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TMI Blog2020 (12) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal filed against the decision of ld. CIT(A) are discussed as follows:- Ground No. 1(Deleting addition of Rs. 4,73,06,676/- on account of transfer pricing adjustment) 3. The assessee company is engaged in the business of trading in natural gas. During the course of assessment, the Assessing Officer noticed that assessee company has entered into international transactions with its associate enterprise as per the details given below:- Sl. No. Name & address of the associate enterprise Description of transaction Amount (Rs.) 1 British gas energy Holding Ltd Payment for corporate guarantee commission 38,70,000 2 British gas energy Holding Ltd Payment for corporate guarantee commission 63,10,000 The assessee has filed a transfer pricing study report of the Authorized Representatives along with supporting documents and details. The Assessing Officer has not agreed with the submission of the assessee regarding conclusion drawn in respect of arms length transaction. The associated enterprise B.G. Energy Holding Ltd. had negotiated the transaction with Cairn Energy Group for purchase of natural gas from its Laxmi Gas field. The contract for purchase of gas was tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that benchmarking should be taken for the transaction for entire year as the agreement was made on a long term basis. The Assessing Officer has not agreed with the submission. He was of the view that associated enterprise BGEH was engaged in negotiating the purchase price of the gas from Cairn Energy and the purchase price of the gas was negotiated by the BGEH with the gas seller therefore the transaction was covered in the second limb of the definition of deemed international transaction. The Assessing Officer has also rejected the contention of the assessee to aggregate all the transactions and evaluate them on annual basis as a comparable price for benchmarking and Assessing Officer was of the view that transactions should be compared individually and not on aggregate basis. Accordingly, the Assessing Officer has determined the adjustment as under:- S. No. Date US Natural gas well headspot price (USD) Price in International transaction Difference Quantity Adjustment in USD 1 April 2009 3.180 3.9414 0.7614 238366.5 181492.3 2 May 2009 3.230 3.9414 0.7114 253038.2 180011.4 3 June 2009 3.380 3.9414 0.5614 246891.7 138605 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the BG Group's company, BG Energy Holdings Limited - BGEH, a company incorporated in the United Kingdom, used its skills and time for negotiating with Cairn Group for supporting purchase of gas from Lakshmi field located in India. Another BG Group Company, BG India Private Limited - BGIPL, a company incorporated in India, entered into an agreement for purchase of gas from Cairn. However, Gujarat Gas Company Limited - GGCL was desirous of entering into a contract for purchase of gas on a long term basis for its expansion plans and accordingly BGIPL nominated GGCL to enter into a long term gas supply agreement with Cairn. Subsequently, the said contract was assigned by GGCL to Gujarat gas Trading Company Limited - GTCL i.e., to the appellant. Since the appellant is the beneficiary of the long-term agreement for purchase of gas the payment of commission for negotiating purchase, corporate guarantee payment of commission was made by the appellant company. It has been submitted by the appellant that the provisions of section 92B(2) have been incorrectly applied by the AO. The AE of the appellant i.e. BGEH has no contract with Cairn. The appellant has entered the contract with C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t prejudice to the above observations if the process of comparison adopted by the AO in making the adjustment to the purchase price, is examined it is noted that he has compared the prices of the gas at the wellhead in United States. It is a known fact that the transportation of gas is a costly affair and substantial amount is to be spent by purchasing the gas and transporting it to the required destination. The prices which have been paid by the appellant is the delivery price in India. The gas which is being bought is produced in India. It has also to be noted that the gas at the same rate is also being bought by the appellant from other parties, who are not part of the contract, from the same gas field at the same price. This itself is sufficient and logical comparable instance. Further, it has also observed that the price paid by the appellant in subsequent contract was higher than the prices which have been taken for international transaction. The contract through which the gas has been purchased is a long term contract and therefore, it would be appropriate to aggregate the transactions and make the comparison. Therefore, even if it is assumed that the transactions of gas pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has entered into the following international transactions with its associated enterprises. Sl. No. Name & address of the associate enterprise Description of transaction Amount (Rs.) 1 British gas energy Holding Ltd Payment for corporate guarantee commission 38,70,000 2 British gas energy Holding Ltd Payment for corporate guarantee commission 63,10,000 The assessee has furnished the information in respect of the aforesaid international transaction as per the provision of section 92E of the Act. The assessee has stated that all the above international transaction was at arms length price. The BGEH is the associated company of the assessee incorporated in the United Kingdom and it has negotiated with the Cairn Group for purchasing of gas from Laxmi field which was located in India. Another company BGIPL incorporated in India had entered into an agreement for purchase of gas from Cairn. However, the Gujarat Gas company Ltd. wanted to purchase the gas on a long term basis for its expansion plant, therefore, BGIPL had nominated GGCL to enter into long term gas supply with Cairn. Subsequently, the said contract was assigned by Gujarat Gas Company Ltd. Since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 9(1)(vii) as under:- "For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provisions of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient of consideration which would be income of the recipient chargeable under the head "salaries". The Assessing Officer held that as per the provision of section 9(1)(vii) as above, the assessee has failed to deduct tax on the payment of Rs. 1,01,80,000/- being the fees for technical services, therefore, the same was added to the total income of the assessee u/s. 195 of the Act. 8. The assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has deleted the disallowance made by the Assessing Officer. The relevant part of the decision of ld. CIT(A) is as under:- "6.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The appellant has made the following payments to its AE as commission: - P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 9(1 )(vii) read with section 195 of the Act. The appellant has submitted that the commission was paid to a non-resident company. The services rendered by BGEH were not in the nature of fee for technical services within the meaning and scope of section 9 and therefore, no withholding tax obligation was there on the appellant under section 195 of the Act. The company had no permanent establishment in India and the payment made to it towards commission was not liable to tax in India. It is also been submitted by the appellant that the payment is also covered by the DTAA between India and UK under Article 7. On a careful consideration of the entire facts it is noted that the similar additions/disallowances have been made in earlier assessment years also in respect of the same issue. The disallowances have been deleted by in A.Y 2009 - 10 and earlier assessment years. "I have carefully considered the assessment order, the facts of the case and various written submission given by the appellant. The A.O has treated the commission paid by the appellate to BG Energy Holdings Ltd (BGEH)as- payment-for Technical Services (consultancy]- rendered in India. He applied the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities." Similarly, Clause 2 of the explanation defines the expression professional services as under: "Professional services means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purpose of Sub Section 44AA" The above definitions show that the commission means the payment received or receivable by a person acting on the half of another person for some services which should not be professional services or technical services or for some services in the course of buying or selling of goods, valuable article or thing. After examining the payment made by the appellant to BGEH it is apparent that the commission has been paid for negotiating purchase of gas on behalf of the appellant. This payment is not in the meaning of technical services or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided whether the commission is taxable in India and accordingly the appellant should have deducted tax while making the payment. As per provision of section 195 of I.J Act, it is obligatory for every person to deduct the tax when a payment is made to non-resident if the income is chargeable under provision of l.T Act. The contention of the appellant is that the Income is neither liable to tax in India under provision of I.T Act nor under the DTAA between India and UK. As per the provision of Section 5(2) of IT Act, in the case of nonresident, scope of total income includes all income from whatever source which are received or deemed to be received in India or which accrues or arises or is deemed to accrue or arise to such non-resident in India. In the present case the payment is made to BGEH, which is situated outside India and therefore, it is necessary to examine whether such income can be said to be deemed to accrue or arise in India. Since the services are in not the nature of "Fees for Technical Services" it is not necessary to examine provision of section 9(1) (vii) of IT Act also. It is seen that the entire service in relation to purchase and supply of gas was rende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer that the UK based entity had a permanent establishment in India, and the commission paid to this entity, therefore, cannot be taxed as business profits. It is only elementary that, in the absence of a PE, Article 7 of the applicable DTAA does not allow taxation of business profits in the source country. As for the taxability under the fees for technical services clause, it is important to bear in mind the fact that the Indo UK DTAA has a 'make available' clause in its article dealing with fees for technical services. As for the connotations of make available clause in the treaty, there are at least two non-jurisdictional High Court decisions, namely Honble Delhi High Court in the case of DIT v. Guy Carpenter & Co Ltd. [2012] 346 ITR 504 and Honble Karnataka High Court in the case of CIT v. De Beers India Minerals (P.) Ltd. [2012] 346 ITR 467 in favour of the assessee, and there is no contrary decision by Honble jurisdictional High Court or by Honble Supreme Court. In De Beers India Minerals (P.) Ltd.'s case (supra), Their Lordships posed the question, as to "what is meaning of make available", to themselves, and proceeded to deal with it as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 9, the provisions of the Indo UK DTAA will come to the rescue of the assessee. Whichever way one looks at it, whether in the light of the provisions of the Act or the Indo UK DTAA, the conclusions of the CIT(A) do not call for any interference." Considering the decision of the Co-ordinate Bench on the similar issue and identical facts in the case of the assessee itself as supra, we do not find any error in the decision of ld. CIT(A), therefore, the appeal of the revenue on this issue is dismissed. 11. In the result, both the grounds of appeal of the revenue are dismissed. ITA No. 3069/Ahd/2014 for assessment year by assessee Ground No. 1 to 1.7 (Disallowance u/s. 14A of the Act of Rs. 6,18,456/-) All the grounds of appeals from 1.1 to 1.7 are interconnected to the common issue of disallowance of expenses u/s. 14A of the act, therefore, for the sake of convenience these grounds of appeals are adjudicated together as under. 12. During the course of assessment, the Assessing Officer noticed that assessee has received exempt income as dividend to the amount of Rs. 47,79,997/-. The Assessing Officer observed that assessee has not computed the disallowance of incurring expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion!4A on an actual basis but has made the disallowance on an estimate which is not supported by any documentary evidence or actual data to show that the disallowance made was correct. Therefore, in these circumstances also having regard to the accounts of the appellant, I am not satisfied with the correctness of the claim of the appellant in respect of the administrative expenditure in relation to income which does not form part of the total income under this Act that is the dividend income and income from Mutual Funds shown by the appellant. Therefore, after having held that the accounts of the appellant in respect of expenditure incurred for earning the income which does not form part of the total income are not correct, the expenditure incurred will have to be worked out by applying the Provisions of Rule 8D. It has noted that the AO has applied Rule 8D for working out the disallowance. Accordingly, the application of Rule 8D by the AO for making the disallowance under section 14 A is upheld. The appellant has also submitted that the AO has incorrectly adopted the figures of investment at the beginning and at the end of the year for working out the average of investment for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Assessment Year 2010-11 as adjudicated above. Therefore, applying the findings of ITA No. 3069/Ahd/2014 all the grounds of appeal on the issue of disallowance u/s. 14A and initiating of penalty u/s. 271(1)(c) stand dismissed. ITA No. 2340/Ahd/2015 for Assessment Year 2011-12 filed by assessee 17. This appeal of the assessee is filed on the issue of set off of Rs. 4,99,278/- towards brought forward business loss of Assessment Year 2010- 11 against business income of Assessment Year 2011-12 and not allowing carry forward of Rs. 68,98,675/- towards business loss for Assessment Year 2010-11 18. On this issue the ld. counsel at the outset has submitted that vide order u/s. 154 of the Act, the Assessing Officer has disallowed set off of brought forward business losses for assessment year 2010-11 against the business income of the year under consideration. The ld. CIT(A) has confirmed the decision of Assessing Officer stating that action of the Assessing Officer in assessing the income by giving effect to the income determined in regular scrutiny for assessment year 2010-11 appeared to be correct. The ld. counsel has submitted that the ld. CIT(A) has rightly adjudicated the issue. ..... 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