TaxTMI 
TaxTMI 
2024 (4) TMI 390
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.... TP USA for rendering voice based call center services. In terms of the Agreement between 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 sup....
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....transaction of payment of royalty shall be taken to be at NIL and TPO made disallowance of entire payment of Royalty 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. 64,75,32....
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....ces rendered to unrelated third parties are covered in the Addendum to Royalty Agreement entered by the appellant. The ld. TPO, 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 ....
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....e on account of the ongoing TP proceeding for the A.Y(s) concerned." 7. That the DRP/TPO erred on facts and in law in allegedly concluding that "post facto agreement effected by the assessee 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 'accumulat....
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....r supporting the aforsaid contentios; - CIT vs. Malayalam Plantations Limited: 53 ITR 140 (SC) - CIT v. Walchand& Co. etc. (1967) 65 ITR 381 - J K Woollen Manufacturers v. CIT: 72 ITR 612(SC) - CIT v. Birla Cotton Spg. And Wvg. 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-avoidan....
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.... line with the agreement held that the royalty has to be paid to AE only proportionate to the sales made to the third party and no royalty is payable in respect of sales made to AE (affiliates). 21. Ld. DR has pointed out that the assessee has filed an undated addendum before the Hon'ble ITAT as additional evidence somewhere 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....
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....ion, firm, partnership, or other entity, whether de jure or de facto, that directly or indirectly owns, or is under common ownership with a party to this Agreement to the extent of at least 50 percent of the equity having the power to vote on or direct the affairs of the entity and any person, firm, partnership, corporation, or other entity actually controlled by, controlling, or under common 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 Gros....
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....t the agreement and the addendum to the agreement in not registered/ dated and that the addendum is a post facto exercise to avoid tax liability arising out of TP proceedings undertaken in the first round of proceedings. This is the basic controversy. As to if the addendum has to be left out of consideration for determining the ALP of the transaction. We find substance in the contention of Ld. Sr. Counsel that for a transaction to be undertaken with any other entity, the inter-company 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 sug....
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.... ongoing TP proceeding for the A.Y(s) concerned." 30. In this regard, it comes up that appellant does not dispute the fact post facto agreement the addendum was entered. We have taken into consideration the facts and circumstances and the submissions and we find that more than the Intangible and Proprietary Licence Agreement dated 2nd January, 2002, the Foreign Collaboration Agreement dated 2nd January, 2002 between the TP USA and the assessee is of more significance. In this collaboration agreement, the relevant para 4.1, 5.1 to 5.9 read as under:- "4.1 The 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 ....
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....in India was being established not for catering any local business, but, the assessee was supposed to provide services to clients of TP USA. These clauses categorically and conclusively lead us to believe that fundamental intention of the parties was that TP USA was supposed to solicit the work which was to be executed by the assessee. There is no material before us on record nor there is any case of the AO that apart from the work solicited by TP USA the assessee company had procured any work outside India on its own. When these clauses are read along with the licensing agreement dated 2nd January, 2002, the only conclusion that can be drawn is that there was consensus ad idem between parties that royalty is to be paid 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 DR....