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TMI Blog2018 (5) TMI 937X X X X Extracts X X X X X X X X Extracts X X X X ..... o Ground no 4 alone be decided. There are two transaction which need to be adjudicated. First we will the assessee's transaction with Akzo Nobel Paints Asia Pacific Pte Ltd. (hereinafter referred to as 'ANPAP') . At the outset, both sides agree that this issue is a recurring issue and the Tribunal in earlier year has decided the issue in favour of assessee. So, the facts involved being identical and similar to that of AY 2009-10 (previous year) as noted by Tribunal is that Akzo Nobel group, of which the Assessee is a part, operates through subsidiaries in various countries. Akzo Nobel N. V. is the ultimate holding company. Akzo Nobel Paints Asia Pacific Pte Ltd. (hereinafter referred to as 'ANPAP') is another company belonging to the Akzo Nobel group. ANPAP provides to Akzo Nobel group companies in various countries support services in the field of human resources, marketing -support, information technology and similar other areas. Under an Agreement dated 8. 12. 2006 which is titled as "Service Level Agreement" (hereinafter referred to as SLA) between the Assessee and ANPAP, ANPAP agreed to render services set out in Schedule to the SLA to the Assessee. The service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asia Pacific) Pvt. Ltd. From the foregoing discussion, it is evident that the benefit out of intra group services has accrued to the assessee in India as well as to the group parent also. However, the proportion of benefits accruing to each party remains indeterminate. In view of this, we are of the opinion that no interference is called for in the determination made by the TPO. Therefore, following the decisi9on as above of the DRP on the same facts on this issue in the current year also, it is held that these objections of the Assessee are not acceptable and they are rejected. " Aggrieved by the aforesaid order of DRP and consequent to it the AO's fair order the assessee is before us. 4. At the outset itself, it has been brought to our notice that the Tribunal has decided the issue in assessee's favour and answered the issue in assessee's own case for AY 2009-10 at para 15 to 32 of paper book and drew our attention to it. According to him, the facts are the similar and there is no change in facts as well as in law, therefore the order of the authorities below need to be corrected and the assessee's ground of appeal needs to be allowed. The Ld. CIT, DR supported the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit of the individual companies of the Akzo group. The group companies would have access to the resources and would pay appropriate consideration which would be commensurate with the amount paid to third party service providers. These support services relate to certain functional categories which have set out in the earlier part of this order and hence, we do no wish to repeat the same. As we have already observed in the earlier part of this order, the practice of multinational enterprises providing intra group services is a global practice wherein, various activities are frequently concentrated for the benefit of the entire group. Since, the multinational group operates globally, such concentration is essential to be able to react in the most flexible and cost effective manner. According to the assessee the benefits derived from availing the above services outweigh the cost incurred in receiving such services. It is also the claim of the Assessee that with the help of such centralized services it achieved substantial cost efficiencies and hence it would be incorrect to categorise such services to be in the nature of stewardship services. It is the claim of the Assessee tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of only those activities whose sole effect is to protect the parent company's capital investment in the related corporation and/or to facilitate compliance with legal requirements applicable specifically to the parent company. The TPO has highlighted the following as stewardship activity based on the decisions of US Courts: Description Nature of service Requirements and procedures to maintain confidentiality on account of world-wide operations Stewardship activity Requiring the subsidiary/related entity to act according to the quality control specifications -Do- Briefing of the staff of the subsidiary/related entity to ensure that the output meets the requirements of the parent company/group -Do- Overall monitoring of the operations of the subsidiary/related entity (other than day-to- day management) -Do- The TPO based on the decisions of the US Courts, has also culled out list of supervisory or stewardship activities, for which the recipients should not have been charged even when they benefitted from the services. Reference Service Details Remarks Para 83 Seeing to it that the subsidiary (service recipient)develops mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO that had the assessee not received such support from ANPAP, it would need to perform the functions inhouse, or hire experienced and trained service providers. Such services are thus not in the nature of simply oversight functions, which have been performed by ANP AP to protect its investment in the company. With regard to the services received from ANPAP, the company has submitted detailed evidences to the Ld. TPO in the form of emails, communications and reports which evidence the rendering of services and the ensuing benefits. These have been given in Annexure-"A" to this order. Nature of service i. e. Information Technology, Human Resource, Operations, Purchasing, Marketing Support, Finance and Planning has been evidenced by way of such communication/documents. It was neither disputed by the TPO that apart from services which are received in the form of emails, reports, documents etc. from ANPAP, the assessee also received constant and continuous information over calls, audio-video conferences, personal visits etc. Therefore, the benefits received in the above form ought to have been given due consideration. Hence, for the purpose of demonstration and explanation, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by ANP AP to the Assessee and that the Assessee benefitted from such services. Once this 'conclusion is arrived at then the case of the TPO that the nature of services were shareholder activity or stewardship activity cannot be sustained. Having held so, the DRP contradicted its own finding by holding that majority of the services helped the parent company in supervising and controlling subsidiary company and therefore the services were in the nature of "Stewardship Services". The DRP has not spelt out as to what were the services that benefited the Assessee and what were the services that benefitted the parent company. The DRP also concluded that some benefit would have accrued to the Assessee as a result of such services but such services cannot be determined with certainty and therefore the conclusion of the TPO should be upheld. Without pointed out how services -rendered cannot be segregated as benefiting the parent company and that benefiting the group companies, the DRP could not have come to such a conclusion. 32. We therefore conclude that the assessee has established the nature of services including quantum of services received from ANP AP, that services w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not. On this issue the TPO has not addressed this issue on the ground that assessee has not furnished the agreement with ANCR whereas the grievance of the assessee is that it was in fact produced before TPO vide submission before TPO dated 21. 01. 2014. On this issue the Ld. DRP has held as under: "3. 2 Although this issue has not been addressed by the TPO on the grounds that the Assessee had not furnished the agreement with ANCR, however It is seen from the Services provided that the same were in the nature of Services for strategies and operations and helps in achieving corporate objectives by aligning workforce and organizational objectives in the field of marketing HR, Finance, Management Services, Purchases etc. Thus, the Services provided by ANCR benefit the AE as well as the Assessee in India. To the extent the services have helped the parent to exercise supervision and control over the group entities, it amounts to Stewardship services. The remaining Services may have benefitted both the parent and the subsidiary in India. How much of the benefit can be attributed to the parent and to the unit in India is a subjective matter and the dividing line lies in between. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 1, 13, 51, 990/- on colour solution machines installed at the premises of dealers by treating the same as furniture & fixtures instead of plant and machineries as claimed by the assessee without considering the following facts: (a) Finished products of the assessee are Paint liquid, paints stiff and thinners are transported to the dealers in sealed pack. (b) The machines are used by the dealers for adding the various colours and then shaking and moving only which cannot be said as manufacturing process. (c) The colour solution machines are leased out by the assessee to its dealers and dealers are allowed to stall according to their choice. The machines are handled by the dealers being actual user had been paying rent in such machines. 3. That on the facts and circumstances of the case, the Ld. DRP has erred in deleting disallowance made by denying the claim of additional depreciation of Rs. 1, 33, 19, 699/- on certain assets which are not directly use for manufacturing process, considering the submission of the assessee. 4. That on the facts and circumstances of the case, the Ld. DRP has erred in deleting the addition of Rs. 31, 81, 727/- u/s. 14A following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck assets of the entire business for computation of depreciation. The assessee brought to the notice of the Ld. DRP that the Tribunal has followed its own order in assessee's own case for AY 2000-01, 2001-02, 2004-05 and 2005- 06. Thus, the assessee prayed for allowance of depreciation to the tune of Rs. 2, 96, 88, 774/-. Thereafter, the DRP decides as under: "1. 2 It is seen from the facts in this case that during the A. Y 2006-07, the appellant sold its Rubber Chemical business to M/s PMC Rubber Chemicals on slump sale basis. Consequently the Appellant reduced the wdv of the Assets transferred under slump sale from the block of Assets in accordance with the provisions of section 43(6)(c)(lC) of the Act. The AO however adjusted the sale proceeds. of the undertaking transferred under slump sale against. the relevant block of asset Instead of adjusting the wdv of the assets as mandated by the provisions of section 43(6)(c)(lC) of the Act. This treatment of the AO resulted in lower closing wdv of the block of assets (for AY 2006-07 as also lower opening wdv of the block for subsequent periods (Ay 2007-08 onwards). Based on the closing wdv as per assessment order of AY 2006-07, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd classified to it under plant and machinery and claimed 15% block whereas the AO reclassified it under furniture and fixture (10% block) which resulted in reduction in allowance of normal depreciation of the assessee. The AO disallowed the claim of the assessee for additional depreciation on the colour solution machines. The AO while reaching the aforesaid conclusion has stated that these colour solution machines are akin to electric appliance and according to AO, colour solution machines do not aid the assessee in the manufacturing process. According to AO, the colour solution machines being installed at the premises of the dealers are in no way connected with the mother/main machines responsible for producing the paint and he compared the colour solution machines like Air conditioner etc. and hence, the AO treated the colour solution machines as furniture and fixture instead of plant and machinery. In the process, the AO disallowed depreciation on the colour solution machines as under: Particulars Amount (Rs. ) Disallowance of Additional Depreciation Disallowance of Normal Depreciation Total : 90, 81, 593/- 22, 70, 397/- 1, 13, 51, 990/- Aggrieved, the assessee pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d choice of the consumers. Therefore, it is the case of the assessee that the assessee would not have been able to give this wide array of choice of colours to the customers without these machines. In view of the aforesaid activity undertaken by the colour solution machines in no circumstances we can term it as a furniture as done by the AO. It was also brought to our notice that by taking into consideration the very nature of the product i. e. the end product (tinting product) excise duty is levied. The AO erred in observing that in order to be eligible for additional depreciation machinery has to be used within the factory premises of the assessee is erroneous. The Hon'ble Jurisdictional High Court in the case of CIT Vs. Birla Jute & Industries Ltd. (2003) 260 ITR 55 wherein it was held that there is no requirement under the provisions of the Act that machine has to be situated/installed within the factory premises of the assessee has to be eligible for claim of additional depreciation. We note that the Ld. DRP decided the issue in favour of the assessee by observing as under: "2. 2. This ground of objection has basically 2 sub grounds. The first is regarding the lower rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so clear that such paints could not be sold without them being first mixed through such 'Colour Solutions Machine'. Therefore the conclusion of the A. O. that such machines were not Plant & Machinery but furniture and fixture is not justified. It is also clear in view of the decision in the case of CIT Vs Diamines & Chemicals Ltd. 221 Taxman 218, that such machines need not be installed only in the factory premises of the Assessee. A similar view has been taken by the jurisdictional High Court in CIT Vs Birla Jute & Industries Ltd. supra wherein the Hon'ble Court has examined the phrase "business of manufacture" used in section 32(iia) of the Income Tax Act. Therefore, considering the above facts and the decision cited, it is held that the "Colour Mixing Machines" were plant & machinery of the Assessee and eligible for depreciation at the applicable rate as well as the claim of additional depreciation. Accordingly the disallowance made by the A. O. of the depreciation and additional depreciation of Rs, l, 13, 51, 990/- is held to be not justified and this ground of objection is allowed. 2;2. 2. With regards to the action of the A. a. reclassifying certain Assets as f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts to the end consumer by mixing base colour sheds with the colourants (tinting product) which could not have been possible without the aid of the colour solution machine and it is an integral part in the profit earning apparatus of the company. The AO erred in stating that the colour solution machines installed in the dealer's premises is not in any way connected with the mother/main machines responsible for producing the paints and the colour solution machines are comparable to air conditioner etc. due to their nature of functioning and hence, need to be treated as furniture and fixture is erroneous and baseless as discussed by us above and for the sake of brevity is not repeated again. We also note that the AO in the earlier assessment year and in subsequent assessment year i. e. 2012-13 and 2013-14 has not disputed the allowability of normal and additional depreciation on colour solution machines for the assessment year prior to the subject assessment year and in subsequent assessment years (i. e. AYs 2012-13 and 2013-14) post issuance of direction by Ld. DRP in the subject assessment year. In the aforesaid facts and circumstances of the case, the AO ought to have been consist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is against the deletion of addition u/s. 14A of the Act of Rs. 31, 81, 727/-. The assessee has earned an income of Rs. 8, 60, 13, 541/-. The assessee explained that this amount was on account of dividend received from various mutual fund investment made by the assessee during the year. It was brought to the notice of the AO against the income of Rs. 86, 01, 354/- the company has made suo moto disallowance of Rs. 4, 72, 192/-. On an enquiry by the AO, the assessee company stated that the said disallowance suo moto made was based on the company's estimate of proportionate man power cost and operating cost incurred during the period. According to the assessee, operating cost has been estimated at Rs. 22000/- per month on stationery, Fax, postage, telephone conveyance etc. For computation of proportionate man power cost the company has estimated the total man power cost at Rs. 22, 01, 428/-. Thereafter the assessee has computed income earned out of the investment held in shares and mutual fund. Thereafter the company has computed the proportion of exempt income and upon the total income from investments (taxable and non-taxable) has applied to the rate with the manpower cost. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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