9911796707
TMI Blog2015 (7) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. We are of the view that the relevant record in this respect is required to be examined before arriving to a decision whether the said amount is no more payable to the employee and therefore can be treated as ceased liability of the assessee. As regards the remaining two parties namely Scientico Instruments and Electrolab, the assessee has claimed that the outstanding amount has already been paid on 08.10.09 and the assessee has produced before the AO the relevant ledger extract to show the said payment made to the parties. Since all these facts as well as the relevant record has not been properly examined by the authorities below, therefore we are of the considered view that the AO shall verify and examine the relevant record and details to be filed by the assessee and then decide the issue in the light of the various decisions as relied upon by the assessee. - Decided in favour of assessee for statistical purposes. Disallowance of annual license fee/computer software expenditure - revenue v/s capital expenditure - Held that:- It is not in dispute that the expenditure has been incurred on application software. The Hon'ble Delhi High Court in the case of Asahi Safety Glass ltd [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 08.11.12 the assessee is seeking rectification under section 154 of the Act inter-alia in respect of MAT credit amount to 60,72,371/-. Accordingly, the AO is directed to consider the claim of the assessee in the light of the MAT tax liability revised by the AO in the A.Y. 2007-08. X X X X Extracts X X X X X X X X Extracts X X X X ..... d AO erred in not granting MAT credit of ₹ 60,72,371. GROUND NO.7 The learned AO erred in initiating penalty proceedings under section 271(1) (c) of the Act for filing inaccurate particulars of total income." 2. Ground No.1 is regarding transfer pricing adjustment on account of provision of support service provided by the assessee to its AE. During the year under consideration, the assessee has entered into international transaction inter-alia provision of contract development support service to its AE Novartis Pharma AG as per the service contract entered into between the parties. The assessee is providing pharma support services which the inter-alia includes contract statistical reporting support services, Pharma database development support services, medical writing support services in respect of clinical trials through DOC, Pharma data management support services, Provision of clinical trials coordination support services, Provision of drug regulatory support services, Provision of marketing support services and Integrated medical safety services. The assessee received a cost + mark up of 15% for providing the above mentioned services. In the transfer pricing study re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... frastructures activity and engaged in undertaking high and technical services and project implementation on wide nature of infrastructure projects. The company has been approved as a special purpose vehicle by the government for the road upgradation projection under the infrastructure upgradation scheme. The company receives major portion of the income from its members and hence is not comparable with the assessee. In support of his contention he has relied upon the decision of Bangalore bench of this Tribunal in the case of "Actis Advisors Pvt. Ltd."146 ITD 314 as well as in the case of "CISCO Systems (India) Pvt. Ltd." dated 14.08.14 in ITA No.271/Bang/2014. Thus the Ld. A.R . has submitted that this company is altogether in a different nature of activity which is not comparable with the services provided by the assessee to its AE. WAPCOS Limited 5. The Ld. A.R. has submitted that this company provides consultancy in domestic and international water and power sectors. This is a government company which is a Mini Ratna-I status. Further, the spectrum of services provided by this company covers a wide range of activities that includes (i) Preliminary Investigations/Reconnaissanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ety services. Thus there is no dispute that the services provided by the assessee to its AE are all relating to pharmaceutical and medical support service as well as medical safety services. There is no dispute regarding the TNMM as most appropriate method for determining the ALP with profit level indicator as OP/TC. The assessee is charging 15% mark up from the AE for the services provided. The assessee has bench marked its international transaction by selecting 13 companies as comparables. The TPO rejected 7 comparables out of the 13 due to lack of financial data. The TPO undertook a fresh search and selected 17 comparables some of which are common with the comparables selected by the assessee. The TPO determines the arms length price at 22.49% as against the entity level margin of the assessee at 14.09%. 8. It is settled proposition that while testing the international transaction of the assessee with the comparable uncontrol price, the margin of the transactions with the AE has to be taken into consideration and not the entity level margin of the assessee. The margin of the assessee from the international transaction is undisputedly 15% as charged by the assessee as cost + 15% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is company in the case of MCI Com India Pvt. Ltd. as well as M/s. Chemtex Global Engineers Pvt. Ltd. Thus, having regard to the nature of functions and activities performed by the Rites Ltd., we find that this company cannot be regarded as a good comparable for determining the arms length price in respect of the services rendered by the assessee to its AE. ii) Vapi Waste & Effluent Mgmt. Co. Ltd. This company is undisputedly is a non equity company as the capital is contributed by its members and Government of India. The major portion of the income of this comes from its members, therefore the price of this company cannot be treated as an independent and uncontrol price when the majority of the Revenue is earned from the members who have contributed to the capital of the company. Even otherwise the business profile of the company is entirely different from the assessee as this company has been approved as special purpose vehicle by the government for road upgradation project under the infrastructure upgradation scheme. Apart from this, the company is providing a comprehensive environment and management programme for Vapi Industrial Estate. In case of "Actis Advisors Pvt. Ltd." ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of "MCI Com India Pvt. Ltd." (supra) as well as in the case of "M/s. Chemtex Global Engineers Pvt. Ltd." (supra) the Tribunal found that this company is not functionally comparable with the service providing companies in the other fields. As it is apparent from the nature of functions and activities performed by this company that the functions of the company are not comparable with the services provided by the assessee to its AE. Accordingly, we direct the AO/TPO to exclude this company from the list of comparables for determination of the ALP. As regards the objections of the Ld. D.R. that all other companies should also be rejected on the same criteria, it is pertinent to note that the DRP has not issued any direction of exclusion of the comparables selected by the TPO on the ground of functional non comparability, therefore we cannot go into the issue which has not been raised before us either by the assessee or by the department. Even otherwise the comparable selected by the TPO and confirmed by the DRP cannot be disputed by the department at this stage, therefore we do not propose to go into the issue of a functional comparability of the other companies which are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment already made during the course of assessment proceedings. Thus, the Ld. A.R. has submitted that no addition can be made in respect of these amounts under section 41(1). In support of his contention, he has relied upon the following judgments: 1. CIT v. Sugauli Sugar Works P. Ltd. (SC) (236 ITR 518) 2. Kohinoor Mill Co. Ltd. v. CIT [1963] (49 ITR 578) (Bombay HC) 3. J.K. Chemicals Ltd. vs. CIT (1966) 62 ITR 34 (Bombay HC) 12. On the other hand, the Ld. D.R. has submitted that the assessee failed to establish before the authorities below that the amount which is outstanding for more than three years is not ceased to be payable. He has relied upon the orders of the authorities below. 13. We have considered the rival submissions as well as relevant material on record. The dispute is regarding the addition made by the AO under section 41(1) on account of the credit balance is outstanding for more than three years. The details of the creditors and the amount are as under: Name Closing balance Huzefa Shabbir Bhpalwala 25,340 Wander Pvt. Ltd. 7,32,698 Scientico Instruments 13,230 Electrolab 29,601 Total 8,00,869 14. Thus it is clear that the AO made the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order held that the purchase of computer software and software development expenditure provides benefit of enduring nature to the assessee and hence the same is capital in nature. Accordingly, the AO disallowed the software expenses of ₹ 28,17,425/-. The assessee objected the action of the AO before the DRP but could not succeed. Before us the Ld. A.R. of the assessee has submitted that the expenditure has been incurred on annual maintenance and license fee for use of software during the previous year. The total expenditure incurred on the software license is on account of license fee, therefore the expenses on "Of the Shelf Computer Software packeges" incurred by the assessee are on application software packages, implementation charges and upgradation of existing software. Thus, the Ld. A.R. has submitted that these expenses are revenue expenditure as they do not confer any enduring benefit and hence it cannot be considered as capital expenditure. He has pointed out that an identical issue has been considered by this Tribunal in assessee's own case for the A.Y. 1995-96 vide order dated 25.09.13 in ITA No.1749/M/2013. He has also relied upon the decision of Hon'ble Delhi Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of revenue in nature as the AO has not doubted that the expenses were on application software therefore respectfully following the decision of the Hon'ble Delhi High Court, findings of the CIT(A) are confirmed. Appeal of the revenue is dismissed." 18. Thus it is clear that the Tribunal has considered and decided this issue by following the judgment of Hon'ble Delhi High Court in the case of "Asahi India Safety Glass Ltd." (supra). Following the earlier order of this Tribunal in assessee's own case, we decide this issue in favour of the assessee and against the Revenue. 19. Ground No.4 is regarding the assessment of the amount received from sale of brand as business income as against long term capital gain offered by the assessee. During the year under consideration, the assessee has sold brand 'SPERT' to 'SOCIETE DES PRODUCTS NESTLE, S.A. vide sale of agreement dated 01.07.07 for a consideration of ₹ 1,17,50,000/-. The assessee offered the said amount as long term capital gain tax. The assessee submitted before the AO that this is sale of intangible asset pertaining to business which is four years old, therefore it was claimed as long term capital gain. Further, the cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the AO as well as DRP has treated this amount as income from business by placing reliance on the section 28(va) of the Act. He has pointed out that clause (va) of section 28 deals with the income received on account of not sharing any trade mark, license or any other business or commercial right of similar nature, therefore the receipts which are dealt with by this section are in lieu of some restrictive covenants in the agreement. The Ld. A.R. has submitted that clause (va) of section 28 is applicable only when the assessee shares a knowhow, patent, trade mark, license, franchise or any other business or commercial right of similar nature or information or technology likely to assist in the manufacture or processing of goods or provisions of service to another person and the other person pays an additional sum to the assessee to restrict him from sharing the same with someone else. In the case of the assessee it has received payments for selling the brand/trade mark and not for agreeing to allow the use of said brand or trade mark to someone else. Hence, the provisions of section 28(va) have been wrongly applied by the authorities below. He has also referred the circular No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the assignee that it is the sole beneficial owner or proprietor of the trade mark which means that other than assessee no other person has any right, interest lien or change on the said trade mark which is being transferred under the agreement. The AO has interpreted this clause that the assessee sold the trade mark which was owned by the assessee and has agreed not to share any such trade mark for any purpose as it is exclusively being granted to the assignee. Once the trade mark is transferred/assigned by the assessee the question of sharing the same with any other purpose or with any other person does not arise at all. Clause (va) of section 28 has been introduced by the Finance Act, 2002 w.e.f. 01.04.03 which reads as under: "(va) any sum, whether received or receivable, in cash or kind, under an agreement for- (a) not carrying out any activity in relation to any business; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services: Provided that sub-clause (a) shall not apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business, which are chargeable to tax under the head "Capital gains", would not be taxable as profits and gains of business or profession." 25. There is no ambiguity in the language of clause (va) of section 28 and further it has been clarified by the circular 8 of 2012 that this clause has been inserted for bringing the receipt in the nature of non compete fee and fee for exclusivity rights to tax as business income. In the case in hand, the amount in question has been received as consideration for transfer of trade mark/brand and not in lieu of restricting the assessee from selling the said trade mark for any other purpose and with some other person. Further, the proviso to clause (va) makes it clear that this clause shall not apply to any sum received or receivable on account of transfer of right to manufacture, produce or process any article or things or right to carry on any business which is chargeable under the head "Capital gain". Therefore, in our view, the AO as well as the DRP has committed an error by misinterpreting the provisions of section 28(va) as well as the clauses of the deed of assignment dated 01.07.07 whereby the assessee has transferred the trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opyrights and the associated goodwill of Healthcare Journals & Communications business is also taxable as long term capital gain by virtue of section 55(2)(a) read with clause (i) of the proviso to section 28(va). The AR has also relied on the provisions of section 45(1) read with sections 2(14), 2(11)(9b), 48 and section 55(2)(ii) of the Act. The combined reading of the above provisions and of section 28(va) leaves no ambiguity that law makers specifically excluded the income from the purview of main section 28(va)." 12. It would also be worthwhile to mention that the parties had entered into agreement dated 10-3-2006 which was captioned as "Specified Asset Transfer Agreement". This agreement defines "Business" to mean the business of publishing, distributing and selling the periodical and products as carried on by the seller (assessee). It also termed all these publications as "Business Intellectual Property Rights" which were treated as "Specified assets". As per clause (2) of the agreement, all these specified assets were transferred in the following manner :- "2. Transfer of specified assets 2.1 The Seller shall sell or proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Ld. Representatives of both the parties and have also gone through the records. The grievance of the assessee is regarding TDS credit amounting to ₹ 9,86,392/- not granted by the AO. This objection was raised by the assessee before the DRP seeking directions for grant of TDS credit of ₹ 13,44,25,277. The DRP has directed the AO to allow the TDS claim after due verification. Before us the assessee has further pleaded the TDS credit amounting to ₹ 9,86,392/- and submitted that the AO has not granted the TDS credit to the extent of this amount without giving any reason for the same. Since the authorities below have not discussed anything about the claim of the assessee, therefore we direct the AO to consider the claim of the assessee of granting TDS credit amounting to ₹ 9,86,392/-. 28. Ground No.6 is regarding non grant of MAT credit. In the assessment proceedings for the A.Y. 2007-08, the AO revised the working whereby MAT payable was ₹ 54,12,096/-. The assessee claimed MAT credit of ₹ 54,12,096/- against the tax payable for the year under consideration. The AO has not allowed the MAT credit because the assessee has disputed the MAT liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
