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TMI Blog2024 (1) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sovereign's prerogative to extend the treaty protection to domestic companies paying dividend distribution tax through the mechanism of DTAAs. Thus, wherever the Contracting States to a tax treaty intend to extend the treaty protection to the domestic company paying dividend distribution tax, only then, the domestic company can claim benefit of the DTAA, if any. we hereby dismiss Ground Nos. 6 to 9 of the assessee s appeal. Disallowance of reimbursement of expenses u/s 37 - assessee had reimbursed a sum to Schaeffler Technology GMBH and CO KG, Germany on account of professional services rendered by E.Y. Germany in lieu of Agreement entered with Schaeffler Germany - HELD THAT:- We are of the considered view that in the interests of justice the matter may be restored to the file of the Ld. A.O. so as to allow the assessee to produce relevant documents / evidences in support of claim of deduction of the aforesaid expenses under Section 37 of the Act. TP Adjustment - MAM selection - benchmarking of Royalty using CUP Method instead of TNMM Method - HELD THAT:- We observe that ITAT Ahmedabad in assessee s own case for A.Y. 2002-03 [ 2014 (11) TMI 552 - ITAT AHMEDABAD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondent : Dr. Darsi Suman Ratnam, CIT D.R. And Shri Ashok Kumar Suthar, Sr. D.R. ORDER PER BENCH: These bunch of appeals have been filed by the Assessee and the Revenue against the orders passed by the Ld. Commissioner of Income Tax (Appeals)-13 (in short Ld. CIT(A) ), Ahmedabad vide orders dated 09.01.2023 passed for the Assessment Years 2010-11 to 2014-15 2010-11 to 2013-14. 2. At the outset, we observe that the appeal filed by the Department is time barred by 01 day. Before us, the Ld. D.R. submitted before us that the file could not be filed due to the fact that Memorandum of Authorization was received on 06.03.2023 and there was a holiday on 08.03.2023. Accordingly, the appeal could not file within the prescribed time. Accordingly, looking into the facts of the instant case and reasons cited by Ld. D.R., the delay of 01 day in filing of the present appeal is hereby condoned. 3. We shall first take up the Assessee s and Department s appeal for A.Y. 2010-11, and our observations made for these years shall apply to the balance years as well, wherever applicable. We shall first take up the assessee s appeal for A.Y. 2010-11 (ITA No. 133/Ah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in initiating penalty proceedings u/s 271(1)(c) of the Act. 13) Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal. 5. At the outset, the Counsel for the assessee submitted that in respect of Grounds 6 to 9 of the assessee s appeal (Refund of excess amount of Dividend Distribution Tax ( DDT ) of Rs. 2,84,774/-), the assessee company had declared and paid dividend to Schaeffler GMBH, a tax resident of Germany and paid Dividend Distribution Tax @ 16.995%. As per Article 10(2) of the Act DTAA between India and Germany, the Dividend paid to German Shareholder was liable to tax @ 10%. However, the Counsel for the assessee submitted that the case is now covered against the assessee by virtue of decision of ITAT Mumbai, Special Bench in the case of Total Oil India Pvt. Ltd. 149 taxmann.com 332 (Mumbai) (SB), and accordingly, the Counsel for the assessee submitted that Grounds 6 to 9 of the assessee s appeal may accordingly be decided against the assessee in light of the aforesaid decision cited above. 6. We observe that ITAT Mumbai Special Bench in the case of DCIT vs. Total Oil India Pvt. Ltd. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The tax treaties are agreements between the treaty partner jurisdictions, and agreements are to be interpreted as they exist and not on the basis of what ideally these agreements should have been. (g) A tax treaty protects taxation of income in the hands of residents of the treaty partner jurisdictions in the other treaty partner jurisdiction. Therefore, in order to seek treaty protection of an income in India under the Indo French tax treaty, the person seeking such treaty protection has to be a resident of France. The expression 'resident' is defined, under article 4(1) of the Indo French tax treaty, as any person who, under the laws of that Contracting State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature . Obviously, the company incorporated in India, i.e. the assessee before us, cannot seek treaty protection in India- except for the purpose of, in deserving cases, where the cases are covered by the nationality non-discrimination under article 26(1), deductibility non-discrimination under article 26(4), and ownership non-discrimination under article 24(5) as, for example, article 26(5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intend to extend the treaty protection to the domestic company paying dividend distribution tax, only then, the domestic company can claim benefit of the DTAA, if any. Thus, the question before the Special Bench is answered, accordingly. 84. We wish to place on record our appreciation for the assistance provided by the ld. counsels for the parties and the interveners and the ld. DR for the assistance provided to the Bench in deciding the issue referred to the Special Bench. 84.1 These appeals/COs are restored to the respective Division Benches for deciding the issues raised in the respective appeals, accordingly. 7. In view of the above observations made by Mumbai Special Bench, we hereby dismiss Ground Nos. 6 to 9 of the assessee s appeal. Ground No. 1 to 5 of assessee s appeal (Disallowance of reimbursement of expenses under Section 37 of the Act Rs. 31,63,877) 8. The brief facts in relation to these Grounds of Appeal are that the assessee had reimbursed a sum of Rs. 31,63,877/- to Schaeffler Technology GMBH and CO KG, Germany on account of professional services rendered by E.Y. Germany in lieu of Agreement entered with Schaeffler Germany. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he most accurate results. This is one method that compares prices exchanged, while other methods compare profits. This method, therefore, calls for a high level of accuracy in the comparability analysis? 3. Whether, the Ld. CIT(A) has erred in law and facts in not appreciating the findings of the TPO that the assessee has clubbed the payment of royalty, fee for market support and fee for management services with its other transactions to carry out a benchmarking study adopting TNMM at the manufacturing activity level. The Hon'ble ITAT's in the case of UCB India Private Limited Vs. ACIT ITA No. 428 429/Mum/2007 has also stated that TNMM should be applied on transaction basis and not on clubbing dissimilar transactions. 4. Whether, the Ld.CIT(A) has erred in law and facts in deleting the addition of Rs. 6,72,66,305/-(upward adjustment) proposed by the TPO on account of benchmarking of payment of marketing support service/Management Fees to Schaeffler Holding (China) Co. Limited. 5. Whether, the Ld. CIT(A) has erred in law and facts in not appreciating the findings of the TPO that the services performed by AE (directly or through other AEs) fall into the categ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that aggregation is not permissible while computing Arm s Length Price. However, the TPO has failed to differentiate this ruling rendered by Hon ble Supreme Court. Accordingly, the D.R. submitted that Ld. CIT(A) erred in facts and in law in deciding this issue in favour of the assessee. In response, Counsel for the assessee relied on the observations made by Ld. CIT(A) in the appellate order. 17. We have heard the rival contentions and perused the material on record. The issue for consideration in respect of this ground of appeal are that the assessee had computed Royalty of Rs. 13,04,47,480/- to Scheffler KG, Germany and Rs. 10,81,370/- to Schaeffler Korea Corporation, which were the owners of Royalty for manufacturing of products. The Royalty was paid as fees for technical services for knowhow related to manufacturing of bearings. The rate of Royalty has been fixed on the basis of classification of products as Scheduled and non- Scheduled products and on the basis of domestic or export sales. The export sales attracted 8% Royalty rates. For Scheduled products, the Royalty was 3% and for non-Scheduled products, the Royalty was 5%. The TPO observed that up to the year 2000 the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ITA T in Assessee's appeal .ITA No. 793/AHD/2006 in respect of adjustment in Royalty segment 29. Coming to the ground no. 7, we have heard the parties and gone through the written submission. We find that the ld. CIT(A) in its order has held thai royalty at 1. 5% only represent reasonable royalty. This finding is on the basis of the appellate order pertaining to AY 2001-02. ft is also held that the benchmarking of royalty is to he done for EOU as well as DTA. The grievance of the assessee is that the ld. CIT(A) erred in relying upon the rates of royalty for controlled transaction of SKF. The contention of the assessee is that the fundamental principle of CUP is that the comparable transaction has to be uncontrolled Transaction , meaning thereby that it has to be a transaction between two parties who are not related to each other. SKF transaction is not eligible to be treated as CUP as it is with related party. The another contention of the assessee is that the TPO and ld. CIT(A) has relied upon the rates of royalty paid by the assessee during the earlier years. The contention is that this transaction is also with related parties as it is given to a related party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as given arguments in favour of the CUP method as selected in the assessment being the most appropriate method of benchmarking and cited several case laws in it's favour as well. However., on the second aspect of the direction it has stated that if TNMM is taken to be the MAM, the transaction is at ALP. 3.7 It is seen that the AO has vehemently objected to the ITAT Ahmedabad treating TNMM as the MAM for determination of ALP in this case in previous AYs 2002-03 to 2009-10. However, judicial discipline demands that the ratio of the Higher Court/Tribunal has to be followed if the facts are identical. Further the case of AY 2002-03 has been settled upto the level of ITAT for AY 2002-03. In view of the same, following the order of the ITAT Ahmedabad in it's own case, I also hold that TNMM is the MAM for determination of Royalty in this case. Since the TPO/AO has held that as per the TMMM the Royalty paio is benchmarked at Arm's length, accordingly the entire upward adjustment of Rs. 2,13,09,160/- is directed to be deleted. Ground of appeal 1 to 5 is allowed. 18. In our considered view this issue is squarely covered in favour of the assessee vide ITAT orders passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of the assessee by the case of another group company in favour of the assessee, INA Bearings India Pvt. Ltd. vide order dated 24.06.2019 of ITAT Pune in ITA No. 150/PN/2017 for A.Y. 2011-12. The assessee submitted that the ITAT Pune had analyzed the same issue of payment of management fees to Schaeffler China and the decision in the aforesaid case rendered by Pune ITAT in respect of a group entity, has a direct correlation and bearing on the issue under consideration before Ld. CIT(A). 22. Accordingly, Ld. CIT(A) carried out a point-wise comparison between the facts of the assessee s case and the decision of INA Bearings for A.Y. 2011-12 and decided the issue in favour of the assessee. 23. The Department is in appeal before us against the aforesaid order passed by Ld. CIT(A) deciding the issue in favour of the assessee. Before us, D.R. submitted that Ld. CIT(A) has ignored the fact that no specific documents were provided by the assessee for justifying the payment of Management Fees. This vital fact has been ignored by the Ld. CIT(A) while deciding the issue in favour of the assessee. Further, the D.R. submitted that this issue has been decided in favour of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case as below: a) The first question which arises for our consideration is as to whether the TPO was right in determining the ALP of the international transaction of payment of Fees for Management services in a segregated manner? This issue was specific to the case of INA Bearing wherein Management fees was aggregated under the head manufacturing and trading payments and the TPO segregated the same and culled out Fees for Management services and then went on to determine the ALP for this international transaction. The ITAT held the action of TPO as correct. However, in the present case of my appellant it is seen that Fees for Management Services is already shown separately and this part of the ITAT order has no relevance in my case. b) The ITA T then went on to find whether there was any agreement for rendition of Management support services? In the case before the Tribunal such Service Level Agreement existed between INA Bearing and Schaeffler China. Similarly in the case of present appellant also, similar SLA was part of paperbook furnished by the appellant. The wordings of the agreement are identical in c-both with respect to the scope of services th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT Pune found that Schaeffler China provided services under head Business Development , Finance Controlling Services , Human Resources services, Purchasing/Procurement services , Supply chain Management services , Process and Information services and Distribution sales services etc. It held that patently such services are in the nature of normal business services performed with a view to enable the assessee to carry out its business operations producing effect on the assessee company and hence do not qualify as 'stewardship activities', thereby overturned the TPO action pro-tanto. In the case of my appellant also the same ratio applies in toto, mutatis mutandi as the services provided were identical in nature. e) whether (he international transaction of payment of Fees for Management support services to the tune ofRs.5,65,53,971/- was of ALP? The ITAT Pune measured the issue, on the basis of two aspects of TPO s order, viz.. 1. The TPO held that the services received from Schaeffler China as stewardship activities leading to Nil ALP The ITAT decided this issue by discussing the duties of AO and TPO to whom issue is referred only for pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice fee was charged at a mark up of 5% to actual cost as in the case of IMA Bearings. 4.5 A very crucial aspect is that for AY 2013-14 2014-15 similar Management fees was paid by the appellant of Rs 14,80,65,367/- Rs 9,94,05,195/- to Schaeffler China. However, the TPO has accepted the payment and not made any adjustments and accepted the same to be at Arm's length. 4.6 Despite the fact that during the year under consideration INA Bearing was a group concern and related party. But by a scheme of merger the same got merged with Schaeffler India and now part of the appellant concern. The issue involved in that case as dealt by ITAT Pune is identical with the adjustment made in the case of this appellant and SLA, terms of payments, TPO not finding any clear finding that services were not rendered, similarly holding the services provided as shareholder activity which it was not empowered to and without application of prescribed methods of ALP determination holding the same at NIL is very similar. Hence following the case of ITAT Pune in the case of INA Bearings, in this case also the adjustment of Rs 6,72,66,305/- paid as Management fees to Schaeffler India is direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f excess Dividend Distribution Tax - Rs. 28,25,264: 6) The learned CIT(A) erred in fact and in law in not directing the learned AO to grant refund of excess amount of Dividend Distribution Tax ( DDT ) of Rs. 28,25,264 paid on dividend distributed to the German Shareholder. 7) The learned CIT(A) erred in fact and in law in not appreciating the fact that as per Double Avoidance Taxation Agreement ( DTAA ) between India and Germany, the liability of tax on dividend received by the German resident does not exceeds 10% of the dividends. 8) The learned CIT(A) erred in fact and in law in taxing the dividend income paid to the nonresident shareholder in excess of rate specified under DTAA without appreciating the provisions of section 90(2) of the Act in proper perspective. 9) The learned CIT(A) erred in fact and in law in disallowing the claim made by the Appellant on account of refund of excess DDT paid during the year without appreciating the law in proper perspective. Other Grounds: 10) The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s 234A of the Act. 11) The learned CIT(A) erred in fact and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the payment of royalty, fee for market support and fee for management services with its other transactions to carry out a benchmarking study adopting TNMM at the manufacturing activity level. The Hon'ble ITAT's in the case of UCB India Private Limited Vs. ACIT ITA No. 428 429/Mum/2007 has also stated that TNMM should be applied on transaction basis and not on clubbing dissimilar transactions. 4. Whether, the Ld.CIT(A) has erred in law and facts in deleting the addition of Rs. 7,68,83,552/- (upward adjustment) proposed by the TPO on account of benchmarking of payment of marketing support service/Management Fees to Schaeffler Holding (China) Co. Limited. 5. Whether, the Ld. CIT(A) has erred in law and facts in not appreciating the findings of the TPO that the services performed by AE (directly or through other AEs) fall into the category of stewardship activity as defined by Hon'ble Supreme Court of India (to say nothing about the charge for such services being not in consonance with the type of services provided). 6. Whether, the Ld. CIT(A) has erred in law and facts in not appreciating the findings of the TPO that the assessee had not produced any det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the law in proper perspective. 5) Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal. Ground Nos. 1 to 5 (Refund of Excess Dividend Distribution Tax Rs. 26,59,672/-) 40. We observe that Ground Nos. 1 to 5 of the assessee s appeal are similar to Ground Nos. 6 to 9 of the assessee s appeal for A.Y. 2010-11. 41. Accordingly, in view of our observations for similar grounds of appeal for A.Y. 2010-11, Ground Nos. 1 to 5 of assessee s appeal are dismissed for A.Y. 2012-13. Now we shall take up Department s appeal for A.Y. 2012-13 (ITA No. 149/Ahd/2023) 42. The Department has raised the following grounds of appeal:- 1. Whether, the Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,75,44,000/- (upward adjustment) proposed by the TPO on account of benchmarking of Royalty using CUP Method instead of TNMM Method? 2. Whether, the Ld.CIT(A) has erred in law and on facts in not appreciating the findings of the TPO that CUP is a direct method and one that can give the most accurate results. This is one method that compares prices exchanged, while other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 070/-) 45. We observe that Ground Nos. 4 to 6 of the Department s appeal are similar to grounds 4 to 6 of the Department s appeal for A.Y. 2010- 11. 46. In view of our observations made for similar grounds of appeal for A.Y. 2010-11, we are hereby dismissing Ground Nos. 4 to 6 of the Department s appeal for A.Y. 2012-13. Now we shall take up the assessee s appeal for A.Y. 2013-14 (ITA No. 136/Ahd/2023) 47. The assessee has raised the following grounds of appeal:- Refund of excess Dividend Distribution Tax - Rs. 53,02,725: 1) The learned CIT(A) erred in fact and in law in not directing the learned AO to grant refund of excess amount of Dividend Distribution Tax ( DDT ) of Rs. 53,02,725/- paid on dividend distributed to the German Shareholder. 2) The learned CIT(A) erred in fact and in law in not appreciating the fact that as per Double Avoidance Taxation Agreement ( DTAA ) between India and Germany, the liability of tax on dividend received by the German resident does not exceeds 10% of the dividends. 3) The learned CIT(A) erred in fact and in law in taxing the dividend income paid to the nonresident shareholder in excess of rate specified u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013-14 are similar to Ground Nos. 1 to 3 of Department s appeal for A.Y. 2010-11. 52. In view of our observations with respect to similar grounds of appeal raised by Department for A.Y. 2010-11, we are hereby dismissing Department s Ground of Appeal Nos. 1 to 3 for A.Y. 2013-14 as well. Now we shall take up the assessee s appeal for A.Y. 2014-15 (ITA No. 135/Ahd/2023) 53. The assessee has raised the following grounds of appeal:- Refund of excess Dividend Distribution Tax - Rs. 29,83,082: 1) The learned CIT(A) erred in fact and in law in not directing the learned AO to grant refund of excess amount of Dividend Distribution Tax ( DDT ) of Rs. 29,83,082/- paid on dividend distributed to the German Shareholder. 2) The learned CIT(A) erred in fact and in law in not appreciating the fact that as per Double Avoidance Taxation Agreement ( DTAA ) between India and Germany, the liability of tax on dividend received by the German resident does not exceeds 10% of the dividends. 3) The learned CIT(A) erred in fact and in law in taxing the dividend income paid to the non-resident shareholder in excess of rate specified under DTAA without appreciating the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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