TaxTMI 
TaxTMI 
2024 (4) TMI 390
X X X X Extracts X X X X
X X X X Extracts X X X X
....tween TP USA and the appellant, any calls made by the customers of AT&T for voice based call center services are attended to by the appellant in India. The time spent by the appellant in India for attending to calls from various customers of TP USA is metered and the appellant is compensated by TP USA at the agreed rate(s) for the time spent. TP USA in turn bills the customer(s) and recovers its revenue. Accordingly, the appellant provided voice based call center services to third parties, which are customers of TP USA, viz., Adobe, Microsoft, San-disc, etc. 3. In order to undertake the business as explained above, the appellant has entered Foreign collaboration agreement dated 02-01-2002 [Pages 208 to 213 of the paper book] with its associated enterprise which agrees that the appellant will provide services to customers of TP USA in different parts of the world through its facility situated in India. In terms of the agreement, TP USA, in addition to providing marketing, information technology and systems support to the appellant company and training to the employees, would provide management support and on-site technical assistance and training to ensure international standard of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oyalty of Rs. 1,28,68,402. The DRP, in its directions dated 29.11.2013 passed for the assessment year 2009-10, has accepted the fact that the appellant has been benefitted from the payment of royalty made to the associated enterprise. The DRP, however, has held that royalty is allowed to be payable by the appellant only in respect to services rendered to unrelated third parties. The DRP, in its directions had interpreted certain clauses of the royalty agreement while sustaining addition made by the ld. TPO. DRP concluded that the appellant is obliged to make payment of royalty to TP USA for use of the "Teleperformance" trade mark and logo only in the sales made to third parties. Accordingly, royalty paid to TP USA qua revenues received from TP USA from sale of services was disallowed on the ground that the same not being part of sale of services to third parties did not form part of "accumulated gross revenues" and accordingly no royalty was payable with respect to such sale of services. In terms of the direction of DRP, the ld. TPO restricted the adjustment to Rs. 64,75,322 being royalty paid on sale of services made to TP USA out of the total payment of Rs. 1,28,68,402. 10. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....however in the order passed in second round of proceedings sustained the adjustment in the transaction of payment of royalty in the manner consistent with the direction of the Hon'ble DRP in appellant case for the AY 2009-10 and disallowed the royalty in proportion to the revenue that has been generated through TP USA, holding as under - 6.16 Given the overall factual matrix of the case, this office is of the considered opinion that the services rendered by the Appellant to a third party customer on behalf of its AE are to be considered as sales made to AE. Also, because the bill(s) raised by the Assessee to its AE was for the services rendered to the client of the AE, the Appellant was not required to pay the royalty on it. As such the amount of Royalty that has been paid by the appellant w.r.t. the clients of the AE is benchmarked using CUP as MAM, and as such be treated as NIL. Revenue Generated Amount of Revenue Generated during the AY 2009-10 Amount of Royalty paid during the AY 2009-10 Indirectly through TP USA 37,29,05,947 64,75,322 12. The ld.DRP vide directions dated 14.03.2022 sustained the adjustment made by ld.TPO. Therefore, before us the assessee is in app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee cannot change the substance of the transaction already entered into between the assessee and the AE as per an earlier original agreement" not appreciating that addendum to the agreement was entered to clarify the intention existing between the parties from the date of entering the agreement. 8. That on the facts and circumstances of the case and in law, the assessing officer erred in levying of interest under section 234B, 234C and 234D of the Act. The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal before or at the time of hearing." 13. Heard and perused the record. 14. It is submitted by Ld. Sr. Counsel that for the services rendered to third parties, who are clients of TP USA, the assessee receives payment for the services rendered to such third parties from TP USA. Since the services are rendered to third parties, notwithstanding that the revenues are received from TP USA, the same are considered as part of 'accumulated gross revenues' on which royalty is calculated. Ld. Sr. Counsel has submitted that the royalty is paid by the assessee on direct sales by the assessee to third parties as well sales to third parties (who are cu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g. Mills Ltd.: 82 ITR 166 (SC) - Madhav Prasad Jatia v. CIT U.P.: 118 ITR 200 (SC) - S.A. Builders Ltd. vs. CIT : 288 ITR 1 (SC) - CIT V. Bharti Televentures Ltd: 331 ITR 502 (Del) - CIT vs. Padmani Packaging (P) Ltd. : 155 Taxmann 268 (Del) - CIT v. Rockman Cycle Industries Ltd.: 331 ITR 401 (P&H) (FB) - CIT vs. EKL Appliances Ltd. : ITA No. 1068/2011 & 1070/2011 (Del HC) - CIT v. Dalmia Cement (P.) Ltd: 254 ITR 377 (Del) 18. Ld. Sr. Counsel, refered to the Hon'ble Supreme Court judgment in the case of Vodafone International Holdings B.V. vs. Union of India &Anr., 341 ITR 1, wherein, the apex Court after considering the jurisprudence that has developed in India and England over the years, on the issue of tax avoidance and tax evasion, permissible and impermissible transaction, sham, bogus and colorable devices, held that on application of judicial anti-avoidance rule, the Revenue may, in the facts of a given case, invoke the "substance over form" principle or "piercing the corporate veil" test and disregard the transaction/structure, if there is abuse of organization/legal form without reasonable business purpose, which results in tax avoidance. 19. Ld. Sr. Counsel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....here in 2014-2015 which was basically a post facto arrangement to change certain clauses of the agreement it has signed with its AE on 02.01.2002 and the intention behind this addendum was to somehow avoid the tax liability which has arisen because of DRP directions on the interpretation of clauses of the agreement. Thus by way of an undated, incomplete and invalid addendum with no mention of place, how it was signed etc. which came to surface only in 2015 i.e. at least 12-13 years after signing of agreement, the assessee has tried to change the conditions stipulated in the agreement with its AEs. As the AEs own entire share holding of the assessee company, this practice of changing the conditions in agreement was nothing but proves the collusive nature of transactions between the assessee company and its AE. In fact, by perusing the very sequence of events/dates, the only inference which can be drawn is that by an addendum the assessee tried to avoid the tax liability which has been imposed on it by the TPO/DRP based on the simple literal construction of the clauses of the agreement. 22. Ld. DR has questioned the authenticity and genuineness of the addendum filed by assessee as a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n control with a party to this Agreement." "1.15 Third Party or Third Parties "Third Party" or "Third Parties" shall mean any entity other than a party to this Agreement or an Affiliate." 3.1 Compensation: a. Payment of Annual Royalty. Subject to Section 3.2 below, as consideration for the rights granted under this Agreement, TP India shall pay to TP USA an annual royalty (the "Royalty") payable in monthly instalments in an amount equal to two percent (2%) (the "Royalty Rate) of the aggregate Accumulated Gross Revenues of TP India. The Royalty shall be paid to TP USA within ten (10) days following the end of each month, based upon the aggregate Accumulated Gross Revenues of TP India from the immediately preceding month and any of the aggregate Accumulated Gross Revenues of TP India from any other prior months with respect to which the Royalty has not been paid. At the time the Royalty is paid, TP India shall also provide such documentation of the aggregate Accumulated Gross Revenues of TP India in the form of the Royalty Notice. Any unpaid Royalties shall accrue and be payable by TP India as soon as cash is available. The parties hereby agree that no dividends shall be decl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... agreement is not required to be registered/ notarized under any provisions of the law. In this context we may refer to the definition of "transaction" in Clause (v) of section 92F of the Act, where the term "transaction" is defined as under: "92F .......................... "(v) "transaction" includes an arrangement, understanding or action in concert, - (A) Whether or not such arrangement, understanding or action is formal or in writing; or (B) Whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding". 27. Rule 10B(2) of the Rules, which provides for comparability of a transaction with uncontrolled price, also suggest that the contractual terms of the inter-company agreement has to be considered whether or not such terms are formal or in writing, as under:- "(2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he CRM INDIA's principal business shall be to set up and operate Customer Response Centre unit in India to exploit growth opportunities in the IT enable arena. CRM INDIA will provide services to customers of TPUSA in different parts of the world through any and all medium of communications including using computers (Internet, email, etc.) and telephone through its Customer Response Call Centres. The services to be provided include inter alia eCRM * Web based support - chat, email * Telephone support - voice and tax * Outbound Marketing - voice and email Knowledge Management * eCRM Database Management * eCRM Database Mining * Web based Self Help Solutions IT Support Services * Remote Website Administration * Remote back office support * Remote Systems Administration ...................... 5.1 TPUSA shall pay for the services provided by CRM INDIA to the overseas clients of TPUSA. 5.2 The payment for such services provided by CRM INDIA by TPUSA shall be done on the basis of an hourly rate for each hour of service time spent by the customer service executives on work related to the clients of TPUSA. 5.3 The hourly rate shall be fixed in advance between ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with respect to the entire sales revenue of the assessee in regard to overseas clients of TP USA, including sales to third party customers for TP USA for which Revenue is received from TP USA. We are of the firm view that the addendum was entered upon to just bring more clarity to this understanding and it cannot be said that this post facto addendum was made with intention to undo the findings of DRP. 32. We fail to appreciate the observations and findings of DRP that a subsequent agreement executed in 2014 can not go back and influence the transactions already effected much earlier on the strength of an earlier agreement, so as to determine whether the earlier transaction was carried out at Arm's Length Price or not. If such a position is allowed, then an assessee can modify an agreement at any time after the date of international transaction as per an earlier agreement and by changing the clauses and terms, seek to modify the Arm's Length price already determined for earlier years. If at all, such post facto agreements should only have prospective effect as far as determination of Arm's length price of international transactions is concerned. 33. The addendum does ....