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TMI Blog2023 (7) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying out necessary enquiry and verification and then TPO will decide whether to consider the same as comparables or not. Harita Techserv Ltd - TPO has simply rejected the comparable on the reason that it has a negative PLI whereas DRP has only considered that it is not financially similar whereas assessee now before us filed complete details that Harita Techserv Ltd., is also engaged in engineering design services and financially similar. This needs to be considered. We feel that let the matter be restored back to the file of the TPO in regard to this comparable and TPO will consider whether assessee is financially similar to Harita Techserv Ltd., or not. In term of the above, we set aside this issue to the file of the TPO and allow for statistical purposes. TDS u/s 195 - Non deduction of TDS u/s 40(a)(ia) - Ocean Freight charges paid - HELD THAT:- The assessee has paid ocean freight charges to its Korean counterpart M/s. Doosan Corporation Korea for hiring of ships. From the invoices clearly produced before us, the invoice clearly says that the M/s. Doosan Corporation Korea has been paid freight by Doosan Power Systems Pvt. Ltd., the assessee company for hiring of ship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edominantly involved in provision of engineering design, drawing and consultancy services and thereby ignoring the fact that the revenue from information technology services segment (83.59 percent) is significantly higher than the revenue from engineering design service segment (14.17 percent) 3. Brief facts are that the assessee company is engaged in the business of designing, building, installation and maintaining engineering plants with specialization in thermal and coal power plants. The assessee company renders engineering services to its associated enterprises Doosan Heavy Industries Construction Co. Ltd. The TPO scrutinized the international transactions entered into by the assessee and analyzed the transactions and the margins for the manufacturing and engineering segments by computing the OP OI of manufacturing segment at 10.48% and engineering segment at 3.75% of OP OC. The assessee has taken the data of comparables with respect to financial years 2010-11, 2011-12 2012-13 and arrived at the arithmetic mean for the manufacturing segment at 10.48% and for engineering services segment at 3.75%. The TPO carried out independent search for comparables on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered as comparable as per various judicial decisions as well as OECD guidelines. Second reason given by ld.counsel is that the Acropetal Technologies Ltd., has earned significantly abnormal margin on year to year in its engineering design segment and apart from that, it enjoys significant benefit on account of intangibles developed and owned by it through its R D centers whereas the assessee has not incurred any expenditure on R D and hence, Acropetal Technologies Ltd., should not have been taken as comparable. The ld.counsel stated that the DRP has wrongly relied on Clause 8 of the agreement that all documents, data, engineering drawings and material will be submitted by the assessee to the AE and same will be the property of the AE. He also contested the finding of the DRP that intangibles created as a result of engineering design service by the assessee are passed on to the AE without any additional compensation. Apart from this, the ld.counsel also drew our attention to the Co-ordinate Bench decision in the case of J Ray DcDermott Engineering Services Pvt. Ltd., vs. DCIT in ITA No.3239/Chny/2017, wherein the Tribunal has also considered the alleged irregularities committed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. This is a very good reason for not accepting the Acropetal Technologies Ltd., as comparable and hence, we direct the TPO to exclude the same while computing operating margins of the assessee. In term of the above, we direct the TPO / AO accordingly. 7. The next issue in this appeal of assessee is as regards to exclusion of following three comparables:- i. Accuspeed Engineering Ltd. ii. Harita Techserv Ltd. iii. Kirloskar Consultants Ltd. The ld.counsel restricted his arguments to exclusion of these three comparables. For the exclusion of these three comparables, the assessee has raised following Ground Nos.4,5 6:- 4. On the facts and in law, the Ld. AO, Ld. TPO and Hon'ble DRP erred on facts and in law in rejecting Accuspeed Engineering Ltd. alleging non-availability of financial statements for financial year 2012-13 during the transfer pricing assessment proceedings, not appreciating that the financial statements of the Company were available in the public domain. 5. The Ld. AO, Ld. TPO and the Hon'ble DRP erred on facts and in law in violating the provisions of Rule 10B(2) of the Rules by rejecting Harita Techserv Ltd. ( Harita' ). 6. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 227 to 247. The ld.counsel stated that once these details are available now before Tribunal either Tribunal can decide the issue or matter can be referred back to the file of the TPO for reconsideration whether these two companies have sales or not. 9. On the other hand, the ld.CIT-DR has not objected for remitting the matter back to the file of the TPO but he stated that once there are no sales there is no purpose in sending back the matter to the file of the AO and he strongly supported the order of TPO and that of the DRP. 10. We have heard rival contentions and gone through facts and circumstances of the case. We noted that since the assessee now before us has filed financials of Accuspeed Engineering Ltd., and Kirloskar Consultants Ltd., and this is the finding of the DRP that these financials are not available either before the TPO or DRP, we feel that in the interest of natural justice, we remit back the issue of these two comparables to the file of the AO for carrying out necessary enquiry and verification and then TPO will decide whether to consider the same as comparables or not. In term of the above, these two comparables are remitted back to the file of the TPO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat of the assessee. Now, the ld.counsel for the assessee before us filed details of engineering services and engineering and design background of the assessee company and stated that this can be considered by the TPO afresh. 13. On the other hand, the ld.CIT-DR supported the order of the TPO and that of the DRP. 14. After hearing rival contentions and going through the facts of the case, we noted that there is a contradiction in the order of TPO and that of the DRP. The TPO has simply rejected the comparable on the reason that it has a negative PLI whereas DRP has only considered that it is not financially similar whereas assessee now before us filed complete details that Harita Techserv Ltd., is also engaged in engineering design services and financially similar. This needs to be considered. We feel that let the matter be restored back to the file of the TPO in regard to this comparable and TPO will consider whether assessee is financially similar to Harita Techserv Ltd., or not. In term of the above, we set aside this issue to the file of the TPO and allow for statistical purposes. 15. Apart from the above one inclusion and three exclusion, the ld.counsel for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overseas ports to India. In its submission, the assessee has argued that the payment is in the nature of business income and not fees for technical service and hence, not taxable in India. But, there is no argument advanced by the assessee as to why this payment cannot be considered as royalty. Royalty is defined in Explanation 2 to section 9(1)(vi). As per clause 4(a) inserted by the Finance Act, 2001 with effect from 01-04-2002. Royalty means considered for the use of or right to use any industrial, commercial or scientific equipment, but not including the amounts referred to in section 44BB. As per article 12 of the DTAA, royalty means payments or credits made as consideration for the use of or the right to use any industrial, commercial or scientific equipment. The word 'equipment' is neither defined under the Act nor under the treaty. In view of meaning assigned to word 'equipment' in various dictionaries, it is clear that article 12 of DTAA with Korea relates to equipment and that ship is an equipment. The hire charges thus, would partake the character of royalty for the use of equipment under the provision of section 9(1)(vi)/article 12.3 of the DTAA. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adversely affected. The judicial decisions relied upon by the assessee are in support of the contention that if the payment to the non-resident is not chargeable to tax in India, no TDS is required to be made. However, as it has already been held that the amount of payment is chargeable to tax in India as royalty, the decisions cited will not be of help to the assessee. At the other hand, the Jurisdictional Madras HC, in case of Poompuhar Shipping Corporation Ltd 360 ITR 257 has held that a ship can be regarded as equipment of business of a ship owner on a natural and ordinary meaning of word Equipment', in whatever name called either as an apparatus or as plant or machinery, so long as they are employed for purposes of one's income, same shall stand covered by clause (iva) of Explanation 2 to section 9(1)(ci). The Honorable Supreme Court in case of Transmission Corporation Of AP Ltd 105 taxman has held that the assessee who makes payments to non-resident under contract entered into is under obligation to deduct tax at source under section 195 and the obligation is limited only to appropriate proportion of income chargeable under the Act. In view of the above, it is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocean freight charges and the ship hired by the assessee was travelling in international waters and it is not within India as is the case of Hon ble Madras High Court in the case of Poompuhar Shipping Corporation Ltd., supra. The ld.counsel for the assessee drew our attention to the facts narrated by the Hon ble Madras High Court in the case of Poompuhar Shipping Corporation that the freight charges paid by Poompuhar Shipping Corporation on hiring of ships was travelling within the territory of Indian waters and for this, he drew our attention to para 3. The facts narrated are as under:- 3. The appellant in Tax Case (Appeal) Nos.2206 to 2208 of 2006 is a Government of Tamil Nadu owned company engaged in the business of moving coal from various ports in India to Tamil Nadu Electricity Board, Chennai. For the purpose of transportation of coal, to meet the requirements of the Tamil Nadu Electricity Board, the assessee chartered foreign shipping vessels by entering into agreements in standard time charter form, approved by the New York Produce Exchange. As far as the foreign shipping vessels are concerned, the appellant entered into time charter agreement with the shipping companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle 9 thereof, freight income generated by the assessee in these Assessment Years is not chargeable to tax as it arises from the operation of ships in international waters. Once that is accepted and it is also found that the Maersk Net System is an integral part of the shipping business and the business cannot be conducted without the same, which was allowed to be used by the agents of the assessee as well in order to enable them to discharge their role more effectively as agents, it is only a facility that was allowed to be shared by the agents. The ld.counsel for the assessee relied on Hon ble Supreme Court judgment in A.P. Moller Maersk A S, supra, for the reason that it has a persuasive value of the above observation of the Hon ble Supreme Court. The ld.counsel also stated that the revenues case is that the assessee has paid royalty instead of ocean freight charges. The ld.counsel drew our attention to Article 12 wherein the income from royalty or fee from technical services are covered from DTTA India Korea, but according to him by no stretch of imagination can be called as royalty because it is simpliciter ocean freight charges by a Korean company from Indian subsidiar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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