2019 (5) TMI 1978 - AT - Income Tax

TP Adjustment - selection of MAM - CUP v/s TNMM - rejecting the benchmarking done by the assessee with regard to the payment made to AE towards charter hire of dredgers by applying Comparable Uncontrolled Price (CUP) method as the most appropriate method and selecting Transactional Net Margin Method (TNMM) as the most appropriate method - HELD THAT - In case of the present assessee material facts permeating through different assessment years are more or less identical as the terms and conditions on which the dredgers are hired have not changed. That being the case, applying the rule of consistency, a different view cannot be taken in the impugned assessment year with regard to the benchmarking of lease rentals paid for charter hire of dredgers by applying CUP method. For the aforesaid reasons, we allow the grounds raised by the assessee with a direction to the Assessing Officer / Transfer Pricing Officer to accept the benchmarking done by the assessee under CUP method after verifying the fact that the independent valuer has made the valuation as per CIRIA norms. Grounds are allowed. TP Adjustment - arm's length price of management services paid to the AE - HELD THAT - It is evident from the order of DRP that they have decided the issue relying upon their decision in assessee s own case for the assessment year 2009 10 2016 (11) TMI 1249 - ITAT MUMBAI Tribunal has held that the amount received is neither in the nature of royalty nor fees for technical services under Article 12 of India Netherland Tax Treaty. That being the case, respectfully following the decision of the Co ordinate Bench referred to above, we delete the addition made by the Assessing Officer. Addition made on account of reimbursement of salary by treating it as fees for technical services - HELD THAT - Tribunal while deciding the issue in assessment year 2009 10 2016 (11) TMI 1249 - ITAT MUMBAI held that reimbursement of salary is not in the nature of fees for technical services as per Article 12(5) of India Netherland Tax Treaty. Therefore, respectfully following the aforesaid decision of the Co ordinate Bench, we delete the addition made by the Assessing Officer. These grounds are allowed. Levy of interest under section 234B - HELD THAT - We find that in Balash Hamp Dredging B.V. 2011 (6) TMI 941 - BOMBAY HIGH COURT as following the decision in NGC network LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT has held that interest under section 234B of the Act cannot be charged as the assessee is not liable to pay advance tax and the liability is on the payer to deduct tax at source. We allow the ground raised by the assessee.

Issues Involved:
1. Rejection of Benchmarking Method for Charter Hire of Dredgers
2. Transfer Pricing Adjustment for Sub-Contract Charges
3. Addition on Account of Management Services Fee
4. Addition on Account of Reimbursement of Salary
5. Levy of Interest under Section 234B

Detailed Analysis:

1. Rejection of Benchmarking Method for Charter Hire of Dredgers:

The assessee, a foreign company incorporated in the Netherlands, challenged the decision of the Departmental Authorities in rejecting the benchmarking done by the assessee for payments made to Associated Enterprises (AE) towards charter hire of dredgers. The assessee had applied the Comparable Uncontrolled Price (CUP) method based on a valuation certificate obtained from Van Woerkom, Nobels & Ten Veen. The Transfer Pricing Officer (TPO) rejected the CUP method, arguing that it was based on a valuation report rather than actual transactions and selected the Transactional Net Margin Method (TNMM) as the most appropriate method, resulting in an upward adjustment of ?161,70,50,636 to the arm's length price.

The Dispute Resolution Panel (DRP) upheld the TPO's decision. However, the Tribunal found that the Department had accepted the valuation done by the independent valuer as per VG Bouw / CIRIA norms in previous years. The Tribunal ruled that the principle of consistency should be applied and directed the Assessing Officer/TPO to accept the benchmarking done by the assessee under CUP method after verifying that the independent valuer made the valuation as per CIRIA norms.

2. Transfer Pricing Adjustment for Sub-Contract Charges:

The issue of transfer pricing adjustment in relation to the sub-contract charges paid to Van Oord India Pvt. Ltd. became academic in light of the Tribunal's decision on the primary issue of benchmarking the charter hire of dredgers. Therefore, these grounds did not require adjudication.

3. Addition on Account of Management Services Fee:

The assessee received ?9,72,01,066 for providing various services to group companies, which the Assessing Officer treated as royalty under Article-12 of the India-Netherlands Double Taxation Avoidance Agreement (DTAA). The DRP upheld this view. However, the Tribunal referred to its decision in the assessee’s own case for the assessment year 2009-10, where it was held that the management fee was neither in the nature of royalty nor fee for technical services under Article-12 of the India-Netherlands Tax Treaty. Consequently, the Tribunal deleted the addition.

4. Addition on Account of Reimbursement of Salary:

The Assessing Officer and the DRP treated the reimbursement of salary as fees for technical services. The Tribunal, however, referred to its decision in the assessee’s case for the assessment year 2009-10, where it was held that reimbursement of salary is not in the nature of fees for technical services under Article-12(5) of the India-Netherlands Tax Treaty. The Tribunal deleted the addition based on this precedent.

5. Levy of Interest under Section 234B:

The issue of levy of interest under section 234B of the Act was agreed by both parties to be covered by the decision of the Hon'ble Supreme Court in the assessee’s own case. The Supreme Court had upheld that interest under section 234B cannot be charged as the assessee is not liable to pay advance tax; the liability is on the payer to deduct tax at source. Following this decision, the Tribunal allowed the ground raised by the assessee.

Conclusion:

The appeal was partly allowed, with the Tribunal directing the Assessing Officer/TPO to accept the benchmarking done by the assessee under CUP method after verification, and deleting the additions made on account of management services fee and reimbursement of salary. The levy of interest under section 234B was also struck down based on the Supreme Court's ruling.

← Previous Next →