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TMI Blog2022 (5) TMI 1620X X X X Extracts X X X X X X X X Extracts X X X X ..... e extent or DDT? - HELD THAT:- We find that the ITAT Mumbai Bench in the case of Dy Cit 11 (3)(1), Mumbai vs Total Oil India Pvt Ltd. [ 2021 (6) TMI 855 - ITAT MUMBAI ] in Assessment year 2016-17 has for identical reasons given by the DRP, made a reference to Special Bench disagreeing with the view of the ITAT Delhi in the case of Gieseck. Devrient [India] Pvt Ltd. [ 2020 (10) TMI 750 - ITAT DELHI ] Since the issue has not attained finality, we are of the view that it would be just and appropriate to remand the issue to the TPO/AO for fresh consideration in accordance with law. The grounds are treated as partly allowed for statistical purpose. X X X X Extracts X X X X X X X X Extracts X X X X ..... order, the Tribunal held as follows: "15. We have considered the rival submissions. We are of the view that the issue with regard to Most Appropriate Method in the case of assessee had already been settled by the Tribunal. The TPO as well as the DRP have not followed the aforesaid decision of the Tribunal on the ground that economic life of the technology had an impact on the MAM and that technology in question was to be used by start-ups and since the assessee was using the technology for a fairly long period of more than 5 years, it would not be proper to adopt the TNMM as the MAM, as the economic life of the technology would no longer exist. In our view, there is no basis for .be TPO as well as the DRP to come to a conclusion that technology in question was to be used by a start-up. There is no basis for the TPO and DRP to come to a conclusion that the Assessee is a start up in manufacture of various parts for automobiles. The technology in question was that of TMC Japan. The technology is being used by the Assessee even today. There is no basis for the TPO/DRP's conclusion that the useful economic life of the technology would be only 5 years. In any event passage of time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit split method typically would not be appropriate in view of the functional analysis of that party". 16. The revised guidance (June 2018) on the application of transactional PSM, provided by the OECD state the importance of delineating the transactions in determining whether the PSM is applicable or not. The relevant extract from the OECD Guidelines is provided below: "2.125. The accurate delineation of the actual transaction will be important in determining whether a transactional profit split is potentially applicable. This process should have regard to the commercial and financial relations between the associated enterprises, including an analysis of what each party to the transaction does, and the context in which the controlled transactions take place. That is, the accurate delineation of a transaction requires a two-sided analysis (or a multi-sided analysis of the contributions of more than two associated enterprises, where necessary) irrespective of which transfer pricing method is ultimately found to be the most appropriate. 2.126. The existence of unique and valuable contributions by each party to the controlled transaction is perhaps the clearest indic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be true that the Assessee aggregated payment of royalty with the transaction of manufacturing as it was closely linked and adopted TNMM but that does not mean that the transactions are so interrelated that they cannot be evaluated separately for applying PSM. Further, the Assessee does not make any unique contribution to the transaction, hence PSM in this case cannot be applied. 18. Therefore, we are of the view that TNMM is the Most Appropriate Method in the case of assessee. The decision of the Tribunal in the earlier AY 2008-09 has also been upheld by the Hon'ble High Court of Karnataka in ITA No.104/2015, judgment dated 16.7.2018, which was an appeal of the revenue against the order of Tribunal for AY 2008-09. The Tribunal has upheld TNMM as MAM from AY 2007-08 to 2011-12. In those AYs the dispute was whether TNMM or CUP was the MAM. It is for the first time in AY 2013-14 that the revenue has sought to apply PSM as MAM. In the given facts and circumstances, we are of the view that TNM Method is the Most Appropriate Method and the AO is directed to apply the said method in determining the ALP, after affording opportunity of being heard to the assessee. The grounds of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. The learned AO/ Hon'ble DRP erred in not appreciating the Hon'ble Delhi ITAT' s ruling in the case of Giesecke & Devrient [India] Pvt Ltd v. A CIT [2020] 120 taxmann.com 338 where it was held that the tax on dividend should be restricted to the tax rates mentioned in the relevant tax treaty. 8. During the AY 2016-17, the assessee had paid dividends to its shareholders and paid DDT as follows: Name of the Shareholder Country Dividend DDT paid (a) 20.925% Toyota Motor Corporation Japan 116662033 24411530 Toyota Industries Corporation Japan 47393951 9917184 Kirloskar ystems Limited India 18228443 3814302 Total 182284427 38143016 The assessee has raised an objection that the AO ought to have restricted the levy of DDT on the dividends distributed to the nonresident stakeholders to 10 % in terms of Article 10 of the India-Japan DT AA instead of 20. 925 % as DDT is in the nature of tax on income in the form of dividend and hence the beneficial tax rate as per the Act or the. DTAA should be available to assessee. The assessee relied on the decision of the Delhi Bench of ITAT in the case of Gieseck.c & Devrient [India] Pvt Ltd v. ACIT[2020] 120 taxman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90 I TD 519 (Mum).A similar argument on applicability of tax treaty to DDT was considered and rejected by the South African High Court in the case of Volkswagen of South Africa (Pty) Ltd. CIT South African Revenue Service [Case No.24201/2007" dated 25-4-2008]. The issue before the High Court was whether 'secondary tax on companies' (STC) (akin to DDT) levied as per the South African domestic tax law could be regarded as a tax covered within the ambit or the South Africa-Germany Tax Treaty. Article 7 of the South Africa-Germany provided for a withholding tax rate of 7.5 % under the Dividend Articles whereas the STC was levied at 12.5%. The High Court held that STC was not a tax on dividends but was a tax imposed on the company declaring the dividends and hence outside the ambit of the tax treaty (unlike in the case of non-resident shareholder tax, which is imposed on the shareholder). In view of the above discussions, we hold that the dividend distribution tax is not a tax on dividends but is a tax imposed on the company declaring the dividends and hence outside the ambit of the tax treaty. Therefore, it needs to be taxed in accordance with the provisions of Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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