| 2017-TII-INSTANT-ALL-448 | 17 April 2017 |
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CBDT creates 13 posts of CIT (DR) & (DRP) by diverting posts of CIT(A) CASE LAWS CBDT Vs AFT TRUST SUB1: SUPREME COURT OF INDIA (Dated: April 3, 2017) Income Tax - Sections 10(15A) & 195 - India-Austria DTAA. Keywords - circumvention - condonation of delay - Master Aircraft Purchase Agreement - sub-lease. The assessee is AFT Trust Sub and it had purchased two boeing aircrafts from two companies belonging to General Electric Group of Companies. Earlier these aircrafts were leased out by the seller to GE Capital Bank, Austria, which in turn had entered into a sub-lease agreement with Jet Airways in India. The aircrafts were imported into India after obtaining the appropriate approvals and were being operated by Jet Airways. This arrangement of sub-lease continued for some time, before the aircrafts were sold to the assessee pursuant to the Master Aircraft Purchase Agreement and resultantly, fresh lease agreements were entered into between the assessee and Jet Airways. Since the assessee is a U.S. based company, the benefit of the DTAA was not available, and therefore, an application was moved by Jet Airways on behalf of the assessee for availing the benefit u/s 10(15A). This applications was rejected and the review application filed subsequently was also rejected. The reasons so stated were that the basic objective of entering into the fresh lease agreement was to avail the benefit u/s 10(15A), since it was not available under the original agreement, and the new lease agreement was identical to the old sub-lease agreement in its terms and conditions. Thereafter, the High Court quashed the order of the Central Government for lack of cogent reasons, and the assessee was instructed to file a fresh application. The fresh application was again rejected by stating the reason that the new lease agreements were identical to the old agreements and the only change is in the ownership of the aircrafts. It was also stated that the new agreements had been entered into merely to circumvent this difficulty i.e., the benefit of exemption u/s 10(15A) was not available. Aassessee preferred a writ petition, which was allowed by the High Court and the impugned order was set aside. Aggrieved Revenue preferred an appeal by way of special leave albeit with a delay of 176 days and thereafter also there was a refiling delay of 2630 days. Having heard the parties, the Supreme Court held that, + it is a case of gross negligence in taking steps, thus, there is no ground to condone the delay and consequently, the Special Leave Petitions are dismissed on the ground of delay and non-prosecution. Revenue's petition dismissed
AVERY DENNISON INDIA PVT LTD Vs DCIT: DELHI ITAT (Dated:March 31, 2017) Income Tax - Sections 92CA & 144C Keywords - Arms length price - pressure sensitive material - aggregation approach - intra group services - need test - benefit test The assessee is a subsidiary of Avery Dennison Corporation, USA and is engaged in the Manufacturing and trading of Pressure sensitive adhesive material, self-adhesive paper, self-adhesive film, tape, sheets, tags and Labels. It filed its return of income declaring nil income which was subsequently revised declaring income of Rs. 40245490/-. As the assessee has entered into international transactions with associated enterprise within the meaning of section 92B of the act, Form No. 3CEB was filed by the assessee showing that it has entered into the international transaction of 14 types. According to the assessee, It is operating in two segments a. PSM i.e. Pressure sensitive Materials and b. RBIS – i.e. retail information and branding solutions. In its transfer pricing study report assessee classified itself as a routine manufacturer that assumes normal risk associated with such operation. Assessee further adopted aggregation approach for all the transactions and adopted the TNMM as the most appropriate method using operating profit/ Sales (OP/sales) as the relevant profit level indicator for both the segments. During assessment proceedings, the AO referred the matter to the TPO as per the provisions of section 92CA(1). TPO accepted all the transactions entered into by the assessee to be at arm's length except in the case of the international transaction relating to the receipt of intragroup services in the 2 business segments, amounting in all to Rs. 282046989/–. In a nutshell, TPO held that determination of ALP is justified at NIL because the payments have failed need Test, benefit test, Rendition test, duplicity test and Shareholder's activity test. He further referred to the directions given by the DRP for AY 2010-11 in 2011-12 where only the payments with relation to ticketing HUB and BIPF as services were held to be at arm's length. Therefore, similarly he accepted the arm's length price for these two services and further with regard to the balance intragroup services amounting to Rs. 230271861/– the arm length price was computed by the TPO at NIL by applying the CUP method. Thereafter, the TPO proposed an adjustment u/s 92CA of Rs. 230271861/– with respect to the services of Rs. 282046990/- for which ALP was determined of Rs. 51775129/-. Consequently draft assessment order u/s 144C(1) r/w section 143 (3) was passed proposing the addition of Rs. 230271861/– on account of the transfer pricing adjustment. The assessee filed objection before the DRP which upheld the proposed addition. Consequently, the final order was passed wherein an addition of Rs. 230271861/– was made. Therefore, assessee being aggrieved with that order of the AO preferred an appeal. Having heard the parties, the Tribunal held that, Whether the need & benefit test for determination of ALP of certain intra group services shall be deemed to be satisfied when such test already stood satisfied in the previous AY respect of the same services - YES: HC + to determine ALP of intra group services according to us it is necessary for TPO to assess (a) need test, (b) benefit test, (c) rendition test, (d) duplication test and (e) share holder activity test. It is also accepted that need test and benefit test are required to be examined from the perspective of a businessman and not from the perceptive of the revenue. Services may be required by a person for its business need and at the time of availing it, the benefit accruing to that person is perceived, such benefit may or may not accrue but if services are rendered the payment is required to be made for those services subject to the other conditions. Therefore, if it is found that the normal business justifies the need of those services and it has some perceivable benefit then revenue cannot question payment for those services provided those services are rendered and are neither duplicative or in the nature of share holder services. This is for the simple reason that unless the services are rendered which are neither duplicate and are not share holder activity then only any independent person would be willing to pay for those services. This is a necessary ingredient for determination of ALP of intra group services. As the earlier orders passed by the coordinate bench for AY 2007-08 to AY 2011-12 also concerning the same agreement which is also before TPO for determination of ALP of intra group services, we respectfully following the order of the coordinate bench hold that need test and benefit test are already satisfied for determination of ALP of those intra group services and therefore for this year also we hold that such test questioned by the TPO is incorrect as the services concerned are pertaining to the same agreement which has been examined by the coordinate benches in case of assessee for earlier years. However, the rendering of such services is subject to determination for each AY independently based on the evidences for rendering of the services. Therefore the assessee is required to demonstrate with credible evidence to satisfy that such services have actually been rendered by the foreign AE to the assessee for the year. Whether case deserves to be remanded when the assessee fails to submit proper evidences with regard to services actually rendered by the AE and fails to do proper benchmarking for the same - YES: HC + we have carefully analysed whether the evidences submitted by the assessee are sufficient to conclude that services have actually been rendered by the foreign AE or not. We failed to understand that how this marketing broacher can show that the marketing support services have been rendered by AE. Similarly we have also perused such evidence with respect to other services also as per chart produced before us. Startlingly, assessee himself has not submitted any proof with respect to accounting administrative services and management information system. With respect to financial services only sector revenue forecast and Q3 forecast revenue were mentioned. Therefore, on analysis of the documents we found that there are no proper evidences led before the TPO that services have infact been actually rendered by the AE. It is expected from the assessee for proper benchmarking to lead evidence with respect to each of the nature of services with respect to each class of services mentioned in the above chart with corresponding manner of rendering of the services, the time lag of initiation of services and closure of the services. The evidences produced are apparently very general and do not show the rendering of the services. In view of this we set aside the appeal of the assessee to the file of TPO/AO for verifying the evidence of rendering of the services by the AE with respect to nature of each of the services listed in the agreement. Case remanded |
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