9911796707
TMI Blog2021 (9) TMI 1517X X X X Extracts X X X X X X X X Extracts X X X X ..... for redetermining the ALP of the international transaction of payment of Royalty and disallow the duplicate payment of brand Royalty in terms indicated above in the Tribunal order - Ground allowed for statistical purposes. Management services fess and payment of professional fees - Tribunal observed that in its own order for the assessment year 2009-10 [ 2019 (4) TMI 1505 - ITAT PUNE] following the view taken for the preceding year held that the assessee did avail services from its AE and the authorities below were not justified in coming to the conclusion that no services were obtained by the assessee. We set aside the impugned order on this score and remit the same to the file of the AO/TPO for fresh determination of ALP of the international transaction of payment of management services fee in accordance with the observations and directions given in the Tribunal order passed for the assessment year 2009-10 [ 2019 (4) TMI 1505 - ITAT PUNE] and 2010-11 [ 2021 (7) TMI 681 - ITAT PUNE] . Thus, Grounds allowed for statistical purposes. Disallowance u/s. 37 in respect of royalty expenditure incurred by the assessee - CIT(Appeals) had taken a view that the assessee is engaged in manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttled position of law that the retainer ship charges/commission paid to overseas non-resident agents for promoting assessee s business in foreign countries is not in the nature of fees for technical services and therefore, is not liable to be taxed in India. Thus no statutory obligation to make TDS u/s.195 of the IT Act in respect of the commission paid to overseas sales agents. Disallowance u/s.14A r.w. Rule 8D - AO proposed to the assessee that the expenditure incurred in relation to the dividend income in respect of this investment is required to be disallowed - assessee objected to the same on the ground that no dividend income has been received during the year with regard to this investment - HELD THAT:- It is a settled position of law that when no exempt income has been received by the assessee then there cannot be any disallowance u/s.14A of the Act. This view was also taken in the case of HOLCIM INDIA P. LTD. [ 2014 (9) TMI 434 - DELHI HIGH COURT] and based on this decision of the Hon ble Delhi High Court, the Ld. DRP had directed the Assessing Officer to delete the addition. Therefore, we are of the considered view on the given facts and circumstances, there is no need for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the same have been incurred wholly and exclusively for the purpose of business of the Appellant. III) In respect of transfer pricing adjustment : General ground challenging the transfer pricing adjustment of ₹ 9,11,83,759/- 5. Erred on facts and in law by making a transfer pricing adjustment to its international transactions in connection with payment of brand royalty and payment of professional fees and not accepting the analysis undertaken by the Appellant to determine the arm's length price ('ALP'). Non-acceptance of the comparability analysis as documented in the transfer pricing documentation 6. Erred on facts and in law by not accepting the comparability analysis as documented in the transfer pricing documentation maintained by the Appellant in relation to international transactions relating to payment of brand royalty and professional fees. Adjustment of ₹ 1,40,98,865/- in respect of payment of brand royalty 7. Erred in not considering the aggregation approach for benchmarking the international transaction of payment of brand royalty without appreciating the fact that the said international transaction is closely interlinked to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. At the very outset, the Ld. AR for the assessee submitted that in the grounds of appeal, Grounds No.1, 5 and 6 are general in nature and hence, no adjudication is required. 4. The Ld. AR for the assessee submitted that he is not pressing ground No.3 and in view of the submissions, Ground No.3 is dismissed as not pressed. 5. The Ld. AR further submitted that grounds No. 15 and 16 are consequential only hence the same are treated accordingly. 6. The only effective grounds are Grounds No.2 & 4 which pertains to disallowance u/s.37 of the Act. Then there are grounds regarding payment of brand royalty from Grounds No. 7 to 10 and grounds relating to payment of professional fees which are grounds No. 11 to 14 of the grounds of appeal memo. Therefore, in effect in the assessee's appeal, the grievance of the assessee is with regard to (i) disallowance u/s.37 of the Act; (ii) dispute with regard to payment of brand royalty and (iii) dispute with regard to payment of professional fees and management services fees. 7. The brief facts in this case are that the assessee, Carraro India Limited, set up in 1997, is a joint venture of Carraro Spa of Italy (51%) and Carraro International S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much tums on such approval by SIA. State why the ALP with respect to Brand Royalty should not be taken at NIL and accordingly, the Adjustment to this transaction of ₹ 1,47,57,866/-." 9. The assessee submitted with regard to this show cause notice that as per the agreements the royalty fee is paid /payable for the use of technical know-how and not for acquiring any technical know-how from the AEs. The technical know-how, designs, drawings continue to be the sole property of the AEs and the assessee is in no way entitled to own, sell, transfer or share the know-how made available to it pursuant to the agreements. The assessee further clarified before the Department that the company is paying brand royalty at the rate of 0.5% only on the sales to its customers other than related parties as per the agreement dated 15.12.2008. A sum of ₹ 140,98,865/- only has been paid during the year to Carraro Spa for use of its brand name, logo and trademark instead of ₹ 147,57,866/- as mentioned in the above show cause notice and the balance of ₹ 659,001/- has been paid as royalty for product technology. In this regard the Ld. DRP has given directions to the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.3 onwards of their order had upheld the reasoning and findings given by the TPO and the objection of the assessee was rejected. However, the Ld. DRP had directed the TPO to examine the claim of assessee on the total amount of ₹ 1,40,98,865/- instead of ₹ 1,47,57,866/- being difference of ₹ 6,59,001/-, to be decided accordingly. 13. The Ld. AR for the assessee submitted that this issue had come up for consideration before the Tribunal in assessee's own case for the assessment year 2009-10 and thereafter, also in assessment year 2010-11. In the order of the Tribunal for the assessment year 2010-11, it had considered its earlier order for the assessment year 2009-10. The crux of the discussions wherein in the Tribunal's order for the assessment year 2009-10, it has observed that the assessee had paid brand royalty under two agreements, first, at 0.5% under the agreement dated 01.07.2008 and then again under another agreement dated 05.04.2001. The duplicate amount of royalty earlier paid was directed to be disallowed. The relevant part of this Tribunal order in ITA No.1261/PUN/2018 and ITA No.1309/PUN/2018 for the assessment year 2010-11 in assessee's own case are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for use of trade mark license once again under the second agreement for which the TPO proposed TP adjustment of the full amount of ₹ 75.41 lakh, cannot be allowed once again. Thus, royalty paid for use of trade mark license pertaining to steering axle and accessories for 35 and 55 HP tractors, included in the amount of ₹ 75.41 lakh is required to be disallowed as a duplicate payment. The ld. AR was fair enough to concede this position. He submitted certain details, as per which a sum of ₹ 4,95,166/- has been calculated as duplicate amount of royalty that could be disallowed. While making such a calculation, the ld. AR made a departure from the submission made on the earlier date as per which royalty paid at the rate of 2% for use of technical know-how and trade-mark was discontinued w.e.f. 30.6.2008. It was now stated that only royalty for use of brand name was discontinued w.e.f. 1.7.2008, but royalty for use of technical know-how continued to be paid even after 1.7.2008. The AO/TPO is directed to verify this contention of the assessee on the basis of the relevant documents and then work out the duplicate amount of royalty paid for use of brand/l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome earned from fees by Carraro Spa from services is Euro 91,88,342 against which total costs incurred on services are Euro 1,38,44,407. The above cost is in addition to personnel costs of Euro 1,53,91,138/- incurred for the year. The provision of services by headquarters to its subsidiaries including Carraro India, helps reduction in overall costs of such services as the services are not duplicated at all the locations which avoids duplication of activities, imbibes expertise in respective function and enables better bargaining with third parties including suppliers, bankers etc. resulting in savings to the entire group companies including Carraro India (P) Limited. This was demonstrated by lower employees costs in the case of Carraro India compared other comparables. 19. The TPO had issued show cause notice to the assessee in respect of management services and the same is extracted herein below: "4. Management Services : 4.1 It is seen that two agreements are entered into with the AEs dated 15-12-2008 w.e.f. 1-7-2008 for advisory services. In one agreement with Carraro Drivetech SpA, Italy, payment of ₹ 3,21,74,545/- is made for finance, HR, Legal, IT, business deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove facts, state why the arm's length price of the above transaction should not be treated at Nil as against ₹ 7,57,83,667/-" Thereafter, considering the submissions of the assessee as afore-stated, the TPO observed that the amount of ₹ 7,70,84,894/- was quite large and significant, considering the fact that this is second year in which such a transaction is reflected by the assessee. 20. The TPO further observed that the assessee has not given any evidence regarding the services being provided by headquarters. The assessee has only furnished evidence in the form of e-mails and letters in respect of such services provided by headquarters without giving any concrete evidence of services provided. The TPO has also opined that no contemporaneous records were produced to indicate that such a need was identified which preceded the entering into agreement for such services. In nutshell, the TPO observed that there are no direct evidences of receipt of services and even the need for such services was not clear in the case of the assessee. 21. Per contra, the Ld. AR for the assessee submitted that in the preamble of the agreement itself, it spells out the need for these se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices were availed by the assessee, then his jurisdiction gets restricted to determining the ALP of the transaction. We have noticed above that the assessee did avail services from its AEs. In such a situation, it is held that the view point of the authorities that NIL ALP should be determined because the assessee did not get any benefit out of the services, is rejected. …………………." Thereafter, the Tribunal in assessee's own case for the assessment year 2009-10 (supra.) had set aside the matter to the file of the Assessing Officer/TPO by observing as follows : "34. It has been noted above that the TPO proceeded to determine Nil ALP on the reason that the assessee did not avail any services. We have found out supra that the services were, in fact, availed by the assessee. Since neither the exercise done by the TPO for benchmarking the international transaction, either originally or during the course of the first appellate proceedings, is sustainable nor the view point of the TPO determining Nil ALP can be affirmed because of the assessee having actually availed the services, we are of the considered opinion that the ends of justice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee will be allowed reasonable opportunity of hearing in such fresh determination. The ground taken by the Revenue is dismissed and that by the assessee is allowed for statistical purpose." 23. The Ld. DR fairly conceded that on the similar set of facts and circumstances, this issue is covered as per the Tribunal order and following the same parity of reasoning, we set aside the impugned order on this score and remit the same to the file of the Assessing Officer/TPO for fresh determination of ALP of the international transaction of payment of management services fee in accordance with the observations and directions given in the Tribunal order passed for the assessment year 2009-10 and 2010-11 (supra.). Thus, Grounds No. 11 to 14 are allowed for statistical purposes. 24. Ground No.2 pertains to disallowance u/s.37 of the Act in respect of royalty expenditure incurred by the assessee. 25. The Ld. AR submitted that this issue is covered by the decision of the Pune Bench of the Tribunal in assessee's own case for the assessment year 2010-11 (supra.). The Tribunal has discussed this issue vide Para 6 of its order and the same reads as follows: "6. Now we turn to the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Ld. DR submitted that there is no difference on the facts and circumstances for this year also and the issue is covered in favour of the assessee. That when the facts and circumstances are similar and that a view has already been taken which is factually analyzed, therefore, on same parity of reasoning under same set of facts and circumstances, we allow this ground of appeal. Thus, Ground No.2 raised in appeal by the assessee is allowed. 28. Ground No.4 pertains to disallowance u/s.37 of the Act in respect of legal and professional fees incurred by the assessee on account of HR, legal, IT, finance, sales, marketing and other ancillary services. 29. The Ld. AR for the assessee submitted that this issue had also come up for consideration before the Tribunal in assessee's own case for the assessment year 2010-11 (supra.) and the Tribunal vide Para 10 of its order on the issue has discussed as follows: "10. ………………. At the time of passing the assessment order, the AO observed that total Legal and Professional charges paid by the assessee, including those paid to AE, stood at ₹ 5,86,35,491/-. Adopting the reasoning given by the TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g funds have been used for making investment." 34. The Ld. DR for the Revenue fairly conceded that the findings of the Ld. DRP are correct on the present set of facts and circumstances in respect of both the issues raised in Revenue's appeal. 35. Ground No.1 pertains to the deletion of addition on account of commission of sale as the assessee had failed to deduct TDS u/s.195 of the Act. Before the Ld. DRP, the objection No.11 raised by the assessee reads as under: "On the facts and circumstances of the case, the learned AO has erred both on facts & in law in proposing to disallow an amount of ₹ 1,61,03,794/- on account of commission on sale by invoking the provision of section 40(a)(i) of the Act." 36. The brief facts on this issue are that the assessee made commission payments of ₹ 1,61,03,794/- during the year to overseas sales agents. During the assessment proceedings, it was noticed that the assessee did not make TDS in respect of these payments u/s.195 of the Act. The Assessing Officer held that this expenditure was disallowable under the provisions of section 40(a)(i) of the Act by citing the following reasons : (i) Though these services were rendered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions of the assessee. The incomes which are deemed to accrue or arise in India are specified in section 9 of the IT Act. Considering the nature of service rendered by the assessee from outside India and the absence of any presence of the agent in India, the taxability of the income earned by the overseas sales agents needs to be examined u/s.9(1)(vii) dealing with "Fees for Technical Services" and not under section 9(1)(i) dealing with "Income arising from business connection". The services rendered by way of booking export orders can no way be considered as either technical or managerial or consultancy services within the meaning of the term "Fees for technical services" as defined in section 9(1)(vii) of the IT Act. 8.4 Hence, the assessee had no statutory obligation to make TDS u/s.195 of the IT Act in respect of the commission paid to overseas sales agents. Hence, the disallowance of the said expenditure on the grounds of failure to make TDS is not permissible. 8.5. Therefore, we direct the AO to delete the proposed addition of ₹ 1,61,03,794/- u/s.40(a)(ia)." 39. After hearing the submissions of the Ld. DR and going through the findings of the Ld. DRP, we do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Holecim India Pvt. Ltd. (272 ITR 282), no disallowance can be made u/s.14A in the absence of any exempt income during the year. Hence, by relying on the said decision, we delete the addition of ₹ 4,22,929/- proposed by the AO u/s.14A." 44. The Ld. AR on this issue relied on the decision of the Hon'ble Bombay High Court in the case of Pr. Commissioner of Income Tax Vs. Kohinoor Projects (P) Ltd., IT Appeal No.1124 of 2017 dated 27th January, 2020 reported in 425 ITR 700 (Bombay). In this case, the Hon'ble Bombay High Court had held that Section 14A would not apply when no exempt income was received or was receivable during the relevant previous year. That when the matter was before the Tribunal, it had considered the contentions of the assessee that no exempt income was claimed by the assessee u/s.14A of the Act and therefore, no disallowance could have been made by the Assessing Officer by invoking section 14A r.w.Rule 8D of the Income Tax Rules, 1962. The Tribunal relied upon the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ld. Vs. CIT (2015) 61 taxmann.com 118/234 Taxman 761/378 ITR 33 (Delhi); the decision of the Punjab & Haryana Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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