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TMI Blog2016 (7) TMI 1699X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and it has to be duly respected as the same is signed between two countries under agreement for avoidance of double taxation. Therefore, the assessee succeeds in its appeal on this issue. Determining ALP by making downward adjustment in respect of excess fees paid for technical services to AEs - HELD THAT:- DRP has only computed the correct fee payable by the assessee to its AE in accordance with the rate prescribed towards the eligible turnover while as the assessee had computed the fee according to their convenience and advantage disregarding the agreement with its AE. For the irrational payment made by the assessee over and above the terms of the agreement between the assessee and its AE the DRP/TPO has revised the profit of the assessee by downward adjustment. Therefore, we do not find it necessary to interfere with the orders of the learned DRP and the learned Assessing Officer. Accordingly, this issue is decided against the assessee. Appeal of the assessee is partly allowed. - N.R.S. Ganesan, Member (J) And A. Mohan Alankamony, Member (A) For the Appellant : Sriram Seshadn and Ashik Shah, Advocates. For the Respondents : Milind M. Bhusari, CIT. ORDER A. MOHAN ALANKAMONY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en India and France includes payment for use of equipments to be taxed in the contracting state, Article 12 of the treaty between India and Sweden excludes the same. Therefore, as per protocol 7 of the treaty between India and France, the assessee would not be liable to deduct tax at source because such income will not be taxable in India. However, the learned Assessing Officer was of the view that protocol 7 of the treaty only speaks about adoption of lower rate in case of use of equipment and payment made thereof and accordingly tax has to be deducted at source. Since the assessee has not deducted tax at source, the learned Assessing Officer invoked the provisions of section 40(a)(i) of the Act and disallowed the payment made towards bare boat charter hire rental charges. 4.2 The learned DRP confirmed the order of the learned Assessing Officer by observing as under: 3.2.4 Even the DTAA between India and France also clarifies that the bare boat hire charges are in the nature of royalty . Hence the above bareboat hire charges amounts to royalty for the purpose of Income Tax and becomes assessable to tax in India in the hands of the recipient. Therefore, the assessee, being the remi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the provisions of section 9(1)(vi) of the Act as well as under the DTAA between India and France. Hence the assessee is under the obligation to withhold tax u/s. 195 of the Act. As the assessee failed to withhold any tax, there was a violation u/s. 40(a)(i) r.w.s. 195 of the Act. Therefore, the action of the Assessing Officer proposing to disallow the above bareboat hire charges u/s. 40(a)(i) r.w.s. 195 of the Act, is as per the Act and needs no interference. The assessee fails in its objections in this regard. 4.3 Before us, the learned Authorized Representative argued by reiterating his submissions made before the Revenue Authorities on earlier occasions, while as the learned Departmental Representative argued in support of the orders of the Revenue. 4.4 We have heard the rival submissions and carefully perused the materials available on record. On perusing the Indo-France treaty protocol 7, we are of the view that the contentions of the learned Authorized Representative have merit. The relevant protocol is reproduced herein below for reference: 7. In respect of articles 11(Dividends), 12 (interest) and 13(Royalties, fees for technical services and payments for the use of equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration payable is 3% of project turnover. The working furnished by the assessee shows that the eligible turnover as per books is Rs. 233,55,79,617/- and the fees for technical services (3% net grossed up for 10% TDS) comes to Rs. 7,78,52,654/-. As against this amount, the assessee paid Rs. 10,20,34,943/- which is in excess by Rs. 2,41,82,289/-. The TPO also observed that as per the clause 4.1 of the agreement entered into by the assessee with its AE, Tideway BV, the assessee has to pay technical assistance fee @ 3% on assessee's project turn over. Project turnover, as per the said agreement, is defined as excluding ineligible turnover. The eligible turnover represents turnover for which the assessee has raised invoices. Whereas the assessee's eligible turnover as per books is ₹ 233,55,79,617/- and 3% (net grossed up for 10% TDS) of which comes to Rs. 7,78,52,654/-.Hence the TPO determined the ALP of the fees for technical services at ₹ 7,78,52,654/- as against ₹ 10,20,34,943/- claimed by the assessee and accordingly proposed a downward adjustment of ₹ 2,41,82,289/-. The relevant portion of the TPO's order is as under:-- 10.2 It is a fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what it would be obliged to pay, which constitutes the relevant cup for benchmarking the said transaction. Assessee has debited an amount of ₹ 10,20,34,943/- in its profit and loss account for the F.Y. 2009-10 as fees for technical assistance and also the same has been reported as international transaction in its 3CEB Report. Therefore, the difference between the transaction price and the Arm's Length Price(what the assessee was obliged to pay) comes to ₹ 2,23,00,288/- and the same constitutes a downward adjustment while computing the income from this international transaction with AE. 5.2 The learned DRP thereafter proposed a downward adjustment of ₹ 2,41,81,289/- by observing as under:-- 3.1.3 We have considered the order of the TPO, the contentions of the assessee, etc. carefully. The assessee is required to pay technical services fees @ 3 of the project turnover. The payments are governed by the agreement between the assessee. As per the agreement the technical services fees is to be paid @ 3% on assessee's project turnover. The project turnover is also defined as excluding ineligible turnover. The eligible turnover represents turnover for which the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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