| 2018-TII-INSTANT-ALL-530 | 13 February 2018 |
 |
|
|
CASE LAWS GOOGLE INDIA PVT LTD Vs DCIT: KARNATAKA HIGH COURT (Dated: February 8, 2018) Income tax - Section 254(2) Keywords - additional payment - bank guarentee - discretionary order - interim stay - outstanding demand The Assessee company preferred present appeal challenging the decision of Single Judge of this Court partially modifying the Tribunal's order, whereby the Assessee was directed to furnish a bank guarantee for 25% of the tax demand in respect of A.Ys 2009-10 and 2010-11. In addition, the assessee was also directed to pay 20% of tax demand in respect of A.Y 2011-12 and to furnish bank guarantee to cover 25% of the tax demand; and also to furnish a bank guarantee for 45% of the tax demand in respect of A.Y 2012-13, as a condition for purpose of granting interim stay. On appeal, the HC held that, Whether an order passed u/s 254(2A) being discretionary, can be exercised while extending interim orders of stay, for directing deposit of additional sums and furnishing of bank guarentee towards outstanding tax demands - YES: HC + it is seen that third proviso to Section 254(2A), mandates that the period or periods extended under the second proviso shall not exceed 365 days and the order of stay shall stand vacated after the expiry of such period or periods, even if the delay in disposing of the appeal is not attributable to the assessee. It is not in dispute that for A.Ys 2009-10 and 2010-11, the assessee has deposited about 50% of the tax demands, whereas, for the A.Ys 2011-12 and 2012-13, it has deposited about 30% of the tax demands; + it is seen that the Single Judge has recorded a finding that the Tribunal, while passing orders u/s 254(2A) has followed this Court’s order in Writ Petitions No.52358-52359/2017 - 2017-TII-67-HC-KAR-INTL, wherein, the assessee was directed to retain 20% of the tax demand in the bank. In effect, the Single Judge has directed the assessee to furnish bank guarantee equivalent to 25% of the tax demand for the A.Ys 2009-10 and 2010-11. Similarly, for A.Y 2011-12, the Single Judge has directed the assessee to deposit 20% of tax demand, which would in all account for 50% of tax demand for the assessment year and to furnish a bank guarantee for 25% of the tax demand, in parity with orders made for A.Ys 2009-10 and 2010-11. So far as A.Y 2012-13 is concerned, the Single Judge has modified Tribunal’s order by directing the assessee to furnish bank guarantee equivalent to 45% of the tax demand in terms of the order passed by this Court in Writ Petition No.13601/2017; + it is to be noted that an order u/s 254(2A) is a discretionary order. Therefore, both Tribunal’s order as well as Single Judge’s order cannot be classified as those which any reasonable person cannot pass. Therefore, there is no error in the discretion exercised by the Tribunal and the Single Judge in modifying Tribunal’s order. Assessee's appeal dismissed CIT Vs WNS GLOBAL SERVICES (UK) LTD: BOMBAY HIGH COURT (Dated: February 7, 2018) Income tax - DTAA between India & UK - Articles 5, 7 & 12(3)(b) Keywords - business profits - lease line charges - reimbursement of expenses - royalty The Revenue Department preferred present appeal challenging the action of the Tribunal in holding that reimbursement of lease line charges by WNS India did not qualify as "Royalty" under Article 12(3)(b) of the India UK DTAA and India US DTAA. The Department had also challenged the order, whereby the Tribunal had held that the amount received as reimbursement of lease line charges was not liable to be taxed as business profit under Article 7 read with Article 5 of India UK DTAA and India US DTAA in view of the Force of Attraction Rule. On appeal, the HC held that, Whether reimbursement of lease line charges, received by Indian counterpart of UK holding company, will qualify as "royalty" under Article 12(3)(b) of Indo UK DTAA - NO: HC + it is seen that the counsel for Revenue, very fairly states that the issue raised in both the Appeals stand concluded against the Revenue and in favour of Assessee. This in view of the fact that similar questions raised for assessment year 2004-05 in Income Tax Appeal (L) No. 1130 of 2012 in Director of Income Tax Vs. WNC Global Services, UK Ltd. was not entertained, as it was a finding of fact. In view of the statement made on behalf of the Revenue, the questions as framed does not give rise to any substantial question of law. Revenue's appeal dismissed PR CIT Vs NOKIA SOLUTIONS AND NETWORK INDIA PVT LTD: DELHI HIGH COURT (Dated: February 6, 2018) Income tax - event of merger - non existent entity - validity of assessment The Assessee company i.e., M/s Nokia Siemens Network Pvt. Ltd. had filed its returns for the relevant A.Y and the same was processed u/s 143(1). Subsequently, the returns were selected for scrutiny and notice was issued u/s 143(2). In the meanwhile, pending proceedings of amalgamation before the Karnataka High Court, an order was made by virtue of which, the old company merged with Nokia Solutions & Network India Pvt. Ltd. This was communicated by assessee to the Department for transfer of tax files in the jurisdictional office of the old company to the new company's jurisdictional officer on account of the merger. In these circumstances, notice was issued to the old company u/s 142(1). Since international transactions were involved, the AO referred the matter to the TPO based on whose report a draft assessment order was made. The DRP made its recommendations and a final assessment was framed, but in the name of the old company. It was in these circumstances that the assessee approached ITAT who remitted the matter to the DRP for examination of this event of merger. As a result of which, the DRP returned a finding that the assessments were framed in the name of the non-existing entity but proceeded to direct the AO to frame the assessment in the name of assessee which was complied with. On appeal, the HC held that, Whether assessment concluded in the name of a non existing entity, is a nullity, and hence cannot be improvised by armour of Section 292B - YES: HC + it is evident from the narration of facts that in the first instance the assessment was conducted in the name of a non existing entity. The DRP to whom the matter was directed by the first remand of the ITAT, was not directed to, in turn, require the AO to "better" the original incurable illegality and here the DRP clearly did that. The fact that the matter was remitted at the instance of the assessee who did not question the remand ipso facto does not, in any manner, further the Revenue's contentions. The Revenue had also urged that even in the first place when the assessee approached the DRP, the name of the old entity was invoked and that consequently it cannot now say that the assessment was a nullity. This Court is of the opinion that the ruling in Spice Entertainment Ltd. is categorical, in that, if the assessment is concluded in favour of a non existing entity, then notwithstanding Section 292B, the position does not improve. Applying Spice Entertainment Ltd., this Court had in Commissioner of Income Tax v. Dimension Apparels Pvt. Ltd - 2014-TIOL-1897-HC-DEL-IT also held that the position taken or urged by the assessee cannot be held against it if the primary jurisdiction does not exist i.e. to conclude an assessment in the name of a non existing entity. Revenue's appeal dismissed PHILIPS INDIA LTD Vs ACIT: KOLKATA ITAT (Dated: February 7, 2018) Income Tax - Sections 92CA, 92D(1), 143(3) & 144C. Keywords - ALP - AMP expenses - Benefit test - CUP method - Intra-group services - Lease rental - Management support services - Stewardship services & TNMM. The Assessee-company, a subsidiary of Royal Philips Organisation of the Netherlands, a leading health technology company. The Assessee had filed its return for the relevant AY. In the course of the assessment proceeding, the AO noted that the Assessee had made international transactions with its AEs in the relevant AY and therefore, the matter was referred to the TPO u/s 92CA for determining ALP. During TP proceeding, the Assessee submitted sector wise TP study report alongwith functional analysis and information as required u/s 92D(1). The Assessee stated that some of the transactions pertain to services which were commonly described as 'intra-group services'. Therefore, the Assessee benchmarked such transactions by using TNMM as the Most Appropriate Method (MAM). The Assessee submitted that the intra-group services received by them were covered under what was described as a General Services Agreement (GSA). Under GSA, the Assessee had entered into a 'Management Support Services Agreement (MSSA)' and a 'Research and Development Cooperation Agreement (RDCA)' with Koninklijke Philips Electronics NV (KPENV). Among these two agreements under the GSA, only the IGS was provided under the MSSA. Therefore, the AO transfered the case to the TPO. During the TP proceeding, the TPO applied the Comparable Uncontrolled Price (CUP) Method as the MAM for determining ALP in respect of this transaction. The TPO stated that unless it was showed that tangible and direct benefit was derived by such payment and that the payment made was commensurate to the benefit derived or expected to be derived when parties deal with each other at arm's length, the ALP of such payment for intra-group services was neither to be treated as Rs. Nil nor to the extent of the benefit actually derived from such payment. Thus, payment for intra-group services had to be treated at arm's length only when it was proved substantially by the taxpayer that such services were actually received and further proving that the taxpayer had benefitted from the receipt of such services. Further, the TPO analysed the entire emails and other correspondences so filed however, rejected the same. The TPO by placing reliance on the decision of the Supreme Court in the case of Morgan Stanley & Co concluded that the services rendered by KPENV to Assessee was only in the nature of stewardship services (control, supervisory and monitoring functions) and thus, there could not be any charge for them. Accordingly, the TPO held that the management support services charges were only in the nature of stewardship activities and hence, there could not be any charge for them and also on the aspect that the Assessee had not proved the benefits derived by it pursuant to this MSSA. Therefore, the ALP of the services provided to the Assessee by KPENV under the MSSA was held to be NIL and accordingly the TPO made an upward adjustment to ALP. Again, TPO noted that during the year under consideration, the Assessee had incurred exepnses towards advertisement and marketing (AMP) in each of its business segments. On this, the Assessee submitted that its marketing activities were products specific i.e the lights, consumer lifestyle and healthcare products and most of the activities were undertaken to build a better distribution channel and market sustainability in India. Accordingly, the TPO proposed an upward adjustment towards excess AMP expenses holding that the Assessee would have received reimbursement of such excess of AMP expenses from the AE. On appeal, the DRP verified the working sheets including the payment allocation keys giving out the basis of payments made to the AE. The DRP noticed that the AE rendered set of services to the Assessee namely, costs of the Concern Group services, Sector/Business Group services, Business Unit (BU) services, Regional Services and the concern development activities. The Assessee had allocated cost in proportion of the turnover and based on production value ratios respectively. Thereby, the DRP held that the said services were not of the nature of stewardship in nature but also not meeting the benefit test so as to merit allowance of the same and accordingly upheld the ALP determined by the TPO. The DRP held that the Assessee was into manufacturing as well as distribution activities and the TPO had rightly invoked TNMM. Lastly, the DRP held that the lease rentals paid by the Assessee for the AY 2003-04 were disallowed and the action was upheld by the Tribunal. Subsequent matters remained pending/though this adjustment was allowed in the year 2011-12. The DRP was not inclined to allow relief to the Assessee. On appeal, the Tribunal held that, Whether management support services received from overseas AE, can be categorized as 'stewardship services', if same has resulted in substantial cost reduction of assessee - NO: ITAT Whether when the claim towards MSSA is already been accepted by the Revenue in earlier years on similar factual basis, the rule of consistency will prevail hence, TPO cannot make an upward adjustments - YES: ITAT Whether AMP expenses incurred by an assessee for promoting brand of its AE, can be construed as an 'international transaction' merely on basis of the quantum of such expenditure so incurred - NO: ITAT + it is seen that a the similar issue had cropped up before this Tribunal in Assessee's own case for the AYs 2009-10, 2010-11 and 2011-12 wherein it was held that "....the Assessee has provided the details of the benefit derived by it from the MSSA received from AE at the time of assessment proceedings. However the order of the TPO is silent on this aspect. Similarly, it was also noted by the Tribunal that the Revenue in the own cases of the Assessee pertaining to other AYs had accepted claim of MSSA of the Assessee ... It is clear that the receipts in respect of MSSA would be taxable either as FTS (to the extent they are services rendered) or Royalty (to the extent it is providing commercial know-how or commercial experience). As both FTS and Royalty are taxable at the same rate under the DTAA, it does not matter that there is no clear cut separation or quantification in the MSSA of the service and the know-how portions. The entire receipts would be chargeable to tax in India under the DTAA as well as the I-T Act ... the Assessee had indeed received the services from KPENV which fact is also acknowledged by the DRP in the hands of KPENV. The benefits derived by the Assessee out of these services by way of substantial cost reduction and increase in turnover substantially cannot be swept under the carpet. Further, no adjustments to ALP was made in the AYs 2005-06 to 2008-09 in respect of the very same MSSA by the TPO for the Assessee. Hence, the principles of consistency need to be followed and cannot be given a go by when there is no change in the facts and circumstances of the case from the earlier years...."; + in the instant case, the Tribunal noted that there is no change in the facts and circumstances with regard to MSSA when compared to that in the earlier AYs 2009-10, 2010-11 and 2011-12 and hence respectfully following the same, it was held that the determination of ALP for Management Support Services at Rs 'NIL' is unwarranted and accordingly, the upward adjustment made by the TPO in the sum of Rs 339,17,83,606/- is deleted; + it is further seen that the Tribunal noted that the TPO, AO and the DRP had categorically accepted the basic fact that the Assessee is a manufacturer and also engaged in distribution of products. While this is so, the Tribunal fails to understand the Revenue's contentions that Assessee is only a distributor and thereby the decision of Sony Ericsson would apply to the case. The Tribunal also found that since the Assessee is a manufacturer-cum-distributor as accepted by the lower authorities, the decision rendered in Maruti Suzuki would be applicable to the Assessee's case. The issue under dispute is squarely addressed by this Tribunal in Assessee's own case for the AY 2011-12. Therefore, the upward adjustment made by the TPO and upheld by the DRP in the sum of Rs 1,03,59,000/- is hereby directed to be deleted; + the issue with regard to the lease rental is squarely covered in the case of the ICDS Ltd wherein, the Apex Court held that "... the agreement provided that during the lease period, only the lessor shall be treated as owner of the trucks and not the lessee. Moreover, the lessor had been allowed depreciation on the trucks. Therefore, considering the terms and conditions of the lease agreement and the fact that depreciation on these trucks had been allowed to the lessor, the lease rent was deductible as revenue expenditure ..." Hence, respectfully following the same, this ground as raised by the Assessee is allowed. Assessee's appeal allowed |
Thanking you for your support and cooperation. Regards, TIOL HOUSE, 490, Udyog Vihar, Phase - V |