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TMI Blog2014 (3) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs 5,739.60 crores (Rs 5739,60,05,089) made by the Assessing Officer with respect to the disallowance of loss on transfer of telecom infrastructure is justified, tenable in law and on the facts of this case. The related grievances, as set out in the memorandum of appeal, are as follows: 10. That the assessing officer erred on facts and in law in disallowing loss of Rs.5739,60,05,089 debited to the profit and loss account on account of transfer of infrastructure business while computing income under the normal provisions, disregarding the fact that the said amount was already added back by the appellant suo-moto in the return of income for the assessment year under consideration and that learned AO proceeded to frame the assessment not the basis of profit disclosed in the Profit & Loss Account but went on computing the income on the basis of computation of income as was furnished by the assessee company. 10.1. That the assessing officer has thus failed to appreciate that disallowance of Rs.5739,60,05,089 once again made by AO while computing normal income, had resulted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounts were only in the inner columns and there was no net debit by way of entry in the outer column. It was explained that "the loss on sale of telecom infrastructure to BIL is corresponding to the amount credited to business restructuring reserve" and that "if this amount is not withdrawn from the said reserve, the profit of assessee company is lowered by Rs 5,739 crores for the year under consideration". None of these submissions impressed the Assessing Officer and, in the draft assessment order, the Assessing Officer proposed an addition of Rs 5739,60,05,089 in respect of the above loss. An objection was taken up by the assessee before the Dispute Resolution Panel as well and the same is reproduced below: The assessee objects to the proposed action of the Assessing Officer in not reducing from the computation of income, the credit of Rs 5739,60,05,089 to the profit and loss account of the amount withdrawn from the Reserve for Business Restructuring, ignoring the fact that loss of Rs 5739,60,05,089, which had been debited to the profit and loss account, had been added to the computation of income. The Assessing Officer has erred in not understanding the reason for deduction fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . the figure which was starting of the computation of income at Page 3. Further perusal will show that a sum of Rs.5739,60,06,000 has been shown in the inner column as loss on transfer of telecom infrastructure and credited to Rs.5739,60,05,000 has been shown as a reduction on account of amount withdrawn from reserve for business restructuring. The net effect of these two entries is Nil. Therefore is does not have any impact in the Profit & Loss Account. The AO has added a sum of Rs.5739,60,05,000 to the figure of Profit and Loss Account but has not reduced the equivalent sum of Rs.5739,60,05,000/- from the computation of income. 5. It therefore submit that the computation of income assessed at Rs.1,53,72,70,00,713 is incorrect and therefore need to be reduced by the figure of Rs.5739,60,05,000 ." 6. Having noted these objections, however, the DRP proceeded to reject the same by making following brief, or rather cryptic, observations: 3.9.3 We have considered the facts of the case. Submission of assessee has also been gone through. The disallowance of Rs.5739 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the finding for addition of Rs 5739,60,05,089 in the computation of income by the Assessing Officer under the normal provisions of the Act is found to be correct for the assessment year under consideration". The assessee is aggrieved and is in appeal before us. 8. When this issue came up in hearing before us, learned counsel for the assessee submitted that it is a case of frivolous double addition on deliberate misconception of the facts. He took us through the year-end financial statements of the assessee and its computation of income to demonstrate that the impugned addition made by the Assessing Officer amounted to making an addition for loss on transfer of telecom assets whereas no deduction in respect of such loss was claimed by the assessee. He invited our attention to the observations made in the stay order to the effect that it is a case of "prima facie" double addition and it was also submitted that at the stage of hearing of stay petition in this case, the Assessing Office himself has accepted that it is a case of double addition. Learned Departmental Representative, on the other hand, dutifully placed his rather bland reliance on the stand of the Assessing Officer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the convincing motions of defending the same before us, such unreasonable conduct of the Assessing Officer deserves to be scrutinized seriously. At a time when evolving societal pressures demand greater degree of accountability in the governance also, it does no good to the judicial institutions to watch such situations as helpless spectators. If it is indeed a case of frivolous addition, someone should be accountable for the resultant undue hardship to the taxpayer -rather than being allowed to walk away with a subtle, though easily discernable, admission to the effect that yes it was a frivolous addition, and, if it is not a frivolous addition, there has to be reasonable defence, before us, for such an addition. The case before us, for the reasons we will set out now, appears to be in the category of a wholly frivolous, and simply indefensible, addition to the income returned by the assessee. 10. Let us take a look at the related entry, as per the profit and loss account of the assessee, related note to the accounts and the treatment given by the assessee in the computation of income, which are reproduced below: Particulars Schedule No. For the year ended March 31, 2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t after Tax 62,441,922 Transferred from Debenture Redemption Reserve 413,623 62,855,545 Profit: brought forward 55,339.252 Profit carried to Balance Sheet 118,194,797 Note 2 (b) to Schedule 21 of the annual accounts Scheme of arrangement for Transfer of Telecom Infrastructure The scheme of arrangement ("the Scheme") between Bharti Airtel Limited and Bharti Infratel Limited ('BIL') for transfer of assets and liabilities of passive telecom infrastructure undertaking, as defined in the Scheme ('the Telecom Infrastructure'), from Bharti Airtel to BIL was approved by the Hon'bie High Court of Delhi vide order dated November 26, 2007 and filed with the Registrar of Companies, Delhi and Haryana on January 31, 2008 i,e. the Effective Date of the Scheme, The Scheme has, accordingly, been given effect to in these financial statements and pursuant to the terms of the Scheme; (i) the Company has transferred the Telecom Infrastructure worth Rs, 57,396,005 thousand to BIL at Nil value (ii) the Company has revalued its investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the return of income, the assessee has first added Rs 5739,60,05,089 as "Loss on transfer of telecom infrastructure to Bharti Infratel Limited" and then reduced Rs 5739,60,05,089 as "amount withdrawn from Reserve for Business Restructuring", but then, instead of taking note of the unambiguous fact that these two distinct entries representing two facets duly reflected in the profit and loss account, the Assessing Officer assumes that since debit and credit of the same amount, resulting in neutralizing each other, he is justified in adding the loss of transfer of telecom infrastructure to the profit as per profit and loss account. Neither there was an effective debit to the profit and loss account, since the loss was squared up by transfer from reserve rather than by debit to profit and loss account, nor was it open to the Assessing Officer to take into account loss on transfer of assets, though reflected in the inner column, without taking into account another inner column item reflecting transfer from reserves to square up this loss. Whichever way one looks at these entries, the inescapable conclusion is that the addition made by the Assessing Officer is wholly erroneous and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons raised before them in a comprehensive and effective manner. While we delete the impugned addition of Rs 5739,60,05,089, we also place on record our dissatisfaction with the way and manner in which this issue has been handled at the assessment stage. Let us not forget that the majesty of law is as much damaged by not rendering justice to the conduct which cannot be faulted as much it is damaged by a wrongdoer going unpunished; not giving relief in deserving cases is as much of a disservice to the cause of justice and the cause of nation as much a disservice it is, to these causes, by granting undue reliefs. The time has come that a strong institutional check is put in place for dealing with such eventualities and de-incentivizing this kind of a conduct. With these observations, the impugned addition of Rs 5739,60,05,089 is deleted. The assessee gets the relief accordingly. 12. Ground No. 10 is thus allowed. 13. In ground no. 11, the assessee has raised the following grievances: 11. That the assessing officer erred on facts and in law in not allowing deduction of Rs.112,16,53,391 in respect of profit derived from Karnataka (B&T) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact that: (a) corporate guarantee been advanced by the appellant as a matter of commercial prudence primarily to protect the business interest of the group by fulfilling the shareholder's obligation as any financial incapacitation of the subsidiary would jeopardise the investment of Bharti Airtel Limited; (b) in the absence of corporate guarantee, the appellant being the holding company would have provided the funds to the subsidiary by increasing the share capital, hence provision of corporate guarantee does not lead to any additional risk for the appellant warranting a compensation; (c) misinterpreting the concept of shareholder services contained in the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations released by the Organisation for Economic Cooperation and Development (OECD Guidelines) (d) suo-moto adjustment was made by the appellant on a without prejudice basis to cover the corporate guarantee provided to lender bank on the basis of specific quotation received from the lender bank itself, which constituted valid CUP data; 13.2 That the assessing officer/TPO erred on fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The TPO while benchmarking the international transaction of issue of corporate guarantee has relied on Para 7.13 of the OECD guidelines which state that "but an intra-group service would usually exist where the higher credit rating were due to a guarantee by another group member". The TPO observed that by issuing the corporate guarantee, the appellant has benefitted its associated enterprise by increasing its credit rating. The TPO held that such transactions being independent transactions held to be benchmarked applying CUP method, and, accordingly, determined arm's length price of the guarantee commission income @ 2.68% plus a mark-up of 200 basis points on the basis of data obtained from various banks under section 133(6) of the Act. A reference was also mad3 to the decision of the Tax Court of Canada in the case of GE Capital Canada Inc v The Queen (2009 TCC 563). Accordingly, an ALP adjustment of Rs 33,10,161 was made. 21. Aggrieved by the consequent ALP adjustment proposed to be made by the Assessing Officer, assessee raised an objection before the DRP but without any success. One of the argument raised before the DRP was that "this transaction does not attract transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat issuance of guarantees could be outside the ambit of scope of ' international transaction' itself, there were large number of judicial precedents from the coordinate benches upholding ALP adjustments in respect of corporate guarantees issued as also from foreign judicial forums, such as Tax Court of Canada, referred to in the transfer pricing order itself . Learned counsel for the assessee submitted that there is no judicial ruling, in the context of Indian transfer pricing legislation, which specifically holds that even in respect of the corporate guarantees issued for the benefit of the AEs, which do not cost the assessee anything, ALP adjustment can be made. This issue has not been raised or decided in the cases in which ALP adjustments have been upheld and, therefore, those decisions can not be put against the assessee. As for the decisions from the Court of Canada, learned counsel submitted that the issue here is an issue which is to be decided in the light of the domestic legal provisions, with respect to income tax law, and our jurisprudence which need not be in pari materia with Canadian tax laws. 24. In the light of the above discussions, we consider i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature; (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; (d) provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date; (ii) the expression "intangible property" shall include - (a) marketing related intangib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. in the nature of lending or borrowing money, or d. in the nature of any other transaction having a bearing on the profits, income, losses or assets of such enterprises 3. An international transaction shall include shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. 4. Section 92B (2), covering a deeming fiction, provides that even a transaction with non AE in a situation in which such a transaction is de facto controlled by prior agreement with AE or by the terms agreed with the AE. 26. Let us now deal with the Explanation, inserted with retrospective effect from 1st April 2002 i.e. right from the time of the inception of transfer pricing legislation in India, which was brought on the statute vide Finance Act, 2012. 27. This Explanation states that it is merely clarificatory in nature inasmuch as it is ' for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits, incomes, losses, or assets of such enterprises". 30. It is, therefore, essential that in order to be covered by clause (c) and (e) of Explanation to Section 92 B, the transactions should be such as to have beating on profits, incomes, losses or assets of such enterprise. In other words, in a situation in which a transaction has no bearing on profits, incomes, losses or assets of such enterprise, the transaction will be outside the ambit of expression ' international transaction'. This aspect of the matter is further highlighted in clause (e) of the Explanation dealing with restructuring and reorganization, wherein it is acknowledged that such an impact could be immediate or in future as evident from the words "irrespective of the fact that it ( i.e. restructuring or reorganization) has bearing on the profit, income, losses or assets of such enterprise at the time of transaction or on a future date". What is implicit in this statutory provision is that while impact on "profit, income, losses or assets" is sine qua non, the mere fact that impact is not immediate, but on a future date, would not take the transaction outside the ambit of ' international transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t out in Section 92B(1) may not be fulfilled. For example, an enterprise may extend guarantees for performance of financial obligations by its associated enterprises. These guarantees donot cost anything to the enterprise issuing the guarantees and yet they provide certain comfort levels to the parties doing dealings with the associated enterprise. These guarantees thus donot have any impact on income, profits, losses or assets of the assessee. There can be a hypothetical situation in which a guarantee default takes place and, therefore, the enterprise may have to pay the guarantee amounts but such a situation, even if that be so, is only a hypothetical situation, which are, as discussed above, excluded. One may have also have a situation in which there is a receivable or any other debt during the course of business and yet these receivables may not have any bearing on its profits, income, losses or assets, for example, when these receivables are out of cost free funds and these debit balances donot cost anything to the person allowing such use of funds. The situations can be endless, but the common thread is that when an assessee extends an assistance to the associated enterprise, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber of decisions in India and abroad, notably in Canada, dealing with the determination of arm's length price of guarantees. His argument seemed to be that even such a view is to be upheld, entire transfer pricing jurisprudence will be turned upside down. There does not seem to be any legally sustainable merits in this argument either. As for the decisions dealing with quantum of ALP adjustments in the guarantee charges, in none of these cases the scope of ' international transactions' under section 92B(1) has come up for examination. A judicial precedent cannot be an authority for dealing with a question which has not even come up for consideration in that case. It is only elementary that, as was also held by Hon'ble Bombay High Court in the case of CIT v. Sudhir Jayantilal Mulji (214 ITR 154), that a judicial precedent is an authority for what it actually decides and not what may what come to follow from some observations made therein. As observed by Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works P. Ltd. (198 ITR 297) a " judgement must be read as a whole and the observations from the judgement have to be considered in the light of the quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction' to which ALP adjustment can be made. As we have decided the matter in favour of the assessee on this short issue, we see no need to address ourselves to other legal issues raised by the assessee and the judicial precedents cited before us. 36. For the reasons set out above, and as we have held that the issuance of corporate guarantees in question did not constitute ' international transaction' within meanings thereof under section 92B, we uphold the grievance of the assessee and direct the Assessing Officer to delete the impugned ALP adjustment of Rs 33,10,161. The assessee gets the relief accordingly. 37. Ground No. 13 is thus allowed. 38. In ground no. 14, the assessee has raised the following grievances: 14. That the assessing officer/ TPO erred on facts and in law in making addition/adjustment of Rs.62,15,019 on account of difference in interest charged on loan advanced to associated enterprises by applying interest rate of 17.26% p.a. as against interest rate of 7.33% p.a. charged by the appellant. 14.1 That the assessing officer/TPO erred on facts and in law in not appreciating the objective and FAR of the appellant with respect to the loan transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of internal CUP i.e. rates charged for the foreign currency loans taken by the appellant from unrelated parties and Transactional Net Margin Method ('TNMM') analysis, in support of the arm's length nature of its inter-company transaction of advancement of loans, without providing any cogent reasons for the same. 14.4 That the assessing officer/TPO erred in relying upon the rate of interest charged by various domestic banks on advancement of foreign currency loans obtained by the TPO under section 133(6) of the Act, without affording opportunity to the appellant to rebut the same, in violation of principles of natural justice. 14.5 That the assessing officer/TPO erred in relying upon the information obtained under section 133(6) of the Act, without appreciating that such information was not available in the public domain and therefore, could not have been relied upon for the purpose of determining the arm's length price. 14.6 That the assessing officer/TPO erred on facts and in law in disregarding the fact that amounts had been advanced by the appellant to its AE(s) as a matter of commercial prudence to further its business interests as a shareholder as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee objected to the same, inter alia, on the ground that the loans were in foreign currencies, and therefore interest rate on rupee loans have no relevance, that interest has been charged from the subsidiaries over and above the costs of borrowings and in accordance with the international market standards, and that comparison with BBB grade bonds, as was done by the TPO, was not warranted as the advances were to assessee's subsidiaries. None of these submissions impressed the TPO. He was of the view that costs of borrowings were wholly irrelevant for the purpose of deciding ALP of the borrowing costs, that the risks for a single transaction is much more than the risks taken by banks in multiple client situation, that the additional costs are liable to be incurred for forward exchange contracts to hedge the position and that rate adjustments are also required to be done for the absence of any security. He also referred to the CRISIL information regarding interest to BBB grade bonds which was 15.13% in the relevant period. However, he adopted the rate of 14% as ALP of the intra AE borrowings by observing as follows: CUP rate is arrived at as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factual matrix of the case as also the applicable legal position. 61. We have noted, as has been noted in the assessment order, DRP order and TPO orders as well, that the advances to subsidiaries are in foreign currencies i.e. in British Pounds, US Dollars and Canadian Dollars. In these circumstances, the interest rates on rupee bonds and debts, which has been extensively referred to in the order of the TPO, have no relevance at all. It is only elementary that interest is nothing but time value of money and when inflation pressure on a currency is lower, as is the case with most strong currencies, the time value of money, i.e. interest, tends to be lower too. Therefore, comparing interest rate on rupee loans cannot at all be compared with interest rates on strong currencies like GBP, USD and CAD. All these erudite discussions about Indian bond market and interest rate are thus wholly irrelevant. As for TPO's observation to the effect that the tested party being the assessee before us, i.e. lender, the prevalent interest that could be earned by the taxpayer by advancing loan to an unrelated party in India, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be accepted. 63. As for the second adjustment of 300 points for transaction cost, this adjustment is sought to be justified by the following observations of the TPO: 7.9 Transaction Cost The company, which is considering a foreign currency loan, has to bear an additional transaction cost in each year. This is because under Reserve bank of India norms, it is mandatory for borrowers to buy such forward contracts and thus banks insist that the borrower must book a forward dollar contract to hedge the position. Forward cover is assort of insurance against currency fluctuations. If the borrower does not take such cover and the rupee depreciates against the dollar, costs will go up substantially as it would need to buy dollars from the market for repaying the loan. During the FY 2006-07, the forward premia increased reflecting growing interest rate differential in view of the increased domestic interest rates. In March, 2007, three month forward premium was at 5.12% p.a., from a low of less than one percent per annum in July, 2006. Thus on an average, the 3-month forward premium can be considered as 3% p.a. for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alysis, the equivalent interest rate is the interest rate including the transaction cost for a foreign currency loan, if given to the AE for its credit standing / rating. 66. We see no substance in this adjustment either. The TPO has taken the lender as the tested party, and yet made adjustments for higher risks on account of assumed lack of security and increased risk of single party dealing. This approach overlooks the fact that the assessee has advanced monies to its subsidiaries which are under its management and control- a factor which substantially reduces the risk rather than increasing it. On these facts, it is difficult to understand, much less approve, any rationale for adjustment on account of higher risks. On this point also, we see no merits in the stand of the TPO. 67. We have taken note of the fact that the assessee's claim is that his borrowings in the same or similar currencies are at much lower costs. Such a rate, as is noted by a coordinate bench in the case of VVF Limited v. DCIT (2010 TII 04 ITAT MUM TP), constitutes acceptable internal CUP. While holding so, the co-ordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial precedent, we uphold the grievance of the assessee and delete the impugned ALP of Rs 62,15,019. The assessee gets the relief accordingly. 42. Ground No. 14 is thus allowed. 43. In ground no. 15, the assessee has raised the following grievance: 15. That the assessing officer/TPO erred on facts and in law in making addition of Rs.19,15,45,943 on account of notional interest calculated @ 17.26% p.a. on the amount of share application money advanced by the appellant to its AEs. 15.1 That the assessing officer/TPO erred on facts and in law in not appreciating that the transaction of advancement of share application money was not in the nature of "international transaction" as defined in section 92B and hence was outside the purview and scope of Chapter X of the Act. 15.2 That the assessing officer/TPO erred on facts and in law in treating the amount of investments made by the appellant in its associated enterprises in the form of share application money for allotment of shares as interest free l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejudice, that the assessing officer/TPO erred in computing the amount of interest at Rs.19,15,45,943, by applying rate of interest of 17.26% p.a. for the whole year on the consolidated amount of share application money, without considering the monthly balance of share application money. 15.6 That the assessing officer/TPO erred on facts and in law by disregarding established judicial pronouncements in India in making the Transfer Pricing adjustment. 44. So far as this grievance of the assessee is concerned, the relevant material facts, to the extent necessary for our adjudication, are as follows. It is not in dispute that during the relevant previous year the assessee has made following payments towards share application money in its foreign subsidiaries: Name of associated enterprises Amount of advance (Rs.) Date of share application Date of issue of shares Name of associated enterprises Amount of advance (Rs.) Date of share application Date of issue of shares Bharti Airtel (U.S.A.) Ltd. 40,45,14,1 09 29.11.2007 31.03.2009 Bharti Airtel (U.K.) Ltd. 3,17,72,666 31.01.2008 12.03.2009 Bharti Air ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of the applicable legal position. 47. We find that in the present case the TPO has not disputed that the impugned transactions were in the nature of payments for share application money, and thus, of capital contributions. The TPO has not made any adjustment with regard to the ALP of the capital contribution. He has, however, treated these transactions partly as of an interest free loan, for the period between the dates of payment till the date on which shares were actually allotted, and partly as capital contribution, i.e. after the subscribed shares were allotted by the subsidiaries in which capital contributions were made. No doubt, if these transactions are treated as in the nature of lending or borrowing, the transactions can be subjected to ALP adjustments, and the ALP so computed can be the basis of computing taxable business profits of the assessee, but the core issue before us is whether such a deeming fiction is envisaged under the scheme of the transfer pricing legislation or on the facts of this case. We donot find so. We donot find any provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Tribunal had an occasion to deal with the arm's length price adjustment with regard to interest free advances to the subsidiaries. That was a case in which the assessee, an Indian company, advanced interest-free loans to its 100% foreign subsidiaries. The subsidiaries used those funds to make investments in other step- down subsidiaries. On the question whether notional interest on the said loans could be assessed in the hands of the assessee under the transfer pricing provisions of Chapter X, the assessee argued that the said "loans" were in fact "quasi - equity" and made out of commercial expediency. It was also argued that notional income could not be assessed to tax. However, both of these arguments were rejected by a coordinate bench of this Tribunal. While doing so, the coordinate bench observed that there was no material on record to establish that the loans were in reality not loans but were quasi-capital and that there is also no reason why the loans were not contributed as capital if they were actually meant to be a capital contribution. It was observed that, "It is not the case that there was any technical problem that the loan could not have been contributed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the AEs, and, accordingly, ALP adjustment based on that hypothesis was indeed devoid of legally sustainable merits. We delete the impugned adjustment of Rs.19,15,45,943. The assessee gets the relief accordingly. As we have decided this ground of appeal on the fundamental issue that the payment of share application money could not be partly treated as interest free loan to AE, we see no need to deal with other aspects of the matter. 51. Ground No. 15 is thus allowed. 52. We now turn to other grounds of appeal in this appeal. In ground no.1, 2 and 3, the assessee has taken up the following grievances: "1. That the Assessing Officer [AO] erred on facts and in law in completing the impugned assessment vide order dated 30.10.2012 under section 143(3) read with section 144C of the Income-tax Act ("the Act") at an income of Rs. 7819,34,10,408 as against income of Rs.1998,06,29,257 declared by the appellant. 2. That in framing the assessment the learned AO has erred in making the following additions and disallowances: Disallowance of interest paid to ABN Amro Bank u/s 40(a)(i) Variable Licence Fee u/s 35ABB 115,34,26,441 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amro, which were subsequently novated by ABN Amro in favour of third parties ("the new lenders"), who were tax residents of the respective countries, was not liable to tax in India in terms of Article 11 of the respective Tax Treaty and consequently therefore, there was no default in not deducting tax at source. 56. This issue also came up before us for adjudication in the immediately preceding Assessment Year i.e. 2007-08 and vide our order of even date we have remitted the matter to the file of the A.O. for fresh adjudication in the light of the directions set out therein. Learned representatives fairly agreed that whatever is decided in the said Assessment Year i.e. 2007-08 will equally apply for the present year also. In this view of the matter and respectfully following our decision for the Assessment Year 2007-08, we remit the matter to the file of A.O. for adjudication de novo in the light of directions set out in our order for Assessment Year 2007-08 which are reproduced below for ready reference:- "24. We find that so far as assessee's dealings with ABN-S are concerned, these are to be examined in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s laid down in the DTAA, as far as ' domicile test' is concerned, in common law, ' domicile' has a somewhat restricted meaning, denoting a fixed and lasting attachment to a country or state with its own separate legal system - one only in each case - which initially is acquired by birth ('domicile by origin'), and capable of being altered later by a personal decision ('domicile by choice'). In the case before us, the assessee-companies were incorporated in United Kingdom and there is nothing on record to even remotely suggest that the assessee-company was domiciled in the Netherlands. Since there can only be one country of domicile and since the assessee-companies are already domiciled in United Kingdom by the virtue of its incorporation in that country, the assessee-companies cannot be said to be domiciled in the Netherlands. Coming to the ' residence test', it is admittedly not the assessee's case that the assessee-companies are residents of Netherlands. Similarly, it is also not in dispute that ' place of effective management' is United Kingdom and the case of the assessee-companies cannot even be covered by this criterion. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Indo-Netherlands DTAA. We are also of the considered view that cases before us clearly fail on this test. 25. In view of the above discussions and bearing in mind the fact that ABN- S did not have any locality related attachment in Sweden which could lead to residence type taxation on global basis, in our considered view, ABN-S cannot be treated as tax resident of Indo Swedish tax treaty. Accordingly, the benefit of Article 11 (3) of Indo Swedish tax treaty cannot be applicable on the ground that the interest remittances are made to ABN-S. However, for the reasons we will now set out, the mere fact that the interest has been remitted to ABN-S and that the benefit of Article 11(3) of Indo Swedish tax treaty or benefit of Article 11(3) of the Indo Dutch tax treaty are not available in respect of these remittances, does not imply that the amounts so paid are taxable in India. 26. We find that there is no dispute about the fact that the ABN- S, was arranger of the loan and there were also other financial institutions termed as ' original lenders' who had actually financed this transaction. The role of the ABN-S, except to the extent of financing of its own funds in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the relevant provisions of the tax treaties that India has with the jurisdictions in which original lenders are resident in. Once again, we have to acknowledge the fact that learned counsel for the assessee has filed elaborate documentation in support of their stand about tax residency status of beneficial owners of the interest paid by the assessee and has also addressed the arguments on merits, but, in the absence of this aspect of the matter having been examined by the authorities below, we are not inclined to deal with the matter on merits. In our considered view, the right course of action is to identify the factual aspects to be looked into, set out the legal principles, and remit the matter to the file of the Assessing Officer for adjudication de novo by way of a speaking order, in accordance with the law and after giving yet another fair and reasonable opportunity of hearing to the assessee. While doing so, the Assessing Officer shall specifically deal with all the contentions of the assessee as the assessee may raise before him. We order so. 27. Learned counsel has also raised some arguments, said to be supported by some judicial precedents, on the question whether di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture incurred towards licence fee is partly revenue and partly capital. Licence fee payable upto 31st July 1999 should be treated as capital expenditure, and licence fee on revenue sharing basis, after 1st August 1999, should be treated as revenue expenditure. (ii) Capital expenditure will qualify for deduction as per section 35 ABB of the Act. 6. In the case before us, it is not in dispute that the licence fee in question is on revenue sharing basis and pertains to period post 1st August 1999. In this view of the matter, and in due deference to the esteemed views of Hon'ble jurisdictional High Court, we hold that the impugned disallowance deserves to be deleted and that the entire amount of licence fees is allowable as revenue deduction. The assessee gets the relief accordingly. 7. Ground No. 1 is thus allowed." 60. We see no reasons to take any other view than the view taken by us in the immediately preceding year. Respectfully following the same we uphold the grievance of the assessee and direct the A.O. to delete the impugned disallowance. 61. Ground no.5 is thus allowed. 62. In ground no.6 the assessee has raised the following grievances :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch is thus answered in affirmative by holding that discount on issue of Employee Stock Options is allowable as deduction in computing the income under the head ' Profits and gains of business or profession'. 14. We have also noted that it is an undisputed position, as evident from the computations reproduced in the assessment order itself, that the amounts claimed as a deduction represent the actual exercise of options. In this view of the matter, and in view of the principles laid down in Special Bench decision in the case of Biocon Ltd (supra), we uphold the grievance of the assessee. The disallowance of Rs 11,96,23,407 must also, therefore, be deleted. We order so." 64. We see no reasons to take any other view than the view taken by us in the immediately preceding year. Respectfully following the same we uphold the grievance of the assessee and direct the A.O. to delete the impugned disallowance. 65. Ground no.6 is thus allowed. 66. In ground no.7 the assessee has raised the following grievances :- "7. That the assessing officer erred on facts and in law in disallowing a sum of Rs.866,59,50,444 representing fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's own case, we see no reasons to interfere in the matter. Learned counsel for the assessee has pointed out that there is no element of agency, that talk time is traded and distributed, that it's a principal to principal relationship that the assessee has with his distributors, that flow of payment is in the reverse direction which is contrary to the concept of commission payment and that the assessee had a bonafide belief that section 40(a)(ia) will not come into play as the distributors have honoured their tax liability. However, as the issue is covered against the assessee by direct decision of Hon'ble jurisdictional High Court, we are not inclined to deal with all these arguments. Respectfully following the esteemed views of Hon'ble jurisdictional High Court, We hold that the assessee was required to deduct tax at source from the commission so allowed by the assessee, and, accordingly, his failure to do so is to be visited with the consequence of disallowance under section 40(a)(ia) r.w.s. 194 H. The disallowance is thus confirmed." 68. We see no reasons to take any other view than the view taken by us in the immediately preceding year. Respectfully fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclared income in respect of the transactions of telecom roaming and thus such income would have been subject to payment of income tax and the assessee would not be deemed to be an assessee in default under the proviso to sub-section (1) of Section 201." 71. This issue also came up before us for adjudication in the immediately preceding Assessment Year i.e. 2007-08 and vide our order of even date we have remitted the matter to the file of the A.O. for fresh adjudication in the light of the directions set out therein which are reproduced as follows :- "34. It is important to take note of the fact that the issue as to whether the amounts paid for roaming charges will attract tax deduction at source under section 194 J was before Hon'ble Supreme Court in assessee's own case, reported as CIT v. Bharti Cellular Limited (330 ITR 239), and the issue was decided against the assessee in principle but the matter was remanded to the Assessing Officer (TDS) with certain directions for de novo adjudication. When this was pointed out to the learned counsel for the assessee, he invited our attention to the following obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07-08, we remit the matter to the file of A.O. for adjudication de novo. 73. In the result, ground no.8 is allowed for statistical purposes in the terms indicated above. 74. In ground no.9 the assessee has raised the following grievances :- "9. That the assessing officer erred on facts and in law in disallowing lease charges aggregating to Rs.182,22,28,069 paid to M/s. IBM India and M/s. Nortel Networks India (P) Limited. 9.1. That the assessing officer erred on facts and in law in alleging that the transaction entered into by the appellant fell in the category of a disguised purchase, by relying upon similar finding given in the assessment order for assessment year 2006-07. 9.2 That the assessing officer failed to appreciate that the mere fact that the transactions entered into by the appellant were treated as finance lease in the books of accounts as per the binding Accounting Standard on "Finance Lease", such treatment in books of accounts was not relevant for determining the nature of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmediately preceding year i.e. 2007-08. In this view of the matter and respectfully following our decision for the Assessment Year 2007-08, we remit the matter to the file of A.O. for adjudication de novo. 77. In the result, ground no.9 is allowed for statistical purposes in the terms indicated above. 78. The assessee has moved an application for admission of additional ground which is reproduced below for ready reference: The applicant craves leave to raise the following by way of additional ground of appeal: "That in the facts and Circumstances of the case and in law, the assessee ought to be allowed deduction of liability borne by the assessee in pursuance of order(s) passed under section 201 (1) of the Income Tax Act, 1961 ('the Act')." Tax demands under section 201(1) of the Act has been raised against the applicant for various assessment years, for alleged default in deduction of tax at source under the provisions of the Act, in respect of the following transactions : (a) Discount allowed to distributors on sale of pre-paid products -Alleged non-deduction of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability accrued/borne in pursuance of orders passed under section 201(1) of the Act is, it is submitted, purely a legal issue, and facts in relation to the same are already available on record. The additional ground of appeal is being raised on the applicant being recently advised of the correct legal position and the omission to raise the aforesaid additional ground of appeal earlier is neither willful nor deliberate. The additional ground of appeal calls for being admitted and adjudicated on merits in view of the discretion vested in your Honour under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 and the decision of the Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT : 229 ITR 383. 79. Having heard the rival contentions on this petition, we are inclined to admit the additional ground of appeal as it is purely a legal issue as to whether or not the liability borne by the assessee, under section 201 and which is not recovered from the recipients of payments without deduction of tax at source, is deductible in computation of assessee's income. However, as it involves factual verifications, we are not inclined to deal with the same, on merits, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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