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TMI Blog2014 (9) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... f software development services, Payment on account of marketing support services, Payment for services availed and Miscellaneous income. The Transfer Pricing Officer (TPO) accepted the last two transactions at ALP. First international transaction of receipts on account of software development services amounted to Rs. 52,42,68,870/-. In its Transfer pricing study report, the assessee benchmarked this transaction by selecting Comparable Uncontrolled Price (CUP) method as the most appropriate method and a corroborative internal Transactional Net Margin Method (TNMM). The TPO observed that the assessee provided software engineering services in the telecom sector and it was an essential Software Development Centre of its US holding company. Following the view taken by him in the immediately preceding year, the TPO held that the use of CUP method as the most appropriate method and a corroborative internal TNMM were not capable of acceptance. For rejecting such methods, he observed that the CUP method can be used only if there are potentials to lead to the correct results. The assessee had international transactions with its four AEs under this segment. He noticed that the assessee suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. It is clear from para 4.2 of the TPO's order that he rejected the application of CUP method as the most appropriate method and a corroborative internal TNMM by relying on the view taken by him in the preceding year. It is noticed that his order for such earlier year came up for consideration before the tribunal. The tribunal has passed a common order on 5.7.2013 (in ITA Nos. 5420/Del/2011 and 6057/Del/2012) not only for the immediately preceding assessment year 2008-09 but also assessment year 2007-08. It can be seen that in both the years, the assessee benchmarked its international transactions under the 'Software development services' segment by applying CUP method as the most appropriate method and internal TNMM as the corroborative method, as the position is obtaining for the instant year. The TPO disregarded the benchmarking analysis done by the assessee and proceeded to determine ALP of the international transactions by applying external TNMM. The Tribunal examined the correctness of the TPO's approach in the light of detailed submissions advanced on behalf of the rival parities. Vide para 14 of its order, the co-ordinate Bench accepted the assessee's contention that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to those of the other uncontrolled transaction. Thus, it follows that it is of utmost importance to first precisely determine the nature of services offered by the assessee to its AEs in order to make an effective comparison with the services rendered by it to the non-AEs. Unless the nature of services rendered by the assessee to its AEs and non-AEs is accurately ascertained, there can be no question of making a meaningful comparison. Coming back to the TPO's order, it is observed that the assessee had international transactions with four of its A.Es under this segment. The details of transactions with only one A.E, namely, Hughes Network Systems Inc., were made available to the TPO in the shape of Agreement etc. No other details or copies of the Agreements for the transactions with the remaining three A.Es were provided to the TPO, enabling him to carry out an analysis of the functions performed by the assessee for making a logical comparison with the uncontrolled transactions undertaken by it. As, while following the tribunal order for the preceding years, we are restoring the matter to the file of A.O. with a direction to first consider the applicability of CUP method, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als @ 60%, which was reduced by the Assessing Officer to 15%. 4.2. After considering the rival submissions and perusing the relevant material on record, we find that this issue is no more res integra in view of the direct decision of the Hon'ble jurisdictional High Court in the case of CIT Vs BSES Rajdhani Powers Ltd. (Delhi) and a Special Bench order in the case of DCIT Vs Datacraft India Ltd. (2010) 133 TTJ (Mum) (SB) 377. In these decisions, it has been held that UPS and other computer peripherals are eligible for depreciation @ 60%. The ld. AR contended that the Tribunal has also taken similar view in assessee's own case for the earlier years. In view of the foregoing discussion, we are of the considered opinion that the assessee deserves to succeed on this issue. We order accordingly. This ground is allowed. 5.1. The last effective ground is against the addition of Rs. 19,81,010/- made u/s 40(a)(i) [sic. 40(a)(ia)] of the Act. The factual matrix of this ground is that the assessee paid Management fees of Rs. 19,81,010/- to M/s Hughes Systique Corporation. Since no deduction of tax at source was made by the assessee from such payment to the foreign AE, the Assessing Officer c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment or, in other words, whether such amount is chargeable to tax in the hands of the foreign AE. Before reaching any conclusion in this regard, it is paramount to notice the nature of services rendered by the foreign AE, for which the assessee made the said payment. It is observed from para 4.1 of the assessment order that the assessee paid this amount as 'Management fees' to its foreign A.E. Para 4.4 of the assessment order further elaborates the fact that this amount was paid as 'Management fees'. Page 398 of the paper book is an Addendum to the Master agreement, pursuant to which, the amount was paid by the assessee. For the sake of ready reference, its relevant part given in Article 7.A.(iii), is reproduced here as under : - "As consideration for the provision of payroll and related services by HSC to HSIPL for HSIPL seconded employees to HSC, HSIPL will pay HSC at actual cost incurred by HSC (supported by invoices) plus 2.5% of such actual cost incurred." 5.4. The further elaboration of such 'Payroll services' is available in Annexure - B(1) on page 400 of the paper book, which reads as under :- * "for processing and arranging a work permit for the HSIPL seconded em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee." 5.8. On going through the mandate of the above provision, it transpires that where the Central Government has entered into a Double Taxation Avoidance Agreement with the Government of any other country for granting of relief in respect of income on which tax is payable both in India as well as the other country or for the purposes of avoidance of double taxation of income under this Act or under the corresponding law in force in that other country, then the assessee to whom such agreement applies, shall be entitled to be governed by the provisions of the Double Taxation Avoidance Agreement (DTAA) or the provisions of the Act, whichever course is more beneficial to it. 5.9. A plain reading of the above provision points out two things. First thing is that there should be a DTAA entered into between two countries `for granting relief of tax' and the second thing is the description of the nature of relief, being, `the provisions of this Act shall apply to the extent they are more benefici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity or altogether avoiding the tax liability. Similar view has been expressed by the Mumbai Bench of the Tribunal in DDIT (IT) v. Safmarine Container Lines N.V. (2009) 120 ITD 71 (Mum.). In view of the above discussion, it becomes palpable that the statute by means of section 90(2) of the Act, has itself conferred an option to an assessee to be ruled either by the Act or the DTAA, whichever is more beneficial to him. 5.11. Coming back to the facts of the case under consideration and having seen that consideration for 'Managerial services' is chargeable to tax in India as per Expl.2 to section 9(1)(vii), let us examine if the Double Taxation Avoidance Agreement between India and USA (hereinafter referred to as 'the DTAA') helps the assessee, as has been contended. In this regard, it is pertinent to note that whereas sub-section (vii) of section 9(1) deals with 'Fees for technical services' under the Act, its parallel is Article 12 of the DTAA which deals with 'Fees for included services', which term has been defined in para 4 of Article 12 as under : - '4. For purposes of this Article, 'fees for included services' means payments of any kind to any person in consideration for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le rendition of such services is sufficient. Scope of the expression 'make available' has been dealt with by the Hon'ble Karnataka High Court in CIT VS. De Beers India Minerals (P.) Ltd. (2012) 346 ITR 467 (Karn), in which it has been held that it means providing technology to the payer so that he may independently use it in future without the involvement of service provider. It was further noticed that unless the service provider makes available his technical knowledge, experience, skill, know-how or process to the recipient of the technical service, the liability to tax is not attracted. 5.15. Coming back to the facts of the extant case, it is clear that the foreign AE rendered services in USA, which were consumed there itself. By rendering such services, nothing was made available to the assessee for use in future. As the foreign AE has not made available any technical knowledge, experience, skill etc. to the assessee for use in present or in future, in our considered opinion, the consideration for such services cannot be brought within the ambit of 'making available' of anything to the assessee, so as to considered as 'Fees for included services'. 5.16. As it is not the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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