TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1437
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....any had filed it's return of income for the assessment year 2020-2021 on 29.01.2021 declaring total income of Rs. 279,44,48,670/-. The case of the appellant-company was selected for scrutiny and during the course of assessment proceedings, a reference was made to the Transfer Pricing Officer [in short "TPO"] for determining the Arm's Length Price [in short "ALP"] of international transactions of the appellant-company with it's Associated Enterprises [in short "AE"]. The TPO vide it's order u/sec.92CA(3) of the Income Tax Act, 1961, dated 25.04.2023 made certain Transfer Pricing [in short "TP"] adjustments and the Assessing Officer has completed the assessment making the certain adjustments to the income of the appellant-company vide Draft Assessment Order u/sec.144C(1) of the Income Tax Act, 1961 dated 28.09.2023. 3. The appellant-company has filed objections against the Draft Assessment Order before the DRP which were disposed of by the DRP vide Directions u/sec.144C(5) of the Income Tax Act, 1961 dated 26.06.2024 partly in favour of the appellant-company, thereby, resulting in deletion of TP margin adjustment. The Assessing Officer passed Final Assessment Order incorporating....
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....ct on foreign remittances and further, in case, TDS provisions are not applicable, the assessee shall apply and obtain no deduction certificate u/sec.195(2) of the Act from the Appropriate Authority. The appellant-company has failed to comply with the provisions of sec.195 of the Act and, therefore, violated the above provisions by not deducting TDS on foreign remittances of Rs. 63,16,47,709/-. The Assessing Officer further observed that, the appellant-company is receiving services in India as business support services from ADP, Australia and as per the definition of business support services as per CBIC it is concluded that, the services are rendered in India as per sec.9(1) of the Income Tax Act, 1961 to execute the assessee's business work and admittedly, the assessee has also claimed as business expenditure during the assessment year. Further, the assessee has made an application before the Authority for Advanced Rulings on 02.06.2015 and requested not to make adjustments. Further, the assessee had withdrawn the application filed before the Authority for Advanced Rulings and this fact has been considered by the learned DRP while adjudicating the issue of disallowance u/sec.40(a....
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....ade to ADP, Australia, cannot be considered as 'royalty' and tax in India. In this regard, he relied upon the following judicial precedents : i. Judgment of Hon'ble Delhi High Court in the case of Guy Carpenter & Co. Ltd., 346 ITR 504. ii. Judgment of Hon'ble Karnataka High Court in the case of De Beers India Minerals (P.) Ltd., 346 ITR 467. iii. Judgment of Hon'ble Karnataka High Court in the case of Sun Microsystems India (P.) Ltd., 369 ITR 63. iv. Judgment of Hon'ble Delhi High Court in the case of US Technology Resources (P.) Ltd., 407 ITR 327. v. Judgment of Hon'ble Delhi High Court in the case of Bio-Rad Laboratories (Singapore) Pte. Ltd., 459 ITR 5. vi. Judgment of Hon'ble Delhi High Court in the case of Aecom Technical Services Inc. 174 taxmann.com 1173. vii. Order of ITAT, Hyderabad in the case of Dr. Reddy's Laboratories Ltd., 184 TTJ 41. viii. Order of ITAT, Pune in the case of Sandvik Australia Pty. Ltd., 141 ITD 598. ix. Order of ITAT, Chennai in the case of Visteon Corporation 167 taxmann.com 484. x. Order of ITAT, Delhi in the case of Magotteaux International SA 141 taxmann.com 8. 9. MS. U. Minichandran, learned CIT-DR for the Revenue, on the oth....
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.... or foreign company only where the sum is chargeable to tax under the provisions of the Act read with the applicable tax treaty. The appellant-company did not deduct taxes u/sec.195 of the Income Tax Act, 1961 on the ground that, the said receipt was not taxable in India in the hands of ADP-Australia. The Assessing Officer disallowed payment made to ADP Australia for not withholding taxes under section 40(a)(i) of the Act on the ground that, payment made to ADP-Australia is in the nature of Fees for Technical Services [in short "FTS"] as defined u/sec. 9(1)(vii) of the Act. The Assessing Officer further observed that, assessee itself has made application before the 'Authority for Advance Rulings' for seeking clarification on applicability of TDS provisions in terms of sec.195 of the Act on payments made to ADP Australia and the same has been subsequently withdrawn by the appellant-company without assigning any reasons. The Assessing Officer further noted that, if at all payment made to ADP-Australia does not come under FTS and provisions of sec.195 of the Act, then, the appellant-company would have applied for non-deduction Certificate in terms of sec.195(2) of the Income T....
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....ving Permanent Establishment [in short "PE"] in India. Therefore, it is necessary for us to examine the payment made by the appellant-company to ADP-Australia for receiving business support services in terms of agreement between the parties and in light of provisions of sec.9(1)(vii) read with Tax Treaty between India and Australia. 12. Section 90(2) of the Income Tax Act, 1961 provides - "Where the Government has entered into Tax Treaty with any other Country, the provisions of the Act or the Tax Treaty whichever is beneficial to the taxpayer would apply." Since, ADP-Australia is a tax resident of Australia, the appellant has entitled to avail benefits of India-Australia Treaty. As per India-Australia Treaty [DTAA], Article-7 deals with 'business profits'. As per Article-7 of the India-Australia Treaty, a non-resident enterprise, can be taxed in India only if such an enterprise carries on business through the PE in India. In the present case, ADP-Australia is a tax resident of Australia and carries on it's business operations outside India and does not have PE in India. The Assessing Officer has not brought anything on record to suggest that, ADP Australia has a PE in India and h....
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....vices are provided by ADP-Australia year-after-year on a continuous basis, which shows that, the appellant-company cannot perform these services on its own without recourse to ADP-Australia. Further, we note that, the Revenue has not demonstrated how ADP-Australia had made available technical knowledge or know-how to the appellant-company. 14. In this connection, it is relevant to refer to the decision of ITAT, Pune Benches, Pune in the case of Sandvik Australia Pty. Ltd. reported in 141 ITD 598 wherein it was held that, "unless and until the services are not made available, the same cannot be taxable in India under the ambit of Article 12(3)(g) of the India-Australia Treaty". Therefore, we are of the considered view that, support services fee paid by the appellant-company to ADP-Australia is neither taxable under the provisions of the of the Income Tax Act nor under the provisions of the India-Australia Treaty. Although, the Assessing Officer and the learned CIT(A) did not brought on record any evidence to prove that, the said services fall within the ambit of FTS as defined u/sec.9(1)(vii) of the Income Tax Act, 1961, but, disallowed the said payments for non-deduction of TDS u/....
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....non-deduction of TDS u/sec.195 of the Income Tax Act, 1961. The Assessing Officer without appreciating the relevant facts, has simply disallowed the payment made to ADP-Australia u/sec.40(a)(i) of the Income Tax Act, 1961 and the learned DRP without appreciating the relevant facts, has simply sustained the additions made by the Assessing Officer. Thus, we direct the Assessing Officer to delete the addition made towards payment of business support services to ADP-Australia u/sec.40(a)(i) of the Income Tax Act, 1961. 16. The next issue that came-up for consideration from ground nos.5 to 13 of assessee's appeal is upward adjustment towards notional interest on overdue receivables from AE. The TPO proposed an upward adjustment relating to interest on outstanding receivables amounting to Rs. 7,21,921/- on trade receivables from AE on the ground that, receivable from AEs are beyond the credit period allowed, for which, appropriate compensation ought to have been received by the appellant-company. Therefore, computed notional interest by applying SBI-PLR rate and imputed interest of Rs. 7,21,921/-. The learned DRP upheld the order of the TPO. 17. CA, Sriram Seshadri, Learned Counsel for....
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....he overdue payables arise only if such payables and receivables are from very same AE. In the present case, the assessee could not file relevant details to explain the fact with regard to the receivables and payables from same AE. Therefore, the argument of the assessee cannot be accepted. Finally, the argument of the assessee that, it is a debt free company, also, does not make any difference when it comes to benchmarking international transactions. The TPO and DRP after considering the relevant facts, has rightly benchmarked interest on overdue receivable from AE by applying SBI-PLR rate and thus, the order of the Assessing Officer should be upheld. 19. We have heard both the parties, perused the material on record and the orders of the authorities below. It is well established principle of law by the decisions of various Courts/Tribunals that, outstanding receivable from AE is an international transaction, particularly, after the amendment to sec.92B, the definition of "International" by the Finance Act, 2012. Once receivables from AE is in international, the same needs to be benchmarked with third party comparables. To this extent, we cannot appreciate the arguments of the ass....
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....t interest cost and as such, the question of imputing interest on overdue receivable from AE does not arise. We once again cannot appreciate the argument of the Counsel for the Assessee that, once any transactions falls under the definition of "International transactions" the same needs to be benchmarked with reference to third party transactions. Whether the appellant is a debt free company and incurs any interest cost does not change the legal position or the nature of transactions. In the present case, it is undisputedly clear that, overdue receivable from AE is an international transactions and the same needs to be benchmarked. Therefore, in our considered view, the proposition canvassed by the Learned Counsel for the Assessee does not hold good and thus, rejected. Finally, Learned Counsel for the Assessee has made an alternative argument and submitted that, since the assessee has benchmarked international transactions by aggregating all transactions at entity level by adopting TNMM, the question of benchmarking overdue receivable separately is incorrect. We once again unable to accept the arguments of the Learned Counsel for the Assessee for the simple reason that, aggregation....