TaxTMI 
TaxTMI 
2024 (12) TMI 1258
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....being disposed of by this common consolidated order. 3. At the outset itself, it was stated by the Ld.Counsel for the assessee that the issues arising in the assessee's appeal were all legacy issues arising from year to year right from the Asst.Year 2007- 08 onwards upto the immediately preceding assessment year i.e. Asst.Year 2013-14 and all adjudicated by the ITAT. Therefore, it was stated that all the issues were covered by the decision of the ITAT in the preceding years in the case of the assessee. It was, however, stated that with respect to the issues raised regarding transfer pricing adjustment made to the international transactions entered into by the assessee there were some distinguishing facts/proposition of law which needed to be brought to the notice of the Bench/argued before the Bench, and therefore, with respect of the said ground, exhaustive arguments needed to be made for the assessee. With respect to the other remaining grounds, it was stated that no distinguishing facts or proposition of law needed to be pointed out. Having stated so, the appeals were proceeded to be argued with. 4. Both the parties were heard. Since, admittedly, the issues raised in....
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.... of the case and in law, learned AO / TPO has erred and learned DRP has further erred in confirming the TP adjustment with respect to the income from services mentioned above, from HLPL and SIMPL by not allowing the benefit of provisions of Article 9(1) of India -Netherlands Tax Treaty ('DTAA') being more beneficial to the Appellant than the provisions of the Income-tax Act, 1961 ('the Act') and by virtue of section 90(2) of the Act. 1.5. Without prejudice to the above, on the facts and in the circumstances of the case and in law, learned AO / TPO has erred and learned DRP has further erred in rejecting the approach of the Appellant of comparing the fixed and optional services provided to HLPL with respective fixed and optional services provided to comparable company. 1.6. Without prejudice to the above, the Appellant humbly submits that in case, if the contention of the Appellant on the non-taxability of INR 8,74,34,868 (received from HLPL) as fees for technical services under Article 12 of DTAA (as per Ground No. 4 below) is accepted, then the corresponding transfer pricing adjustment in relation to the services rendered to HLPL should also be re....
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.... to a third party the rate charged was much higher of 323.58 EURO. Taking this third-party rate of 323.58 EURO per man hour as an internal CUP for benchmarking of international transaction of provision of manpower services, the TPO proposed an upward adjustment of Rs. 5,05,01,507 to the international transaction of provision of man power services to its AE, SIMPL. In the result, the TPO proposed a total upward adjustment of Rs. 220,39,59,249/- to the international transaction entered by the assessee with its AE, HLPL and SIMPL. The upward adjustment proposed by the TPO are tabulated in his order as under: AE Nature of Contract Consideration Charged in INR Actual rate per man hour (Euro) ALP rate (Euro) Revised ALP consideration Adjustment HLPL Operation of LNG Storage and re- gasification terminal 421463206 371.21 2267.90 2574920947 2153457741 SIMPL Manpower services 103632408 217.56 323.58 154133915 50501507 Total 525095614 2729054863 2203959249 10. The assessee objected to the proposed upward adjustment to the DRP, who noted that this issue was under consideration before....
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....e. Applying the said decision the Special Bench the ITAT, this argument of the assessee was rejected in the order passed by the ITAT for all Asst.Year right from A.Y 2007-08 to the immediately preceding assessment year i.e. 2013-14. 13. The ld.counsel for the assessee contended that there was a distinguishing fact in all these years with the impugned year. He contended that the assessee's argument of base erosion was rejected in the preceding years noting that the AEs were incurring loss, and therefore, it was held that on account of ALP adjustment made in the hands of the assessee there was no base erosion. The ld.counsel for the assessee contended that it was in these facts and circumstances that the base erosion arguments of the assessee had been rejected both by the Special Bench of the ITAT in the case of the assessee. He stated that the facts in the present case are, however, different and the assessee has made profits, and also paid taxes in the impugned year. In support of his contentions that the base erosion arguments need to be accepted, reliance was placed on the decision of the ITAT Pune Bench in the case of Cummins Inc. Vs. ADIT (2016) 73 taxmann.com 207 (Pune). Th....
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....nsaction collectively both from the foreign entity and its Indian AE. The logic forwarded by the assessee before the Special Bench was that the foreign entity was liable to tax at the rate of 10% in terms of provisions of DTAA for the receipts from its Indian AE, while the Indian AE was subjected to tax at the rate of 33.75%; that any upward adjustment in ALP of the international transaction of the foreign assessee would result in a corresponding adjustment to the corresponding transaction carried out by the Indian AE, resulting in its expenses increasing to that extent, reducing taxable profits accordingly. The net effect would be that while there would be a gain of 10% taxes on the TP adjustment made, there would also be a corresponding loss of 26.75% taxes on account of the ALP adjustment in the hands of Indian AE. The assessee's argument was based on the interpretation of provision of section 92(3) read with section 92C(4) of the Act. 18. The Special Bench, however, rejected outright this contention of the assessee, noting that in terms of provision of law, any adjustment to the ALP of the international transaction of a foreign entity did not warrant an adjustment in ALP of ....
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....such a situation, what is deductible in the hands of the Indian AE is only Rs 100 and not Rs 500. Therefore, as a result of this ALP adjustment, there is no lowering of profit or increase in loss of the AE even while income of the assessee stands increased by Rs 400. There is no base erosion by the ALP adjustments in the hands of income of the non-resident company in respect of transactions with the Indian AEs. The base erosion could have, if at all, taken place at best in a situation in which the Indian AE was to actually allow the income to the non-resident company. That is not the case before us, and in such a situation, in any event, ALP adjustments would not have come into play at all. As regards learned counsel's contention that if there is an enhancement to an income corresponding deduction cannot indeed be given to the related AE, but if an altogether new income is brought to tax in the hands of the assessee, as a result of ALP adjustment, corresponding deduction is required to be given to the Indian AE, we find no basis whatsoever for this contention. The scheme of transfer pricing legislation does not support the plea of the assessee. Learned counsel has not been able....
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.... Special Bench in the case of Instrumentarium (supra) has laid down principle of law to the effect that there is no base erosion by ALP adjustment in the income of the non-resident in respect of its transactions with the Indian AEs. 19. In view of the above we reject this argument of the ld.counsel for the assessee that the decision of the Special Bench in the case of Instrumentarium (supra) rejecting the base erosion argument of the assessee would not apply in the facts of the present case. 20. The ld.counsel for the assessee, thereafter pointed out that in the preceding year, it had raised an argument, regarding Benefit of Treaty (DTAA) against applicability of TP provisions in reference to Article 9(1) of the India Netherlands Tax Treaty . The ld.counsel for the assessee fairly conceded that this argument of the assessee had been rejected by the ITAT in its order in the case of the assessee for Asst.Year 2007-08 to 2010-11. This argument of the assessee, therefore, is also dismissed. 21. Next argument raised by the Ld.Counsel for the assessee was regarding the principle of mirror ALP. The argument of the ld.counsel for the assessee was that, if the ALP of a transacti....
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....Filtrex Technologies P.Ltd. (supra) and we note in the said case that the ITAT has categorically held that in terms of provision of law relating to TP, there could not be any case of mirror ALP at all. The ITAT, referred to the decision of Special Bench in the case of Instrumentarium (supra) and noted that in the said case, the Special Bench has categorically held that the ALP adjustment in the case of one AE does not automatically warrant a corresponding adjustment in the hands of the other AE in terms of TP provision, as enacted in our Statute. The ITAT analyzed the relevant provisions of law, more particularly section 92(3) and second proviso to section 94CA(4) of the Act, and applying the ratio laid down by the Special Bench of the ITAT in the case of Instrumentarium Corpn. Ltd. (supra) held that in respect of a same transaction the Revenue can opt to determine total income on the basis of ALP determined in accordance with section 92(1) of the Act in the hands of one party to the said transaction, wherever tax base would erode and can desist from doing so in the assessment of the other party to the said transaction wherever there would not be tax base erosion. That therefore it....
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....er the decision in the case of UE Development India Pvt. Ltd. (supra), we are of the view that ALP has to determined in the hands of the Assessee irrespective of the acceptance of ALP in the hands of FHPL and FIPL. The question as to whether the payment for such services are at Arm's Length or commensurate with the benefit received by the Assessee are all matters which needs examination by the TPO. No such exercise has been carried out by the TPO. But that does not mean that the ALP has been established by the Assessee. We are therefore of the view that it would be just and proper to set aside the order of the Assessing Officer on this issue and remand the question of determination of ALP to the TPO for fresh consideration. It is made clear that the TPO shall not dispute that services were rendered by the AE. If the approach of the Assessee in adopting TNMM at entity level is disputed by the TPO, the Assessee should be permitted to file TP study for each of the international transaction separately. The assessee is also directed to file the TP study, if not already filed which is in accordance with the provisions of the Act and substantiate that the price paid by it to its AE is....
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.... mirror transactions ALP adjustments cannot be done, i.e., if one transaction is treated as at Arm's Length, no adjustment can be made on the other related corresponding transaction of the AE without appreciating that this stand is against the provisions of Section 92(3) of the Act ?" To which the High Court dismissed Revenues appeal stating that no substantial question of law arose in the case following its order in the case of M/s Softbrands India Pvt. Ltd. in ITA No. 536/2015 c/w 537/2015 dated 25-06-2018, wherein it held that mere dissatisfaction with the findings of facts arrived at by the ITAT is not at all a sufficient reason to invoke section 260A of the Act before the High Court. 29. The Hon'ble High Court decision in the case of UED (supra) being rendered in the facts of the case, it cannot be said to be laying down any proposition of law. And therefore no benefit whatsoever can be derived by the assessee from the said decision. In view of the above discussion the Mirror ALP argument of the assessee also stands rejected following the decision of the ITAT in the case of Filtarex (supra). 30. The ld.counsel for the assessee, thereafter, stated that his next ....
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.... the case of M/s. Takshill Solutions Ltd. in ITA No. 1768/Hyd/2012 where in the same principle of "likes have not been compared with likes" has been adjudicated." 31. He thereafter drew our attention to the finding of the ITAT appreciating arguments of the assessee, and restoring the issue back to the TPO for fresh comparability analysis, as at para 7 of the page no.17 of the order as under: "7. ...... Further, we observe that the argument of "likes have not been compared with like" and the argument of similarity of agreement with BLNG were never taken before the Tax Authorities at any stage of the hearing. Accordingly, looking into the facts of the instant case, and respectfully following the decision rendered by ITAT Bangalore in the case of Filtrex Technologies Pvt. Ltd. (supra), the matter is being restored to the file of Ld. AO for determination of ALP in respect of the aforesaid transactions. The assessee is also directed to file the relevant supporting documents to substantiate that the price paid by the AEs to the assessee is at arm's length within the methods laid down in the Act and the judicial precedents rendered on this issue. The Ld. TPO is directed to....
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....s further erred in confirming the action of the AO on the facts and in law in treating the revenues of INR 28,68,584 received by the Appellant from Bharat Oman Refineries Limited ('BORL') and Bharat Petroleum Corporation Limited ('BPCL') for grant of software license as royalty under section 9(l)(vi) of the Act and under Article 12 of DTAA. 37. The ld.counsel for the assessee stated that the issue stands covered by the decision of the ITAT in Asst.Year 2011-12 to 2013-14. He stated the issue related to the treatment of payment received for supply of software license to the entities as under, treated as royalty by the AO under section 9(1)(vi) read with the applicable Treaty: i) Bharat Oman Refiners Ltd. (BORL) : Rs.9,89,167/- ii) Bharat Petroleum Corpn Ltd. (BPCL) : Rs.18,79,417/- Rs.28,68,584/- 38. The ld.counsel for the assessee stated that the DRP had dismissed the assessee's objection to the proposed treatment, by following its order for Asst.Year 2011-12. He pointed out that the issue had travelled to the ITAT in Asst.Year 2011-12 and the ITAT had ruled in favour of the assessee holding such payment did not qualify....
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.... treating the receipts on account of supply of software licence, as royalty to the tune of Rs. 28,68,584/- is deleted. Ground no.2 is allowed. 41. Ground no.3 reads as under: "3. Income from rendering Global P&T Functional Services treated as fees for technical services - INR c The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO on the facts and in law in treating the revenues of INR 87,46,96,276 received by the Appellant from SIMPL for Global P&T Functional Services as Fees for technical services under section 9(l)(vii) of the Act and under Article 12 of DTAA. 3.2. Without prejudice to above mentioned Ground No. 3.1, the learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO on the facts and in law in disregarding the fact that amount received for the above mentioned services is mere reimbursement of expenses incurred by the Appellant without any mark up and hence is in the nature of reimbursement of expenditure." 42. At the outset itself, ld.counsel for the assessee contended that the issue raised in the ground 3.1 stood ....
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....an resources services, legal services, providing advice relating to environmental healthy and safety matters and provision of IT services etc. The Assessing Officer treated the above services as "Fee for Technical Services" under Section 9(1)(vii) of the Act read with the Tax Treaty. The aforesaid additions were also confirmed by DRP. 38. The assessee is in appeal before us against the aforesaid order passed by DRP holding that the aforesaid services qualify as "Fee for Technical Services" and are hence taxable in India. Before us, the Counsel for the assessee submitted that in view of the "make available clause" under the India- Netherlands Tax Treaty, payments for such services do not quality as FTS since the assessee has not made available any technical knowledge, experience, skill, know-how or process to Shell India and hence the same are not taxable as FTS under Article 12 of the Tax Treaty. Further, it was submitted that the above services are provided by the assessee on recurring basis from year to year and if the technology had been "made available" to its subsidiary Shell India, there would have been no need for availing the aforesaid services on a recurring basis....
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....s of the assessee's case and the judicial precedents on the subject which have consistently taken a view that unless the services are rendered in the manner such that the technology is "made available" transferred to the assessee in such a manner that he is enabled to perform such services by itself in the future and does not require further services from the service provided, it is only then that such services would qualify as fee for technical services under the applicable Tax Treaty which specifically contains the "make available" clause. In the instant facts, we observe that nature of services are not which make available the technology to the recipient of services i.e. Shell India and further, the Department has also not placed on record any evidence to support that such services have made available the technology to the recipient of such services." 44. Ld.DR fairly agreed with the same. 45. In view of the above, since admittedly the above issue is covered in favour of the assessee by the decision of the ITAT on the issue for Asst.Year 2012-13,the addition made to the income of the assessee by treating the receipts on account of service rendered by the assessee to it....
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....e, he contended, related to treatment of certain services rendered by the assessee to Hazira LNG Pvt. Ltd. (HLPL), Hazira Port P.Ltd., and HPCL as fee for technical services under section 9(1)(vii) of the Act and also under Article 12 of the DTAA. The assessee had provided Computational Fluid Dynamics (CFD) modelling of the temperature effects on the Hazira sea water outflow into the port and also provided marine biological advice on its implication to HLPL. The assessee has also provided desktop quality review of Shell Reliability Centre Maintenance done by HLPL. The assessee had performed integrity review of ageing switchgear and had received in all a total consideration of Rs. 8,74,34,868/-. The AO had treated the entire service as fee for technical services under section 9(1)(vii) of the Act read with Article 12 of the DTAA and the DRP had dismissed the assessee's objection to the same, following its order in the immediately preceding years i.e. Asst.Year 2013-14. The ld.counsel for the assessee pointed out that the identical issue had come up before the ITAT in Asst.Year 2012-13 and the issue had been decided in favour of the assessee by the ITAT. He drew our attention to para....
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....tisfied in the instant set of facts, so as to make the payment taxable in India as FTS. 18. In response, Ld. D.R. placed reliance on the observations made by DRP in its order. 19. We have heard the rival contention and perused the material on record. On going through the description of services, perusal of the relevant agreements and the order passed by the DRP, we are of the considered view that looking into the nature of services there is nothing to suggest that the condition of "make available" as provided in the India-Netherlands Tax Treaty have been satisfied. Further, looking into the nature of services, there is nothing to suggest that there was any agreement for transfer of any technical plan or design to the recipient of services under the aforesaid agreement as well. Further, looking into the nature of services, wherein the analysis done by the assessee is submitted in a form of report to the recipient of services, there seems to be nothing to suggest that the technology for providing the aforesaid services have been imparted to the recipient of services in a way that the recipient of services would not be required the services of the assessee further in....
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.... 52. Ground No.5 reads as under: "5. Income from Larsen & Toubro Limited ('L&T') treated as fees for technical services - INR 73,92,399/- 5.1. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO on the facts and in law in treating the revenue of INR 73,92,399 received from L&T as taxable under section 9(l)(vii) of the Act. 5.2. Without prejudice to above mentioned Ground No. 5.1, the learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO on the facts and in law in disregarding the contention of the Appellant that the services provided to L&T do not make available any technical knowledge, experience, skills, know how etc. and also do not consist of the development and transfer of technical plan or technical design and therefore do not qualify as FTS under Article 12 of the DTAA." 53. This issue also, it is stated, had been decided in favour of the assessee by the ITAT in Asst.Year 2011-12. He contended that the issue related to the treatment of income received from L&T services, as fee for technical services under section ....
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....er held that mere location of the person placing an order being outside India does not shift the source of income and economic activity outside India. The Assessing Officer held that the economic activity of manufacturing to which the technical services pertained were carried out entirely in India. In appeal, DRP did not agree with the contention of the assessee and held that the assessee is not carrying out any business outside India and the business is being carried out from India, for which the FTS has been paid. 24. In appeal before us, the Counsel for the assessee submitted that the payment for services was received in bank accounts outside India. The services were rendered outside to L&T for its overseas customers. The services are connected with the EPC Contract of L&T for erection and commissioning of coal gasification plant outside India namely in China and Vietnam. The Counsel for the assessee relied on the decision rendered by the Jurisdictional High Court in the case of Motif India Infotech Pvt. Ltd. in ITA No. 1177 of 2018 wherein the Gujarat High Court held that the source of income is outside India since assessee's customer work based outside India. Furt....
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....n based clients of L&T and the services were also to be performed in locations outside of India. In this case, from the facts placed on record in our view, L&T has made payment for utilization of the services provided by the assessee in business carried out by L&T outside of India. The services which were provided by the assessee were utilized by L&T in respect of its plant set up in Vietnam and China for its foreign clients. respectfully following the decision of Motif India Infotech Pvt. Ltd. (supra), this ground of the assessee's appeal is allowed. 28. In the result, assessee's appeal with respect to the aforesaid ground is allowed." The ld.DR fairly agreed to the same. 54. In view of the above, the issue admittedly is covered in favour of the assessee by the decision of the ITAT for Asst.Year 2011-12, and the relevant finding of the ITAT reproduced above, the addition made by the Revenue on account of income received from L&T services, as fee for technical services under section 9(1)(vii) of the Act, amounting to Rs. 73,92,399/- is deleted. Ground no.5 is allowed. 55. Ground No.6 reads as under: "6. Short credit of Tax Deducted at Source (&....