AI Drafter 
TaxTMI 
TaxTMI 
2024 (6) TMI 1553
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....espect of contract with DMRC Ground nos. 6 to 8 of the assessee's appeal and Ground No. 2 and 3 of the Revenue's appeal 3. Compensation for delayed receipt pursuant to Arbitration award Ground Nos. 9 to 1 1 of the assessee's appeal 4. Transfer pricing adjustment Ground nos. 12 to 19 of the assessee's appeal 5. Assessment of royalty and fees for technical services on receipt basis Ground no. 1 of the Revenue's appeal 3. Besides this, assessee has also raised certain additional grounds on various occasions through letters which are as under :- Sr. Issue GOA reference 1. Assessment order is barred by limitation under Section 144C of the Income-tax Act, 1961. Additional ground no. 1 filed on 9 March 2020 2. Assessment order is barred by limitation under section 153 of the Income-tax Act, 1961. Additional ground no. 2 filed on 24 November 2022 3. Final assessment order contrary to directions of DRP is invalid. Additional ground no. 3 filed on 1 7 January 2024 4. The assessee is a non-resident company incorporated and tax resident of Germany. During the relevant previous year assessee has der....
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....ed have some element of software supply, independently priced included therein. - Few invoices relate only to the supply of software and there is no equipment supply in respect of the same. - The prices charged for the software is an indication of its importance in the transactions. - Software has also been supplied without the hardware and thus the software has independent use as well. Hence claim of the Appellant that the supply of software is an integral part of equipment supply is untenable. 7. Apart from that, the contention of the ld. AO was that income has to be assessed on accrual basis and not on actual receipt basis and for which he has relied upon Special Bench of the Tribunal in assessee's own case for A.Y. 1980-81. Though ld. AO had referred in detailed various observations made in the assessment order for the earlier years, however the same are not reiterated because all those observations have not been upheld by the Tribunal in assessee's own case for A.Y. 2001-02 to 2006-07. 8. Ld. DRP upheld the action of the ld. AO relying upon the judgment of the Hon'ble Karnataka High Court in the case of CIT vs. Samsung Electronics r....
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....4/Mum/2010 20.05.2014 2004-05 4502/Mum/2009 18.05.2012 2003-04 2520/Mum/2008 09.07.2010 2002-03 2099/Mum/2007 10.12.2008 2001-02 1957/Mum/2007 08.12.2008 11. The Tribunal in A.Y. 2001-02 has held that supply of software is not taxed as 'royalty' which has been followed in the subsequent Tribunal orders from A.Y.2002-03 to 2006-07. The relevant extracts are as under :- "6. We have heard the rival submissions and perused the relevant material on record. There is no dispute on the fact that the assessee had not separately sold software but it was part and parcel of the equipment supplies to M/s Siemens Limited. The case of the assessee is that it should be taken at "Business Profits as per Article 7 to DTAA between India and Germany. On the other hand the Department wants it to be considered as falling under Article 13, being the royalty. We have to decide whether the sum of Rs. 5.29 crores is to be considered as "Business profits" or "royalty. The Special Bench of the Tribunal in the case of Motorola Inc. Vs. DCIT (2005) 95 ITD 269 (Delhi)(SB) has considered this aspect and held that "the payment made to the assessee for use ....
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....uped various appeals before it into following four categories: - The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer. - The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident Indian end-users. - The third category concerns cases wherein the distributor happens to be a foreign, non- resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributors or end- users. - The fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment by foreign, non-resident suppliers to resident Indian distributors or end-users 14. The Hon'ble Supreme Court held that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer softw....
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.... and shall copy such in their unchanged form. The above provisions shall apply analogously to all associated documentation. 4. You may not transfer this EULA or the rights to the Samsung Software granted herein to any third party unless it is in connection with the sale of the mobile device which the Samsung Software accompanied. In such event, the transfer must include all of the Samsung Software (including all component parts, the media and printed materials, any upgrades, this EULA) and you may not retain any copies of the Samsung Software. The transfer may not be an indirect transfer, such as a consignment. Prior to the transfer, the end user receiving the Samsung Software must agree to all the EULA terms. The Supplier shall grant the Purchaser the right to transfer the right to use granted to it to at third party. In such case, an agreement is to be concluded with the third party by which the third party shall not be granted any rights of use over and above those granted by the Supplier to the Purchaser. 2. License Grant "The Program is owned by IBM or an IBM supplier, and is copyrighted and licensed, not sold. Licensee receives a license to the Progra....
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....s other decisions of the Hon'ble High Courts on this issue which has been highlighted before us, the same is not being reproduced. Accordingly, we hold that this issue is covered in favour of the assessee not only in its own case as well as by the judgment of the Hon'ble Supreme Court and therefore, we hold that income derived by the assessee from supply of software cannot be subject to taxation as royalty either under Income Tax Act or under the treaty. Thus, ground Nos. 2-5 raised by the assessee are allowed. 17. Ground Nos. 6-8 of assessee's appeal and ground No. 2-3 of Revenue's appeal regarding Constitution of AOP which has been argued at length by both the parties. 18. The brief facts qua the issue are that the assessee, Siemens AG has received payments from various entities like Delhi Metro Rail Corporatin (DMRC), Reliance Industries Ltd, MCC PTA India Corp. Pvt. Ltd. Tata Power Ltd. Chemtrois Engineering Ltd. etc. in respect of off-shore supplies of electrical equipments etc., as well as services. During the year under consideration DMRC project itself involves 75.81% of the total turnover of off-shore supplies and 96.13% of the turnover of off-shore s....
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....refer Clause 5) and such scope of work to be carried out by the assessee was as specified in the MOU (refer Clause 6) iv. Each party shall be solely and entirely responsible to the other party for the performance of the contract in respect of its scope of work and for any or all liabilities arising in connection therewith. In this regard, each party would indemnify and hold harmless the other party from all costs, claims, actions, expenses or liabilities incurred by or imposed upon the other party as result of or in connection with its failure, breach, delay or any other default in the performance of its obligations (refer clause 9.1) v. The payment terms were as agreed in Clause 10 thereof entitling Siemens Limited to invoice and receive payment from DMRC for the scope of its work as set out in clause 5, while Siemens AG to invoice and receive payment from DMRC for the scope of its work as set out in clause 6. 20. Before us, Ld. Sr. Counsel Mr, Pardiwala submitted that the scope of work to be carried out by each of the parties to the agreement was separate and identifiable. Since, each party had to independently carry out the work falling within its respective....
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....by the assessee from BS03 contract is in the nature of composite contract and the income therefrom is subject to tax on account by and large on the following observations made by him :- - The BS 03 Contract is a singular one even with a lump-sum payment for all services and supplies. - The BS 03 Contract is an indivisible one having closely inter-related elements of on-shore as well as off-shore supplies as well as services. - In sum and substance, the BS 03 contract is a composite one with no specific assignment or distribution of scope of work. Even para 5 and 6 of the MoU merely fixes the responsibility by making one of the parties as 'member-in- charge' and the paras do not specify that the relevant works have to be performed by the designated members only - On a reading of the contract entered into in the context of the object sought to be achieved by the contract, the conclusion is inevitable that it is a contract for installation and commissioning of equipment(s) which the tenderer itself has supplied and has been commissioned through an associated enterprise upon association and assignment by the tenderer. Hence, it is an indivisi....
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....urt in the assessee's own case in ITA No. 1033 of 2010 for the AY 1997-98 and ITA No.5591 of 2010 for AY 1999-00 which is to the same effect. 27. However, pursuant to ld. DRP's direction, the ld. AO while passing the final assessment order replicated the entire text from the draft assessment order and followed the DRP directions of non- taxability of offshore supplies in the hands of assessee. While the DRP's directions regarding the non-taxability of income from offshore equipment supply thus remain unchallenged by the Revenue before this Tribunal. Hence, the matter concerning the constitution of an AOP is the only issue for adjudication before this Tribunal. 28. We have heard both the parties and also perused the observation and the findings of the ld. AO whether the contract receipts from DMRC would be taxed as AOP of Siemens AG and Siemens Ltd. The term AOP has not been defined under the provisions of the Income-tax Act, 1961 ('the Act'). However as per Section 2(31) of the Act while defining "person' includes under clause (v) "an association of persons or body of individuals whether incorporated or not." The explanation to Section 2(31) of the Act....
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....milar to that of Linde AG as he has extensively relied upon the order of Linde AG by the AAR which now stands reversed by the Delhi High Court. Further, he submitted that it is an admitted fact that the facts of the present case are more or less similar to that of Linde AG. The ld. AO has strongly relied upon the decision of AAR in the case of Hyundai Rotem Co. reported in 323 ITR 277. Before us assessee submitted similarities between assessee's case and the case of CIT vs. Linde AG, Linde Engineering Division vs. DDIT in the following manner :- No. Points for consideration Points Considered by Delhi High Court in case of Linde AG Factual Position in the contract under consideration (DMRC-BS03 Contract) 1 Facts of the case ONGC Petro Additions Limited (OPAL), floated a tender notice inviting bids for executing the work (including undertaking all activities and rendering all services) for the design, engineering, procurement, construction, installation, commissioning and handing over of a plant. The project was to be executed on turnkey basis. Linde AG and Samsung Engineering Company Ltd. (Samsung) entered a Memorandum of Understanding (MOU) whereby both the....
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....taken and capable of being executed by each member is very much different as defined in Clauses, 5and6of the MOU, forming part of the Contract 5. The allocation of the work was done in such a manner that each member was required to perform work which was within its field of expertise and could not be performed by the other party. The work to be performed by both the members was separate, definite & divisible. (Para 40) 6. The said MOU formed an integral part of the Contract entered into between Linde, Samsung and OPAL and was appended as Annexure J to the said Contract. And, to that extent OPAL also recognized the relationship between Linde and Samsung. The MOU between SAG and SL also forms a part of the Contract which has been duly accepted and tamped by DMRC. 7. The annexures to this agreement included a Gantt Chart which indicated the schedule for execution of the project. This schedule clearly specified the separate tasks/work to be executed by Linde and Samsung. (Para 41) The Annexure A to MOU("Value Activities and Non Value Activities) specifies the separate tasks to be done by each member. 8. Eac....
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....he other party from all costs, claims, actions, expenses or liabilities incurred by or imposed upon the party as a result of or in connection with its failure, breach, delay or other default in the performance of its obligation sunder the contract referred to for the purposes of this clause as "default" ...." 12. Sharing of Profits / losses There was no arrangement for sharing of profits and losses between Linde and Samsung. And, each of them would make profits or incur losses based on the price as agreed by them and the costs incurred by them for performance of the contract falling within their independent scope of work (Para47) Clause1.3oftheMOU forming part of the Contract states as under: ".............Nothing herein shall be construed as providing for common management capital contribution and sharing of profits and losses arising out of the project. " 32. Thus, he submitted that the judgment of the Hon'ble Delhi High Court is squarely applicable on the facts of the assessee's case and therefore, it cannot be held that this contract resulted into any kind of AoP. 33. Reliance was also placed on the decision of the Hon'ble Delhi High Court....
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.... of the Contract Work assigned to one party cannot be under taken or re-allocated to another member 2 Evaluation of members Evaluation done by DMRC separately in relation to each member Evaluation of each member has been done separately. SL is the lead member of the consortium, as required by DMRC, only for performing the administrative and liasioning role on behalf of the consortium. 3 Payments in the name of consortium Each member does not act as an agent of the other Clause 10 of the MOD forming part of the Contract provides for separate invoicing and payments in respect of the separate scope of work of each consortium member. Each member does not act as an agent of the other. 4 Joint and several liability towards the DMRC The joint and several liabilities towards the employer is a safeguard to DMRC to have better hold over the consortium members. Clause9.1ofthe MOU forming part of the Contract states as under: "..... Joint and several liability means that the members of consortium shall be jointly and severally liable to the Employer for the fulfillment of the terms of the Contract. However, between the members of the conso....
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....o the bid, is recognized as an independent contractor in various documents. L&T is entitled to raise the bills for the work carried out by it separately and such bills shall be payable by Power Grid directly to L&T without recourse to the applicant (vide para 3 of Assignment Deed). Thus, the individual identity of each party in doing the part of work entrusted to it is preserved, notwithstanding the coordination between the two and the overall responsibility of the applicant. It cannot therefore be said that the two contractors have promoted a joint enterprise with a view to earn income". 37. Thus, ld. Counsel submitted that the action of the ld. AO bringing to tax other streams of income in the hands of the assessee and Siemens Ltd separately would itself show that no AOP has been constituted between the parties. 38. The case of the AO has been elaborated specifically in paras 11.7 to 11.9 of the final assessment order, whereby the aspects which have been put against the assessee for constitution of an AOP are that, the BS 03 contract between DMRC on the one side and the assessee and Siemens Limited on the other side is a single and composite one, where the contractors are j....
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....ing Line systems, supply of spares, and the training of Operation and Maintenance personnel "the Contract has established a consortium in accordance with Indian law and offered a tender for the design and construction of a rail based mass rapid transport system by procuring the design, execution and completion, and remedying any defects in the Works of the design, manufacture, supply, installation and commissioning of Train Control & Signaling system including training of operation and maintenance personnel, supervision of maintenance of Train Control & Signaling system, supply of spares, and Operation and Maintenance Manuals and agrees to undertake performance of work." Clause 2. Obligation of the Contractor ... To design, manufacture, supply, install, test and commission of Train Control & Signaling system, and To supply spares, O&M Manuals, training of 08M personnel, supervision of maintenance, and To provide all equipment, materials, labor and other facilities requisite for or incidental to the successful completion of the Works" In the tender process, the assessee, Siemens AG with its Associated Enterprise Siemens (India) Limited was the successful bidder. ....
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.... 1830605 19703840 Total Euro 23,573,726 INR 347,476,911 Hence, it is clear that the Contract is an indivisible one having closely inter-related elements of on-shore as well as off-shore supplies as well as services. Apart from the Contract BS-03, another old Contract 3503 has also been awarded to the relevant consortium: The Contract Agreement (3S 03) dated. 10.09.2004 between DMRC and Siemens AG (Transport Systems)-Siemens (India) Limited Consortium as per Clause 1 mentions that: "Clause 1 DMRC agrees to hire and the Contractor agrees to be hired to implement the design, manufacture, supply, install and commission Train Control & Signaling and Telecommunication systems 3S03 of the Mass Rapid Transport System - Phase One Project under the terms and conditions specified in this Contract Agreement and the other Contract Documents attached ... Hence, the Contract of 3S 03 is akin to the BS 03Contract are described in detail. Therefore, it is clear and evident that in sum and substance, the BS 03 as well as 3S 03 contract is a composite one with no specific assignment or distribution of scope of work....
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....nterprise upon association and assignment by the tenderer. Hence, it is an indivisible and composite contract. The object in floating the tender is to get the MRTS commissioned and installed at sites indicated, in furtherance of Train Control& Signaling system. Hence, on a look at the contract in the light of the objective sought to be achieved, there appears to be no substance in the argument that the contract contains multiple distinct pats and they have to be separated for the purpose of taxation. It cannot be held that both the parties to the contract intended to treat the claimed scopes of work to be treated separately. Thus, on a true construction of the contract in question, it is clear that the income there-under has arisen to the assessee in Indian a composite manner. 10. Composite Nature of the Contract-Cross-fall Breach Clause In this case, Siemens (India) Limited has been made the Consortium Leader/lead partner. It has been mentioned in the Clause 4 of the relevant MoU that: " ... 4. Siemens Limited will be the Consortium Leader with the mandate to sign and submit all documents required to be submitted by the consortium in accordance with the ....
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....es and onshore services, in our considered view, these observations are certainly applicable in the cases in which the values assigned to the onshore services are prima facie unreasonable vis-a-vis values assigned to the offshore supplies, which make no economic sense when viewed in isolation with offshore supplies contract. To that limited extent, our views are the same as of the learned Authority for Advance Ruling. In other words, the transactions are to be essentially looked at as a whole, and not on standalone basis, when the overall transaction is split in an unfair and unreasonable manner with a view to evade taxes. In order that such a situation can arise, it is sine qua non that while the assessee submits the bids for different segments (e.g. offshore and onshore in the present case) separately, these bids are considered together, as a single cohesive unit, by the other party, and this fact must be apparent from material on record. On the facts of this particular case, we have also noted that each set of contracts, i.e. offshore supply contract and onshore services and supply contract, has a cross fall breach clause which provides that a breach in one contract will automat....
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.... composite contract into two parts and holding one of the parts not amenable to taxation in India, this cannot be followed in view of the 3 Judge verdict in Vodafone International Holdings vs. UOI 345 ITR 1 (SC) where it has been held that a transaction has to be "looked at and not looked through" and seen as a whole and not by adopting a "dissecting approach". A contract for sale of goods differs from a contract for installation and commissioning of a project. The tests relevant for considering where the title to the equipment, passed would not be relevant while construing the terms of a supply and performance contract. On facts of this case, the contract is for Train Control & Signaling system of rail-based mass rapid transport system and not one for sale of equipment or fitting of the equipment. It is a composite & indivisible contract for supply and erection at sites within the territory of India and cannot be split. The income accrued in India and was assessable as business income. It has been held by the Hon'ble AAR that: A contract has to be read as a whole. The purpose for which the contract is entered into by the parties is to be ascertained from the ....
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....le to the Consortium Leader/lead partner for the performance of all obligations under the Contract. As discussed in the above section, it is clear that the contract was one and indivisible and could not be split up as sought to be done by the assessee. The contract was one for Train Control & Signaling system of rail-based mass rapid transport system in India and the contract cannot be split up since essentially, it was a composite contract for the commissioning of an electrical transmission project. It appears that the contract has been deliberately split through an artificial 'consortium arrangement for no obvious reason of avoiding formation of a Permanent Establishment (At the site of installation and commissioning) in India and avoid taxability in India. Further, clearly, the Members of the Consortium viz. Siemens AG and Siemens Limited (India), who have come forward to execute the Contract, form an 'Association of Persons' (AOP) within the meaning of section 2(31) of the Income Tax Act. The following traits exist in the case of performance of the contract: (a) There was clearly a common purpose in their coming together and commo....
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.... their businesses. The common object was to perform the contract and earn income there from. There was a common object in the coming together. There was a common purpose and there was concerted action. It is a combination of persons formed for the promotion of a joint enterprise banded together, as per the language of the decision in B.N. Elias In re: B. N. Ellas, [1935] 3 I.T.R, 408]. On the facts of this case, it is clear that the assessee, alongwith the other member, formed an Association of Persons liable to be taxed as such. The coming together of the members of the association is based on the tender floated for a particular work by DMRC. The coming together is to meet the performance obligations to the tenderer arising out of that tender notification. On winning the bid, the contract entered into is for the purpose of performing that obligation. Thus, the tender is the raise and entre and the contract with the tenderer is the foundation for the combination of the associates coming together to perform the obligation there under. After committing themselves to perform the contract in terms of the contract with the tenderer, however the members of the ....
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....ning and so on. The ratio of Linde AG (AAR 962/2010) & Roxar Maximum (AAR) have been followed in the case. In Ground No. (iii) it has been enunciated that as the assessee and the others came together for jointly executing the project, they constituted an A.O.P. & were liable to be taxed as such. The fact that between themselves, the members of the Association divide the performance of the obligation does not affect the nature and content of the obligation undertaken by them jointly. Findings of DRP: During the course of the proceedings before DRP, the findings of the DRP is as under: "In the course of assessment proceedings, the assessing officer has made various additions under the Royalty and FTS on Accrual basis. The Assessing Officer has a/so held that the Income derived by the assessee under the consortium agreement with Delhi Metro Rail Corporation on account of offshore supply and offshore services is also liable to tax in India. In this regard, the AO has held that the income under the consortium agreement is liable to tax in the hands of an AOP consisting of the Assessee and Seimens limited i.e. another group company of the assessee. The....
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....gh Court in the case of Linde AG which has been discussed in detail in the foregoing paragraphs including the judgment of AAR. From the perusal of the MOU dated 11/09/2006, it is clear that the parties had come together only with a view to participate in the tender where the scope of the work to be executed by each of the parties is separate and independent. There is neither any joint management nor any joint execution of the work. Further, there is no sharing of profits and losses between the parties and each of the party is entitled to the gross consideration to be received by them for executing their separate part of the work. Lastly, it has been agreed that though both the parties are jointly and severally liable to DMRC in respect of the entire contract, they have agreed to indemnify each other for losses suffered on account of defaults committed by the other. Thus, in these circumstances, we find that the prerequisite condition for constitution of an AOP being has not been fulfilled. 42. Once there are separate obligations to be performed and there is no over lapping of work and both the parties have received monies payable under the contract independent of each other and ....
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....and letters of credit during the initial phases of the contract. 46. Before us the sequence of events of NTPC arbitration award was provided, which is as under :- Event Date The assessee entered into a contract with NTPC for Gas Based Combined Cycle Power Project at Dadri, Uttar Pradesh 06.12.1989 Reference made to arbitration 20.08.2001 Issue decided by Tribunal (also referred as partial award) on the grounds of: a) Claims made by SAG were time barred; b) NTPC counter claims The partial award was appealed by NTPC in High Court The Delhi High Court upheld the order of the Tribunal which upheld the order of the Tribunal which was then appealed before the Supreme Court 24.05.2005 The Supreme Court passed a favorable order in favour of SAG and thus the Tribunal was free to decide the claim submitted by SAG as described in the statement of claims plus interest. These claims were set to arise under Clause 22.2 of the GCC, being extra cost claimed for failure of various activities delayed by NTPC's failure to obtain import license, letter of credit. 28.02.2007 The Tribunal (International Court of Arbitration)- directed NTPC to pay ....
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....ncluding that interest of arbitration award would be taxable on accrual basis. The ld. DRP has already rejected the assessee's position that compensation in the nature of interest was the business receipt and no evidence was furnished in support of the same. Further, it would be taxable under income tax Act as well as India Germany DTAA. However, the ld. DRP directed the ld. AO to tax the interest included in arbitration award on receipt basis and therefore, no addition was made in the final assessment order because the amount was received in A.Y.2014-15. 51. Before us, ld. Senior Counsel submitted that interest on arbitration award is not interest as understood in general parlance and it is not to be considered as an income. He submitted that there has to be debt claim prior to the passing of the arbitration award the compensation for delayed payment cannot be regarded in the nature of interest for the purposes of Article 11 of the Tax Treaty. 52. On the other hand, ld. DR relied upon the order of the ld. DRP. 53. After considering the relevant facts and submissions made by the parties, we find that it is not in dispute that international Court of Arbitration directed....
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....re nomenclature employed by the parties notwithstanding. When the payment of interest is a part and parcel of the agreement to pay the unpaid purchase money on a deferred payment basis there is no indebtedness-Chittela Venkata Subba Reddy v Jayanthi Audinarayana A.S. 446 of 1964 (AP) dated 2-8-1968 (Per Kondaiah, J., as he then was) affirmed in L.P.A. 267 of 1968 dated 14-3-1969. 64. Bearing these well settled principles in mind, it has to be seen whether interest payable on the agreed instalments of unpaid purchase money can be treated as a separate 'source' being interest on any form of 'indebtedness' contemplated in article VIII of the Agreement. 54. Thus, the interest amount partakes the same character of the principal amount. 55. In so far as taxability of principle of arbitration award, the same has not been disputed because the receipt is not chargeable to tax in absence of PE or said income being attributable to PE. Similarly, the interest of arbitration award from NTPC is also in the nature of claim made by the assessee on NTPC and was not the debt claim only the arbitration was awarded. Hence, we hold that interest on arbitration award do no....
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....ngly, applying the Transactional Net Margin Method ('TNMM') and from the analysis as aforesaid, the services rendered by assessee are considered to be compliant with the arm's length principle. 60. Additionally, the assessee followed the Comparable Uncontrolled Price ('CUP') method to benchmark the transactions considering that the rates are approved by the Central Government / Reserve Bank of India / any regulatory authority which is considered to be compliant with the arm's length principle under CUP. 61. The TPO observed that the amount disclosed by the assessee and the amount having been considered by the group entities in their in their Form 3CEB, did not tally with one another. The summary of the differences was as under :- Sr. No. Name of the Associated Enterprises Amount of international Amount transactions as Form respective AEs with the Assessee (in Rs.) Amount of international transactions reported by the assessee (in Rs.) Difference in the amount of international transactions (in Rs.) 1 Siemens Limited 19,180,521,092 1,042,184,030 18,138,337,062 2 Siemens Power Engineering Private Limited 832,559,120 ....
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....Rules. 65. He submitted that it is not the case of the TPO and there is not a whisper of allegation in the TP order of the assessee and the Indian AE's that the services were not provided by the assessee or the royalty for use of technical know-how was not made available by the assessee. Despite being so satisfied, the TPO proceeded with an ad-hoc disallowance only on account of alleged discrepancies in the amount of transactions reported by the assessee and its Indian AE's. In support he relied upon the decision of Judgment of the Hon'ble Bombay High Court in the case of CIT vs. Johnson and Johnson Limited reported in (2017) 80 taxmann.com 337, wherein the Hon'ble High Court was dealing with a case of assessee who paid royalty at the rate of 2%. The TPO restricted the royalty to 1% without providing any reasoning. In said facts, the Hon'ble High Court held in favour of the Assessee by making the following important observations: " .... We find that the impugned order of the Tribunal upholding the order of the CIT(A) in the present facts cannot be found fault with. The TPO is mandated by law to determine the ALP by following one of the methods prescr....
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....rse of TP assessment proceedings. Ld. Sr. Counsel further submitted that under the transfer pricing regulations the Indian AEs (being the recipient of the technical services) are required to document their compliance with the arm's length principle as a payer. And the Indian AEs have documented the same and determined the transaction to be consistent having regards to the arm's length principle. 70. In view of the above and having regard to the economic and commercial factors, the compliance by associated enterprise with the provisions of Sections 92, 92A to 92F of the Act is considered, then it has to be reckoned as sufficient compliance by the assessee for the arm's length standard prescribed by the Indian transfer pricing regulations. Without prejudice he submitted that during the transfer pricing assessment proceedings of the Indian AEs for the same year under consideration following upward adjustment have also been made to the taxable income of Indian AEs. Sr. No. Name of the Associated Enterprise Adjustment made for FY 2008-09 as per TPO 1 Siemens Limited 85.93 crores 2 Siemens Information Systems Limited 47.04 crores 3 Siemens ....
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....ugned order." 72. Reliance was also placed on the decision of Hon'ble Karnataka High Court in the case of CIT v. UE Development India (P.) Ltd. [IT Appeal Nos. 52 to 55 of 2014, dated 12- 7- 2018] which was also subsequently followed by other Coutts and Tribunals as well, in which it was held that if the transaction is considered to be at arm's length price in the hands of the Indian AEs, then no transfer pricing adjustment should be made in the hands of the Assessee company with respect to the same transaction. 73. On the other hand ld. DR submitted that assessee should have done independent benchmarking instead of relying upon benchmarking activity carried out by the Indian AEs. The determination of arm's length price has to be done separately because what is required to be seen whether assessee payment received is at arm's length price independently. Apart from that, he submitted that the reason for making the TP adjustment was on account of difference in the amount reported by the assessee as well as Indian AE and therefore, the arm's length ALP determined in the case of assessee on this issue cannot be accepted on the transaction of royalty received b....
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...., the assessee reports only those transactions that are subject to tax in India, i.e., element of Fees for Technical Services only, whereas Indian AEs report all the transactions like purchase / sale of goods, provision and availing of services, reimbursement / recovery of expenses whether income/expense. It is thus quite natural that there would be differences in the transactions reported by the assessee and the AE's. Once this fact has been brought on records and assessee has given this explanation for reconciliation, then this cannot be the reason or the ground for making adhoc adjustment @10% by taking 10% mark-up on the value of international transaction. Such an exercise is completely against the concept of transfer pricing revelation. The ld. TPO was bound to determine the ALP in accordance with the Rules after analyzing the nature of transaction and the arm's length price after applying method provided under the Rules. If in the case of the Indian AE, the same transaction has been benchmarked and has been accepted to the ALP, then, unless there are different factors which need to be analyzed on the same transaction, it cannot be held that the same ALP cannot be acce....
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.... AO has not accepted the decision of the Tribunal stating that Revenue has preferred an appeal before the Hon'ble Bombay High Court. 79. The ld. DRP held that Hon'ble Bombay High Court in assessee's own case has accepted the contentions of the assessee in A.Y.1986-87 to 1992-93, 1996-97, 1997-98 and 2001-02 wherein the Hon'ble Bombay High Court has considered the various ITAT decisions in assessee's own case and the stand of the assessee has been upheld that the receipt is to be taxed on actual receipts. Therefore, the AO is directed not to bring tax the income on account of royalty and FTS on accrual basis but to tax the same on receipt basis. After considering the submissions and decisions of the Tribunal and the Hon'ble Bombay High Court in the case of the Tribunal, this issue is decided in favour of the assessee that income on account of Royalty and FTS can be taxed only on receipt basis. 80. Even otherwise Article-12 of India-German tax treaty used the word "paid, payments of any kind received and payments of any amount". The Article 12 of India-Germany Tax Treaty which has been reproduced below :- "ARTICLE 12-Royalties and fees for techn....