9911796707
TMI Blog2024 (7) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeal relates to the issue of provision of software technical and consultancy services. 4. The brief facts of the case are that the assessee is a leading global information technology consulting services and outsourcing company having worldwide presence of more than 20 years. TCS provides consultancy services, develops and implements products for customers covering on all matters pertaining to implementation of computer software and hardware systems, management of data processing and information systems and data communication systems. It carries out its overseas operations through a web of foreign subsidiaries which act as marketing and sales support companies of TCS. 5. During the year under consideration, the assessee has reported among others the following international transactions with its AEs:- Sr. No. Nature of transaction Transaction amount (Rs.) Method 1. Provision of software and consultancy services 45359,63,87,176 TNMM 2. Availing of services 1390,75,49,727 TNMM 3. Interest received on amount of loan outstanding 11,199,637 Other method 4. Guarantee fees 295,453,615 Other method 6. The present quarrel revolves around is the provision of software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e TPO observed that the TPO in the earlier years has analyzed the transactions in detail and had concluded that the value addition that was done by the AEs was not significant and hence, the complexity of function performed by the assessee was more than that of the AEs. So the AEs could well be considered as the tested party and appropriate bench marking could be done considering the value addition as the benchmark for profit comparison in the AE case. 8. Taking note of the earlier years proceedings, a show cause notice was issued to the assessee asking it to explain as to why TAIC and other AEs should not be considered as the tested parties for bench marking of ALP of the transactions. The assessee was also asked as to why the operating margins of foreign comparables as selected by the TPO for benchmarking in the order for last assessment year shall not be applied with net cost plus as the profit level indicator to determine the Arm's Length Price of the amount of receipts on account of TCS provision of software, technical & consultancy services to its AEs. The assessee filed detailed reply, which has been considered by the TPO, but not accepted as the TPO based upon his find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiaries are still making loss at net level which signifies that some risk is being borne by the AEs. It has further been brought on record that the manpower base of AEs performed various functions relating to marketing as well as client co- ordination. The AEs have developed sufficient competency to handle the marketing work independently. The entire contract related work is performed by the AEs, though, in cooperation with the assessee. Thus, it is quite natural that for being a sufficiently motivated work force, the AEs are compensated at return on sales and not merely on value added costs. Therefore, learned Commissioner (Appeals) was justified in directing the Transfer Pricing Officer to adopt the PLI of gross margin on sales. As regards consideration by the Transfer Pricing Officer, the outsourcing / sub-Tata Consultancy Services Ltd. contracting cost to assessee as a pass through cost, learned Commissioner (Appeals) was absolutely correct in observing that the decision of the Transfer Pricing Officer to exclude such costs while computing the margin of the AEs is incorrect. When similar cost incurred by the comparables were not excluded while computing their margin, a diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in respect of AEs situated in USA and Tata Consultancy Services Ltd. Netherland, as such issues are covered under the MAP resolution, as discussed earlier. 23. In view of our decision in ground no.10 in assessee's appeal, no separate adjudication of grounds no.11, 12 and 13, in Revenue's appeal is required. Hence, they are dismissed." 10. On finding parity of facts and the facts that the TPO and the A.O. have passed the decision on the findings given by them in earlier assessment years, respectfully following the decision of the co-ordinate Bench (supra), we hold accordingly. This ground in Revenue's appeal is dismissed and the ground raised in assessee's appeal becomes infructuous. 11. The second issue which remained unadjudicated in Revenue's appeal relates to provision of guarantee. The underlying facts in this issue are that the assessee during the year under consideration has provided guarantees in the nature of performance financial and lease for and on behalf of its various AEs. 12. On perusal of the orders of the authorities below, we find that this is a recurring issue and has been coming from the earlier assessment years. Insofar as the performance guarantee is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. Insofar as the contention of learned Sr. Counsel for the assessee that provision of guarantee is not an international transaction as per section 92B of the Act, we are unable to accept such contention. In our considered opinion, after introduction of Tata Consultancy Services Ltd. Explanation-(i)(c) to section 92B of the Act, with retrospective effect from 1st April 2002, provision of guarantee to AEs has to be considered as an international transaction. Different Benches of the Tribunal have also expressed similar view on the issue. Therefore, we hold that the provision of guarantee to the AEs is an international transaction. In fact, the aforesaid view has been expressed by the Co-ordinate Bench in WNS Global Services Pvt. Ltd. (supra). Therefore, following the aforesaid decision of the Co- ordinate Bench and the decision of the Hon'ble Jurisdictional High Court in Everest Canto Cylinders Ltd. (supra), we direct the Assessing Officer to charge guarantee commission @ 0.5% per annum both on performance / lease guarantee as well as financial guarantee." F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The TPO was of the opinion that since the assessee has advanced loan to its AEs and it is recorded so in the books of both the assessee and the AEs, therefore, in form and substance, the nature of the transaction is loan only. Dismissing the contention of commercial expediency, the TPO observed that the facts remains that the assessee and the AEs are two different corporate entities functioning in two geographical boundaries as separate business entities. The TPO also rejected the contention that the loans are quasi-equity as the assessee had option of investing in equity and there was no regulatory bar on the same. Yet, the assessee preferred the debt route. Therefore, the same is a commercial transaction in the form of a loan advanced. The TPO accordingly proceeded by charging arms length interest. Similar quarrel was considered by this Tribunal in A.Y. 2009-2010. The relevant finding of the co-ordinate Bench reads as under:- "37. We have considered rival submissions and perused the material on record. We have also carefully gone through the case law cited before us. Notably, right from the stage of transfer pricing proceeding itself the assessee has taken a stand that loans an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material on record, we are convinced that various submissions made by the assessee before learned Commissioner (Appeals) have not at all been dealt with. The primary contention of the assessee that the advance made to the AEs is in the nature of quasi equity and falls within shareholder's activity has not been properly addressed by the Departmental Authorities keeping in view the ratio laid down in the relevant case laws. It also requires deliberation whether it can be considered as an international transaction under section 92B r/w Explanation-1(c). Since, the aforesaid legal and factual aspects have not been considered properly, we are inclined to restore the issue to the file of the Assessing Officer for de novo adjudication after due opportunity of being heard to the assessee. The Assessing Officer must examine all relevant facts to find out the exact nature of the advances made to the AEs. He should also examine the applicability of the ratio laid down in the case of DLF Hotel Holdings Ltd. (supra) and any other case laws which may be cited before him. The assessee must be afforded reasonable opportunity of being heard. Ground is allowed for statistical purposes." 19. Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and no additional fees or royalty is needed. The TPO did not accept the submissions of the assessee. The TPO held that the assessee is the actual value contributor and maintains, practices and evidences the value of the brand through its service delivery credentials. Accordingly, the TPO was of the view that it is the assessee, who is entitled for appropriate return for the brand value. The TPO applied 2.9% royalty on the revenue earned by AEs using TCS services to arrive at an adjustment of Rs. 1187.06 crores. On further appeal, the CIT(A) deleted the TP adjustments made towards the provision for software an consultancy and adjustment made towards brand royalty fees. 86. The ld AR submitted that the coordinate bench in assessee's own case for AY 2012-13 (supra) has allowed the fees paid by the assessee to Tata and Sons Ltd as deduction under section 37(1), thereby accepting the submission that the brand is not owned by the assessee. The ld AR further presented same line of arguments to submit that the TPO is not correct in making any TP adjustment towards the notional fees on the brand that is not owned by the assessee, which the TPO held as to be received by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion scheme. 3. The assessee in the present case is a company which is engaged in the business of providing services to the global automotive industries. The return of income for the year under consideration was filed by it on 30-9-2008 declaring total income of Rs. 51,05,63,935/- which was subsequently revised to Rs. 52,34,36,910/-. In the profit and loss filed along with the said return, an amount of Rs. 32,42,666/- was debited by the assessee on account of subscription paid to Tata Sons Ltd. towards TATA brand equity and promotion scheme. While justifying its claim for the said payment, the following submissions were mainly made on behalf of the assessee before the A.O:- "By entering into the agreement, the assessee became entitle to use and associated itself with TATA name, marks and marketing Indica for the company's products and services. The Tata Sons Ltd., protects and enforces the collective image and goodwill of the Tata Group, organize corporate identity, coordinate major campaign involving promotion and development of Tata name, engage the service of specialist and professional consultants for energizing and enhancing the overall Tata brand etc. By entering into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion paid by the assessee to Tata Sons Ltd. in the draft assessment order against which objection was filed by the assessee before the DRP. The DRP found the objection of the assessee to be unsustainable keeping in view that a similar issue was being agitated by the Department at various appellate forums. Consequently, final disallowance of Rs. 32,42,666/- was made by the A.O. on this issue. 5. We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. counsel for the assessee, at the outset, has invited our attention to the copy of relevant agreement entered into by the assessee company with Tata Sons Ltd. on 4th June, 2001 placed at assessee's paper book page No. 207 to 225 in order to point out the obligation of Tata Sons to look after the entire brand of TATA group. The said obligation being relevant in the present context are extracted below from page No. 210 and 212 of the assessee's paper book:- "a) To protect and promote the interests generally of the Subscriber both in India and abroad. To this end, the Subscriber hereby authorizes the Proprietor to act on its behalf in protecting and enforcing the collective image ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assist the Subscriber in the attainment of higher standards of quality of its products. Services and management. j) To provide such support and assistance to the Subscriber as the Board of Directors of the Proprietor Company may consider necessary in certain circumstances including securing the support of Group companies to the extent and in a manner permissible under the prevalent laws. k) to encourage support to the Subscriber's business from Group companies subject to the availability of products and services of a desirable quality at competitive rates. l) to undertake activities which in the opinion of the Board of Directors of the Proprietor Company are essential for the purpose of promoting, developing, maintaining, managing and legally protecting the Business Name, the Marks and Marketing Indica in India and abroad and thereby endeavor to promote the business of the Subscriber to achieve greater profitability and enhancement of stakeholder value. m) To undertake measures to preserve the stability of the management of the Subscriber in order to protect the larger interests of its stakeholders. n) To provide resources for availing services in the areas of 1. Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. The Tribunal also found that a similar issue was decided in favour of the assessee in case of Harrisons Malayalam reported in 19 SOT 363 wherein the payment made for acquiring non-exclusive licence to use the logo for the purpose of business was held to be allowable u/s 37(1) of the Act being the expenditure wholly and exclusively incurred for the purpose of business. It is pertinent to note that in the case of Tata Steel, another company belonging to TATA group, a similar subscription paid by the assessee company to Tata Sons Ltd. was proposed to be disallowed by the A.O. in the draft assessment order for A.Y. 2008-09 and when the assessee objected to the said disallowance before the DRP by relying on the decision of the Tribunal in the case of Rallis India Ltd. (supra), the DRP directed the A.O. to allow the said expenditure after verifying as to whether the department has accepted the said decision of the Tribunal. On verification, the A.O. found that no appeal was filed by the department against the order of the Tribunal passed in the case of Rallis India Ltd. giving relief to the assessee on the issue of brand equity subscription and accordingly he allowed similar subscrip ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
