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TMI Blog2017 (4) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... ealing with an independent enterprise, no independent enterprise would not have given him an interest free loans even if there was an option, coupled with such a deal, to subscribe to the capital of the AE on the terms as offered by the AE to the assessee. Unless that happens, there is not even a prima facie case made out for an ALP adjustment. Whenever the assessee’s right to exercise the option of converting the loan into equity comes to an end, the assessee is entitled to interest on the commercial rates. It is not even the case of the authorities below that the interest so charged by the assessee, in a situation in which the right to exercise the option has come to an end, is not an arm’s length price. Keeping in mind all these factors, as also entirety of the case, we deem it fit and proper to delete the arm’s length price adjustment in respect of interest which, according to the revenue authorities, should have charged on the optionally convertible loan granted to the AEs. - Decided in favour of assessee Corporate guarantee charges - Held that:- We uphold the grievance of the assessee, and direct the Assessing Officer to delete the ALP adjustment taking note of the insertion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which a large number of payments have been disallowed under section 40(a)(ia). Much as learned counsel urges us to examine these payments individually, and decide the disallowance under section 40(a)(i) on merits, we donot think that will be appropriate on the facts of this case. DRP has not examined the matter on merits at all. The discussions by the Assessing Officer in respect of these payments have also been inadequate, superficial and without sufficient application of mind, and a reasonable case has not been made out for invoking the disallowance under section 40(a)(i) by meeting the arguments of the assessee and demonstrating that the income embedded in these payments is indeed taxable in India. It is equally true that the Assessing Officer cannot decide taxability of income embedded in these payments on the basis of sweeping generalizations either. Essentially, therefore, the DRP also must decide the matter on the same parameters and in the same manner. While doing so, the DRP may also call for, and take into account, specific case by case comments of the Assessing Officer on each of, or each set of- as may be appropriate, the payment. The DRP may also take into account dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is carried out, that is the end of the matter so far as taxation of income of the firm is concerned. It cannot once again be brought to tax in the hands of the partners. As a corollary to this undisputed position, when an income is found to be not taxable in the hands of the partnership firm, it cannot be brought to tax in the hands of the partners on the ground that it was not actually taxed in the hands of the partnership firm. If it is found to be not taxable in the hands of the partnership firm, it is not taxable at all, because so far as income of the partnership firm is concerned, that is the only point when such an income, if at all and to whatever extent, can be taxed. We have also noted that in the subsequent assessment year the Assessing Officer himself has not made such additions in the course of assessment proceedings, and the above interpretation, as such, stands accepted by the field authorities. Yet, ironically, when DRP grants this relief on the same point, the Assessing Officer is in appeal before us. This fact shows how frivolous is this appeal. In view of the above discussions, in our considered view, the DRP was quite justified in granting the impugned relief. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave any fixed base available to them in India, as is the condition precedent for taxing fees for independent personal services in India under the respective treaty provisions. As regards the clinical and analytical testing charges, the issue stands covered in favour of the assessee in assessee’s own case as also in the case of Reddy Laboratories(2013 (11) TMI 304 - ITAT HYDERABAD). Learned Departmental Representative has not pointed out any distinguishing features or disputed this position. Thus we approve the conclusions arrived at by the DRP and decline to interfere in the matter. As we do so we may also add that, for the sake of brevity, we are not adding reproductions from the orders relied upon by us and these orders will be deemed to be attached and forming part of this order. X X X X Extracts X X X X X X X X Extracts X X X X ..... e charged, and provided for in the books of accounts, interest in respect of these loans. It was in this backdrop that the TPO put the assessee to notice as to why ALP adjustment in respect of interest on these loans not be made. The assessee explained that the convertible loan is at the option of the assessee at any time till the date of maturity, that it has been used for acquisition of step down subsidiaries, that intrinsic value of the shares was much more than the conversion rate and that by not charging the interest, the assessee has kept its option of conversion intact which is beneficial to the company. None of these submissions, however, impressed the TPO. He was of the view that the mere fact that the loan has been converted into equity does not alter its character as loan as on the relevant point of time, and once that is so, the benchmarking of loan is to be done as per the prevailing market rate. It was also noted that while the Irish subsidiary, i.e. ZIPL, had received ₹ 9.69 crores in the relevant previous year as interest and dividend from the various entities to which the monies were given as capital or loan, which works out to exceptionally high operational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are in the nature of debt or equity, he applied these tests on the facts of this case and concluded that the character of the instrument is predominantly debt rather than equity. His analysis was as follows: 7.4.6 The treatment of such instruments by the Reserve Bank of India gives an insight into their characterisation. All optionally convertible instruments are treated as loan as per the directions issued by RBI in this regard. As per the RBI Master Circular on Foreign Investment in India, the various types of instruments are defined as below: "4. Type of instruments i) Indian companies can issue equity shares, fully and mandatorily convertible debentures and fully and mandatorily convertible preference shares subject to the pricing guidelines/valuation norms and reporting requirements amongst other requirements as prescribed under FEMA Regulations. ii) Issue of other types of preference shares such as, non- convertible, optionally convertible or partially convertible, have to be in accordance with the guidelines applicable for External Commercial Borrowings (ECBs). iii) As far as debentures are concerned, only those which are fully and mandatorily convertible int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that RBI has different yardsticks for the inbound and outbound investments/loans is not borne out of the guidelines issued by it. 7.4.8 While funds advanced by the parents to their subsidiaries have to be examined for the purpose of intent in each case separately, the actual stated nature of the instrument is one of the main criteria for establishing its nature. Prima facie, an optionally convertible loan can be recalled at any time by the holder and the borrowing company is liable to pay the amount. The rules related to such remittances are less stringent as these instruments are treated as debts and not equity. On the contrary, repatriation of equity holding requires much elaborate mechanism and approvals in the resident state of the subsidiary. 7.4.9 The issue of convertible loan being hybrid instruments, in the nature of debt or equity has been debated at judicial forums in US. Acknowledging the importance of characterization of such instruments, the US Supreme Court, in their order in the case of Pepsi Cola Bottling Company of Puerto Rico Inc. Docket Nos.13676-09, 13677-09 on 20/9/2012, has come out with certain tests in order to find out whether the issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the option of repayment, there is a definite obligation on ZIPL to repay the loan along with interest. Thus the nature of the instrument is in the nature of a Loan as per this test. The amount can be redeemed any time. In nature of Loan. 5 Participation in management as a result of the advances The right of the entity advancing funds to participate in the management of the receiving entity's business demonstrates that the advance may not have been bonafide debt and instead was intended as an equity investment. This test flows in favour of Equity since we hold 100% share holding in XIPL and can participate in their management, if we choose to. The loan does not enable any participation in the management of the company. Assessee happens to be parent so it is participating in management characterisation in nature of Loan. 6 Status of the advances in relation to regular corporate creditors Whether an advance is subordinate to obligations to other creditors bears on whether the taxpayer advancing the funds was acting as a creditor or an investor. We understand that taking a subordinate position to other creditors may suggest an equity investment. As stated earlier, ZIPL is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of the corporation to obtain credit from outside sources The touchstone of economic reality is whether an outside lender would have made the payments in the same form and on the same terms. We understand that if it is not possible to get the funding from an outsider lender on similar terms, the instrument would take the character of equity. ZIPL is an investment company. We maintain that it would not have been possible to get funding from outside lenders on the terms and conditions that prevailed between us and ZIPL. A lender would neither wait to receive interest after 5 years nor would he be interested in converting the loan to Equity and bear risks of an Entrepreneur. Hence this test also suggests that the instrument was Equity. Equity 11 Use to which advances were put Whe re a corporation uses an advance of funds to acquire capital assets, the advance is more likely to be characterised as equity. Since the loan has been given to fund acquisitions and/or for capital transactions, the same may be characterised as Equity. The purpose is for working capital requirements as well as acquisition. Acquisition is the business of ZIPL. So the amount utilised towards busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee is aggrieved and is in appeal before us. 9. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 10. There is no dispute that the transactions in question are not of the transactions of lending money to the associated enterprises. The amounts advanced to the AEs are attached with the obligation of the AEs to issue share capital, in case the assessee exercise option for the same, on certain conditions, which are admittedly more favourable, and at an agreed price, which is admittedly much lower, vis-à-vis the conditions and prices which independent enterprise would normally agree to accept. The lending is thus in the nature of quasi capital in the sense that substantive reward, or true consideration, for such a loan transaction is not interest simplictor on amount advanced but opportunity to own capital on certain favourable terms. Contrast this reward of owning the capital in the borrower entity with interest simplictor, which is typically defined as "the reward of parting with liquidity for a specified period" (Prof Keynes) or as "a payment made by the borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Micro Inks Ltd Vs ACIT [(2013) 157 TTJ 289 (Ahd)], Four Soft Pvt Ltd Vs DCIT [ (2014)149 ITD 732 (Hyd)], Prithvi Information Solutions Pvt Ltd Vs ACIT [(2014) 34 ITR (Tri) 429 (Hyd)] , which refer to the concept of 'quasi capital' but none of these decisions throws any light on what constitutes 'quasi capital' in the context of transfer pricing and its relevance in ascertainment of the arm's length price of a transaction. Lest we may also end up contributing to, as Hon'ble Delhi High Court put it, "rote repetition of this reasoning without an independent analysis of the provisions of the Act and the Rules", let us take briefly deal with the connotations of 'quasi capital', and its relevance, under the transfer pricing regulations. 7. The relevance of 'quasi capital', so far as ALP determination under the transfer pricing regulation is concerned, is from the point of view of comparability of a borrowing transaction between the associated enterprises. 8. It is only elementary that when it comes to comparing the borrowing transaction between the associated enterprises, under the Comparable Uncontrolled Price (i.e. CUP) method, what is to be compared is a materially similar transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f money in these cases was opportunity to subscribe to the capital, unlike in a normal loan transaction where reward is interest, which is measured as a percentage of the money loaned or advanced. 12. It is thus quite clear that the considerations for extending a loan simplictor are materially distinct and different from extending a loan which is given in consideration for, or mainly in consideration for, option to convert the same into capital on certain terms which are favourable vis-à-vis the terms available, or, to put it more realistically, hypothetically available, to an independent enterprise. On a conceptual note, the entire purpose of the exercise of determination of arm's length price is to neutralize the impact of intra AE relationship in a transaction, the right comparable for such a transaction of quasi capital is a similar transaction of lending money on the same terms i.e. with an option to convert the loan into capital on materially similar terms. However, what the authorities below have held, and wrongly held for that reason, is that a quasi capital transaction like one before us can be compared with a simple loan transaction where sole motivation and consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immaterial as to whether or not the assessee, by the virtue of this transaction, is entitled to subscribe to capital of the AE on certain concessional terms, because, in any case, the AE is a wholly owned subsidiary of the assessee and none else can subscribe to the AE's capital. What has been overlooked, however, in this process of reasoning is that the very concept of arm's length price is based on the assumption of hypothetical independence between AEs. Essentially, what is, therefore, required is visualization of a hypothetical situation in which AEs are independent of each other, and, as such, impact of intra AE association on pricing of transaction is neutralized. Once we do so, as is the compulsion of hypothesis involved in arm's length price, the fact that normally a parent company has a right to subscribe to the capital of the subsidiary at such price as suits the assessee is required to be ignored. An arm's length price is hypothetical price at which independent enterprises would have entered the transaction, and, as such, the impact of intra AE association cannot have any role to play in determination of arm's length price. The stand so taken by the TPO, which has met th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delete the arm's length price adjustment of ₹ 5,00,35,270 in respect of interest which, according to the revenue authorities, should have charged on the optionally convertible loan granted to the AEs. (ii) Corporate guarantee charges: ₹ 4,19,22,177 17. The next arm's length price adjustment, impugned in appeal before us, with respect to guarantee charges, which, according to the revenue authorities, the assessee ought to have charged in respect of the corporate guarantees issued by the assessee for the benefit of its AEs. 18. The relevant material facts in this regard are like this. The assessee had provided certain corporate guarantees to the bankers, in respect of borrowings by its associated enterprises. During the relevant previous year, the assessee issued corporate guarantees, inter alia, to BNP Paribas in respect of Zydus Healthcare Brazil Ltd (Guarantee amount: US $ 1 million; Period: 365 days) and Quimica E Pharmaceutica Brazil (Guarantee amount: US $ 2.60 million; Period: 365 days), to Standard Chartered Bank in respect of Simayala Pharmaceuticals Pty South Africa (Guarantee amount: US $ 1 million; Period: 237 days) and Citibank in respect of Zydus Pharma I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire Laboratorie Combix, Spain, enabling the assessee to enter Spanish market. It was also stated that even when we proceed on the basis that guarantee is covered by the definition of 'international transaction', it does not preclude determination of guarantee fees at nil value. In any event, interest differential between two categories of credit rating, even if that be so, cannot be attributed to the guarantee charges. The assessee further explained that the AEs have not been allowed clean loans as the borrowings were against stocks and debtors as also other collaterals, the guarantee fees of 1% is quite reasonable. None of these submissions impressed the TPO. He proceeded to reject all these submissions and proceed to adopt 3% as ALP for all the guarantees issued by the assessee. While doing so, he observed as follows: 6.5 The submission made by the assessee is considered. Following points are noted on the various issues raised by the assessee. i. The plea of rule of consistency raised by the assessee is not found acceptable. It is seen that the issue of guarantee has not been examined by the TPO in the earlier year. Further, a TP study is an evolving art and depends on the tool ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a share holder's investment. Similar view has been held by Hon'ble ITAT in the case of Perot Systems TSI vs. DCIT (ITAT Delhi). v) The submission made by the assessee relating to spread of the risk over various assets is not found acceptable as no supporting data has been provided by the assessee except merely stating that some shares of ZIPL and some inventory and some receivables have also been pledged. In absence of any such data supporting the averment, no decision can be taken on this issue. 6.6 For the purpose of benchmarking, the US bond data has been taken as a representative reflection of variation in spreads with change in the rating of the bonds because these bonds are highly liquid and are freely traded and hence they reflect the most reasonable spreads and most reliable valuation. Further, they are insulated from the Indian market influence. One way of benchmarking the service rendered by the assessee company would be to find out the difference in risk spread between highly rated and medium rated corporate bonds being traded in the US markets. Since the rating agencies generally capture the expected default frequency of corporations and give ratings, a highly rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Zydus Healthcare Brazil Ltd, Brazil BNP 1 365 45.94 1.36 2 Quimica E Pharmaceutica Brazil BNP 2.6 365 119.444 3.53 3 Simayala Pharmaceuticals (Pty), South Africa SCB 1 237 45.94 0.88 1.5 160 68.91 0.89 4 Zydus Pharma Inc US Citi 4 365 183.76 5.43 5 Zydus Netherlands BV (ZIPL) ICICI 30 240 1378.2 26.79 6 Zydus Inc. USA BOB 30 117 1378.2 13.06 Total Guarantee fee 51.94 On the basis of above computation, upward adjustment of ₹ 5,19,40,000/- is required to be made to the income of the assessee company on account of guarantee fee to be charged from the associate enterprises. The assessee has already charged guarantee fee of ₹ 1.001 million. Hence an upward adjustment of ₹ 5,09,40,000/- is required to be made to the income of the assessee. 19. The quantification of the adjustment so proposed was subsequently modified, vide rectification order dated 26th March 2013, to ₹ 4,19,22,177. Aggrieved by the adjustment so proposed, assessee did raise a grievance before the DRP but without complete success. While DRP did hold that the ALP of the guarantee fees should be taken @1%, the DRP did not agree that the guarantees giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises and 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 anyone or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. Explanation : - For the removal of doubts, it is hereby clarified that - (inserted by the Finance Act 2012, though with retrospective effect from 1st April 2002) (i) the expression "international transaction" shall include- (a) the purchase, sale, transfer, lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, licence agreements, franchise agreements, non-compete agreements; (h) human capital related intangible assets, such as, trained and organised workforce, employment agreements, union contracts; (i) location related intangible assets, such as, leasehold interest, mineral exploitation rights, easements, air rights, water rights; (j) goodwill related intangible assets, such as, institutional goodwill, professional practice goodwill, personal goodwill of professional, celebrity goodwill, general business going concern value; (k) methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, or technical data; (l) any other similar item that derives its value from its intellectual content rather than its physical attributes.' 22. As analyzed by a coordinate bench, in the case of Bharti Airtel Ltd. (supra) and speaking through one us, the legal position with respect to the above definition is as follows: '25. An analysis of this definition of 'international transaction' under Section 92B, as it stood at the relevant point of time, and its break-up in plain words, shows the following: An international transaction ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 'use' as also illustrative and inclusive descriptions of tangible and intangible assets. Similarly, clause (d) deals with the " 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" which are anyway covered by 2(b) and 3 above in "provision for services" and "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 anyone or more of such enterprises". That leaves us with two clauses in the Explanation to Section 92B which are not covered by any of the three categories discussed above or by other specific segments covered by Section 92B, namely borrowing or lending money. 29. The remaining two items in the Explanation to Section 92B are set out in clauses (c) and (e) thereto, dealing with (a) capital financing and (b) business restructuring or reorganization. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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". In view of the discussions above, the scope of these transactions, as could be covered under Explanation to Section 92B read with Section 92B(1), is restricted to such capital financing transactions, including inter alia any guarantee, deferred payment or receivable or any other debt during the course of business, as will have "a bearing on the profits, income, losses or assets or such enterprise". This precondition about impact on profits, income, losses or assets of such enterprises is a precondition embedded in Section 92B(1) and the only relaxation from this condition precedent is set out in clause (e) of the Explanation which provides that the bearing on profits, income, losses or assets could be immediate or on a future date. The contents of the Explanation fortifies, rather than mitigates, the significance of expression 'having a bearing on profits, income, losses or assets' appearing in Section 92B(1). 32. There can be number of situations in which an item may fall with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, income, losses or assets. Clearly, these conditions are not satisfied on the facts of this case.' 23. Learned Departmental Representative submits that this decision is no longer good law in the light of Everest Kanto Cylinders Ltd. decision (supra) and Vodafone India Services (P.) Ltd. decision (supra) by Hon'ble Bombay High Court. 24. As for Hon'ble High Court's judgment in the case of Everest Kanto Cylinders Ltd. (supra), it is necessary to appreciate the fact the assessee was charging a .5% commission on issuance of corporate guarantees, on behalf of the AEs, and it could not, therefore, be said that the transaction will have no impact on "profits, incomes, losses or assets of such enterprise". This aspect of the matter is clear from an observations in the related Tribunal order, which is reported as Everest Kanto Cylinders Ltd (supra), to the effect that "However, in this case, the assessee has itself charged 0.5% guarantee commission from its AE and, therefore, it is not a case of not charging any kind of commission from its AE". The Tribunal did note, in the immediately following sentence in paragraph 23 itself, that "the only po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and accordingly we are of the view that commission charged cannot be called in question, in the manner TPO has done. In our view the comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a Corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion we are of the view that the appeal does not raise any substantial question of law and it is dismissed." 25. We are unable to see, in the judgment of Hon'ble Bombay High Court, any support to the proposition that issuance of corporate guarantees is inherently within the ambit of definition of 'international transaction' under section 92B irrespective of whether or not such transactions have any "bearing on profits, incomes, losses, or assets of such enterprises". Revenue, therefore, does not derive any help from the said decision. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "any interest therein". Prior to the amendment, the words "any interest therein" were absent. Further, the nature of the disposal is also expanded. It now includes the creation of any interest in any asset. Moreover, the disposal of or creation of any interest in the asset may be direct or indirect, absolute or conditional, voluntary or involuntary. It may be by way of an agreement or otherwise. Further, the concluding words constitute a non-obstante provision. It provides that the transfer contemplated therein would be notwithstanding that it has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. It would be evident, therefore, that a lot more must now be seen and considered than before while arriving at a conclusion whether the terms and conditions of the Framework agreement constituted a transfer or assignment of the call options by one party to another. 217. At the cost of repetition, we are not concerned here with whether the amendment is valid or not. One of the issues, however, that does arise is whether the amendment, albeit clarificatory, wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Emphasis supplied) 27. Revenue's emphasis is on the last two sentences in paragraph No 213 which state that "The effect of the amendment would have to be considered. It cannot be brushed aside" but in doing so what it overlooks is the subsequent observations highlighted above which recognize the fact that merely because a subsequent Explanation is introduced by the legislature, it is not an open and shut case against the assessee or the revenue, and that all these observations are in the context that "there is no justification for withdrawing the proceedings from the channel provided by the Income-tax Act, bypassing the Tribunal and considering all these questions in exercise of the High Court's extraordinary jurisdiction under Article 226". When Their Lordships have made it clear that they would not like to bypass the channels under the Income-tax Act and proceed to decide these issues in writ jurisdiction under article 226, there cannot obviously be any question of Their Lordships deciding the matter one way or the other. Any observations made by Their Lordships, while declining to decide the matter in writ jurisdiction, cannot be treated as decisive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment." That precisely, however, has been the approach of the revenue authorities in placing reliance on Vodafone India Services (P.) Ltd. (supra) decision. We reject this approach. 28. For the reasons set out above, learned Departmental Representative's reliance on Hon'ble Bombay High Court's judgments in the cases of Everest Kanto (supra) and Vodafone India Services (supra) is wholly misplaced and devoid of any merits. As for coordinate bench decision in the case of Hindalco Industries (supra), all it does is to follow the Everest Kanto decision by Hon'ble Bombay High Court, but then, as we have seen earlier, that was a case in which Their Lordships were in seisin of a situation in which guarantee commission was actually charged by the assessee. That is not the case before us. The coordinate bench decisions dealing with the situations in which the guarantee commission was actually charged, and as such there was indeed a bearing on the profits of the assessee, clearly do not apply on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fic exemption to guarantee fees, was introduced. This amendment is as follows: (7.1) Sub-section (2) does not apply to adjust an amount of consideration paid, payable or accruing to a corporation resident in Canada (in this sub- section referred to as the "parent") in a taxation year of the parent for the provision of a guarantee to a person or partnership (in this sub-section referred to as the "lender") for the repayment, in whole or in part, of a particular amount owing to the lender by a non-resident person, if (a) the non- resident person is a controlled foreign affiliate of the parent for the purposes of section 17 throughout the period in the year during which the particular amount is owing; and (b) it is established that the particular amount would be an amount owing described in paragraph 17(8)(a) or (b) if it were owed to the parent. (http://www.fin.gc.ca/drleg-apl/ita-lrir-dec12-l-eng.pdf) 31. It is also important to bear in mind the fact that, under the Canadian law, the definition of 'international transaction', unlike an exhaustive definition under section 92B of the Indian Income-tax Act, 1961, is a very brief but inclusive and broad d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present context but suffice to say that relevant legal provisions and context being radically different, the reliance of this decision must be rejected for this short reason alone. 32. As we take note of the above legal position in Canada, it is appropriate to take note of the concept of 'shareholder activities' in the context of corporate guarantees which provides conceptual justification for exclusion of corporate guarantees, under certain conditions, from the scope of transfer pricing adjustments. Taking note of these proposed amendments, 'Transfer Pricing and Intra Group Financing - by Bakker & Levvy, IBFD publication (ISBN- 978-90-8722-153-9)' observes that "Proposed sub-section 247(7.1) of the ITA provides that the transfer pricing rules will not apply to guarantees provided by Canadian parent corporations in respect of certain financial commitments of their Canadian controlled foreign affiliates to support the active business operations of those affiliates". As to what could be conceptual support for such an exclusion, we find interesting references in a discussion paper issued by the Australian Tax Officer in June 2008 and titled as "Intra-gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices". In other words, these guarantees were specifically stated to be in the nature of shareholder activities. The assessee's claim of the guarantees being in the nature of quasi- capital, and thus being in the nature of a shareholder's activity, is not rejected either. The concept of issuance of corporate guarantees as a shareholder activity is not alien to the transfer pricing literature in general. On the contrary, it is recognized in international transfer pricing literature as also in the official documentation and legislation of several transfer pricing jurisdictions. The 'OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations' itself recognizes the distinction between a shareholder activity and a provision for services, when, contrasting the shareholder activity with broader term "stewardship activity" and thus highlighting narrow scope of shareholder activity, it states that "Stewardship activities covered a range of activities by a shareholder that may include provision for services to other group members, for example services that would be provided by a coordinating centre". It proceeded to add, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealing with "special consideration for intra-group services", the 'OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations' has noted that there are two fundamental issues with respect to the intra-group services- first, whether intra-group services have indeed been provided, and, second- if the answer to the first question is in positive, that charge to these services should be at an arm's length price. Dealing with the first question, which is relevant for the present purposes, these Guidelines (2010 version) state as follows: '7.6 Under the arm's length principle, the question whether an intra-group service has been rendered when an activity is performed for one or more group members by another group member should depend on whether the activity provides a respective group member with economic or commercial value to enhance its commercial position. This can be determined by considering whether an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it by an independent enterprise or would have performed the activity in-house for itself. If the activity is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of non-shareholder activities could include detailed planning services for particular operations, emergency management or technical advice (trouble shooting), or in some cases assistance in day-to-day management. 7.10 The following examples (which were described in the 1984 Report) will constitute shareholder activities, under the standard set forth in paragraph 7.6: (a) Costs of activities relating to the juridical structure of the parent company itself, such as meetings of shareholders of the parent, issuing of shares in the parent company and costs of the supervisory board; (b) Costs relating to reporting requirements of the parent company including the consolidation of reports; (c) Costs of raising funds for the acquisition of its participations. In contrast, if for example a parent company raises funds on behalf of another group member which uses them to acquire a new company, the parent company would generally be regarded as providing a service to the group member. The 1984 Report also mentioned "costs of managerial and control (monitoring) activities related to the management and protection of the investment as such in participations". Whether these activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a matter of fact, David S Miller, in a paper titled 'Federal Income Tax Consequences of Guarantees; A Comprehensive Framework for Analysis' published in the 'The American Lawyer Vol. 48, No. 1 (Fall 1994), pp. 103-165 (http://www.jstor.org/stable/20771688), has stated that a guarantee is not a service. The following observations, at pages 114, are important: The position that guarantees are services has been discredited by the courts with good reason38. Guarantee fees do not represent payments for services any more than payments with respect to other financial instruments constitute payment for services39. A guarantor does not arrange financing for the debtor, but merely executes a financial instrument in its favour. 38See. e.g., Centel Communications Co. v. Commissioner, 92 T.C. 612, 632 (1989), aff d, 920 F2d 1335 (7th Cir. 1990); Bank of Am. v. United States, 680 F.2d 142, 150 (Cl. Ct. 1982). The Service's current position on the characterization of guarantee fees as payment for services under section 482 is inconsistent with its treatment of guarantee fees under other provisions. See P.L.R. 9410008 (Dec. 13, 1993). 39But cf Federal Nat'l Mortgage Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing which is clearly discernable from the above discussions is that the tests recognized by these guidelines are interwoven twin tests of benefit and arm's length. Benefit test implies the recipient group member should get "economic or commercial value to enhance its commercial position". The benefit test is interlinked with the an arm's length test in the sense that it seeks an answer to the question whether under a similar situation an independent enterprise would have been willing to pay for the activity concerned, or would have performed the activity in- house for itself. So far as the benefit test is concerned, as we have noted earlier, it is alien to the definition of international transaction' under the Indian transfer pricing legislation. So far as arm's length test is concerned, it presupposes that such a transaction is possible in arm's length situation. However, in a situation in which the subsidiary does not have adequate financial standing of its own and is inadequately capitalized, none will guarantee financial obligations of such a subsidiary. 39. The issuance of financial guarantee in favour of an entity, which does not have adequate s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commitments and the bank is called upon to make the payments, the bank will seek a compensation for the action of issuing the bank guarantee, and for the risk it runs inherent in the process of making the payment first and realizing it from the underlying security and the client. Even when such guarantees are backed by one hundred per cent deposits, the bank charges a guarantee fees. In a situation in which there is no underlying assets which can be realized by the bank or there are no deposits with the bank which can be appropriated for payment of guarantee obligations, the banks will rarely, if at all, issue the guarantees. Of course, when a client is so well placed in his credit rating that banks can issue him clean and unsecured guarantees, he gets no further economic value by a corporate guarantee either. Let us now compare this kind of a guarantee with a corporate guarantee. The guarantees are issued without any security or underlying assets. When these guarantees are invoked, there is no occasion for the guarantor to seek recourse to any assets of the guaranteed entity for recovering payment of defaulted guarantees. The guarantees are not based on the credit assessment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial, indicating to the contrary, is brought on record in this case. Going by the OECD Guidance also, it is not really possible to hold that the corporate guarantees issued by the assessee were in the nature of 'provision for service' and not a shareholder activity which are mutually exclusive in nature. In the light of these discussions, we are of the considered view, and are fully supported by the OECD Guidance in this, that the issuance of corporate guarantees, in the nature of quasi-capital or shareholder activity- as is the uncontroverted position on the facts of this case, does not amount to a service in which respect of which arm's length adjustment can be done. 42. As observed by Hon'ble Delhi High Court in the case of CIT v. EKL Appliances Ltd. [2012] 345 ITR 241/209 Taxman 200/24 taxmann.com 199 (Delhi), a re- characterization of a transaction is indeed permissible, inter alia, in a situation "(i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich could be compounded by double taxation created where the other tax administration does not share the same views as to how the transaction should be structured. 1.37 However, there are two particular circumstances in which it may, exceptionally, be both appropriate and legitimate for a tax administration to consider disregarding the structure adopted by a taxpayer in entering into a controlled transaction. The first circumstance arises where the economic substance of a transaction differs from its form. In such a case the tax administration may disregard the parties' characterization of the transaction and re- characterise it in accordance with its substance. An example of this circumstance would be an investment in an associated enterprise in the form of interest-bearing debt when, at arm's length, having regard to the economic circumstances of the borrowing company, the investment would not be expected to be structured in this way. In this case it might be appropriate for a tax administration to characterize the investment in accordance with its economic substance with the result that the loan may be treated as a subscription of capital. The second circumstance aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the guidelines discourage re-structuring of legitimate business transactions. The reason for characterisation of such re-structuring as an arbitrary exercise, as given in the guidelines, is that it has the potential to create double taxation if the other tax administration does not share the same view as to how the transaction should be structured. 18. Two exceptions have been allowed to the aforesaid principle and they are (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner.' 43. It is thus clear that even if we accept the contention of the learned Departmental Representative that issuance of a corporate guarantee amounts to a 'provision for service', such a service needs to be re-characterized to bring it in tune with commercial reality as "arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices like market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, and scientific research, legal or accounting service or coordination services. As a matter of fact, even in the Explanation to Section 92B- which we will deal with a little later, guarantees have been grouped in item 'c' dealing with capital financing, rather than in item 'd' which specifically deals with 'provision for services'. When the legislature itself does not group 'guarantees' in the 'provision for services' and includes it in the 'capital financing', it is reasonable to proceed on the basis that issuance of guarantees is not to be treated as within the scope of normal connotations of expression 'provision for services'. Of course, the global best practices seem to be that guarantees are sometimes included in 'services' but that is because of the extended definition of 'international transaction' in most of the tax jurisdictions. Such a wide definition of services, which can be subject to arm's length price adjustment, apart, "Transfer Pricing and In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contesting parties to decide the issue as to whether the provision of guarantee was a service or not". That's not factually correct. We are unable to see any merits in learned Departmental Representative's contention, particularly as decision categorically noted that not only before the Tribunal, but this issue was also raised before the DRP- as evident from the text of DRP decision. We now take up the issue with respect to specific mention of the words in Explanation to Section 92B which states that "For the removal of doubts, it is hereby clarified that (i) the expression "international transaction" shall include…….. (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." There is no dispute that this Explanation states that it is merely clarificatory in nature inasmuch as it is 'for the removal of doubts', and, therefore, one has to proceed on the basis that it does not alter the basic character of definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transactions should be such as to have bearing 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 transaction'. It is also important to bear in mind that, as it appears on a plain reading of the provision, this exclusion clause is not for "contingent" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 9th September 2011, observed as follows: "We find that the TP legislation provides for computation of income from international transaction as per Section 92B of the Act. The corporate guarantee provided by the assessee company does not fall within the definition of international transaction. The TP legislation does not stipulate any guidelines in respect to guarantee transactions. In the absence of any charging provision, the lower authorities are not correct in bringing aforesaid transaction in the TP study. In our considered view, the corporate guarantee is very much incidental to the business of the assessee and hence, the same cannot be compared to a bank guarantee transaction of the Bank or financial institution." 47. However, within less than four months of this decision having been rendered, the Finance Act 2012 came up with an Explanation to Section 92B stating that "for the removal of doubts", as we have noted earlier in this decision, "clarified" that international transactions include, inter alia, capital financing by way of guarantee. This legislative clarification did indeed go well beyond what a coordinate bench of this Tribunal he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of corporate guarantees were in the nature of shareholder activities- as was the uncontroverted claim of the assessee, and, as such, could not be included in the 'provision for services' under the definition of 'international transaction' under section 92B of the Act. We have also held, taking note of the insertion of Explanation to Section 92B of the Act, that the issuance of corporate guarantees is covered by the residuary clause of the definition under section 92B of the Act but since such issuance of corporate guarantees, on the facts of the present case, did not have "bearing on profits, income, losses or assets", it did not constitute an international transaction, under section 92B, in respect of which an arm's length price adjustment can be made. In this view of the matter, and for both these independent reasons, we have to delete the impugned ALP adjustment. The question, which was raised in Bharti Airtel's case (supra) but left unanswered as the assessee had succeeded on merits, remains unanswered here as well. However, we may add that in the case of Krishnaswamy SPD v. Union of India [2006] 281 ITR 305/151 Taxman 286 (SC), wherein Their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n alone, is an area which had come up for consideration for the first time. In effect, therefore, there was no conflict on this issue of and the other issues, given decision on the said issue, were wholly academic. It cannot be open to refer the academic questions to the special bench. No doubt, some decisions of the coordinate benches which have reached the different conclusions. There is, however, no conflict in the reasoning. Four Soft Ltd. decision (supra) had decided the issue in favour of the assessee but that was with respect to the law prior to insertion to Explanation to Section 92B. As for the post-amendment law and the impact of amendment in the definition of 'international transaction', the matter was again decided in favour of the assessee by Bharti Airtel Ltd. decision (supra) on the peculiar facts of that case. The decisions like Everest Kento Cylinders Ltd. (supra) and Aditya Birla Minacs Worldwide (supra) were decisions in which the assessee had charged the fees and, for that reason, such cases are completely distinguishable as discussed above. In Prolific' Corp Ltd. case (supra), as indeed in any other case so far, it was not the case of the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry. Of course, no matter how good is the legislative framework, the importance of a very comprehensive analysis, in the transfer pricing study, of the nature of corporate guarantees issued by the assessees, can never be overemphasized. The sweeping generalizations, vague statements and evasive approach in the transfer pricing study reports, which are quite common in most of the transfer pricing reports, cannot do good to a reasonable cause. When judicial calls on the complex transfer pricing issues are to be taken, utmost clarity in the legislative framework and a comprehensive analysis of relevant facts, in the transfer pricing documentation, are basic inputs. Unfortunately, both of these things leave a lot to be desired. We can only hope, and we do hope, that things will change for better. 23. We are in considered agreement with the views so expressed by the coordinate bench. It is not really necessary to deal into finer details, beyond stating that the matter in the case of Micro Ink (supra) is already pending for adjudication before Hon'ble jurisdictional High Court, and it is, therefore, no longer the right forum to sit in judgment whether or not in view of the arguments of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LLC and Zydus Japan. Companies chosen as per the Assessee were those companies that provided marketing or related services. The Assessee has chosen companies carrying out the following services in respect of Zydus LLC: A) Advertising services B) Direct Mail advertising services C) Business services D) General Management services E) Management consulting services F) Public Relation Services 5.2.1 After carrying out qualitative and quantitative filtration, following companies were selected by the assessee as comparable independent companies in respect of Zydus LLC: a) COSSETTE COMMUNICATIONS GRP b) HARTE HANKS INC c) INTERPUBLIC GROUP OF COS. d) MDC PARTNERS INC e) VALASSIS COMMUNOCAT1ONS INC 5.2.2 The weighted average NCP of the aforesaid companies ranged from 2.80 to 18.40 per cent with an arithmetical mean of 10.20%. Thus, it was concluded that Zydus LLC has earned NCP of 10 per cent on the transactions and hence payment by assessee to Zydus LLC for availing registration and marketing services was stated to be at arm's length from Indian transfer pricing perspective. 5.3 Similarly, the assessee has chosen the following companies that provided the marketing and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would have resulted into profit of almost zero percent as these were purely administrative support services provided by one person to another and where all cost incurred on behalf of others has been paid to the last penny. In view of above, comparables selected are rejected as there is - a) No similar functions involved b) No similar risk involved c) No adjustment for above carried out as per rule 10B (e) (iii) as provided in Income tax rule 1962. 5.4.2 The work carried out by Zydus LLC and Zydus Japan are zero risk administrative operations i.e. non business operations which does not have any profit motive or element with it and these are similar to the "other similar services" as provided under US regulations for services cost method (SCM) and cannot be considered as core activities of Zydus LLC and Zydus Japan. There are a number of cases relating to pharmaceutical industries where this office has received transfer pricing reference and where similar issue is involved i.e. product registration services carried out by Associated Enterprise in the United States for their Indian parent company. None of these companies have charged any mark up and parent comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [(2009) 30 SOT 319 (Pune)] and a Third Member decision in the case of ACIT Vs Technimont ICB India Pvt Ltd [(2012) 138 ITD (TM) 23 (Mum)]. The approach adopted by the authorities below, therefore, cannot meet our judicial approval. If at all such an approach can be rationalized, it can be so rationalized by treating the decision for AY 2007-08 as a binding judicial precedent and follow it in entirety rather than in part. That, however, has not been done by the TPO. 29. Even if we assume, as is contended by the TPO, that comparables adopted by the assessee are not proper comparables in view of the FAR analysis, the solution lies in finding the right comparables, and not in discarding the method altogether and adopting another intra AE transaction as sole and valid comparable. Clearly, the TPO has not brought into consideration any valid comparables to dislodge the comparables adopted by the assessee, and the only comparable brought by him is of an intra AE transaction and, therefore, not a valid comparable. Unless the TPO conducts this exercise of finding valid and suitable comparables by meeting the shortcomings pointed out by him, it cannot be open to the TPO to disregard the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter regarding appropriate comparables has not been discussed in reasonable detail and as the discussions in the orders of the authorities below have been somewhat at superficial level, we deem it fit and proper to remit the matter to the stage of the DRP for fresh adjudication on this issue, in accordance with the law, in the light of our observations above after giving a reasonable opportunity of hearing to the assessee, and by way of a speaking order. We direct so. 30. So far impugned ALP adjustments are concerned, to sum up our conclusions, (i) the ALP adjustment of ₹ 5,00,35,270 in respect of interest on loans is deleted; (ii) the ALP adjustment of ₹ 4,19,22,177 in respect of corporate guarantee commission is deleted; and (iii) the ALP adjustment of ₹ 34,86,285 is remitted to the assessment stage for fresh adjudication. 31. Ground no. 1 is thus partly allowed. 32. In the second ground of appeal, the assessee has raised the following grievance: That the learned Assessing Officer erred in law and on facts in making an addition of ₹ 18,18,96,302/- u/s. 40(a)(i) on the ground that no TDS was made by the Appellant u/s. 195 of the I.T. Act. Witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and experience of the conducting person/firm or company with regard to administration of medicines to animals/human beings and keeping them under observation of Doctors/Scientists for reaction of medicines, and efficacy of said medicine in mitigating the disease/disorder for which it is intended to be used. It involves study of side effects/contra indications. All these observations are noted down systematically/chronologically and the effects of medicine are analyzed and submitted to the assessee company in the form of information consisting of observations, graphs, tables and suggestions by the said foreign research entity. Therefore payments for clinical trials are fees for technical services as these services not only involve services of technical person, but also these services are ancillary and subsidiary to the application or enjoyment of information for which the payments are made. Analytical studies for Bio Analysis: Bio Analysis studies involve highly technical Analytical study of distribution of medicine molecules the body of the animal/human being after administration of the same. This may involve study with time taken for distribution of medicine to the particulars o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd (b) 20 per cent of the gross amount of the royalties or fees for included services in all other cases; and (ii) during the subsequent years, 15 per cent of the gross amount of royalties or fees for included services; and (b) in the case of royalties referred to in sub-paragraph (b) of paragraph 3 and fees for included services as defined in this Article that are ancillary and subsidiary to the enjoyment of the property for which payment is received under paragraph 3(b) of this Article, 10 per cent of the gross amount of the royalties or fees for included services. 3. The term "royalties" as used in this Article means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill, know- how, or processes or consist of the development and transfer of a technical plan or technical design. SINGAPORE Article 12 4. The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know- how, or processes, which enables the person acquiring the services to apply the ethnology contained therein; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purpose of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person. 3.8 It may be seen from the clause 4 of the article, that definition of Fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants. 3.10 Assessee is correct in stating that such payment made to individuals and firm of individuals is not taxable in India. However verification of the list of payment reveals that there are some payments to companies of those countries. There is no dispute after reading of DTAA and the Income tax Act, that these payments of consultancy paid to companies are taxable in India. List of companies to whom consultancy and legal charges which are in the nature of Independent Personal Services are as under : Consultancy Fees Sl. No. Name of the Company Amount paid 1 Biopharma Technology Ltd. 1,39,058 2 Gorodissky & Partners Ltd 42,30,696 3 Pride City General Trading (L.L.C) 38,94,300 4 RIC Chemicals Plc 4,36,386 Consultancy for Patent application Sl. No. Name of the Company Amount paid 1 Anapharm INC 50,27,760 2 Computer Patents Annuities Ltd. 4,28,880 3 DM Kisch Inc. Patent, Trade mark and Copyright Attorneys 8,87,265 4 Danubia Patent & Law Office LLC 42,711 5 Iphorgan Limited 98,179 6 Nixon & Vanderhye P.C. 5,45,887 7 Nixon & Vanderhye P.C. Attorney a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not mentioned about any order by the ITO (International Taxation) - II, Ahmedabad who is the Competent Authority to decide whether foreign remittances were liable to be taxed in India and the Assessee was liable to deduct tax on such remittances. In view of these facts, the Assessing Officer is directed to obtain the order passed by the ITO (international Taxation)-II, Ahmedabad, on taxability and liability to deduct tax on foreign remittances on all the transactions under consideration and will disallow the expenditure for foreign remittances only to the extent of the foreign remittances liable to taxed in India on which the Assessee was liable to deduct tax u/s 195 of the I T Act. For the remaining expenditure disallowed u/s. 40(a)(i), the AO is directed to delete and objection to that extent will be treated as sustained. 35. Based on the stand taken by the Income Tax Officer (International Taxation- II), the Assessing Officer proceeded with the above disallowance of ₹ 18,18,96,302. The assessee is aggrieved and is in appeal before us. 36. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions have been held to be inappropriate, nothing really turns on this grievance. 39. We may place on record the fact that the assessee has made elaborate arguments, on merits, in respect of these payments. The total payments made by the assessee were as many as 1,193 payments, out of which a large number of payments have been disallowed under section 40(a)(ia). Much as learned counsel urges us to examine these payments individually, and decide the disallowance under section 40(a)(i) on merits, we donot think that will be appropriate on the facts of this case. As we have noted earlier in this order, the DRP has not examined the matter on merits at all. The discussions by the Assessing Officer in respect of these payments have also been inadequate, superficial and without sufficient application of mind, and a reasonable case has not been made out for invoking the disallowance under section 40(a)(i) by meeting the arguments of the assessee and demonstrating that the income embedded in these payments is indeed taxable in India. As learned counsel for the assessee rightly contends, and as held by a coordinate bench in the case of Anchor Health and Beauty Care (supra), unless Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer raised the disallowance on the basis of his computations, and proposed a further disallowance of ₹ 12,17,51,000. Aggrieved, assessee raised a grievance before the DRP but without any success. The Assessing Officer thus made a further disallowance of ₹ 12,17,51,000 which is impugned in appeal before us. 44. We have heard the rival submissions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 45. Learned counsel's short submission is that the impugned disallowance is incorrect for two reasons- first, that the computation of average investments takes into account investments abroad which do not yield tax exempt income; and - second, that the total interest paid is taken at ₹ 66.40 crores whereas the actual interest paid is only ₹ 64.37 crores. It is also pointed out that rectification petition under section 154 is pending in respect of these adjustments, and that he will be content by our direction to the Assessing Officer to look into these two issues. We see merits in the plea. It is beyond controversy that dividends from companies abroad do not enjoy the tax exempt status, and, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst three grounds of appeal, which we will take up together, the Assessing Officer has raised the following grievance: 1. Whether the DRP has erred in holding that the assessee is eligible for deduction u/s 80IC on the entire profit of 84.65% which includes the profit of 76.74% which the company was already earning from marketing the same products. The actual increase in profit was only 7.91% after manufacturing the same products at Baddi unit. 2. Whether the DRP has substantially erred in holding that the AO should not determine the fair market value of goods when there is no intercorporate transfer, despite the provisions of sect/on 80IA(8) which applies to intra-corporate transfer of goods from eligible business unit to non-eligible business unit of the assessee. In the case of the assessee only Baddi unit is eligible unit. 3. Whether the DRP has substantially erred by not approving the AO's action for determination of market value of goods on internal transfer from eligible unit to non-eligible unit as per the provisions of section 80IA(8). 54. So far as these grievances of the Assessing Officer are concerned, learned representatives fairly agree that the issue is cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75,02,966 is exempt under section10(2A) of the Act as 96% share in partnership firm by the name of Zydus Healthcare Sikkim. When the Assessing Officer probed the matter further, he noticed that the total income of the said partnership firm, as per statement of income, was only ₹ 4,97,200. When this, what was termed by the Assessing Officer as 'discrepancy' was brought to the notice of the assessee, it was explained by the assessee that statement of income of the partnership firm shows the taxable income component of its income, whereas what has been claimed as exempt in the hands of the assessee is entire share of profit, authorised by the partnership deed, received by the assessee. In other words, even when the assessee receives a partnership firm's share of income, which is exempt from tax in the hands of the partnership firm, it will be exempt in the hands of the assessee under section 10(2A) anyway. This interpretation was not accepted by the Assessing Officer. He was of the view that exemption under section 10(2A), in respect of assessee's share of income in partnership firm, is confined to the amount which is included in total income of the firm, and thus is taxable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at is to be treated as exempt from tax under section is partner's share in "total income" of the firm. The expression "total income" is a defined expression under section 2(45) and it refers to "the total amount of income referred to in section 5, computed in the manner laid down in this Act". It is this approach which underlies the argument, as indeed adopted by the Assessing Officer, that an income which is not includible in total income cannot ordinarily be a part of total income of the firm. 65. However, the above approach, as DRP has rightly concluded, would be erroneous. We must bear in mind the fundamental legal position that, definition of the expression 'total income' under section 2(45), as indeed all definitions under section 2, are subject to the rider that these definitions are in consonance with the context in which the meanings are to be found out, as obvious from the words "unless the context otherwise requires". The context in which we have to find meaning to the expression 'total income' in the scheme of Section 10(2A) is the scheme of taxation of partnership firms. In the method of taxation of firms that we now follow in India, while the partnership firm is trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered firm, the firm paid tax on its total income according to the rates prescribed in the Schedule for registered firms. An unregistered firm was taxed at the rates applicable to individuals, with the share income included in the hands of the partners for rate purposes only. There has been a consistent demand for removal of the double taxation. A new scheme of assessment of firms has been introduced from assessment year 1993-94. The scheme is modelled after the scheme introduced by the Direct Taxes Laws (Amendment) Act, 1987, with suitable modifications to take care of the difficulties pointed out in the context of the 1987 scheme. The scheme contained in Direct Taxes Laws (Amendment) Act, 1987 sought to tax firms at the maximum marginal rate after allowing interest and remuneration to partners. Further there was a rigorous definition of "whole-time working partners" to whom alone remuneration was payable. The deduction for remuneration and interest allowable to partners and allowing remuneration to any partner or partners at the discretion of the firm, have been suitably restructured. 48.1 A firm will now onwards be taxed as a separate entity (Sections 184 & 185). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r profession." 48.4 The payment of remuneration only to working partner is allowable [defined in Explanation 4 to section 40(b)]. Only individuals are capable of being working partners. 48.5 The payments should be duly authorised by and in accordance with the terms of the partnership deed. These payments will be allowed as deduction only for a period beginning with the date of the partnership deed and not for any earlier period. Thus, if a partner is allowed a higher remuneration by varying the terms of the deed on a particular date, such higher remuneration cannot be allowed to him for any period prior to the said date. However, as the financial year 1992-93 had already commenced, by the time the Bill received the Presidential assent, it would not have been possible for assessees to change the partnership deed with effect from 1st April, 1992. Therefore, the Finance Act has provided that for the previous year, 1992-93 interest or remuneration would be allowed if the partnership deed provides for such payment anytime during the accounting period. Thus, for the previous year 1992-93, relevant to assessment year 1993-94, the terms of the partnership deed may be amended to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be used sparingly." Assessing Officers who invoke the provisions of section 40A(2), in any case, must keep in mind the assurance given by the Finance Minister to the Parliament. 48.8 Interest paid to a partner would be allowed as a deduction in the hands of the firm. The payment of interest should be in pursuance of the partnership deed. The maximum rate of interest allowed would be 18% simple interest per annum [section 40(b)(iv)]. 48.9 Changes have been made in the scheme of set-off and carry forward of losses. The existing provisions relating to firms and their partners in sections 76 and 77 have been omitted. Under the new scheme, the firms are treated as a separate entity and the losses suffered by them would be allowed to be carried forward in their hands only. There would be cases where brought forward losses apportioned to a partner have not been set-off in the hands of the partner prior to assessment year 1992-93. A provision has been made for dealing with brought forward losses pertaining to assessment years prior to assessment year 1993-94. In such cases the carried forward losses of a partner will be allowed as a set-off in the assessment income of the firm su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , ironically, when DRP grants this relief on the same point, the Assessing Officer is in appeal before us. This fact shows how frivolous is this appeal. In view of the above discussions, in our considered view, the DRP was quite justified in granting the impugned relief. We approve the same and decline to interfere in the matter. 68. Ground no. 5 is thus dismissed. 69. In ground no. 6, the Assessing Officer has raised the following grievance: Whether the DRP has erred in considering Product Registration expenses of ₹ 7.22 Crores as revenue expenditure when the same entitles the assessee to export the registered drugs to various countries for many years. 70. Learned representatives fairly agree that this issue is settled in favour of the assessee by decisions of the coordinate benches in assessee's own case, and Hon'ble High Court has declined to admit appeal against such decision, as in the esteemed views of Their Lordships, no question of law arises from these decisions. The relief granted to the assessee on this point in past has thus achieved finality. In this view of the matter, we approve the relief granted by the DRP on this point and decline to interfere in the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny but by the director, even though the payment for acquisition of this car was made by the assessee company and the car is used by the company. The beneficial ownership thus rests with the assessee company. The depreciation was proposed to be declined by the Assessing Officer mainly on the ground that the assessee did not own the vehicle in question. However, the assessee succeeded in the DRP in his objection to this proposal. We have noted that the DRP has given a categorical finding to the effect that the car was used for the purpose of business and the Assessing Officer has himself allowed the running and maintenance expenses of this car. It has also been noted that the registration of car in the name of driver was a matter of convenience as it gave advantage to the assessee in terms of road tax. On these facts, as held by the DRP, the mere fact that the car was not legally owned by the assessee company- particularly when beneficial ownership of this vehicle is not even in dispute, the depreciation on car cannot be declined. Aggrieved, assessee is in appeal before us. 80. Having heard the rival contentions and having perused the material on record, we are not inclined to distu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of foreign exchange loss arising on the balance sheet date is an item of expenditure under section 37(1) of the Act, and this view is upheld by Hon'ble Supreme Court in the case of CIT Vs Woodward Governor India Pvt Ltd [(2009) 312 ITR 254 (SC)]. Considering the same, addition proposed in the draft assessment order is deleted and objection of the petitioner is upheld". The Assessing Officer is aggrieved and is in appeal before us. 84. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 85. We have noted that there is no dispute about the fact that the loss on foreign exchange conversion is allowed as a deduction, and the dispute is confined to the fact whether entire amount is to be allowed as deduction or only so much of the loss as pertains to the payments actually made during the relevant year. Once the deduction has been allowed by the Assessing Officer himself, though in respect of loss in respect of payments made during the year, clearly there is no dispute about its being on revenue account. The question then remains whether the deduction should be of the entire los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he point of payment, then there would be no question of money having gone irretrievably and consequently, the requirement of "expenditure" is not met. Consequently, the additional liability arising on account of fluctuation in the rate of foreign exchange was merely a contingent/notional liability which does not crystallize till payment. In that case, the Supreme Court was considering the meaning of the expression "expenditure incurred" while dealing with the question as to whether there was a distinction between the actual liability in praesenti and a liability de futuro. The word "expenditure" is not defined in the 1961 Act. The word "expenditure" is, therefore, required to be understood in the context in which it is used. Sec. 37 enjoins that any expenditure not being expenditure of the nature described in ss. 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head "Profits and gains of business". In ss. 30 to 36, the expressions "expenses incurred" as well as "allowances and depreciation" has also been used. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal, the assessee has raised the following grievance: That the learned Assessing Officer erred in law and on facts in making an addition of ₹ 6,55,25,762/- as upward adjustment on international transactions involving the provisions of Transfer Pricing. 95. In connected grievances, which we will take up together with the above grievance of the assessee, the Assessing Officer has raised the following grievance by way of its first and second grounds of appeal: 1. The DRP has erred in law and on facts in restricting the guarantee fee @ 1% without any basis as against 2.98% determined by the TPO on a scientific basis, 2. The DRP has substantially erred in law and on facts in directing the TPO to restrict benchmarking to new loans/advance taken during the year and not subject to old loans/advances to transfer pricing study. 96. So far as these grounds of appeal are concerned, only a few material facts need to be taken of at this stage. When a reference was made to the TPO for determination of arm's length price in respect of international transactions entered into by him, he proposed the following arm's length price adjustments: (i) Product Registration consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 99. We find that so far as corporate guarantee commission and interest on optionally convertible loans are concerned, these issues are covered by our decision earlier in this order for the assessment year 2009-10. We see no reasons to take any other view of the matter than the view so taken by us, and for the elaborate reasons set out earlier in this order, in assessee's own case. Respectfully following these views, we direct the Assessing Officer to delete these ALP adjustments. To that extent, grievance of the assessee is upheld and the grievance of the Assessing Officer is dismissed. As regards interest on loans to Zydus France, we find that the same loan, on the same terms, has been held to be at an arm's length in the earlier assessment years. As regards the action of the TPO in comparing this loan with not so safe loans to companies other than the companies rates AAA, AA or A, we find that, quite to the contrary, the judicial consensus should be in making comparison with relatively safer loans. While on this issue, we may use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustomer than a bank, which spreads its risk among its various customers. Thus, the difference between banker and non-banker is to be kept in mind while arriving at the arm's length CUP rate based on bank rates. 7.11 Adjustment for security Usually, bankers extending loans in foreign currency also insist on sufficient security. In this case, no security is offered by the AE. Keeping in view the financial health of the subsidiary, it may not be in a position to offer security. Thus an adjustment is required to be made for not offering a security. This may be computed as the difference between the interest rates prevailing for the bonds of equivalent credit rating of the AE and sovereign government bonds in the country in which the AE is located. This can also be considered as the guarantee cost payable to the taxpayer for giving guarantee for equivalent amount of loan given to the AE i.e. the rate differential for the difference in interest spread between the credit rating of the taxpayer and the AE. Thus after the above analysis, 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 sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company without much to the credit of its financial credentials and the loan was treated as a high risk loan resulting in adopting the maximum LIBOR rate on which dollar loans were advanced. Yet, Hon'ble High Court specifically approved the Tribunals reasoning that the "assessee advanced monies to the subsidiaries which were under its management and control, which in fact substantially reduced the risk and in these circumstances there was no rationale of adjusting any amount of higher basis". When such are the views of Their Lordships, it is futile to suggest that the loans advanced by the parents to subsidiary can indeed be taken as BB to D grade investments which refers to, as noted by the TPO himself at page 28 of the order, investments with serious risks of inadequate safety, investments of high risk, investments of substantial risk and investments of default 100. In view of the above discussions, as also bearing in mind entirety of the case, we approve the reasoning adopted by the DRP as also the conclusions arrived at by the DRP. The relief granted by the DRP regarding deletion of ALP adjustments in respect of loan to Zydus France is thus also confirmed. 101. In the result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 4, the assessee has raised the following grievance: That the learned Assessing Officer erred in law and on facts in not acknowledging in the Assessment Order, the availability of the amount of Carried Forward MAT Credit u/s 115JAA of ₹ 27,19,89,591/-, to which the Appellant is lawfully entitled to in view of it being covered under the provisions of MAT u/s 115JB. 109. So far as this grievance of the assessee is concerned, short grievance of the assessee is that the Assessing Officer has not specifically mentioned that the assessee is entitled to carry forward the MAT credit of ₹ 20,08,52,398. However, we are unable to see much merits in this plea because, as is the settled legal position in the view of Hon'ble Supreme Court's judgment in the case of CIT Vs Manmohan Das [(1966) 59 ITR 699 (SC)], in the year of carry forward only quantification of a set off claim is to be seen. The question as to its entitlement for being set off is to be examined in the year in which set off is claimed. Grievance of the assessee is premature and is dismissed as such. 110. Ground no. 4 is thus dismissed. No other grievances of the assessee, as learned representatives fairly agree, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned expenditure incurred in foreign currency and reasons for non-deductions of tax on other items on which the assessee did not make TDS, the same is asunder:- Particulars Expenditure Amount Amount on which tax deducted TDS Amount on which not deducted Reason for Non-deduction (Rs. ) (Rs. ) (Rs. ) (Rs. ) Commission on Exports 69,488,308 69,488,308 Remittance of Commission to Overseas Selling Agents is not liable to TDS u/s. 195 in view of the following: - CBDT Circular No.23 dated 23/07/1969 read with Circular No.786 dated 07/02/2000 - Decision of the Supreme Court in Toshoku Ltd. 125 ITR 525 (SC) - It is further pertinent to point out that the aforesaid CBDT Circulars were withdrawn only from 22/10/2009 by CBDT Circular No.7/2009 of even date. Trade-mark 127,406,250 127,406,250 Remittances are towards outright Purchase of Trade- mark. Accordingly, no liability for TDS u/s 195 arises. Moreover, it has also been capitalised in the books of accounts. So, Disallowance u/s.40(a)(i) is not applicable. Technical know how 13,482,000 13,482,000 1,348,200 Not Applicable since Tax Deducted Royalty 18,561,602 18,561,602 2,390,102 - Not Applicable since Tax Ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red goods are exported outside India. As such, it cannot be said that all the business operation are not carried in India. As such, the submission of the assessee in this respect is rejected. The Circular No.23 of 1969 and 786 of 2000 quoted by the assessee are not applicable to the facts of the assessee's case. Circular No.786 of 2000 quoted by the assessee it is stated that the relevant section namely section 5(2) and section 9 of the I.T. Act not having undergone any change in this regard, the clarification in Circular No.23 still prevails. Clause (a) of Explanation 1 to 9(1)(i) of the Act is modified w.e.f. 01/04/2004. Accordingly, the decision quoted by the in the case of CIT Vs. Toshoku Ltd. reported in 125 ITR 525 is also distinguishable to the facts of the assessee's case. Accordingly, the claim of commission expense of ₹ 6,94,88,308/- is disallowed. (ii) Legal & Professional fees The assessee has made payment of ₹ 3,70,04,592/- being legal & professional fees paid to non-residents out of which the assessee has deducted tax on amount of ₹ 1,92,80,817/-leaving an amount of ₹ 1,77,23,775/- on which no TDS has been made. The submission of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to have complied the provisions of Section 195 of the Act while making the payment of legal & profession fees to non-resident. The assessee, thus, having failed to comply with the provisions of section 195 of the Act, the provisions of Section 40(a)(i) are applicable to such payments. Accordingly, the expenditure of ₹ 1,77,23,775/- is not allowable to the assessee, as such, the said expenditure is disallowed. (iii) Clinical Trial & Analytical & Testing Charges of ₹ 4,68,04,814/-. (a) Clinical Trial Company made payments to above non residents towards. clinical trials of certain pharmaceutical molecules. Clinical Trials involves scientific knowledge and experience of the conducting person/firm or company with regard to administration of medicines to animals/human beings and keeping them under observation of Doctors/Scientists for reaction of medicines, and efficacy of said medicine in mitigating the disease/disorder for which it is intended to be used. It involves study of side effects/contra indications. All these observations are noted down systematically/chronologically and the effects of medicine are analyzed and submitted to the assessee company in the form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner of the royalties or fees for included services is a resident of the other Contracting State, the tax so charged shall not exceed : (a) in the case of royalties referred to in sub-paragraph (a) of paragraph 3 and fees for included services as defined in this Article [other than services described in sub-paragraph (b) of this paragraph]: (i) during the first five taxable years for which this Convention has effect, (a) 15 per cent of the gross amount of the royalties or fees for included services as defined in this Article, where the payer of the royalties or fees is the Government of that Contracting State, a political sub- division or a public sector company; and (b) 20 per cent of the gross amount of the royalties or fees for included services in all other cases; and (ii) during the subsequent years, 15 per cent of the gross amount of royalties or fees for included services; and (b) - in the case of royalties referred to in sub-paragraph (b) of paragraph 3 and fees for included services as defined in this Article that are ancillary and subsidiary to the enjoyment of the property for which payment is received under paragraph 3(b) of this Article, 10 per cent of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical knowledge, experience, skill know- how or processes, or consist of the development and transfer of a technical plan or technical design. CANADA Article 12 4. For the purposes of this Article, 'fees for Included services' means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know- how, or processes or consist of the development and transfer of a technical plan or technical design. It may be seen from the clause 4 of the article, that definition of Fees for included services mean payment for rendering any technical consultancy service if such service are ancillary to the application of information. Therefore the payments for Clinical Trials and Bio Analysis studies clearly falls in Fees for included services and the assessee was liable to deduct tax from such payments. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, by a coordinate bench decision dated 3rd January 2017 in the case of DCIT Vs Welspun Corporation Ltd and vice versa. Respectfully following the said decision, we confirm findings of the CIT(A) on that point. As regards the payments to professional law firms and consultancy fees, there is no dispute that these professionals did not have any fixed base available to them in India, as is the condition precedent for taxing fees for independent personal services in India under the respective treaty provisions. As regards the clinical and analytical testing charges, the issue stands covered in favour of the assessee in assessee's own case as also in the case of Reddy Laboratories (supra). Learned Departmental Representative has not pointed out any distinguishing features or disputed this position. In view of these discussions, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the DRP and decline to interfere in the matter. As we do so we may also add that, for the sake of brevity, we are not adding reproductions from the orders relied upon by us and these orders will be deemed to be attached and forming part of this order. 120. Ground no. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the esteemed views of Their Lordships, no question of law arises from these decisions. The relief granted to the assessee on this point in past has thus achieved finality. In this view of the matter, we approve the relief granted by the DRP on this point and decline to interfere in the matter. 129. Ground no. 6 is thus dismissed. 130. In ground no. 7, the Assessing Officer has raised the following grievance: The DRP has erred in allowing depreciation of ₹ 12,65,293/- on Hummer Car despite the fact that the same was in the name of the Director and there was no evidence to show that the same was used wholly and exclusively for the purpose of business. The provisions of section 32 were therefore not satisfied. 131. As far as this grievance of the Assessing Officer is concerned, there is no dispute that the car was not legally owned by the assessee company but by the director, even though the payment for acquisition of this car was made by the assessee company and the car is used by the company. The beneficial ownership thus rests with the assessee company. The depreciation was proposed to be declined by the Assessing Officer mainly on the ground that the assessee did not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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