2017-TII-INSTANT-ALL-516
16 December 2017   

DIT Vs SAFMARINE CONTAINER LINES NV: SUPREME COURT OF INDIA (Dated: December 15, 2017)

Income tax - Article 8 of India-Belgium DTAA

Keywords - inland haulage charges - incidental income - shipping operations

The Revenue Department preferred present SLP challenging the judgment, whereby the High Court had held that where the issue as raised before ITAT was admitted to be concluded by the decisions of Writ Court, no substantial question of law deserves to be admitted. The High Court in its impugned judgment further held that inland haulage charges collected from customers in respect of transportation of goods from ICD to port were exigible to tax under Article 8 of the Indo Belgium DTAA.

Having heard the parties, the Supreme Court condones the delay subject to to payment of Rs. 15,000/- as cost which shall be paid to Supreme Court Legal Services Committee, and grants leave to the Revenue Department to defend their case on the issue of haulage charges.

Leave granted

2017-TII-27-SC-TP

PR CIT Vs WOCO MOTHERSON ADVANCED RUBBER TECHNOLOGIES LTD: SUPREME COURT OF INDIA (Dated: November 24, 2017)

Income Tax - Sections 10AA, 143(3) & 144C

Keywords - ALP adjustment - technical services - proposal under draft assessment - final assessment order

The assessee is a rubber manufacturing compsessee is engaged in manufacturing of high quality rubber parts, rubber plastic parts, rubber metal parts and liquid silicon rubber parts. In the assessment year under consideration, the assessee filed its return declaring total income at Rs. 9,71,366/-, which was enhanced u/s 143(3) r/w/s 144C on account of adjustment to ALP in the business income of assessee. The AO while passing final assessment order made disallowance on account of 50% disallowance of deduction u/s 10AA, being excess claimed by assessee. The Tribunal however held that disallowance u/s 10AA by AO was in breach of Section 144C. When the matter reached High Court, it was held that disallowance of claim u/s 10AA deserves to be deleted, when it was not proposed by AO in the draft assessment order u/s 144C.

Having heard the parties, the Supreme Court condoned the delay and dismisses the SLP, thus confirming the opinion of High Court.

Revenue's SLP dismissed

2017-TII-489-ITAT-DEL-TP

BELKIN INDIA PVT LTD Vs ACIT: Date of Decision: December 12, 2017

Income tax - ALP - net cost plus mark up - provision for marketing support - exclusion of comparable - TNMM

The Assessee, almost a wholly owned subsidiary of Belkin B.V., is engaged in marketing support for computer and mobility equipment, accessory and related products and are performing the functions viz. providing information on Indian market, product awareness, information on regulatory environment in India and coordinating in respect of logistic services. During the year under assessment, the assessee entered into various international transactions with its AE, namely, provision of support services, purchase of fixed assets and reimbursement of expenses. In order to benchmark these international transactions, the assessee selected six comparables having average Net Cost Plus at 8.22% as against NCP mark up of assessee at 9.99% and claimed its international transactions at arm's length. However, the TPO retained only two and introduced two new comparables and calculated NCP mark up of 4 comparables at 26.34% as against NCP mark up of assessee at 9.99% and proposed the adjustment on account of ALP at Rs.2,54,52,714/-. The assessee did not approach DRP rather raised objections before CIT(A) who had ordered to exclude one comparable viz. Info Edge India Ltd. from the final list of comparables. Consequently, average NCP mark up of three comparables was recomputed at 19.95% vis-a-vis NCP mark up of taxpayer at 9.99% thereby reducing TP adjustment to Rs.1,55,03,946/-.

On appeal, the ITAT held that,

Whether a functionally dissimilar, risk free and not for profit organization, will qualify as comparable to an entity engaged in marketing support for computer and mobility equipment - NO: ITAT

+ it is not disputed that major source of revenue of MRUC is the income from its members in the shape of membership fee and subscription fee for Indian Readership Survey (IRS) and Indian Outdoor Survey (IOS) reports. A perusal of the annual report of MRUC, referred it as a not-for-profit organisation representing four different stakeholders in Media Research covering media sellers and buyers. When we examine the issue of comparability of assessee vis-a-vis MRUC in the light of Rule 10B (2), we are of the considered view that assessee cannot be compared with MRUC because of functional dissimilarity as no risk is assumed by the MRUC being a not-for-profit organisation and only serves the interest of its members and assets employed are only from the membership fee as well as subscription fee collected from its members. Furthermore, benefits / profits of the MRUC are not divided between the members, it being a not-for-profit organisation. So, the MRUC does not qualify the parameters laid down under Rule 10B (2), necessary for comparability analysis. Even otherwise, surplus of MRUC are neither distributed among the members nor are offered for income-tax purposes;

Whether an entity which incurs expenses on third party research agency for generating its substantive income from membership fees, can be compared to an entity which does not outsource any of its activities - NO: ITAT

+ furthermore u/s 10B(1)(e) under TNMM, net profit margin established by the TP analysis is taken into account to arrive at the arm's length price qua international transactions. In case of MRUC being a not-for-profit organisation, profit making is not the motive rather it is operating in media research covering media sellers and buyers for some specific motive of the company. So, a not-for-profit organisation cannot be compared with the assessee which is a company established for making profit. Furthermore, it is event from the annual report, that MRUC paid expenses to the tune of Rs.9,27,95,904/- to the third party research agency for generating income from its member by way of subscription fee for IRS/IOS, meaning thereby MRUC outsourcing expenses comes to 85% of the total expenses. So, in the given circumstances, MRUC cannot be compared with the assessee which does not outsource any of its activity;

+ furthermore MRUC does not qualify turnover filter of Rs.5 crores applied by the TPO for selecting the comparables. By applying the filters of Rs.5 crores, the TPO has rejected other comparables of the taxpayer viz. "Sporting & Outdoor Ad Agency Ltd.". So, the MRUC is liable to be excluded from the final set of comparables on ground of turnover filter of Rs.5 crores also. Even otherwise, the major transactions of MRUC is Related Party Transactions as its substantive income is generated from membership fees and subscription fees for IRS/IOS reports and as such, price cannot be considered as independent controlled price as the major revenue is earned from its 249 members. Suitability of MRUC as a comparable has come up before the coordinate Bench of the Tribunal in Linked in Technology, and has been ordered to be excluded. In view of what has been discussed, we are of the considered view that MRUC is not a suitable comparable vis-a-vis the assessee for benchmarking the international transactions qua market support services segment.

Assessee's appeal dismissed

2017-TII-235-ITAT-DEL-INTL

DISCOVERY ASIA LLC Vs ADIT: DELHI ITAT (Dated: December 13, 2017)

Income tax - Section 90 and India-USA DTAA - Article 27

Keywords - MAP procedure - withdrawal of appeal

The Assessee company preferred present application, seeking withdrawal of its appeal against the orders passed by AO, since it had invoked the MAP Procedure of DTAA and had filed an application with the US Competent Authority.

On appeal, the HC held that,

Whether appeal filed in relation to international transactions, deserves to be dismissed as withdrawn, if the assessee had earlier invoked MAP procedure of the DTAA and had applied before the Foreign Competent authority - NO: ITAT

+ since the assessee had earlier invoked the provisions of Article 27 of Mutual Agreement Procedure of the DTAA and had filed an application with the US Competent Authority who vide resolution issued u/s 90 of Income Tax Act r/w Article 27 of the India-USA DTAA, accordingly these appeals are withdrawn. The AR reiterated the contents of the said applications and requested to treat the appeals as withdrawn. The DR did not object if the appeals are dismissed as withdrawn.

Assessee's appeal dismissed

2017-TII-234-ITAT-DEL-INTL

BJ SERVICES COMPANY MIDDLE EAST LTD Vs ADDL DIT: DELHI ITAT (Dated: November 21, 2017)

Income tax - Section 44BB

Keywords - reimbursement of expenses - gross receipts - determination of profit

The Assessee company preferred present appeal challenging the order of CIT(A) in affirming the action of AO and holding that the amounts aggregating to Rs. 62205120/- received by assessee from its customers as reimbursement of expenses incurred on behalf of such customers, was to be included in gross receipts for determination of profits u/s 44BB.

On appeal, the ITAT held that,

Whether expenses reimbursed by customers which was earlier paid on behalf of them, is to be included in gross receipt for determination of profits u/s 44BB - YES: ITAT

+ the solitary issue in this appeal is whether Rs. 62205120/- received by the assessee from its customers as reimbursement of expenses, is to be included in gross receipt for determination of profits u/s 44BB. It is seen that the Supreme Court in the decision of Sedco Forex International Incorporation vs. CIT - 2017-TII-38-SC-INTL, has held that reimbursement of expenses is required to be included for the purpose of computation of deemed profit chargeable to tax u/s 44BB. In the result, we find no infirmity in the order of lower authorities.

Assessee's appeal dismissed

 

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