2016-TII-INSTANT-ALL-390
19 October 2016   
CASE LAWS

2016-TII-79-HC-MUM-TP

CIT Vs PTC SOFTWARE INDIA PVT LTD: BOMBAY HIGH COURT, (Dated: October 10, 2016)

Income tax - contemporaneous data - functional filter - routine service provider - RPT transactions & selection of comparable.

Whether the data to be used for comparability analysis should be contemporaneous with the time when international transactions are entered into by the tested parties - YES: HC

Whether entity engaged in rendering Engineering and Technical Services can be compared to an entity engaged in routine customer support services - NO: HC

Whether the benchmarking for the purposes of arriving at ALP has necessarily to be done with functionally similar companies - YES: HC

The Revenue had preferred the present appeal challenging the order, whereby the ITAT had directed to exclude M/s. Megasoft Ltd., M/s. Software Technology Group International Ltd. and M/s. Transworld Infotech Ltd. from the list of comparable companies without appreciating the fact that the above three comparable cases were submitted by the assessee itself as pertaining to F.Y. 2005-06. The Revenue had also challenged the order of ITAT in excluding M/s. Ultra Marine & Pigments Ltd. for the purpose of comparability analysis without appreciating the fact that the TPO had selected the company as a comparable case as RPT transactions were less than 25% and further the RPT transactions were not associated with the ITEs segment of the company.

Having heard the parties, the High Court held that,

Selection of comparables

+ as far as M/s. Megasoft Ltd., M/s. Software Technology Group International Ltd. and M/s. Transworld Infotech Ltd. are concerned, the grievance of the Revenue is that the Assessee had itself selected these companies as comparables for the Assessee's operations for the F.Y 2005-06. It is submitted that it is not open to the Tribunal to discard the same or for the Assessee to urge that the same are not comparable. The requirement under Rule 10B(4) are clear in as much as it obliges that the data to be used for comparability analysis should be contemporaneous with the time when international transactions are entered into by the tested parties. In view of the clear mandate of the law, no question of estoppal can arise. Moreover, the provisions of Rule 10B(4) being self evident, the question as proposed, does not give rise to any substantial question of law;

+ as far as M/s. Ultra Marine & Pigments Ltd. are concerned, the impugned order of the Tribunal has rendered a finding of fact that the tested party is not functionally comparable to M/. Ultra Marine & Pigments Ltd. as it is engaged in rendering Engineering and Technical Services while the Assessee is engaged in routine customer support services. Thus, the two services are not comparable. The benchmarking for the purposes of arriving at ALP has necessarily to be done with companies functionally similar. Once the functional profile is different, then the resources to be used and the profits earned would inherently be different. The Revenue is not able to point out why this finding on facts by the Tribunal is perverse. Accordingly, this question also does not give rise to any substantial question of law.

Revenue's appeal dismissed

2016-TII-55-HC-MUM-INTL

DIT Vs A P MOLLER MAERSK: BOMBAY HIGH COURT, (Dated: October 10, 2016)

Income tax - India-Denmark DTAA - Article 9

Keywords - attribution of income - operation in international traffic & shipping business

Whether receipts attributed to operation of ships by a Denmark resident entity in international traffic, cannot be denied the benefit of Article 9 of Indo Denmark DTAA, if the income was on account of use of containers from the operations of feeder vessels having nexus with shipping business - YES: HC

The assessee, a tax resident of Denmark, is engaged in operation of Ships carrying containers on its own ships or on slot hire in international waters. The AO during assessment proceedings was satisfied with regard to the assessee earning income attributable to the above activity in respect of 141 ships out of 145 ships. Therefore, only the income attributable to the 4 cases which were not to the satisfaction of the AO was brought to tax under the Indian law. On appeal, the Tribunal held that it was undisputed that the assessee was engaged in shipping business to which Article 9 of India-Denmark DTAA would apply as is evident by the benefit being granted in respect of 141 cases out of 145 cases. The ITAT also held that the AO incorrectly disallowed receipts in respect of four cases from the benefit of DTAA even when complete details were provided in the return of income. The receipts in respect of the four cases aggregated to less than 0.5% of total receipts and the earnings in respect of the four cases, were attributable to operation of ships in international traffic, as the income was on account of use, maintenance or rental of containers from the operations of its feeder vessels and it had a nexus with its shipping business.

Having heard the parties, the High Court held that,

+ it is found that the Revenue has not disputed the fact that the activity carried out with regard to the four cases has nexus with the operation of ships in international traffic. The Revenue also does not dispute that the receipt attributable to the four cases is less than 0.5% of total receipts. Thus it would undisputedly satisfy the nexus test laid down by this Court in Balaji Shipping case. Therefore, the assessee would be entitled to the benefit of Article 9 of India-Denmark DTAA. In any case, the grievance of the Revenue is not sustainable as the impugned order on appreciation of evidence has held that particulars of receipts in respect of the four cases were filed with the return of income. Therefore, the view taken by the Tribunal is a possible view.

Revenue's appeal dismissed

 

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