| 2017-TII-INSTANT-ALL-508 | 24 November 2017 |
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ADMINISTRATIVE ORDERS CASE LAWS KAYPEE ELECTRONICS & ASSOCIATES PVT LTD Vs DCIT: KARNATAKA HIGH COURT (Dated: November 21, 2017) Income Tax - Writ Petition - Section 260A Keywords - Modification of interlocutary order - Reduction in pre-deposit amount On assessment for the AY concerned, an addition of Rs.95,04,375/- was made to the assessee's income, on account of Royalty payment of Rs.2,29,39,967/- on the basis of Arm’s Length Price (ALP). On subsequent appeal, the Tribunal granted relief, to the extent of remaining amount of the said demand of Rs.95 lakhs not recovered. However, this was subject to the payment of Rs.50 lakhs assessee on or before 30.11.2017. The date of final hearing was fixed for 14.12.2017. However, while passing such interlocutory order, partly allowing the assessee's stay application, the Tribunal observed that the main issue involved in the appeal had already been decided against the assessee for the preceding AY. The assessee filed the present writ seeking reduction in the demand amount raised, and was willing to deposit part of the demand amount subject to final disposal of the matter. On hearing the petition, the High Court was of the view that, Whether an interlocutary order of the Tribunal warrants modification to reduce the pre-deposit amount, given that there is a very small time window between the final date for pre-deposit and the date of hearing - YES: HC ++ normally this Court would not like to interfere with the exercise of discretion by the Tribunal while passing the interlocutory order and the direction of the Tribunal to deposit Rs.50 lakhs against the demand of Rs.95 lakhs approx, cannot be said to be unfair use of exercise of its discretion, even if the payment of the said amount, going by the thumb rule of 50% is adopted. However, it appears to this Court that since the difference between the cut off date for payment of Rs.50 lakhs on 30.11.2017 and the date of hearing on 14.12.2017 of the appeal itself is bare minimum of 15 days, an indulgence could be granted to the assessee, though not as a matter of right. ++ the observation of the Tribunal that the other incidental grounds may result in substantial reduction in demand raised, though indicates that a prima facie case of the assessee exists but the extent of that could not naturally have been deferred and computed precisely by the Tribunal. The adjudication and determination of such incidental grounds would also depend upon the final decision of the Tribunal itself after hearing both the sides. ++ as of now, it is in the realm of only guess work as to how much relief the assessee will or will not ultimately get when the learned Tribunal decides the appeal only on 14.12.2017. Since the gap of time period between the two dates as aforesaid is only about 15 days, this Court is inclined to grant indulgence to the assessee, as this Court feels that the interest of revenue will not be seriously prejudiced, if the payment of balance amount may await the final decision of the Tribunal for a period of 15 days more. ++ therefore, in light of the above deliberations, the interlocutary order of the Tribunal modified to the extent that the demand amount to be deposited by the assessee, reduced to Rs. 30 lakhs from Rs. 50 lakhs. Assessee's Writ Petition Allowed EPAM SYSTEMS INDIA PVT LTD Vs ACIT: HYDERABAD ITAT (Dated: October 24, 2017) Income tax - Sections 92CA, 143(3) & 144C Keywords - ALP - software development services - AE - multiple year data - interest on delayed payment - outstanding receivables - LIBOR rate - working capital adjustment The Assessee company engaged in the business of rendering software development services to its AEs, filed its return declaring an income of Rs.9,69,55,820. During assessment proceedings, the AO observed that assessee had entered into an international transaction with its AEs for rendering of software development services and therefore, the issue of determination of its ALP was referred to the TPO u/s 92CA, who after considering the assessee’s T.P. report, held that assessee had used multiple year data to find comparables which was not as per the provisions and that this had lead to selection of 14 comparables out of which some comparables did not have the contemporaneous data. Therefore, he rejected the T.P. study of assessee and conducted an independent search and using the contemporaneous data and after aggregation of transactions, he arrived at the ALP and after allowing the working capital adjustment, he found that the average margin of the comparables was within ± 5% of the price received. He therefore, proposed no adjustment as far as software development services transaction was concerned. Thereafter, he observed that assessee was due to receive a sum of Rs.25,54,91,654 at the end of the relevant A.Y. He therefore, asked the assessee to submit the details of the invoices and the subsequent receipts. On perusal of the information so filed, he observed that a sum of Rs.21,96,43,078 was received after considerable delay. He therefore, proposed to charge interest @ 14.75% on the delayed receipts, as interest on receivables to be adjusted u/s 92CA. In accordance with the order of TPO, the AO proposed the draft assessment order. On appeal, the DRP granted partial relief to the assessee by directing the AO to adopt the interest rates of the SBI prevailing for the financial year 2011-12 on short term fixed deposits instead of 14.75% applied by the TPO. Further, the DRP also directed that the interest was to be calculated till the end of the relevant financial year only. On appeal, the ITAT held that, Whether any TP adjustment is warranted, in case the price received by assessee is within (+/-) 5% of the average margin of the comparables - NO: ITAT Whether separate addition on account of 'interest on delayed receivables from AEs', is required, after allowing working capital adjustment - NO: ITAT + we find that the only transaction, which has been treated as an international transaction by the assessee in its TP study is the provision of software development and consulting services. The assessee has adopted TNMM as the most appropriate method and has adopted 14 companies as comparables whose mean margin was 13.08% as against the assessee’s margin of 12.14%. Since the assessee’s margin was within + or _ 5% of the margin of comparables, the assessee treated it to be at Arm’s length. In Annexure of the TP Study, the assessee has detailed the search process adopted by it for selecting the comparables and the method adopted and adjustments made to the margins of the assessee as well as the margins of the comparable companies before arriving at the ALP. One of the adjustments mentioned therein is the adjustment to net working capital and the details and the methodology thereof and that the assessee has retained the option of carrying out this adjustment; + during the TP proceedings u/s 92CA, the TPO considered the TP documentation and accepted that after allowing working capital adjustment, the price received by the assessee is within +_5% of the average margin of the comparables and therefore, no adjustment was proposed. Thereafter, he proceeded to consider the receivables at the end of the year and noticing that a sum of Rs.21,96,43,078 has been received after a considerable delay, proposed to charge interest thereon. He accordingly charged interest @ 14.75% p.a on the outstanding receivables. This, in the opinion of the AR, is not warranted as this already got factored in the working capital adjustment allowed by the TPO. We have gone through the TP study of the assessee and also the TP order of the TPO. Though the AO has stated that the working capital adjustment is allowed, the working of such adjustment is not available on record and it is not evident that the margins of assessee and the comparables are arrived at after such adjustment. Though, we agree with the assessee’s contention that no separate addition of interest on receivables is required after allowing working capital adjustment, in the absence of material on record, we are unable to give any relief to the assessee on this ground; + we deem it fit and proper to direct the AO to examine if the final margins of the comparables and the assessee have been arrived at after working capital adjustment to hold the international transactions of the assessee to be at "ALP" and if it is found to be so, then we direct that no further addition on account of interest on receivables shall be made. However, in the event, it is found that WCA has not been made to the final margins which are compared to the margin of the assessee, then the AO shall allow the reasonable period of credit i.e. three months from the date of notice and on the outstanding balance exceeding such period, the interest at LIBOR rate may be applied for making the adjustment. AO is directed accordingly. Case remanded SAIPEM PORTUGAL COMMERCIO MARITIMO Vs DCIT: DELHI ITAT (Dated: November 13, 2017) Income tax - Sections 9(1)(vi) & 44BB - India Portugal DTAA - Articles 8 & 12 Keywords - operation of vessels - receipts from supply of barge - extraction of mineral oil - royalty - concessional benefit The Assessee company during the subject year, had claimed that the operations of the vessels/equipments given by it on hire to L&T were outside India and in international waters. Therefore, their receipts were taxable only in Portugal and not in India as per Article 8 of DTAA between India and Portugal. It was also the submission of the assessee that since the Barge was supplied to L&T to be used ultimately in connection with exploration, extraction and production of mineral oil, the receipts from the supply of barge should have been taxed u/s 44BB. The AO was of the opinion that since the assessee had given specialized vehicle/Vessel/equipment on hire to L&T, its receipts are taxable as royalty as defined in section 9(1)(vi) of the Act r/w Article 12 of India-Portugal DTAA. He concluded that assessee was not entitled for concessional benefit u/s 44BB and therefore, brought the gross revenues amounting to Rs.34,00,35,436/- received in respect of L&T contract to tax as royalty receipt on gross basis taxable @ 10%. On appeal, the ITAT held that, Whether second leg contracts are also eligible for benefit of tax treatment provided in section 44BB - YES: ITAT + we find that the issue under consideration is squarely covered in favour of the assessee by the decision of ITAT, Delhi Bench in the case of SBS Marine Limited - 2015-TII-26-ITAT-DEL-INTL, wherein it has been that second leg contracts are also eligible for benefit of tax treatment provided in section 44BB. This decision of ITAT stood confirmed by the Jurisdictional High Court in ITA No. 36/15, after relying on the decision of Apex Court in ONGC vs. CIT - 2015-TII-03-SC-INTL. Similar view has been taken by ITAT in the cases of B.J. Services Co. ME Limited (ITA Nos. 3889/Del./2010, 421/Del./2012 and 4831/Del./2012 and several other decisions. Respectfully following such decisions of jurisdictional High Court and the Tribunal, we decide this issue in favour of the assessee and against the Revenue. Assessee's appeal partly allowed |
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