2020 (8) TMI 806 - AT - Income Tax

TP Adjustment - comparable selection - HELD THAT - Appellant herein is engaged in the business of market development and dissemination of product information of speciality chemicals and polymers. It is also engaged in research and development activities and provides onsite technical and back-office support services. Companies functionally dissimilar with that of assessee need to be deselected from final list. TDS u/s 195 - disallowance u/s 40(a)(i) - global support service charges paid - HELD THAT - Payment made by the assessee cannot be considered as fees for technical services as defined under Article 12(4)(b) of the India Singapore tax treaty and for this reason also we do not have to examine taxability of the same under section 9(1)(vii) of the Act. Moreover, it is a fact on record that the payment of global support service fee was made under the agreement which has continued from the year 2003. It is a matter of record that in the preceding assessment years though the assessee has paid global support service fees to EMCAP without deducting tax at source, no disallowance under section 40(a)(i) was ever made. There being no difference in facts in the impugned assessment year, considering that the payment was made under the same contract, even, applying the rule of consistency, no disallowance under section 40(a)(i) can be made in the impugned assessment year. Accordingly, we delete the disallowance made by the Assessing Officer - Decided in favour of assessee.

Summary

Issues Involved:
1. Transfer pricing adjustment for technical support services.
2. Transfer pricing adjustment for back-office support services.
3. Disallowance under section 40(a)(i) of the Income Tax Act for global support service fees.

Detailed Analysis:

1. Transfer Pricing Adjustment for Technical Support Services:
The appellant engaged in providing technical, back-office, and market support services to its Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) disagreed with the appellant’s transfer pricing methodology and selected different comparable companies, leading to a transfer pricing adjustment of ?40,49,175/-. The appellant argued that certain comparables selected by the TPO, such as Alphageo (India) Ltd., TCG Lifesciences, and Pfizer Ltd., were functionally dissimilar. The Tribunal found that Alphageo was engaged in seismic data acquisition, TCG in contract research operations, and Pfizer had different financial year ends, making them unsuitable comparables. Consequently, the Tribunal deleted the adjustment of ?40,49,175/-.

2. Transfer Pricing Adjustment for Back-Office Support Services:
The TPO rejected the appellant’s comparability analysis for back-office support services and made an adjustment of ?1,98,30,718/-. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this adjustment by following the order for the previous assessment year (AY 2008-09). The Tribunal noted that a similar issue for AY 2008-09 was remanded back to the Assessing Officer (AO)/TPO for fresh adjudication. Following this precedent, the Tribunal restored the matter to the AO/TPO for fresh adjudication after providing the appellant an opportunity to be heard.

3. Disallowance under Section 40(a)(i) of the Income Tax Act for Global Support Service Fees:
The appellant paid ?1,85,29,377/- to ExxonMobil Chemical Asia Pacific Pte. Ltd. (EMCAP) without deducting tax at source, leading to disallowance under section 40(a)(i). The appellant argued that the payment was not chargeable to tax in India and relied on certificates from Chartered Accountants. The Tribunal referred to previous orders for AY 2007-08 and AY 2008-09, where similar disallowances were deleted. The Tribunal concluded that EMCAP did not make available technical knowledge, skill, or know-how enabling the appellant to apply the technology independently. Thus, the payment did not qualify as fees for technical services under Article 12(4) of the India-Singapore tax treaty. Consequently, the Tribunal deleted the disallowance of ?1,85,29,377/-.

Procedural Issue:
The Tribunal acknowledged the delay in pronouncing the order due to the COVID-19 pandemic and the resulting nationwide lockdown. The delay was justified under Rule 34(5)(c) of the Income Tax Appellate Tribunal Rules, 1963, considering the unprecedented situation.

Conclusion:
The appeal was partly allowed, with the Tribunal deleting the transfer pricing adjustment for technical support services and the disallowance under section 40(a)(i). The issue of back-office support services was remanded to the AO/TPO for fresh adjudication.