TaxTMI 
TaxTMI 
2025 (9) TMI 1791
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....The said appeal is filed under section 253(1)(d) of the Income-tax Act, 1961 ('the Act') on the following amongst other grounds each of which is in the alternative and without prejudice to any other: 1. The AO erred in determining the Appellant's total income at Rs. 4,75,06,48,172 as against the returned income of Rs. 4,61,75,90,490. 2. The AO/Dispute Resolution Panel ('DRP') erred in holding that the royalty and fees for technical service income are taxable on an accrual basis as opposed to the receipt basis adopted by the Appellant. In this regard they failed to follow binding decisions of Tribunal in the Appellant's own case in AY 1990-91, 1991-92, 1994-95, 1998-99, 1999-2000, 2004-05, 2005-06 and 2006-07. 3. The AO/DRP erred in holding that an amount of Rs. 17,64,03,745 accrued towards supply of software as royalty in the hands of the Appellant. 4. The DRP erred in holding that the separate invoices identified as relating only to software without any hardware were invoices for supply of software only. This is because, although there is a separate invoice for software, the same is inter alia supplied for the equipment /....
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....onal pre-conditions in section 92C(3) of the Income Tax Act, 1961 ('the Act'). Since, none of the said conditions had been fulfilled in its case, they ought to have accepted the ALP as determined by the Appellant in respect of such transactions. 13. On the facts and circumstances of the case and in law, the AO/TPO have erred in not accepting the benchmarking analysis carried out by the assessee in the transfer pricing documentation maintained as per the requirements laid down under Rule 10D(1) and Rule 10D(3) of the Income Tax Rules, 1962 (the Rules). The Hon'ble DRP further erred in confirming the action of the AO/TPO. 14. On the facts and circumstances of the case and in law, the AO/TPO/DRP erred in determining an adhoc adjustment of Rs. 38,67,04,168, towards determination of ALP of the international transaction of 'Technical services and other transactions' (being 10% of INR 3,86,70,41,680) without applying any of the prescribed methods as per section 92C of the Act, the adjustment carried out by the TPO is thus purely adhoc and arbitrary. The Hon'ble DRP further erred in confirming the action of the AO/TPO. 15. On the facts and....
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....sactions provided by the Appellant in relation with amounts reported by the Appellant and the AEs in their respective form 3CEBs. 20. On the facts and circumstances of the case and in law, the TPO/AO/ DRP failed to appreciate that in respect of the said international transactions entered into by the Appellant with its AEs in India, the Revenue had accepted the transactions to be at ALP in the case of certain AEs and in respect of other AEs they had held the payment/ expenditure to be at more than ALP. Having accepted the ALP or found the transaction to be at a price more than the ALP, it was not open to the Revenue to make a transfer pricing adjustment in the Appellant's case. 21. The AO erred in initiating penalty proceedings under Section 270A of the Act." Brief facts of the case are as under: 2. The assessee filed its return of income on 30/11/2017, declaring total income at Rs. 414,71,15,235/-. The case was selected for scrutiny and notice u/s. 143(2) and 142(1) was issued along with questioner. In response to the notice, the representative of the assessee appeared before the Ld.AO and filed requisite details as called for. The Ld.AO noted that the a....
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....sessee in both the years under consideration are squarely covered by various decisions of coordinate of this Tribunal in assessee's own case passed for the earlier assessment years. It is also that some of the issues are also covered by the decision of Hon'ble Bombay High Court in assessee's own case. 4. The Ld.AR has filed a chart of grounds with the narration of the issues that are covered with the orders passed by this tribunal and is earlier assessment years. The Ld.AR submitted that order for a suspended 2009-10 dated 07/06/2024 has discussed in detail all the issues. Ground No. Issue alleged 2. Income from royalty and FTS taxed on accrual basis as against receipt basis 3-5 Income from supplier of software treated as royalty 6-11 Considering the assessee and the Indian entity as an AOP and taxation of income from offshore supply in the hands of the assessee in India as a composite contract 13-21 Benchmarking the transaction with Indian AE on an ad hoc mechanism to determine the ALP. The transactions 4.1 The Ld. DR admitted that all issues are covered based on the fact that the authorities have also r....
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....991-92,1994-95,1996-97, 1997-98,2001-02,2002-03 and 2003-04. The ld. 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 whi....
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....le Bombay High Court and the Co-ordinate Benches have consistently held that the income is not taxable on accrual basis but on receipt basis. Respectfully following above view, we hold that the receipts in the hands of the assessee are taxable on receipt basis and not on accrual basis. Accordingly, ground No. 2 raised by the assessee stands allowed. 6. Grounds No.3 to 5 raised by the assessee pertain to amount received towards supply of software by the assessee being treated as Royalty. 6.1 The Ld.AR submitted that, this issue stands covered by the decision of the Co-ordinate Bench in the case of Siemens AG and this fact is substantiated by the findings of the DRP where the DRP has relied on its own decision in the case of Siemens AG for AY 2018-19 to uphold the addition made by the AO. 6.2 It is noted that the assessee claimed that the receipt from supply of software was not taxable in India for the reason that the software is a standard software where no copyright is parted by the assessee. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of Engineering Analysis, Centre of Excellence Put. Ltd. vs. CIT [2021] 125 taxmann.com 42 (SC). We furt....
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....h 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 of software in the equipment did not amount to royalty either under the Income- tax Act or the DTAA." The facts involved in the instant case are akin to those considered by the Special Bench in the afore-noted case. The Learned Department Representative could not point out any distinguishing feature....
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....eals 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 distribute or happens to be a foreign, non- resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributers 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 software, is not payment of royalty for the use of copyright in the computer software and that the same does not give rise to any income taxable in India in all the categories of transactions mentioned above. 15. Before us comparison between facts of the case and the ....
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.... 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 a 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 5. 2. LicenseGrant "The Program is owned by IBM or an IBM supplier, and is copyrighted and licensed, not sold. Licensee receives a license to the Programs from Assimil8 Limited through a sublicensing agreement between IBM and Assimil8 Limited. Assimil8 Limited grants Licensee a non-exclusive license to (1) use the Program up to the Authorized Use specified in the PoE ....
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....y 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." 6.2 The Ld.AR submitted that the assessee is the demerged entity of Siemens AG and the contract with CMRL is passed on to the assessee w.e.f. 01.08.2018 and this fact is not disputed by the revenue. Accordingly the facts considered in the above decision with respect to towards supply of software are identical to assessee's case and therefore respectfully following the above decision of the Co-ordinate Bench, we hold that the income derived by the assessee from supply of software cannot be taxed as Royalty either under the Act or under the DTAA between India and Germany. Accordingly the grounds no. 3-5 raised by the assessee stands allowed. 7. Grounds No.6 to 11 pertain to the addition made towards offshore supply of goods as taxable in India on protective basis. The Ld.AO observed that the assessee received Rs. 328,865,813/- towards offshore supply of goods and treated it as not taxable in India. ....
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....ible and remains liable for the execution of all the three parts irrespective of the fact that the purchaser enter into the 'First Contract with Siemens AG and the 'Second Contract' and the 'Third Contract' with Siemens INDIA. Hence, Siemens AG is the overall undertaker of the Contract and the Contract is unified single one, which has been artificially broken up into 3 parts Further, no reason for assignment of part contract through association arrangement to Siemens Limited (India) has been furnished 3. Further, it is not known whether Siemens Limited (India) would have such qualification for eligibility of the relevant contract. Hence, independently, Siemens Limited (India) may be ineligible for undertaking the contract. However, due to the involvement of Siemens AG, the contract has been successfully achieved. Hence, in true essence, the Contract is a single project which has been conferred on Siemens AG. 4. Apparently, in this case the bidding fee has paid on one instance only by the applicant Siemens AG and not three times. Associate Siemens Limited (India) has not submitted any bidding fee. Hence, any argument that the case involves three....
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....reasonable to estimate the income as 10% of their receipt. Further, since some parts of the operations have been carried out in the respective country of residence, Germany, it is also reasonable to estimate that the residence and source country have a 50:50 right over the income so received by the assessee. Hence, the net taxable income from off-shore supplies is 5% in case of the assessee. Since, the tax rate in India for foreign companies is 40%, it is estimated that the tax payable by assessee Siemens AG in India is 2% of the gross receipts from Off-shore supply of the equipment( cess and surcharge extra). 8.9. However, it has been held in the above discussion that the income from Offshore supplies have accrued to the A.O.P. comprising of assessee Siemens AG and Siemens (India) Limited. Obviously, the relevant A.O.P. would be a resident of India for tax purposes. Therefore, the tax liability arising to the A.O.P. is liable to be determined and levied by the Assessing Officer concerned exercising jurisdiction over the resident A.O.P. The substantive determination and assessment of income of the A.O.P. is to be referred to Assessing Officer having jurisdiction over the r....
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....on of the coordinate bench in assessee's own case for assessment year 2020-21(supra) in para 12 is applicable for the years under consideration. We thus hold that the assessee and Siemens Limited do not constitute AOP. Accordingly, ground nos. 6-11 raised by the assessee stands allowed. 8. Ground No.13 to 21 raised by the assessee is with regards to the benchmarking of the transaction with Indian AE on ad hoc basis without adopting any mechanism to determine the ALP of the transaction. The Ld.AR submitted that the facts that lead to the adjustment for the year under consideration are similar with that of Assessment year 2009-10. He thus relied on the arguments on behalf of the assessee for assessment year 2009-10. The Ld.AR relied on following arguments of the assessee on identical facts for assessment year 2009-10(supra): "64. Before us ld. Sr. Counsel Shri P.J. Pardiwala submitted that assessee has carried out detailed functional analysis and also undertaken such process while undertaking the benchmarking in their TP study report. He further submitted that TP adjustment cannot be made merely on the basis of alleged discrepancy in the amount of transaction re....
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..... Lever India Exports Limited (2017) 246 Taxman 133 (Bombay) ● CIT LTU v. SI Group-India Limited (2019] 265 Taxman 204 (Bombay) ● CIT v. Merck Ltd (2016) 389 ITR 70 (Bombay) ● CIT v. Kodak India (P.) Ltd. [2016] 288 CTR 46 (Bombay) 67. Accordingly, he submitted that adhoc adjustment of 10% of the value of international transaction declared by the assessee is not justified. 68. In so far as relying on the TP study report of the Indian AEs to justify the arm's length nature of its international transaction, Ld. Sr. Counsel submitted that Indian AEs have benchmarked all the transactions after detailed FAR analysis entered into with the assessee. The Indian AEs have earned Net Cost Plus Margin /Net Profit Margin (after considering services availed from assessee) that are consistent with the margins earned by comparable independent companies. Accordingly, applying the TNMM method and based on the analysis of the Indian AEs, the services rendered by the assessee were considered at arm's length from the perspective of Indian transfer pricing regulations. 69. He further submitted that, the Indian AEs had demonstrated th....
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.... assessee. He relied upon the decision of Mumbai ITAT in the case of Tecnimont SPA India Office 22] 145 taxmann.com 477 (Mumbai Trib.) wherein the ITAT held as under :- "14. Having heard both the parties and after perusal of the records, we note that the payments made by the assessee PE to its AE's i.e. assessee with TICB and EDTICB were held to be at Arm's Length by this Tribunal (supra); and since the same international transaction of the instant assessee's procurement cost (being subcontracting income for the AE's i.e. of assessee viz TICB and EDTJCB) has been accepted as Arm's Length for the AE 's and the same beins mirror transaction cannot be considered excessive in the hands of the assessee/ appellant. Therefore, on the same reasoning/ ratio of the decision of the Tribunal (Banglore) in UE Development India Pvt. Ltd. (supra) which has been upheld by Hon'ble High Court (supra), we hold that where the Tribunal has accepted the international transaction to be at Arm's Lensth Price in the hands of AE, then the international transaction that the assessee had with the facts and AE's to be also at Arm's Lensth Price and therefore no ....
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....sement / recovery of expenses whether income/ expense. It is thus natural that these would be differences in the transactions reported by the assessee and the AE's. 75. Thus, he submitted that reconciling the amounts reported by itself and its Indian AEs was unfeasible due to the provision of manual TDS certificates issued by payers during the relevant period. This made it challenging to match individual invoices with TDS certificates which were issued at a consolidated level Nonetheless, it has been able to achieve a substantial reconciliation of the transactions, which were placed on record during the TP proceedings before the TRANSFER PRICING OFFICER vide submission dated 31/08/2012 as well as 27/09/2012. 8.1 As noted in the preceding paragraphs, we note that the facts that led to the adjustment in the present assessment years are identical with assessment year 2009-10 (supra). It is noted that this Tribunal for 2009-10 (supra) read as under : 76. We have heard the rival submissions and perused the relevant finding given in the impugned orders. One of the reasons given by the Id. TPO and the Id. DRP is that assessee has been earning to reconcile the valu....