2024 (1) TMI 697 - AT - Income Tax

Refund of excess Dividend Distribution Tax - whether as per Double Avoidance Taxation Agreement ( DTAA ) between India and Germany, the liability of tax on dividend received by the German resident does not exceeds 10% of the dividends? - HELD THAT - As decided in Total Oil India Pvt. Ltd. 2023 (4) TMI 988 - ITAT MUMBAI (SB) where dividend is declared, distributed or paid by a domestic company to a non-resident shareholder(s), which attracts Additional Income-tax (Tax on Distributed Profits) referred to in sec.115-O of the Act, such additional income tax payable by the domestic company shall be at the rate mentioned in section 115-O of the Act and not at the rate of tax applicable to the non-resident shareholder(s) as specified in the relevant DTAA with reference to such dividend income. Nevertheless, we are conscious of the sovereign's prerogative to extend the treaty protection to domestic companies paying dividend distribution tax through the mechanism of DTAAs. Thus, wherever the Contracting States to a tax treaty intend to extend the treaty protection to the domestic company paying dividend distribution tax, only then, the domestic company can claim benefit of the DTAA, if any. we hereby dismiss Ground Nos. 6 to 9 of the assessee s appeal. Disallowance of reimbursement of expenses u/s 37 - assessee had reimbursed a sum to Schaeffler Technology GMBH and CO KG, Germany on account of professional services rendered by E.Y. Germany in lieu of Agreement entered with Schaeffler Germany - HELD THAT - We are of the considered view that in the interests of justice the matter may be restored to the file of the Ld. A.O. so as to allow the assessee to produce relevant documents / evidences in support of claim of deduction of the aforesaid expenses under Section 37 of the Act. TP Adjustment - MAM selection - benchmarking of Royalty using CUP Method instead of TNMM Method - HELD THAT - We observe that ITAT Ahmedabad in assessee s own case for A.Y. 2002-03 2014 (11) TMI 552 - ITAT AHMEDABAD has held that TNMM may be used for determination or Arm s Length Price for Royalty payments. Further, we observe that even the AO / TPO in the remand proceedings have given a specific findings that if TNMM is taken to be the most appropriate method, the transactions is at Arm s Length Price. Accordingly, in view of the decision of ITAT Ahmedabad in assessee s own case on this issue, we are of the considered view that Ld. CIT(A) has not erred in facts and in law in deciding this issue in favour of the assessee. TP Adjustment Management Fees - TPO held that assessee has not produced any details in respect of determination of payment made by the assessee to it s AEs at the time of entering into the Agreement alongwith the basis thereof, cost benefit analysis carried out by the assessee, the comparability analysis in respect of the payment etc., at the time of making the aforesaid payments, thus concluded that the Arm s Length Price of the services provided to the assessee by both the Associated Enterprises towards management fee, is to be taken at NIL and accordingly, recommended adjustment of the entire amount - HELD THAT - We are of the considered view that Ld. CIT(A) has not erred in facts and in law in holding the determination of Management Fees to be at Arm s Length Price. In our considered view, Ld. CIT(A) has correctly observed that the aforesaid activities / services do not qualify as stewardship / shareholder activity. Notably, in assessee s own case for A.Ys. 2013-14 and 2014-15, the TPO has not made any TPA in respect of aforesaid services and accepted the payment of Management Fees to be at Arm s Length Price. We also observe that Ld. CIT(A) has made a detailed comparison between the decision rendered by ITAT, Pune Bench in the case of a group company (INA Bearings) in respect of management services and after a detailed comparison and looking into the facts of the assessee s case, has held that the assessee has correctly determined the Arm s Length Price in respect of the aforesaid Management Fees by using TNMM method. Accordingly, looking into the instant facts, we are of the considered view that Ld. CIT(A) has not erred in facts and in law in deciding this issue in favour of the assessee.

Summary

Issues Involved:
1. Condonation of Delay in Filing Appeal
2. Disallowance of Reimbursement Expense under Section 37
3. Refund of Excess Dividend Distribution Tax (DDT)
4. Interest and Penalty Charges
5. Transfer Pricing Adjustments: Royalty
6. Transfer Pricing Adjustments: Management Fees

Summary:

1. Condonation of Delay in Filing Appeal:
The Department's appeal was time-barred by one day. The delay was condoned due to the reasons cited, including the late receipt of the Memorandum of Authorization and a public holiday.

2. Disallowance of Reimbursement Expense under Section 37:
- Assessee's Appeal (A.Y. 2010-11): The assessee challenged the disallowance of Rs. 31,63,877 under Section 37, arguing that the expenses were incurred for business purposes. The Tribunal restored the matter to the Assessing Officer (AO) for fresh consideration, allowing the assessee to produce relevant documents.
- Assessee's Appeal (A.Y. 2011-12): Similar to A.Y. 2010-11, the matter was restored to the AO for reconsideration.
- Assessee's Appeal (A.Y. 2012-13): No specific disallowance under Section 37 was mentioned for this year.

3. Refund of Excess Dividend Distribution Tax (DDT):
- Assessee's Appeal (A.Y. 2010-11): The assessee sought a refund of excess DDT paid, arguing that the tax rate should not exceed 10% as per the DTAA between India and Germany. The Tribunal dismissed this ground based on the ITAT Mumbai Special Bench decision in the case of Total Oil India Pvt. Ltd., which held that DTAA does not apply to DDT.
- Assessee's Appeal (A.Y. 2011-12): Similar grounds and outcome as A.Y. 2010-11.
- Assessee's Appeal (A.Y. 2012-13): Similar grounds and outcome as A.Y. 2010-11.
- Assessee's Appeal (A.Y. 2013-14): Similar grounds and outcome as A.Y. 2010-11.
- Assessee's Appeal (A.Y. 2014-15): Similar grounds and outcome as A.Y. 2010-11.

4. Interest and Penalty Charges:
The Tribunal did not provide specific adjudication on the grounds related to interest and penalty charges under Sections 234A, 234C, and 234D, as they were general in nature.

5. Transfer Pricing Adjustments: Royalty:
- Department's Appeal (A.Y. 2010-11): The Department contested the deletion of Rs. 2,13,09,160 adjustment made using the CUP method instead of TNMM. The Tribunal upheld the CIT(A)'s decision favoring the assessee, citing consistency with earlier years where TNMM was used.
- Department's Appeal (A.Y. 2011-12): Similar grounds and outcome as A.Y. 2010-11.
- Department's Appeal (A.Y. 2012-13): Similar grounds and outcome as A.Y. 2010-11.
- Department's Appeal (A.Y. 2013-14): Similar grounds and outcome as A.Y. 2010-11.

6. Transfer Pricing Adjustments: Management Fees:
- Department's Appeal (A.Y. 2010-11): The Department challenged the deletion of Rs. 6,72,66,305 adjustment for management fees paid to Schaeffler China. The Tribunal upheld the CIT(A)'s decision favoring the assessee, noting that similar fees were accepted in subsequent years without adjustments.
- Department's Appeal (A.Y. 2011-12): Similar grounds and outcome as A.Y. 2010-11.
- Department's Appeal (A.Y. 2012-13): Similar grounds and outcome as A.Y. 2010-11.

Conclusion:
The Tribunal allowed the assessee's appeals for statistical purposes regarding the disallowance of expenses under Section 37, restoring the matters to the AO for fresh consideration. The Tribunal dismissed the grounds related to the refund of excess DDT and upheld the CIT(A)'s decisions favoring the assessee on transfer pricing adjustments for both royalty and management fees. The Department's appeals were dismissed.