPO/Ld. AO erred in facts and in law, by wrongfully rejecting certain functionally comparable companies and adding certain non-functionally comparable companies to the final set of comparable, on ad-hoc basis. They have resorted to cherry picking of comparable companies to determine ALP for the Impugned Transaction. 11. Hon'ble DRP and the Ld. TPO/Ld. AO erred in law and in facts by selecting certain companies which are earning super normal profits, as being comparable to the Appellant. 12. That on facts and in law, Hon'ble DRP and Ld. TPO/Ld. AO have grossly erred in incorrectly treating foreign exchange fluctuation as non-operating while computing operating profit of comparable companies and tested party. 13. That on facts and in law, Hon'ble DRP and the Ld. TPO/Ld. AO have grossly erred by not appreciating the fact that Appellant operates as a risk free service provider and all the risks associated with the Impugned Transaction was borne by the foreign AE and not by the Appellant, thus, the Appellant is entitled to suitable adjustments to account for diff....
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....in computing total income, tax, interest u/s. 234B of the Act. Necessary directions may please be given to the Ld. AO in this regard. 19. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty u/s. 271 (1)(c) of the Act." 3. The assessee is a Private Limited Company engaged in the business of software development and product support services. It filed its return for AY 2016-17 on 29.11.2016 declaring total income of Rs. 5,53,01,09.910/- which was subsequently revised to Rs. 5,52,62,84,370/- on 26.03.2018. The case was selected for scrutiny under CASS. The Ld. AO completed the assessment under section 143(3) r.w.s. 144C of the Act on 30.03.2021 on total income of Rs. 7,21,82,34,156/- including therein addition of Rs. 1,56,92,63,482/- on account of transfer pricing adjustments and Rs. 12,26,86,304/- on account of difference of rental income offered as other sources. 4. Aggrieved, the assessee filed appeal before the Tribunal and all the grounds of appeal relate to the above mentioned addition to the income returned. 5. We have heard the Ld. Representatives of the parties, considered their submission and perused ....
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....l in the assessee's own case for AY 2011-12 and 2012-13. Whereas the Ld. DR took lot of pains and in his written submission filed before us attempted to prove that the facts in the case of Sultan Brothers Pvt. Ltd. (supra) and in Jay Metals Industries Pvt. Ltd. 84 taxmann.com 11 (Delhi High Court) are different from the facts in assessee's case on following points:- "6. Submission distinguishing Sultan Brothers P Ltd. and Jay Metals Industries P Ltd. being on different facts- 1) The provisions of the section 56(2) are also being reproduced as under- "56 (2) in particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely:- ................................................................................................................................... (iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it ....
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....stablishes that it was the intention of the parties to it that the furniture and fixture and the building should be enjoyed all tighter and not one separately from the other." • The relevant clauses at page 5 para 1 of the lease deed in the present case under appeal before ITAT are reproduced below- • "3.4 The Lessor shall provide adequate power load to the LESSEE to run its commercial operations smoothly without any hindrance from the LEASED PREMISES. The LESSOR has agreed to provide at the LEASED PREMISES electricity and power load of not less than 1 KW/SFT for the exclusive use of the LESSEE. The LESSOR shall provide to the le LESSEE additional/new electricity and power load in future as may be required by the LESSEE. Any payment which may be required to be made to the electricity board or authorities or any other agency for the additional/new electricity and power load to bring it to the LESSEE'S desired requirements shall be paid by the LESSOR." • At page 6 para 3- • "3.7.4 In the event the services mentioned in this clause 3.7 are not provided by the LESSOR to the satisfaction of the LESSEE, the LES....
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....hereby Section 56 (2) (Hi) of the Act was attracted. Applying the test laid down in Sultan Bros, (supra) the income from the letting in the hands of the Assessee was "a new kind of income" which could be considered to be income from house property since the income not from the ownership of the building alone "but an income which though arising from a building would not have arisen if the plant, machinery and furniture had not also been let along with it". 7. In view of the above, it is submitted that the judgment of the Hon'ble Supreme Court in the case of Sultan Brothers and the judgment of Hon'ble High Court in the case of Jay metals Industries Ltd. cannot be relied upon in the present case as the facts in this case i.e. M/s. Microsoft India Pvt. Ltd. are different. Moreover, from the conjoint reading of Para 3.4 (Pg. 5) and Para 3.7.4 of lease deed in M/s. Microsoft India (R & D) Pvt. Ltd. (Pg 6 it is apparent that the lessor is required to provide the Services in form of (electricity, Air Conditioning, Power Backup etc.) to the lessee for which the infrastructure such as (Central Air Conditioning with ducting, DG Power Supply, Network equipments, Occupancy Sensors, V....
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....sability, the assessee after having filed the original return for AY 2013-14 filed revised return claiming therein that the rental income is assessable under the head 'income from other sources'. Adopting the reasons given in earlier years, analyzing the nature of lease agreement, holding that the assessee is not receiving composite rent as recommended by the Hon'ble Supreme Court in Sultan Brothers Pvt. Ltd. (supra) and that the lease deed is between related parties, the Ld. AO made the impugned disallowance which is confirmed by the Hon'ble DRP. 11. We observe that this issue came up for consideration before the Tribunal pursuant to the directions of the Hon'ble Delhi High Court for AY 2011-12 and 2012-13. The Tribunal in its order in ITA No. 1479/Del/2016 and ITA No. 507/Del/2017 dated 14.06.2021 proceeded with considering the decision of Hon'ble High Court in Jay Metals Industries Pvt. Ltd. 84 taxmann.com 11 wherein similar issue was considered and decided. In para 9 the Tribunal set out the question of law before the Hon'ble Delhi High Court and in para 10 extracted the observations of the Hon'ble Delhi High Court and analysed the facts of th....
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....ed himself showing that the lessor has agreed to provide services which have been enumerated hereinabove elsewhere. Therefore, considering the facts of the case in hand, we find that letting is not merely of the building but a composite let out of both building as well as equipment/furniture etc and thereby 56(2)(iii) of the Act is attracted. 21. Respectfully following the ratio laid down by the Hon'ble Supreme Court in the case of Sultan Brothers [supra] and the Hon'ble High Court of Delhi in the case of Jay Metals [supra], we direct the Assessing Officer to treat the income from letting out of the building as income under the head "Income from other sources". 22. The other ground which relates to the claim of expenses and depreciation u/s. 57 of the Act has already been answered by the Hon'ble High Court of Delhi in the case of Jay Metals [supra] as under: 26. However, the last plea made by the Assessee is that in that event the entire income from the letting is treated as 'income from source sources', it cannot be deprived of the corresponding deduction in terms of Section 57(iii) of the Act. The Revenue too has not disputed the fac....