9911796707
TMI Blog2021 (5) TMI 1059X X X X Extracts X X X X X X X X Extracts X X X X ..... "1. The DRP erred in law and on facts of the case in directing to delete the addition proposed on account or salary of expatriates employees. 2. The DRP erred in law and on facts of the case in directing to delete the addition pertaining to the interest paid to HO and other overseas branches of the bank ignoring the provisions of Circular No.740 dated 17/07/1996 of the CBDT and provisions of Section 9 of the Income Tax Act,1961. 3. The DRP erred in law and on facts of the case in directing to delete the addition made on account of interest from Indian Branches to the Head Office and claimed as expenditure. 4. The DRP erred in law and on facts of the case in directing to delete the addition made on account of accrued Deferred Bank Guarantee commission to the assessee from its HO/Overseas Branches. 5. The DRP erred in law and on facts of the case in not considering that the commission receipt is like a fee for issuing the guarantee and is not a contingent receipt or advance and therefore the amount of commission received is an income which accrues at the time of bank issuing the guarantee and should have been included in the income of the assessee. 6. The DRP erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in retail banking in India. 5. All the branches of taxpayer in India constitute Permanent Establishment (PE) of the taxpayer in India within the meaning of Article 5 of the Double Tax Avoidance Agreement (DTAA). For the year under assessment, the taxpayer filed its return declaring income of Rs.228,02,36,682/-. The taxpayer reportedly entered into international transactions with its Associated Enterprises (AEs) as under :- S.No. Description of the transactions Amount (Rs.) 1 Payment of software license fee 3,427,875 2 Payment for software development services 1,997,513 3 Payment of annual maintenance charges for software maintenance 6,634,714 4 Payment of account maintenance charges and clearing charges 518,007 5 Payment of communication charges 4,009,696 6 Payment of counter guarantee commission 22,085,511 7 Net Interest received on Nostro/Vostro Accounts 524,307 8 Receipt of service income for ECB syndication 258,549,017 9 Receipt of sundry commission 517,292 10 Interest paid on inter-office borrowing 76,865,733 11 Interest received from overnight placement of funds 1,054,887 12 Interest received on interest rate swap 8,010,000 13 Interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in taxpayer's own case for AYs 2007-08 & 2008-09. 12. Ld. DR for the Revenue has failed to controvert the findings raised by the ld. DRP that this issue is covered in favour of the taxpayer by virtue of the order dated 08.04.2016 passed by the Hon'ble Delhi High Court in ITA 604/2015 & ITA 605/2015 in taxpayer's own case for AYs 2007-08 & 2008-09 and vide order passed by the Tribunal in taxpayer's own case for Assessment Years 2005-06, 2007-08, 2008-09, 2009-10, 2010-11 & 2015-16 in ITA Nos.3707/Del/2014 & 3755/Del/2014, ITA No.5364/Del/2010, ITA No.5104/Del/2011, ITA No.1162/Del/2014, ITA No.1174/Del/2015 & ITA No.7895/Del/2019 respectively. 13. We have perused the order passed by the coordinate Bench of the Tribunal in taxpayer's own case for earlier years from 1998-99 to 2010-11 and order passed by the Hon'ble Delhi High Court in case of taxpayer for AYs 2007-08 & 2008-09 (supra). The issue before the Bench is squarely covered by the order (supra) passed by the Hon'ble Delhi High Court, operative part of which is extracted for ready perusal as under :- "Salaries paid to expatriates 9. The first question urged concerns the payment of salaries to the expatriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014 and order passed by the Tribunal in taxpayer's own case for AY 2009-10. 17. We have perused the order (supra) passed by the Hon'ble Delhi High Court in taxpayer's own case in which both these issues have also been decided in favour of the taxpayer by returning following findings :- "Interest paid to the HO and interest received from Indian branches 12. This issue appears to be covered against the Revenue by the decision of the Calcutta High Court dated 23rd December 2010 in ABN Amro Bank(2012) 343 ITR 81 (Cal). The ITAT has followed the above decision of the Calcutta High Court and decided the question in favour of the Assessee. 13. On this issue, the Court further finds that the order of the Calcutta High Court dated 17th November 2014 in ITA No. 175 of 2004 (Bank of Tokyo-Mitsubishi Ltd. v. Director of Income Tax, International Taxation, Mumbai) has also decided this issue in favour of the Assessee by following its judgment of ABN Amro Bank(supra). The two specific questions urged by the Assessee in that case were answered in its favour: (i) Whether interest payment made by the Indian Branch of the appellant to its head office abroad was to be allowed as a deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the taxpayer by following the decision rendered by Hon'ble Calcutta High Court in taxpayer's own case for AY 1995-96 (supra) by returning following findings :- "86. Ground no. 8 is regarding treatment in respect of deferred bank guarantee commission. The AO noted that the commission received on guarantees in respect of the period which had not expired was not offered as income accrued for the year but had been treated as an advance in line with the accounting policy followed by the bank. He observed that amount of commission received is an income which accrues at the time the bank issues the guarantee. The period of guarantee has nothing to do with the assessee's right to receive having arisen. He pointed out that the commission received was like a fee for issuing the guarantee and was not a contingent receipt or advance and it was also not returnable at the end of the guarantee period. Thus, the amount of commission received was income, which accrued at the time the bank issued the guarantee. Ld. DRP confirmed the AO's action, inter alia, observing that the decision of Hon'ble Kolkata High Court in assessee's own case was not accepted by the Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Tribunal in taxpayer's own case for Assessment Years 2007-08 & 2008-09. 27. We have perused the order passed by the Tribunal in taxpayer's own case for AYs 2007-08 & 2008-09 (supra) wherein instant issue has been thrashed in detail and decided in favour of the taxpayer by returning following findings :- "71.1 We have considered the rival submissions and have perused the record of the case. The facts are not disputed. 72. Admittedly the assessee had prepared its accounts as per the requirements of Banking Regulation Act and while filing the return of income, though it had computed the book profits as per the provisions of section 115JB also, but had given a note that the provisions of section 115JB were not applicable. It is also not disputed that profit and loss account of assessee had not been prepared as per part II & III of schedule VI to the Companies Act. 73. Ld. Counsel has relied on the decision in the case of Maharashtra State Electricity Board (supra), Reliance Energy Limited (supra), Kerala State Electricity Board (supra), which have been rendered with reference to Electricity (Supply) Act, 1948. The decision in the case of ICICI Lombard General Insura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (17) are covered by the provisions of section 115JB. Therefore, this amendment brings substantial change in the taxability of companies governed by the special acts and, therefore, cannot be held to be retrospective. In this regard we also find strength from the ratio laid down by the Supreme Court in its decision dated 16.9.2014 in the case of CIT v. Vatika Township (P.) Ltd. In Civil Appeals arising out of SLP(C) No. 1362 of 2009 and others. The five judges Bench of the Supreme Court strikes down division Bench ruling on retrospective applicability of proviso to section 113 of the Income Tax Act holding the proviso to operate prospectively. Laying down perusal principles governing retrospectivity, the Supreme Court has been pleased to rule that unless contrary intention appears, a legislation is presumed not to be intended to have retrospective operation, current law ought to govern current activities, law passed today cannot apply to past events. 75. Ld. Counsel has also relied on the decision in the case of Krung Thai Bank PCL (supra) in which it has been held that since in the case of banking companies schedule VI is not applicable, therefore, section 115JB cannot be applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to be accepted because the provisions of section 115JB are subordinate to section 90(2) and have no overriding effect on the said section. 78.1 In view of the above discussion, this ground is allowed because it has been clarified by ld. Counsel that the taxable income had been computed as per the provisions of article 7(3) of the DTAA." 28. Aforesaid findings returned by the coordinate Bench of the Tribunal have been confirmed by the Hon'ble Delhi High Court in taxpayer's own case (supra) by returning following findings :- "Applicability of Section 115JB 20. The ITAT has after an elaborate discussion had come to the conclusion that the Assessee's claim for lower tax will have to be accepted because Section 115JB is subject to Section 90(2) of the Act and the taxable income of the Assessee would have to be computed in terms of Article 7(3) of the DTAA. What is significant is that the profit and loss account of the Assessee has not been prepared in terms of Part II of Schedule VI of the Companies Act, 1956 and in fact could not have been prepared in terms thereof. Consequently, the question of applicability of Section 115JB did not arise. As rightly pointed out till th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion charges 4,009,696 6 Receipt of counter guarantee commission 22,085,511 7 Net interest received on Nostro/Vostro Accounts 524,307 8 Receipt of service income for ECB syndication 258,549,017 9 Receipt of sundry commission 517,292 10 Interest paid on inter-office borrowing 76,865,733 11 Interest received from overnight placement of funds 1,054,887 12 Interest received on interest rate swap 8,010,000 13 Interest paid on interest rate swap 9,875,721 14 Interest received on currency swap 141,388,812 15 Interest paid on currency swap 255,573,472 32. The taxpayer in order to benchmark its international transactions qua "counter guarantee commission" i.e. Comparable Uncontrolled Price (CUP) as Most Appropriate Method (MAM) by comparing representative guarantee fee charged by BTMU India from some of its local customers with counter guarantee commission rate received by BTMU from its overseas branches/AE. However, ld. TPO while rejecting the TP study made by the taxpayer proceeded to adopt average bank guarantee rate as ALP of the transaction and proposed an addition of Rs.10,43,55,168/-. 33. However, ld. DRP by following its earlier year order for AY 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has been made part of the judicial record. 36. No doubt, the first contention raised by the ld. DR for the Revenue that every year is to be treated as a separate and independent year for the purpose of assessment but, at the same time, we are of the considered view that when there is no change in the business model of the taxpayer in the year under assessment vis-à-vis preceding years as well as succeeding years "the rule of consistency" gets attracted in view of the law laid down by Hon'ble Supreme Court in case of Radhasoami Satsang vs. CIT in Civil Appeal Nos.10574-10583 of 1983 and Hon'ble Delhi High Court in Rayban Sun Optics India Ltd. vs. CIT in ITA 880/2016 & CM Appl.45967/2016. So, when ld. DR has failed to point out any dissimilarity in the functional profile and facts & circumstances of the case of the year under consideration vis-à-vis preceding and succeeding years, this contention is not sustainable. 37. So far as second contention raised by the ld. DR for the Revenue that the taxpayer performs significant functions and bears significant risk is concerned, this contention is not sustainable when we examine the FAR analysis of BTMU India and AE of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n taxpayer's own case decided the issue in favour of the taxpayer, which has been accepted by the Revenue Department. 42. Following its own order for AY 2010-11, ld. DRP decided this issue in favour of the taxpayer having identical issue. So, in these circumstances, bank guarantee rates used by the ld. TPO to benchmark the international transactions cannot be used as CUP as has been held by the coordinate Bench of the Tribunal in case of Gharda Chemicals Ltd. vs. DCIT in ITA No.2242/Mum/2006 order dated 30.11.2009 by returning following findings :- "16. Albeit no such distinction between Internal and External CUP method is recognized in the Act or Rules but since the arguments of the rival parties and findings of the authorities below have revolved around these two, we will try to ascertain the difference between them. Basically the purpose of computing ALP on the basis of CUP method is to compare the adjusted price charged from or paid to the assessee for the international transactions with its AE vis-à-vis that charged from or paid to the unrelated parties under similar circumstances. In case of difference, the price settled in the uncontrolled transactions, as adjusted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n one country may largely vary from the price prevailing in other countries due to host of factors. The country which is producer of a particular commodity or its raw material may have lower sale price in comparison with the country which is short of such natural resources. Similarly the price may vary from one country to another depending upon climatic conditions and the demand and supply factors. Thus the price charged by an Indian party from UK or Australia may be at much variance with that charged from USA. In such a scenario no valid comparison can be made between the price charged by the assessee from other countries with that from USA, more particularly when we view the quantity exported to USA on wholesale basis with that to other countries in small lots on retail basis. We, therefore, hold that the Internal CUP method is not suitable in the present circumstances." 43. Coordinate Bench of the Tribunal in taxpayer's own case for AY 2009-10 (supra) has also held that the transaction under consideration cannot be compared with bank guarantee rates charged by the third party bank from their customers because such banks performed all the functions and bear all the risks perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparability factors, in that case bank guarantee rates used by the ld. TPO also required to be rejected for the same reasons and consequently, taxpayer come up with the secondary analysis already undertaken by the taxpayer to determine the ALP of the transaction under consideration wherein all the international transactions of the taxpayer were aggregated and the ALP was determined using TNMM as the MAM using OP/total assets as the PLI as the same has already been upheld by the Tribunal in taxpayer's own case in AYs 2009-10 & 2015-16 (supra). 50. However, on the other hand, ld. DR for the Revenue contended that this contention of the ld. AR for the taxpayer has already been examined by the TPO and has rightly been rejected and relied upon the order passed by the ld. TPO. 51. We have perused para 6 of the transfer pricing order wherein the ld. TPO has discussed the TP analysis made by the taxpayer to benchmark its international transactions including transaction of receipt of guarantee commissions by the taxpayer as a bundled transactions but the ld. TPO declined to accept the contention raised by the taxpayer that all the international transactions of taxpayer are to be benchma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o adjustment has been made in the hands of the assessee. The only adjustment which was made in the hands of the assessee was on account of Receipt of guarantee commission. The case of the assessee before us is that as PE in India, it has limited role and was not bearing any risks. The assessee received part of guarantee commission in its capacity as facilitator only. When the persons needed guarantee in India to participate in a tender, then service of the Bank was utilized for issuing guarantee in favour of the beneficiary. The evaluation of the beneficiary for the creditworthiness of the customers was performed by the overseas branches, whereas the assessee had limited role in issuing letter of guarantee, it received 1% guarantee commission. In these facts, there is no merit in comparing the rate received by the assessee with the rate charged by different banks who are operational in India and providing financial guarantee to its customers, with all risk involved therein. In such facts and circumstances, the Assessing Officer/TPO erred in applying the rate charged by Axis Bank, Canara Bank, Punjab National Bank and State Bank of India, etc. with arithmetic mean of 2.71% to benchm ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
