TaxTMI 
TaxTMI 
2024 (9) TMI 1120
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....d return was filed declaring an amount of Rs. 148,63,60,592/- on 29.03.2012. The return was processed under section 143 (1) of the Income-tax Act, 1961 (for short 'the Act'). The case was selected for scrutiny and notices under section 143(2)/142(1) of the Act were issued and served on the assessee. In response, ld. AR of the assessee attended and submitted the relevant information as called for. 4. The assessee is a wholly owned subsidiary of Sony Corporation, Japan. During the year under consideration, the assessee is engaged primarily in import and distribution of authorised Sony products (audio/visual entertainment products) in the Indian market. The assessee had undertaken international transactions with its Associated Enterprises (AE) and it has entered into international transactions which was more than Rs. 15 crores. By following approval process under section 92CA of the Act, the case was referred to TPO u/s 92CA (3) of the Act). Before TPO, documentation prescribed under Rule 10D of the Income-tax Rules, 1962 was submitted. 5. After considering the documents submitted by the assessee, ld. TPO observed that the assessee has entered into international transactions mai....
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....rables in SISC Division and 7 comparables in SARD Division. After considering the selection process in the comparables and filters applied by the assessee, the AO rejected the same and selected the final comparables and benchmarked the same. For the sake clarity, the same are reproduced below :- No. Name of the Company OP/OC(%) After Working capital adjustment OP/OC (%) i. Akshay Software Technologies Ltd. -1.04 -1.31 ii. E-Infochips Bangalore Ltd. 72,69 65.25 iii. Evoke Technologies Ltd. 19.02 18.78 iv. E-Zest Solutions 18.66 13.93 v. Infinite Data Systems Pvt. Ltd. (Merged) 88.25 83.85 vi. Infosys Ltd. 45.08 45.51 vii. Larsen & Toubro Infortech Ltd. 20.48 20.09 viii. LGS Global Ltd. 12.79 7.57 ix. Mindtree Ltd. 16.62 14.61 x. Persistent Systems Pvt. Ltd. 30.50 27.96 xi. Persistent Systems and Solutions Ltd. 15.38 11.95 xii. RS Software (India) Ltd. 10.29 10.28 xiii. Sasken Communication Tech. Ltd. 17.54 17.97 xiv. Tata Elxsi Ltd. 19.82 17.14 xv. Thinksoft Global Services Ltd. 17.35 13.73 ....
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....ket survey expenses with SEAP in the ratio of benefit available to SID and its Group entities. During FY 2009-10, SID received Rs. 2,549,829/- from SEAP towards such marketing survey reports." 10. Further, he observed that the assessee company does not own any intangible assets. Further, he observed that the benchmarking of receipt of marketing cost incurred on behalf of the AE required to be analysed separately and he analysed the marketing and distribution function performed by the assessee and from the audited financial reports of the assessee company, he observed that it does not own any intangibles in the nature of brand name, trade mark or any other market intangibles. Accordingly, he issued a show-cause notice to submit expenses incurred by the assessee on Advertisement, Marketing and Promotion (AMP) for sale of products of its assessee and basis for reimbursement only part of such expenses. The TPO analysed the whole agreement and the transactions entered by the assessee with its AE relating to AMP expenditure and relevant agreements entered with them. TPO rejected the submissions of the assessee and proceeded to adopt Bright Line Test (BLT) for benchmarking the AMP expe....
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....ced from the opening WDV of the block to which such asset belongs. The WDV of 'block of asset' is to be calculated as follows: Opening WDV of the block of asset xxx Add: Actual cost of any asset falling within that block Acquired during the year xxx Less: Moneys payable in respect of any asset, falling within that block, sold or discarded or destroyed during the year xxx Closing WDV xxx (iii) In view of above statutory provisions, if some of the assets of the block are sold and the WDV computed in accordance with section 43(6)(c) is positive (i.e. the moneys payable in respect of assets sold / disposed-off is less than the WDV of the block), depreciation would still be available as long as the block continues to exist (i.e. the block consists of even a single asset). (iv) It is an undisputed fact that assets of Dharuhera 'unit formed part of respective 'block of assets' viz. furniture & fittings, building, plant & machinery etc along with other items of assets in these blocks belonging to the assessee. Further, it is also not in dispute that upon sale of assets of Dharuhera unit, the &#....
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....f the assessee, since in the said decision, it has nowhere been held that depreciation shall not be available in respect of assets sold / discorded. In view of above, it is respectfully submitted that depreciation claimed by the assessee on the residuary WOV of assets of Dharuhera unit should not be disallowed." After considering the submissions of the assessee, Assessing Officer rejected the same and observed that even after 'block of asset' concept, the 'ownership' of the asset as on the end of the year when the depreciation is worked out and 'use' of the asset during the year are still fundamental requirements to be satisfied u/s 32 of the Act for allowance of depreciation. He distinguished the case laws relied upon by the assessee and further observed that it is completely inconceivable that the assessee can be allowed to claim depreciation in respect of the unit which is no longer owns and which it has already transferred. With the above observation, the Assessing Officer disallowed the same to the extent of Rs. 92,34,278/-. 12. Further Assessing Officer made other corporate disallowances in advertisement and selling expenses of Rs. 25,84,21,700/-, excess ....
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....P expenses were incurred by the Appellant as part of its distribution business and not for the purpose of providing sole benefit to its associated enterprise and thus could not be considered to be a transaction under section 92F(v) of the Act, since there was no understanding or arrangement or action in concert for provision of service. 6. That the Ld. AO/ Ld. TPO/ Hon'ble DRP failed to appreciate that AMP is one of the functions performed along with other functions such as purchase, inventory management, dealer management, after sales, etc. by the appellant in conducting the "International Transaction" which is import &distribution and in view of the appellant's functional profile, it cannot be benchmarked and compensated separate from the international transaction of import of products. 7. That the Ld.AO/Ld.TPO/Hon'ble DRP erred in not appreciating that the functions performed by the Appellant had been compensated by the AE in such a way that the gross margin earned by the appellant was sufficient enough to cover all costs incurred including AMP expenses. 8. That the Ld. AO/ Ld. TPO/ Hon'ble DRP failed to appreciate that once the net ope....
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..... TPO has erred in law and on facts and circumstances of the case, by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules. 17. That the Ld.TPO has erred, in law and on facts and circumstances of the case, by benchmarking the SISC and SARD software divisions of the software segment together. 18. That the TPO has erred, in law and on facts and circumstances of the case, by accepting companies that are not appropriate as comparables vis-a-vis the Appellant and should have been rejected. 19. That the Ld. TPO has erred by inappropriately rejecting companies based on either factually incorrect reasons or by applying inappropriate filters. 20. That on the facts and circumstances of the case and in law, the Hon'ble DRP has grossly erred in following the approach of Ld. TPO of not accepting the use of multiple year data and determining the arm's length margins using data pertaining only to FY 2009-10. 21. Without prejudice to above, the Hon'ble DRP has erred in upholding the decision of Ld. TPO/Ld.AO of not making suitable adjustments to account for differences in th....
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....ove, that on the facts and circumstances of the case and in law, Hon'ble DRP I Ld. AO have erred in adding back the deduction claimed by the Appellant under section 10AA of the Act as well the allocated expenses to the income of non-SEZ unit which has resulted in double addition. 27. That on the facts and circumstances of the case and in law, the Hon'ble DRP /Ld.AO have erred in allocating expenses such as provision for doubtful debts, loss on sale of assets, contracting charges etc., which were not even incurred by the SEZ unit of the Appellant during the subject year. 28. That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld.AO have erred in allocating expenses of sales and distribution expenses of INR 468,52,81,500, which were not even incurred by the SEZ unit of the Appellant during the subject year as it was engaged in the business of provision of IT/ITES services only to its associated enterprises and was not required to (directly or indirectly) incur any advertisement and sales promotion expenses to market its services to its AEs. Without prejudice 29. Without prejudice, that on the facts and circumstances of the c....
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....itional ground no. 1, that on the facts and circumstances of the case and in law, the assessing officer/DRP ought to have restricted the levy of the dividend distribution tax, on the dividend of Rs. 588,151,791 distributed I paid to Sony Holding (Asia) B. V, Netherlands to 10 percent in terms of Article 10 of the India-Netherlands DTAA, instead of 16.995 percent charged in terms of section 115-O of the Act. 3. That on the facts and circumstances of the case and in law, the assessing officer/DRP ought to have restricted the levy of the dividend distribution tax, on the dividend distributed I paid to Sony Gulf FZE, Dubai UAE, to 10% in terms of Article 10 of the India-UAE, instead of 16.995 percent charged in terms of section 115-O of the Act." 16. At the time of hearing , ld. AR for the assessee submitted as under :- "Documents submitted before the Hon'ble Tribunal * Appeal memo alongwith grounds of appeal - TPO Order (Pg 1-103), Draft assessment order (Pg 107-118), Objections in Form 35A filed before DRP (Pg 119-405), DRP Directions (Pg 406- 442), Assessment Order (Pg 445-460) * Paper book (Volume 2A) - TP Report (Pg 1-265), Audited financ....
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....und at pages 31 to 47. Kind attention is invited to FAR of 'import of finished goods for resale' at page 31 to 37 - especially to page 34 wherein marketing, sales and distribution functions in the context of international transaction of import of finished goods for resale are described. Similarly, kind attention is invited to page 44 of paper book 2 A, wherein details relating to 'Receipt of Marketing cost incurred on behalf of AE's' is set out. For completion it may be mentioned that details of software development services are set out at page 47 to 58. Economic Analysis (for combined international transaction 1 to 8) carried out is detailed from page 64 of paper book - attention is invited to conclusion on page 75. At page 264 of paper book 2A tested party margin working can be seen, it is important to note that entire Advertisement, Marketing and promotion expenditure including discounts etc., (of Around 370 crores approx.) is considered as cost for margin determination of combined transaction as explained briefly hereinabove. Similarly, page 262 shows margin working of comparable companies. Economic analysis for software developmen....
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....er without prejudice to other contentions, with reference to pages 487, 326 and 526 it was explained that before Ld. TPO all possible ways of analysis were submitted to establish that whichever way one looks at the margin already earned by Sony India Pvt limited from international transaction of distribution (bench marked as combined transaction) has more than adequately compensated for all AMP expenditure. The margin earned by the assessee @ 2.28% in the consumer electronics segment (refer page 264 of paperbook 2A) is higher than the average operating profit margin of the companies considered by the TPO for benchmarking the alleged transaction of AMP expenses @ (-) 5.62% (refer page 486 of the paperbook 2B). It is not the Assessee's case that expenditure towards AMP need not be taken into consideration for purposes of benchmarking, on the contrary it is Assessee's contention that AMP expenditure is already taken into consideration for benchmarking of international transaction of "import of finished goods for resale OR distribution", which have been found to be at arm's length after considering such cost. Hence, the same expenditure cannot again be considered for benchmarki....
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....nsaction of distribution is found to be at arm's length after considering entire AMP expenditure as cost, multiple counting of the same cost for benchmarking receipt of advertising expenditure from AE is unjustified, invalid and impermissible. Adoption of TNNM for benchmarking combined transaction of distribution has not been disputed. Department has not established existence of separate international transaction of AMP, except the international transaction of reimbursement of Rs. 50.44 Lacs as reported in Form 3 CEB/Transfer pricing study. Therefore, Rs. 50.44 lacs can be benchmarked but expanding scope of this transaction by inclusion of AMP function of distribution transaction once again is unlawful and unjustified. As far as benchmarking of software development services is concerned the approach adopted by Ld. TPO by working out tested party margin at 18.07 % and discussion relating benchmarking all related activities as one segment, observations in the context of comparable companies etc., to reach final set of 16 comparable companies at page 54, (Appeal Set) is not being repeated herein as the same is covered by way of detailed CHART submitted a....
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....of Hon'ble High court in Maruti 3811TR 117 it is submitted that insertion of explanation under section 92 B does not automatically make AMP and international transaction. By reference to para 76 it is submitted that in the absence of any machinery provision it was unlawful to bring to tax imaginary transaction of AMP. Lastly, by reference to para 86 it is submitted that Hon'ble High court reiterated the guidelines laid down in para 193 and 194 of Sony Ericsson. Even while Hon'ble High court proceeded on the basis that in batch of cases involved in 374 ITR 118 international transaction of AMP existed, this cannot be taken as a universal principle being laid down that in all cases wherein expenditure is incurred towards AMP an international transaction of AMP exists invariably and that there is no necessity to establish such existence by reference to specific facts and circumstances. Further Hon'ble Court laid down several guidelines for combined / aggregated benchmarking, set off, exclusion of selling and distribution expenditure, relief to be granted when margin in TNNM is better than that of comparable companies (as is evident from para 194). H Al....
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.... of distribution (para 8) , it cannot be said that Sony brand gained popularity only because of AMP expenditure of Sony India pvt limited ( para 13) and as operating margins of appellant in distribution transaction were at arm's length it could be concluded that assessee was suitably remunerated (para 24) (pg 229-247 of convenience compendium). J Decision of Hon'ble Tribunal dated 16.01.2019 in ITA no 6389/De1/2012 for Ay 2008-09 in assessee's own case AMP adjustment was deleted following decision in Ay 2007-08 (supra) (pg 453-484 of convenience compendium). K Decision of Hon'ble Tribunal dated 22nd April 2019 in ITA 1764/DEL/2015 in case of Casio in similar circumstances held that FAR of casio included marketing (kindly refer page 23) and Hon'ble Tribunal concluded that no international transaction of AMP was shown to exist requiring separate benchmarking (pg 294-354 of convenience compendium). L Recently, this Hon'ble Tribunal vide decision dated 18.05.2020 in the case of Casio (ITA 9312/Del/2019) held that there is no international transaction of AMP and deleted the adjustment (pg 493-507 of convenience compendium). M D....
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....ng that no double disallowance can be made, directed the assessing officer to verify the record and compute disallowance over and above suo moto disallowance by the appellant. Consequently, the assessing officer vide rectified order dated 12.07.2016 (pg 372-374 of convenience compendium) while holding that the expenses already debited to the SEZ unit is more than the apportioned expenses, deleted the disallowance made in the original assessment order. Copy of the all orders for the assessment year 2011-12 are enclosed in part 7. Additional ground of appeal relating to deduction of education cess (including secondary and higher education cess) of Rs. 1,27,08,933 on income tax paid. Refer application for admission wherein cases deciding the issue in favour of the assessee are enclosed (pg 11-157 of convenience compendium). Additional ground of appeal relating to dividend distribution tax. Detailed submissions are part of the application which are not being repeated in the interests of brevity (pg 184-191 of convenience compendium). Department's Appeal challenges Ld. DRP's direction to grant depreciation on software licence as per specific entry no 5....
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.... Conceptualization and scoping of project work SID's AEs are primarily responsible for initial conceptualization of application software development work required to be developed by SID. The scope of work required to be undertaken is subsequently decided upon and communicated to SID. Project management SID is responsible for day to day management of activities undertaken to ensure that work is carried out as per the prescribed deadlines. Under the off-shore model, the entire project is developed and managed off-site (i.e. in India) by SID. SID deputes its employees at onshore, who act as the onsite coordinator for managing the expectations of SID's AEs, communicating the same to off-shore team and acting as an interface between SID and its AEs. Coding, testing and documentation SID undertakes code generation in accordance with the functional specifications and protocols defined by its AEs. The code generated is thereafter tested, to ensure that the functions. SID also generates and makes available documentation for the software developed and transferred to its AEs. Quality Assurance SID is responsible to monito....
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....ar in relation to receivables from their clients. Service liability risk In the agreement entered into by SID with its AEs, there is no warranty clause binding SID. However, in the event there is a quality failure, SID is responsible for rectification of the defect. 4.011. Provision of embedded software services 4.011.1. Nature and terms of international transaction identified Software Architecture Division ("SARD") of SID renders software development services for development of 'real time embedded software' for the internal requirements of Sony Group entities. Summarized below is a brief analysis of the nature and terms of the international transaction pertaining to provision of embedded software services to Sony Corporation: Service fee - SARD is compensated at man month rates which are computed on the basis of a budget prepared at the beginning of the financial year. Such man month rates are subject to periodic review. This budget (on the basis of which the man month rates are determined) takes into consideration various expenses for operating the software division, such as salary costs, depreciation, profess....
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....in and outside the group. Further, SID's AEs are not under the obligation to subcontract the development work to SARD and the quantum of work subcontracted to SID depends upon the quality of services rendered by SID. Accordingly, SID is required to undertake certain marketing efforts to sell its services to group companies. From the perusal of the function performed w.r.t software services, it is clearly apparent that the Technical Centre of the assessee company, provides services with regard to software development right from the inception to the completion stage i.e. from the design, coding, testing, verification, integration etc. of software services. In other words, it can be said that the assessee company is providing services of complete software development to its AEs and covers the entire spectrum of software development from designing to ultimate testing and integration with the module developed by Sony Group /AE's . From the functional profile, it is seen that the AEs role is basically confined to furnishing of requirement and the entire process of software development is done at the assessee level only. Based on the above functional profile....
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....Fujitsu associated companies. However, it is respectfully submitted that the agreement was signed by the holding company for a separate purpose i.e to set up the global delivery center on built, operate and transfer model and this cannot be the basis for treating M/s Infinite Data Services Ltd. as related party. Also providing services to a single company does not make a company, associated enterprise of the other company. The assessee referred that infrastructure deficit charges of Rs. 31.38 Lacs was received by the assessee but that was received on account of under utilization of infrastructure resources but this in itself is also not the criteria for treating M/s Infinite Data Services Ltd as AE of other company. The assessee has also relied on the case of Pr.CIT vs. Open Solutions Software Services Pvt. Ltd. in ITA no. 201/2018 of Delhi High Court however in that case, the facts were totally different as the comparable company i.e. Wipro Technology Services Ltd. was earlier part of the Citi group only and M/s Wipro had an agreement with a Citi group and after amalgamation, the services continued to be provided by Wipro Technology Services Ltd.(Earlier Citi Technology S....
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....f the World (Exports-Software Services). 2. Page 440 in the qualitative details the profile is mentioned as below The company is engaged in implementation and consulting services of software based on ERP and Business Intelligence. The implementation and consulting services of develop and traded software cannot be expressed in any generic unit Hence it is not possible to give quantitative 4C, 4D of part II of schedule VI of the Companies Act 1956. 3. Also with regard to the earning in operation exchange column / page 441 the following is mentioned EARNING IN FOREIGN EXCHANGE :- (On mercantile basis) Income from Software, Development } Rs. 587,931,080/- Services and software services } (Previous Year-Rs. 641,473,049/-) 4. Further at page 459, the geographical segment wise results are mentioned, in which the results for overseas segment clearly shows the segmental details of income/expenditure from software services only. Thus from the above, it is clear that the assessee company is solely involved in software development, implementation and other software services which are almost identical to the assessee compan....
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....re services. The TPO had taken only the 'Overseas' segment for the purposes of inclusion in the list of comparables, which encompassed only export of software services. The segment of the assessee under consideration is also only Software services, said segment of Thirdware Solutions - taken by the TPO fully matched and was held to be comparable. These are findings of facts based upon record. Consequently, taking of Thirdware Solutions Limited as a comparable was in order and cannot be interfered with. Thus as the functional profile and also the comments of the TPO in steria India ltd, are almost similar, this company is fully comparable to the assessee company. 3 E-Infochips Banglore Ltd. The assessee has requested for its exclusion based on the following grounds. 1. Functional not comparable 2. Segment data not available 3. M/s E-Infochips Bangalore Ltd. is involved in diverse activities. All the grounds raised by the assessee against E-Infochips Banglore Ltd. have already been duly answered by the TPO in Pg 36-37 of the TPO order. E-Infochips Banglore Ltd. involved in software development services is....
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..... It is clearly stated that this company is involved in the embedded software which is exactly similar to the services provided by assessee's company division (SARD) to its AE's as mentioned in para 4.011 / page 50 of paper book. Reference is also placed on accept / reject matrix of the assessee company wherein at serial no. 921 / page 151 of paper book it is clearly mentioned that the company is engaged in similar function. Also whether this company is a software product development company or services company ,is a fact which has already been answered in judgments of the Hon'ble Delhi ITAT only which are mentioned below: The Hon'ble ITAT in its order in the case of Steria India Ltd. vs. Addl.CIT in [2020] 122 taxmann.com 267 (Delhi - Trib.) has treated M/s Persistent systems ltd as comparable in software development services segment only. However more relevant are the comments about profile of Persistent systems Ltd, which has been mentioned in para 115 to 118 , and for ready reference is reproduced below......... 15. In case of Persistent Systems, limited ld AR submitted that Persistent Systems Ltd. is engaged in the business of development and sale of....
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....venue represents the billing in respect of contracts for which the revenue is not recognized. The Company collects service tax and value added taxes (VAT) on behalf of the government and, therefore, these are not economic benefits flowing to the Company. Hence, they are excluded from revenue." 118. At note no 21 Page No 181 of Standalone Financial statements it has only one stream of Revenue i.e. Sale of Software services as under: 21. Revenue from operations (net) (In ` Million) For the year ended March 31, 2014 March 31, 2013 Sale of software services 11,841.16 9,967.51 Therefore, we do not agree with the arguments of the assessee, and hold that Persistent System Ltd. does not sale products, but it is engaged only in sale of software services. No other reasons were given to us for its exclusion; hence, we are of the view that Persistent system has rightly been included as Comparable company by ld DRP and TPO. Thus this company is clearly held to be involved in sale of software services only and not in sale of software produ....
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....mation not available:- the segmental information is available in para 2 (B)( b) of schedule 15 / page number 325 of paper book, wherein it is clearly mentioned that company provides Software services only in 3 sectors namely Telecom + Wireless, Life sciences + Healthcare and infrastructure + Systems. As the software services are treated as a common and single segment only by the assessee company, accordingly the assessee has treated it as single segment only. Thus the assessee contentions about no segmental information are wrong and deserves to be rejected. 5. Infosys Limited 1. The assessee has requested for its exclusion based on the following grounds. 1. Functional not comparable 2. Ownership of intangibles/brand 3. High turnover/higher volume of business leading to higher profitability All the grounds raised by the assessee against have already been duly answered by the TPO in Page 44-48 of the TPO order and for the sake of brevity are not being repeated. At the outset it is submitted that it is assessee's own comparable selected by itself and based on functional similarity it is accepted by TPO. Reference ....
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....holding that, firstly, it is a separate international transaction and secondly, the assessee company through being a pure distributor is undertaking lot of marketing activities to promote the brand Sony and in the process developing market for products manufactured by AE in India. In the process, the assessee company is developing marketing intangibles for Sony AE's, who own the brand and for that, assessee company was entitled to get reimbursement of cost incurred and as has got nominal amount as reimbursement, based on Bright Line Approach, adjustment on account of AMP expenses were made. 2) At the outset, it is submitted that TPO passed the under dated. 27/01/2014 and DRP passed direction s on 24/12/2014. During that time, the decision of the Hon'ble Special bench in the case of LG electronics was the reigning decision and both the TPO/DRP followed that decision and as the bright line test was upheld in LG Electronics decision, the same was duly followed. 3) However, in march 2015, the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communication India (P) Ltd V/s CIT -TP, 374 ITR 118 (Delhi) has rejected the Bright line test but upheld th....
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.... That the Ld. AO/Ld. TPO/ Hon'ble DRP erred in not appreciating that the function performed by the Appellant had been compensated by the AE in such a way that the gross margin earned by the appellant was sufficient enough to cover all costs incurred including AMP expenses. 8. That the L.d. AO/ Ld. TPO/ Hon'ble DRP failed to appreciate that once the net operating, margins of the Appellant had met the arm's length test, it was erroneous to conclude then the Appellant had performed any non-routine function or had incurred non-routine AMP expenditure. 9 Without prejudice to above, the Ld. TPO/ Ld. AO/Hon'ble DRP erred in applying the 'bright line method to determine the excessive/non-routine AMP expenses in complete disregard of the Transfer Pricing Regulations in India and commercial circumstances of the case. 10. Without prejudice, even if AMP expenses are held to be "non-routine" and "excessive", the Appellant was not required to be reimbursed compensated by its AE, considering that the purported benefit caused to the AE on account of incurring of A&M expenses by the Appellant was only incidental. 11. That the Ld. AO/Ld. TPO/ H....
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....other transaction having a bearing on the profits, income, losses or assets of such enterprises and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises." 52. The contention that AMP expenses are not international transactions has to be rejected. There seems to be an incongruity in the submission of the assessee on the said aspect for the simple reason that in most cases the assessed have submitted that the international transactions between them and the AE, resident abroad included the cost/value of the AMP expenses, which the assessee had incurred in India. In other words, when the assessed raise the aforesaid argument, they accept that the declared price of the international transaction included the said element or function of AMP expenses, for which they stand duly compensated in their margins or the arm's length price as computed. 53. We also fail to understand the contention or argument that th....
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....n'ble Bench , the assessee filed a appeal before the Delhi High Court, and as submitted before the Hon'ble Bench, the Hon'ble Delhi High Court has not deleted the decision of the Hon'ble ITAT and neither its stay by the Hon'ble High Court. Only the passing of the consequent final order after the Hon'ble ITAT decision is stayed. It is humbly submitted that the decision of the Hon'ble ITAT on identical facts is still valid. Further the fact that identical facts / issue is involved in A.Y 2010-11 also has not been disputed by the assessee counsel. Accordingly it is prayed that the earlier decision may be treated as binding precedent for this year also as the facts are identical. The assessee has also relied on the ITAT decision in its own case for A.Y. 2007- 08 which is placed at page 229 to 247 of the paper book. The assessee took the ground that based on its own comparables, the AMP expenses should be determined and as they are falling in even the range, the addition made by the TPO is to be deleted. As discussed in detail before the Hon'ble Bench, the decision of the Hon'ble ITAT in 2007-08 cannot be treated as binding precedent because in that case even the first and the ....
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....bursement of expenses from BMW Group Under Class IV transactions, reimbursement of expenses by BMW Group to BMW India is included. During the year, such reimbursements were primarily on account of BMW Service Inclusive Package / normal warranty claims raised by BMW India on BMW Group and certain marketing and promotion expenses incurred by BMW India on behalf of BMW Group. These expenses were subsequently reimbursed by BMW Group to BMW India...." 9. It is evident from the above extract of the Transfer Pricing Study report that the assessee received reimbursement of certain marketing and promotion expenses incurred by BMW India on behalf of BMW Group. A further detail of such reimbursements has been given in the Tax Audit Report of the assessee, whose relevant part is as under:- Reimbursement of marketing / business promotion / other expenses Ultimate Holding Company 16,869,213 Ultimate Holding Company (333, 945) Fellow Subsidiaries 378, 197 Fellow Subsidiaries (545, 780) 10. The learned AR stated that the assessee received reimbursement of marketing and promotion expenses to the tune of Rs. 3,33,945/- from its AE. This sho....
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....ue to differentiation in the facts of the extant case. 12. It is further relevant to note that the Tribunal in assessee's own case for immediately preceding assessment year, namely, 2009-10 has decided such issue against the assessee vide its order dated 21.10.2014 in BMW India (P.) Ltd. v. Asstt. CIT [2015] 53 taxmann.com 299 (Delhi - Trib.). It is also worthwhile to mention the learned AR's contention that the Tribunal for the assessment year 2008-09 decided such issue in assessee's favour by its order dated 16.8.2013. We find from the Tribunal order for the later A.Y. 2009-10, which was also decided at a later point of time, that the Tribunal took a conscious decision of the existence of an international transaction of AMP expenses requiring determination of ALP, after duly considering its order passed for the A.Y. 2008-09. Though the tribunal decided this issue in favour of the assessee for the A.Y. 2008-09, it was candidly admitted by the ld. AR that, on an appeal preferred by the Revenue against the tribunal order for such earlier year, a substantial question of law has been admitted by the Hon'ble High Court. In view of the foregoing discussion, we r....
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....rgin are more than the profit margin of the comparable companies, separate ALP expenses is not to be benchmarked. This argument is completely mistaken and fallacious. In fact in Transfer Pricing, rule is to benchmark transactions by transactions. Only if the transactions are closely linked, then the same can be aggregated, but aggregation is more of exception, than a rule. If the Hon'ble jurisdiction High Court in the case of Sony Ericsson has held that AMP is the separate international transaction specially in the case of distribution companies, then the same is binding on Hon'ble ITAT ( based on similar facts) and if the Hon'ble Bench in A.Y 2009-10 has held that AMP expenses are separate international transaction, then on identical facts (conceded by assessee counsel also) this issue of treating AMP expenses as separate international transaction is no more res-integra and being separate international transactions, AMP expenses are needed to be separately benchmarked. Thus the assessee's arguments for deciding the issue of AMP expenses based on the higher profit margins earned is without any basis and against the provisions of transfer pricing and Income Tax Act and also....
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....e companies, it is not possible to determine the ALP of AMP expenses at the level of Hon'ble tribunal, which has already decided that issue while deciding the case of assessee only for A.Y 2009-10 in ITA number 837/Del/2014. Further as the facts are identical, the decision of Hon'ble ITAT for A.Y 2009- 10 is the binding precedent. For that, reliance is placed on the decision of Hon'ble Supreme Court is the case of Gammon India Ltd,. Vs. Commissioner of Customs Mumbai in Civil appeal no. 5166 of 2003 and it is prayed that the same should be followed. 24. Before parting, we wish to place on record our deep concern on the conduct of the two Benches of the Tribunal deciding appeals in the cases of IVRCL Infrastructures & Projects Ltd. (supra) & Techni Bharathi Ltd. (supra). After noticing the decision of a co-ordinate Bench in the present case, they still thought it fit to proceed to take a view totally contrary to the view taken in the earlier judgment, thereby creating a judicial uncertainty with regard to the declaration of law involved on an identical issue in respect of the same Exemption Notification. It needs to be emphasised that if a Bench of a Tribunal, in identical ....
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....ts and various Tribunals in the country shall follow these salutary observations in letter and spirit Thus it is humbly prayed that in line with the above noted decision of the Hon'ble Supreme Court, the decision of the Hon'ble coordinate bench in the case of assessee only on identical facts for A.Y 2009-10 is binding on the Hon'ble bench. Lastly it is submitted that all the above contentions have already been made in the physical hearings and submitted in writing for the assistance on Hon'ble Bench only." 18. In rejoinder, ld. AR for the assessee submitted as under :- "Detailed chart already placed on record has all details to support Assessee's request for exclusion of companies from comparable set. Present synopsis only supplements the same in addition to updating the case law development during pendency of appeal before Hon'ble Tribunal. Ld. DR's submissions at hearing on 19.06.2024 fallacious, self-contradictory and not based on audited financials: Ld. DR submitted that comparables selected by Assessee are being requested for exclusion at this stage - this is factually incorrect as exclusion of 4 companies was request....
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...., company deserves to be excluded from comparable set. Comparative facts on record: Final comparable set selected by Transfer pricing officer (TPO) can be found at internal page 12 para 21 of TP order in appeal set (AS).Same final set selected by TPO in Sony Mobile Communications case (relied upon case -please refer para 14 on page 269 of convenience compendium) TPO noted Assessee's request for exclusion of 4 companies from set of comparable companies at page 48 para 28.11 of TPO's order placed in AS. Ld. DR's repeated contention that comparables were selected by Assessee has no relevance as these were contested at very first opportunity with detailed reasons - please see pages 350 to352 of Paper book 2A. Reference to paras 4 to 9 of SCN issued by TPO in relation to software development service (SDS) segments (page 339-340 of the PB2A) would show that two SDS segments separately benchmarked by Assessee were combined into one by Ld. TPO and treated as 'software development services'. Reasons cited by Assessee in support of contention to exclude companies from comparable set can be found at page 350 - 352 of the PB 2A. It w....
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....e 45 at para 16. The jurisdictional High Court in PC/T vs. Mentor Graphics {India) Pvt. ltd., ITANo.126/2022 has upheld exclusion of E-lnfochips Bangalore Limited as a comparable.(Please refer paras 4 and 5 of the said decision). c. Infinite Data Systems Pvt. Ltd. Ld. DR relied upon the decision of Head Strong Services India (P.)Ltd. vs. DCIT, [2016] 68taxmann.com 363(Delhi-Trib.).Para 13.2 of the said decision was relied upon by Ld.DR. Reference to page 107 and 113 of the Annual Report PAPER BOOK would show that the company is engaged into technical consulting, design and development of software, system integration and infrastructure management service. However, page 117 would show that no segmental details are available. We rely on the decision of the jurisdictional High Court in PCIT vs. Mentor Graphics (India) Pvt. ltd., ITA No. 126/2022 wherein exclusion of Infinite Data Systems Pvt. Ltd. was upheld. d. Infosys Technologies Limited Against exclusion of Infosys Technologies Limited, Ld. DR relied upon the decision in Chrys Capital Investment Advisors {India) Pvt. Ltd. (376 ITR 183),more particularly on the principle that no company which is f....
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....ent Segment where exclusion of Persistent Systems Ltd., was upheld. As pointed out above, objections to the comparables were raised before the Ld. TPO except (Persistent Systems Ltd). Objections to inclusion of Persistent Systems Ltd. are raised before this Hon'ble Tribunal as permitted in law. kindly refer decision of special bench in DCIT vs. Quark systems Pvt limited 38 SOT 207 (CHD) and Hon'ble Punjab & Haryana High court in CIT vs .Quark Systems India Pvt. ltd., [2011] 11 taxmann.com 427. Thus these 5 comparables requested for exclusion may kindly be excluded by following Coordinate Bench decision for same Assessment year in Sony Mobile Communications International AB(supra)or by reference to the decisions of the jurisdictional High Court in Open Solutions Software Services(P.) ltd. (supra) and Mentor Graphics (India) Pvt.ltd (supra) or by reference to audited financials, details of which are mentioned hereinabove. Adjustment pertaining to Advertisement, Marketing and Promotion Expenses Detailed synopsis (3) were already filed before Hon'ble Tribunal on earlier occasions. For ease of reference, assessee is giving herein below det....
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....no adverse inference is drawn in respect of other transactions can only mean distribution transaction as ALP of software development and receipt of reimbursement are disputed by TPO. 4. It is not in dispute between parties that margin earned on distribution after considering AMP costs is better than comparables who themselves have admittedly undertaken marketing function (refer pages 485 to 487, 326, 526 of paper book 2B and para 40 on page 81 of TP order would show). TPO and Tribunal in AY 2009-10 - refer para 11, 199 last line continued on next page) view to the contrary is directly in conflict with para 193 of jurisdictional High Court decision in 374 ITR 118 as also coordinate bench decision in assessee's own case for AY 2007-08 (copy in convenience compendium as item 8) . 5. Although, in the present case, reimbursement of expenses received of INR 50.44 lacs is already declared as international transaction by Assessee and is the only transaction chosen by TPO for evaluation as evident from SCN at page 462 to TP order, issue of whether international transaction is existent or not does not arise to this extent. However, Ld. DR repeatedly referred to paras 51 to ....
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....ion of all the above material for deciding the issues in appeal in addition to 3 synopsis already filed as indicated hereinabove." 19. At the time of hearing, ld. AR for the assessee heavily relied on the assessee's own group concern Sony Mobile BPO case and submitted that the issue under consideration is squarely covered and the Bench directed to submit a note on similarity and functions as well as transaction model with the group concern i.e. Sony Mobile BPO. In this regard, ld. AR submitted as under :- 1. Sony India Private Limited ('Sony India') benchmarked captive software development services ('SDS') provided by itself. Kindly refer pages 47 and 50 - paras 4.010 of TP study placed in paper book 2A. Ld. TPO issued show cause notice ('SCN') which can be found a page 338 paper book 2A. Reference to paras 4 to 9 would show that Ld. TPO benchmarked the 2 separate segments together. Para 10 further confirms that transactions are characterised as software Development services (50S). Reference to para 17 on page 344 of paper book 2A will show that updated margins were sought by Ld. TPO. Details of comparables are discussed in subsequent paragraphs ....
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....dium) B. Similarity in transaction model Sony India Sony Mobile BO Offshore Centre Yes - SISC and SARD (Para 4.010.1 and 4.011.1 on page 47 of Paper book 2A) Yes - Branch office of Sony Mobile Communications International AB in SEZ in India (Para 5 on page 253 of compendium) Customers Associated Enterprises ('AE') ASSESSEE Intangibles Not owned by Sony India (Para 4.016, Para 5.02.2, Para 5.03.2 on pages 63, 76 and 83 of Paper book 2A respectively) Not owned by Sony Mobile BO (Page 255 of compendium) Entity Characterisation Software Development Service Provider (Para 10.3 on page 16 of Appeal Set) Software Development Service Provider (Para 5.1 of ITAT order, compendium page 255) 20. Considered the rival submissions and material placed on record. We observed from the record that the assessee is wholly owned subsidiary of Sony Corporation, Japan and it is primarily engaged in import and distribution of Sony products in Indian market and also rendered Software Development services to its AEs through Software Architecture Design and real time embedded Software. We observe from the submissions made before us that the a....
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.... 17. Given the aforesaid facts, what emerges is that, in the period in issue, the respondent/assessee was only in the business of import and distribution of Sony products. The amount spent on AMP activities by the respondent/assessee in the relevant FY was Rs. 119,54,43,600/-. 17.1 The compensation for this expense was, according to the Tribunal, received by the respondent/assessee in terms of higher profitability for the product sold. 17.2 Furthermore, even according to the TPO, the AMP expenditure incurred by the respondent/assessee resulted in increased sales in India for products, albeit developed by the AE but sold by the respondent/assessee. 18. The fact that the comparables chosen by the TPO had a net margin lower than that registered by the respondent/assessee would persuade us to hold that no upward adjustment concerning AMP expenses ought to have been made. 19. Lastly, the application of the BLT tool, by the TPO, in determining ALP, injected the order issued by him, which was incidentally approved by the DRP, with a legal error. [See Sony Ericsson Mobile Communications India case]. Conclusion: 20. Thus, for the for....
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....arately. 23. Coming to the issue of bench marking of reimbursement of marketing expenses, we observe that the TPO has proceeded to make the bench marking based on the disclosure made by the assessee as a International transaction, he proceeded to make bench marking of the AMP expenses based on the BLT, however, the same is not the proper way. However, we observed that coordinate bench has not given any finding on this issue but remitted the issue back to the file of AO/TPO to verify the AMP expenses. We cannot refer this issue to special bench as suggested by the Ld DR since the issue is not adjudicated by the coordinate bench in subsequent AY 2009-10. After careful consideration, in our view, the issue has to be addressed such a way that the parties to come to terms to resolve the issue rather than keeping it alive infinitely. In our view, after decision of Hon'ble High Court, what remains is the bench marking of reimbursement of marketing expenses. The TPO proceeded to bench mark the AMP, at that point of time, BLT was considered as proper method, failed to address the real issue of bench marking of international transaction entered by the assessee relating to reimbursement of....
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....ollow the decision of coordinate bench in selecting the comparables. Accordingly, we direct the AO/TPO to follow the same and relevant decisions of the coordinate bench are reproduced below: (in AY 2010-11, which is relevant for the current assessment year under consideration) "E-Infochips Bangalore Ltd. 24. Having considered the rival submissions, we find that the co-ordinate Bench of ITAT, in the identical facts and circumstances has considered this company as excludable from the final set of comparables in the case of Sunlife India Services Centre Pvt. Ltd. vs. DCIT (ITA No. 750/Del./2015- order dated 27.06.2016) on the basis of functional disparity observing as under : "10.3. After considering the rival contentions and perusing the annual reports placed on record, we are of the opinion that this company cannot be selected as comparable for TP analysis, because it is engaged in both software development as well as ITes. Assessee being characterized as a routine service provider, the above company cannot be considered as comparable on functional basis. 10.4. As this company is functionally different from assessee and in absence of segmental inf....
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....High Court in CIT vs. Agnity India Technologies (P) Ltd. (2013) 219 Taxmann 26 (Del) considered the giantness of Infosys Ltd., in terms of risk profile, nature of services, number of employees, ownership of branded products and brand related profits, etc. in comparison with the factors prevailing in the case of Agnity India Technologies Pvt. Ltd., being, a captive unit providing software development services without having any IP rights in the work done by it. After making comparison of various factors as enumerated above, the Hon'ble Delhi High Court held Infosys Ltd. to be incomparable with Agnity India Technologies Pvt. Ltd. The facts of the instant case are more or less similar inasmuch as the extant assessee is also a captive service provider and also not owning any branded products with no expenditure of its own on R&D etc. When we consider the above factors in a holistic manner, there remains absolutely no doubt in our minds that Infosys Technologies Ltd. is non-comparable with the assessee company. Respectfully following the judgment of the Hon'ble jurisdictional High Court in Agnity India (supra), we hold that Infosys Technologies Ltd., cannot be treated as compara....
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....any software products, this company on entity level, cannot be considered as comparable. The Delhi Bench of the Tribunal in the case of Toluna India Pvt. Ltd. vs. ACIT (ITA No.5645/Del/2011, vide its order dated 26.8.2014 has 6006 & 6751/Del./2014 33 held Persistent Systems Ltd. to be incomparable with Toluna India Pvt. Ltd., also a company engaged in providing software development services to its related parties alone. Similar view has been taken by the Tribunal in Lear Automotive India Pvt. Ltd. vs. ACIT (ITA No.5612/Del/2011) vide its order dated 22.12.2014. The ld. DR could not point out any distinguishing feature in the factual matrix of the assessee in question and Toluna India Pvt. Ltd., and Lear Automotive India Pvt. Ltd. Since both these companies are also engaged in the business of providing software development services to its AEs, similar to the activity done by the assessee, respectfully following the precedents, we order for the exclusion of this company from the list of comparables." Similarly, in the case of assessee's group company, viz., Fiserv India Pvt. Ltd. for AY 2010-11, which company is also in the business of software development services, a co....
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....sessee for the current year vis-a-vis the preceding year have been 6006 & 6751/Del./2014 35 brought out to our notice, following the preceding, we direct the TPO/AO for removal of this company from the list of comparables." In view of the above decision, this company is directed to be excluded from the final set of comparables." 26. In the result, we direct the AO/TPO to exclude the 5 comparables as per the findings of coordinate bench as discussed in the above paragraph. Accordingly, the relevant grounds raised by the assessee are allowed. 27. With regard to ground nos.22-24 on Depreciation on Dharuhera Unit, at the time of hearing both the parties agreed that this issue is covered issue and brought to our notice page 214 of the paper book wherein the Hon'ble High court considered the relevant issue and decided the issue as under: "11. In Ansal Properties (supra), the facts indicated - in para 4 are that the assessee had sold the entire plant and machinery of its paper division and stopped and seized to carry on its business. Likewise, in Oswal (supra) too, the assessee had claimed depreciation of its various assets, including a claim in respect of closed u....
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....d on 23.09.1986. The same reads as follows: "6.3 As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate bookkeeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc., the more disaggregated has to be the record-keeping. Moreover, the practice of granting the terminal allowance as per section 32(1)(iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation lump sum amount of depreciation for the entire block of depreciable assets in each of the four classes of assets, namely, buildings, machinery, plant and furniture." ....
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....rpretation of Section 32, the Division Bench in Ansal Properties (supra) observed as follows: "26. Learned counsel for the Revenue has relied upon Section 32 of the Act and has submitted that the effect of the said Section should be examined while computing short term capital gains and interpreting Section 50. It is not possible to accept the said contention. Capital gains is chargeable to tax under Chapter IV-E. The provisions of the said Chapter are independent and separate. The provisions of the said chapter relating to capital gains have to be examined and interpreted. Only if there is a contradiction or conflict, we have to harmoniously interpret the two provisions. Section 50 incorporates a deeming fiction and has to be given and interpreted accordingly. Section 32 forms part of Chapter IV-D and relates to computation of income from profession and business. It is not the case of the Revenue that the gain on transfer of the block of assets is taxable as business income. The two sections operate in their own field and there is no conflict. In these circumstances, we do not think we should refer and rely upon Section 32 and accordingly compute and decide whether short t....
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....The income of the assessee is re-computed as below: Income as per order dated 02/03/2016 u/ s 154/143(3) Rs. 342,58,24,445/- Less: Relief as per discussion above. Rs. 22,14,23,852/- Revised total income: Rs. 320,44,00,593/- Based on the above submissions and on acceptance of both the parties, we are inclined to remit this issue to the file of AO to verify the calculations submitted and allow the claim of the assessee after verification as per law. Therefore, the grounds raised by the assessee are allowed for statistical purpose. 29. Coming to the additional grounds raised by the assessee, the relevant submission of the assessee are given below: "1. Submission supporting claim of refund of Dividend Distribution Tax, ('DDT') paid in excess of the rate prescribed under the applicable Double Tax Avoidance Agreement (DTAA). 1.1. Hon'ble Mumbai ITAT (Special Bench) in Total Oil India Private Limited (ITA No.6997/Mum/2019) has denied the claim of refund of DDT paid u/s 115-o on certain grounds. These grounds along with our submissions are as under: a) Sovereign has the prerogative to tax dividend either in the hands of recipient or ot....
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....ion of DDT Provision: "The present system of taxation of dividend in the hands of company/ mutual funds was reintroduced by the Finance Act. 2003 (with effect from the assessment year 200.J-Oj) since it was easier to collect tax at a single point and the new system was leading to increase in compliance burden. However, with the advent of technology and easy tracking system available, the justification for current system of taxation of dividend has outlived itself." * Therefore, the primary & rightful intent behind introduction of Section 115-O was to achieve ease in tax collection mechanism & administrative convenience. c) Sec. 115-O is a code by itself in so far as levy and collection of tax on distributed profits are concerned. Non-obstante clause of Sec. 115-O indicates that this section is independent and divorced from the concept of 'total income' (Para No. 58) Our Submission: * Hon'ble Supreme Court in Tata Tea [2017] 398 ITR 260 while upholding the constitutional validity of Sec. 115-O referred to the provisions of Sec. 2(24) of the Act (i.e.. definition of income) read with Entry 82 of List I of the Constitution of In....
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....5-0 heavily relied on this ruling even though going by the principle of 'an authority for what it actually decides and not what may come 10 follow from some observations which find place therein', this decision ought to have been distinguished in lines similar to Tata Tea (supra). e) Hon'ble Bombay High Court in case of Godrej & Boyce has held that DDT was not a tax on income of the shareholder but was instead a tax on Company. Also, Hon'ble SC while did not conclude on whether it is a tax on Company or shareholder. it did not disturb the conclusion That 'DDT is nor a payment on behalf of the shareholder' (para No.71 to 74) Our Submission: * Hon'ble Bombay High Court or even Hon'ble Supreme Court for that matter in the case of Godrej & Boyce (supra) did not convey any contrary or contradictory principles with respect to the provisions of Section 115-0. Instead, the issue before the Hon'ble Courts pertained to applicability of provision of Section 14A on the dividend income of a shareholder. Therefore, since the Hon'ble courts never decided on the nature of levy u/s 115-O of the Act - It should not be considered to d....
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.... and no credit shall be claimed by the Company or any other person (para No. 77) Our Submission: * As per the provisions of section 115-00), only incidence of DDT payable on dividend income is made on the dividend distributing company, however, in substance it is tax on the dividend income of the recipient shareholder. * Further, Sec. 191 of the Act states that in case there is no provision for withholding of taxes in respect of any taxable income then such income tax shall be payable by the assessee directly. Therefore. had it been the intent of legislation that DDT is a tax on the company, there was no need for specific inclusion of Sec. 115-O(3) & Sec. 115-O(4) - which going by the interpretation of Hon'ble Special Bench shall stand redundant as the same effect is provided under Section 191 of the Act. h) DDT is a tax not on the shareholder but on the income of the company and thus, (here is no double taxation and thus. DTAA does not apply (Pam No. 79 & 80) Our Submission: * Memorandum to Finance Bill 2020 has neither been discussed nor evaluated by the Hon'ble Mumbai Tribunal Special Bench while issuing the order in ....
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....tional grounds raised on 15.11.2019 in present case." 30. On the other hand, Ld DR objected to the above submissions and submitted that this issue is already covered in the case of Total Oil India Pvt Ltd. 31. Considered the rival submissions and material placed on record. We observe that this issue is already considered by the Special Bench in the case of Total Oil India Pvt Ltd, supra, wherein it is held as under: "83. For the reasons give above, we hold that where dividend is declared, distributed or paid by a domestic company to a non-resident shareholder(s), which attracts Additional Income Tax (Tax on Distributed Profits) referred to in Sec.115-O of the Act, such additional income tax payable by the domestic company shall be at the rate mentioned in Section 115 O of the Act and not at the rate of tax applicable to the non-resident shareholder(s) as specified in the relevant DTAA with reference to such dividend income. Nevertheless, we are conscious of the sovereign's prerogative to extend the treaty protection to domestic companies paying dividend distribution tax through the mechanism of DTAAs. Thus, wherever the Contracting States to a tax treaty intend to ex....