2022 (4) TMI 1579 - AT - Income Tax

TP Adjustment - Subsidiaries/branches of assessee situated in various countries have availed the services rendered by OnMobile USA and therefore the costs incurred in that regard are to be shared by the 6 entities - submissions of Ld.AR that this would lead to reduction in the income of assessee in India and shifting of the same to foreign country which is contrary to the transfer pricing provisions and the entire adjustment made by the Ld.AO/TPO is on the premise that the services were availed by the said subsidiaries/branches in their respective jurisdiction from assessee which is contrary to the facts - HELD THAT - We remand the transfer pricing issues alleged by assessee in ground number 3-7 back to Ld.TPO. The Ld.TPO would analyse the documents/evidence is filed by assessee and understand the business model in order to verify the arm s-length of the international transactions undertaken by assessee. The Ld.TPO is directed to consider the transfer pricing issues de no move in accordance with law and by giving proper opportunity of being heard to assessee. Action of Ld.TPO in imputing interest by taking Indian PLR as against USB LIBOR - HELD THAT - We have perused the decisions relied by the Ld.AR in the light of submissions advanced by both sides. It is a settled position that interest rates should be the marketer to remind interest rate applicable to the currency concerned in which the loan is to be repaid. We direct the Ld.TPO to compute interest on delayed interest payable based on the currency in which the said interest is payable to assessee. The Ld.TPO cannot apply Indian PLR in this transaction. Interest if any is to be computed it has to be computed by adopting LIBOR. We therefore remand these issue back to the Ld.TPO to recompute the interest on the interest payable to assessee by the subsidiaries/branches by adopting LIBOR. Credit of taxes deducted at source not granted by AO - HELD THAT - Both assessee as well as the Ld.DR submitted that these issues may be remanded to the Ld.AO/TPO to consider it in accordance with the evidence is filed by the assessee. Accordingly all these issues are remanded to assessee to consider the claim after verification of the documents filed by assessee in accordance with law. Grant of depreciation of the rate of 60% on NMS CG/TX cards switches et cetera as these items come within the definition of computer . Granting deduction under section 10A - profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years - HELD THAT - As decided by Hon ble Karnataka High Court M/S. ONMOBILE GLOBAL LTD. 2021 (1) TMI 923 - KARNATAKA HIGH COURT the assessee is engaged in the business of mobile added value services which involve content development in its STP unit. It has further been held that the assessee has a dedicated studio in this STP unit where music related content is developed. The assessee procures music and other contents on the third parties. The assessee also uses its studios for content development. It has further been held that assessee is engaged in the activity of developing content and conversion of procured content into mobile readable format and the same would qualify to be classified as content development or data processing and the same would be covered under the notification dated 26.09.2000 issued by the Central Board of Direct Taxes. The High Court of Delhi in ML OUTSOURCING P. LTD 2014 (9) TMI 396 - DELHI HIGH COURT and MCKINSEY 2015 (3) TMI 1226 - DELHI HIGH COURT has interpreted the notification and has held that intention of the legislature is not to constrain or restrict but to enable the Board to include several services of products of similar nature in the ambit of Section 10A of the Act. It has further been held that the notification covers within its ambit even the services which cannot be sent abroad. Thus the Tribunal has rightly held that the assessee is entitled to benefit of deduction under Section 10A

Summary

Issues:
1. Transfer pricing adjustments based on international transactions.
2. Imputation of interest using Indian PLR instead of LIBOR.
3. Credit of taxes and MAT credit not granted.
4. Grant of depreciation on specific items.
5. Deduction under section 10A of the Act.

Transfer Pricing Adjustments:
The case involved cross-appeals by the assessee and revenue against the final assessment order for the assessment year 2011-12. The assessee provided mobile value-added services globally and entered into international transactions with its associated enterprises. The revenue authorities made transfer pricing adjustments based on the premise that the subsidiaries availed services from the assessee, leading to income shifting. The assessee sought a remand to present relevant agreements to demonstrate the actual business model. The Tribunal remanded the transfer pricing issues to the Transfer Pricing Officer (TPO) for a proper analysis based on the contracts provided by the assessee.

Imputation of Interest:
The revenue imputed interest using Indian PLR instead of LIBOR on loans advanced in foreign currencies. The Tribunal directed the TPO to compute interest based on the currency in which it is payable, adopting LIBOR. The issue was remanded for the TPO to recompute the interest accordingly.

Credit of Taxes and MAT Credit:
The assessee challenged the non-granting of credit for taxes deducted at source and MAT credit. Both parties agreed to remand these issues to the assessing officer for proper consideration based on the evidence provided by the assessee.

Grant of Depreciation:
The revenue challenged the grant of depreciation on specific items, arguing they did not fall under the definition of "computer." The Tribunal found in favor of the assessee based on previous decisions and upheld the grant of depreciation.

Deduction under Section 10A:
The revenue challenged the deduction under section 10A of the Act, which was already upheld in favor of the assessee in previous cases. The Tribunal, following the precedent set by the Hon'ble Karnataka High Court, dismissed the revenue's ground, affirming the assessee's entitlement to the deduction.

In conclusion, the Tribunal allowed the assessee's appeal for statistical purposes and dismissed the revenue's appeal, pronouncing the order on 29th April 2022.