9911796707
TMI Blog2024 (9) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... 148,63,60,592/- on 29.03.2012. The return was processed under section 143 (1) of the Income-tax Act, 1961 (for short 'the Act'). The case was selected for scrutiny and notices under section 143(2)/142(1) of the Act were issued and served on the assessee. In response, ld. AR of the assessee attended and submitted the relevant information as called for. 4. The assessee is a wholly owned subsidiary of Sony Corporation, Japan. During the year under consideration, the assessee is engaged primarily in import and distribution of authorised Sony products (audio/visual entertainment products) in the Indian market. The assessee had undertaken international transactions with its Associated Enterprises (AE) and it has entered into international transactions which was more than Rs. 15 crores. By following approval process under section 92CA of the Act, the case was referred to TPO u/s 92CA (3) of the Act). Before TPO, documentation prescribed under Rule 10D of the Income-tax Rules, 1962 was submitted. 5. After considering the documents submitted by the assessee, ld. TPO observed that the assessee has entered into international transactions mainly engaged in import and distribution of various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sake clarity, the same are reproduced below :- No. Name of the Company OP/OC(%) After Working capital adjustment OP/OC (%) i. Akshay Software Technologies Ltd. -1.04 -1.31 ii. E-Infochips Bangalore Ltd. 72,69 65.25 iii. Evoke Technologies Ltd. 19.02 18.78 iv. E-Zest Solutions 18.66 13.93 v. Infinite Data Systems Pvt. Ltd. (Merged) 88.25 83.85 vi. Infosys Ltd. 45.08 45.51 vii. Larsen & Toubro Infortech Ltd. 20.48 20.09 viii. LGS Global Ltd. 12.79 7.57 ix. Mindtree Ltd. 16.62 14.61 x. Persistent Systems Pvt. Ltd. 30.50 27.96 xi. Persistent Systems and Solutions Ltd. 15.38 11.95 xii. RS Software (India) Ltd. 10.29 10.28 xiii. Sasken Communication Tech. Ltd. 17.54 17.97 xiv. Tata Elxsi Ltd. 19.82 17.14 xv. Thinksoft Global Services Ltd. 17.35 13.73 xvi. Thirdware Solutions 41.63 38.16 Average 27.82% 25.34% and determined the Arms Length Price (ALP) adjustment as under :- Particulars Amount in INR Operating Cost 1142325818 Arm's length margin (%) 25.34% Arm's length margin (Rs.) 289,465,362 Arm's length Price 1,431,791,180 Price charged by the assessee 1,348,772,041 105% of Price charged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and distribution function performed by the assessee and from the audited financial reports of the assessee company, he observed that it does not own any intangibles in the nature of brand name, trade mark or any other market intangibles. Accordingly, he issued a show-cause notice to submit expenses incurred by the assessee on Advertisement, Marketing and Promotion (AMP) for sale of products of its assessee and basis for reimbursement only part of such expenses. The TPO analysed the whole agreement and the transactions entered by the assessee with its AE relating to AMP expenditure and relevant agreements entered with them. TPO rejected the submissions of the assessee and proceeded to adopt Bright Line Test (BLT) for benchmarking the AMP expenses and selected 9 comparables and benchmarked the same as under :- Particulars Amount in INR Advertisement and sales promotion 2,584,217,000 Rebates of discount including commission on sales 1,287,705,032 Reimbursement of marketing expenses 5,044,649 Reimbursement of share of advertisement expenses received from Intel and Microsoft 72,435,827 Expenses i.r.o Receipt of marketing support services 64,060,599 Total expenditure on AMP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 43(6)(c) is positive (i.e. the moneys payable in respect of assets sold / disposed-off is less than the WDV of the block), depreciation would still be available as long as the block continues to exist (i.e. the block consists of even a single asset). (iv) It is an undisputed fact that assets of Dharuhera 'unit formed part of respective 'block of assets' viz. furniture & fittings, building, plant & machinery etc along with other items of assets in these blocks belonging to the assessee. Further, it is also not in dispute that upon sale of assets of Dharuhera unit, the 'block of asset' does not cease to exist, as the assessee had other assets in the block belonging to other units of the assessee. (v) Accordingly, following the 'block of asset' concept, the assessee reduced the sales price of assets disposed-off during the year from the WDV of the respective block of assets, and claimed depreciation on such residuary WDV. (vi) The above method of computing depreciation is in accordance with the scheme enshrined in the law. (vii) The Act nowhere stipulates that, the assessee would not be eligible to claim depreciation in respect of a particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case laws relied upon by the assessee and further observed that it is completely inconceivable that the assessee can be allowed to claim depreciation in respect of the unit which is no longer owns and which it has already transferred. With the above observation, the Assessing Officer disallowed the same to the extent of Rs. 92,34,278/-. 12. Further Assessing Officer made other corporate disallowances in advertisement and selling expenses of Rs. 25,84,21,700/-, excess depreciation of licence fee of Rs. 111,82,572/- and disallowance of proportionate expenses of Rs. 10,96,31,427/-. 13. Aggrieved with the above draft assessment order, assessee filed objections before the ld. Dispute Resolution Panel (DRP) and ld. DRP after considering the submissions of the assessee deleted the disallowance out of advertisement and selling expenses and disallowance of excess depreciation on licence fee and sustained the other disallowance made by the Assessing Officer/TPO. 14. Aggrieved with the above assessment order and order of ld. DRP, assessee as well as Revenue is in appeal before us raising following grounds of appeal :- ITA NO.1026/Del/2015 (Assessee's appeal) The following grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of products. 7. That the Ld.AO/Ld.TPO/Hon'ble DRP erred in not appreciating that the functions performed by the Appellant had been compensated by the AE in such a way that the gross margin earned by the appellant was sufficient enough to cover all costs incurred including AMP expenses. 8. That the Ld. AO/ Ld. TPO/ Hon'ble DRP failed to appreciate that once the net operating margins of the Appellant had met the arm's length test, it was erroneous to conclude that the Appellant had performed any non-routine function or had incurred non-routine AMP expenditure. 9. Without prejudice to above, the Ld. TPO/ Ld. AO/Hon'ble DRP erred in applying the 'bright line method' to determine the excessive/non-routine AMP expenses in complete disregard of the Transfer Pricing Regulations in India and commercial circumstances of the case. 10. Without prejudice, even if AMP expenses are held to be "nonroutine" and" excessive", the Appellant was not required to be reimbursed compensated by its AE, considering that the purported benefit caused to the AE on account of incurring of A&M expenses by the Appellant was only incidental. 11. That the Ld.AO/Ld.TPO/Hon'ble DRP have select ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the use of multiple year data and determining the arm's length margins using data pertaining only to FY 2009-10. 21. Without prejudice to above, the Hon'ble DRP has erred in upholding the decision of Ld. TPO/Ld.AO of not making suitable adjustments to account for differences in the risk profile of the Appellant vis-a-vis the comparable companies. CORPORATE TAX GROUNDS Re: Depreciation on Daruhera unit 22. That on the facts and circumstances of the case and in law, the Ld.AO erred in disallowing INR 92,34,278/-,being depreciation on residuary Written Down Value ("WDV") of the assets pertaining to the factory at Daruhera, Haryana, which was closed down during the Financial Year 2004-05. 23. That on the facts and circumstances of the case and in law, the Ld. Assessing Officer failed to appreciate that as per the 'Block of Asset' concept, the ownership and usage of the asset is relevant only in the year of acquisition. 24. That the Ld.AO failed to appreciate that once an asset forms part of block of assets it loses its individual identity and thus the test of 'use' has to be applied to the block of asset instead of the individual assets. Re: Disallowance of deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly) incur any advertisement and sales promotion expenses to market its services to its AEs. Without prejudice 29. Without prejudice, that on the facts and circumstances of the case and in law, the allocation of expenses of INR. 10,96,31,427 to the SEZ unit suffers from the following fallacies:- a) While computing proportionate expenses, the Ld. Assessing Officer has erroneously considered the amount of "Communication expenses" at INR 34,51,15,000/- instead of the correct amount of INR 12,11,64,671/-. b) While computing proportionate expenses, the Ld. AO has erroneously considered the "Total turnover of the Business" at INR 36,97,98,73,000/- instead of the correct amount of INR 38,68,65,15,988/-. 30. Without prejudice to above, that on the facts and circumstances of the case and in law, the Hon'ble DRP /Ld.AO have erred by including 'advertisement and sales promotion expenses' and 'rebates and discounts' of INR 258,42,17,000 and INR 128,77,05,032 respectively in the allocated expenditure without considering the fact that these have already been disallowed by the Learned TPO and therefore resulting in double disallowance of INR 65,82,26,745 in the hands of the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2), Assessment Order (Pg 445-460) * Paper book (Volume 2A) - TP Report (Pg 1-265), Audited financial statement (Pg 288-323), submission dated 11.10.2013 filed before TPO (Pg 324-337), submission dated 16.12.2013 filed before TPO related to software service adjustment (Pg 362-461) * Paper book (Volume 2B) - submission dated 20.01.2014 filed before TPO related to AMP adjustments (Pg 470-554), detailed arguments in relation to exclusion/inclusion of companies in the software development service segment (Pg 560-587 and Pg 588-600) * Corporate Tax Paper book (Pg 1-229) * Convenience compendium (Pg 1 -842) Submissions - Contentions of the assessee A From Final Assessment order dated 30th January 2015 - impugned order (kindly refer page 449 of Appeal set) following issues arise for kind consideration in Assessee's Appeal: i) Grounds of appeal 3 to 13 - Transfer Pricing adjustment towards Advertising, Marketing and Promotion Expenses (AMP) - Rs. 293,87,23,399/- ii) Grounds of Appeal 14 to 21 - Transfer pricing adjustment towards software development services Rs. 8,30,19,139/- iii) Grounds of appeal 22 to 24 - Disallowance of depreciation on Daruhera Unit Rs. 92,34,278 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m page 76 and conclusion is at page 82. C Proceedings before Transfer pricing Officer resulting in TP order dated 27th January 2014 (refer pages 1 to 103 of Appeal set) Transfer pricing officer issued 2 Show cause notices - At page 462 of paper book 2A, SCN relating to AMP can be found and at page 338 of paper book 2A, SCN issued in connection with Software services can be seen. Kind attention is invited to page 462 paper book 2A-show cause notice refers to "Benchmarking of REIMBUSEMENT OF MARKETING COST INCURRED ON BEHALF OF AES". Ld. TPO clearly notes at page 464, para 7 & at page 465 para 10 that there is no agreement pertaining to reimbursement of advertisement expenditure. It is worth noting that except baseless imagination there is no reference to Advertising expenditure incurred by Sony India in the context of its international transaction of import of finished goods for resale. Reply to show cause notice relating to AMP can be seen at page 470 to 554 of paper book 2B. At page 476 of paper book, Sony explained that there is no agreement for advertisement expenditure. By reference to page 477 it was explained how margin accrues due to various functions involved in ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived from AE for advertising of Rs. 50.44 Lacs", especially as the cost incurred for such transaction and amount received towards it are clear and distinct. After careful consideration of above detailed submissions Ld. TPO proceeded to benchmark international transaction of 'receipt of advertisement cost' from page 54, para 33 of his order, kindly refer Appeal set. Ld. TPO clearly notes details of the reimbursement of Rs. 50.44 lacs received at para 34 on page 55 of Appeal set. Kind attention is invited to page 59 para 10, Ld. TPO even while clearly noting that there was no agreement, proceeds to refer to an agreement dated 1.4.2005 relating to Ay 06-07 stating that same is available on assessee's record. Further at page 64 Ld. TPO extracts from such agreement pertaining to different assessment year. It was submitted in this context that the agreement was for Ay 06-07 and that amount received under such agreement was entirely offered to tax and considered for benchmarking of international transaction under chapter X for that period. Ld. TPO persisted with his reference to such agreement and conveniently ignored this aspect mentioned in form 3CEB of Ay 06-07. Reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is being adopted in the interest of brevity. D Draft Assessment Order: Kindly refer at page 108 of Appeal set. E Detailed objections were filed on each of the aspects before Ld. Dispute Resolution Panel, which can be found from page 119 of Appeal set. Particular attention is invited to pages 156, 157, 163, 164, 185, 209 to establish the alternate submissions that in any case and any event, whichever way one looks at the details Sony India was adequately compensated for its scope including expenditure for AMP function. F Finally DRP issued directions dated 24.12.2014 which can be found from page 406 of Appeal set. Ld. DRP dismissed the objections in a summary manner as can be seen from pages 409 to 414 of Appeal set without even referring to or dealing with all contentions raised before it, including inter- alia alternate/ without prejudice contentions as briefly explained above. Based on such directions including the objections relating to section 10 AA disallowance (kindly refer details at page 396 to 404 of Appeal Set), double adjustment of expenditure etc., as set out at page 439 to 441, Ld. AO passed impugned assessment order as explained above. By drawing reference t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndium), Hon'ble Tribunal by order dated July 10,2017 in that instance proceeded on certain fundamentally incorrect presumptions about earlier agreement relating to Ay 06-07 being valid and operational during Ay 9-10 and misunderstanding that it was AR's stand that AMP expenditure relating to distribution transaction is out of ambit of TP analysis etc., thus leading to non- consideration of real issues like second counting of same expenditure towards Advertising for benchmarking distribution transaction and clearly agreed reimbursement received from AE towards specific advertising activities. In this context it was also submitted that for benchmarking under chapter X it is important to consider relevant revenue and relevant cost relating to transaction being benchmarked. As in case of transaction of reimbursement received towards advertising specific cost for the particular activities agreed with AE and amount received were available, it would be incorrect to include costs incurred for some other activity to make AMP adjustment. Therefore, it was submitted that conclusion in Ay 9-10 was in appeal before Hon'ble High Court as it involved several contradictions, incorrect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ope of reimbursement received (reported as international transaction by assessee in that case) for some activities of advertisement cannot be expanded to cover other marketing activities undertaken for assessee's own business and further that once TNNM margins for distribution business were at arm's length after considering cost of AMP expenditure a separate adjustment towards AMP would not be justified (pg 508- 708 of convenience compendium). N Reference is invited to decision of Hon'ble Tribunal in case of Goodyear India ITA 5650/De1/2011 (paras 20 to 39) and it was submitted that even when an agreement exists it was necessary to examine if it makes in obligatory for Indian AE to incur excessive expenditure, without which it was impermissible to make Adjustment towards AMP. O By reference to decision of Hon'ble Delhi High court in Bacardi India ITA no 417/2017 dated 24.5.2017 it is submitted that Hon'ble disapproved remand on the pretext of benefit of caselaw being not available to TPO and DRP (pg 746-748 of convenience compendium). We have filed separate chart for Software development services hence the same are being repeated herein in the interests of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of all the material and submissions on appeal record." 17. On the other hand, ld. DR for the Revenue objected to the submission of the assessee and after arguing the matter, he submitted as under :- "For exclusion of comparable companies, the assessee counsel has relied on the order of Hon'ble ITAT in the case of assessee group company i.e. Sony Mobile communication (International, AB Indian Branch) placed at Page 248-193 or convenience compendium. As argued in detail before Hon'ble Bench in physical hearings, it is stated that the decision of Hon'ble Coordinate Bench is not binding in the present case because 1. The functional profile of assessee company is different from the other company 2. In the case of assessee, Comparables Persistant system ltd. and Infosys Ltd. are their own comparable and in the TPSR it is clearly mentioned that the companies chosen are functionally comparable and assessee now can't take the ground of functional different unless and until it proves this fact before Hon'ble which has not been done in the case. 3. Third Ware Solution Ltd. as comparable company is approved by the Hon'ble Delhi High Court on similar facts i.e for software developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by SID are consumed internally by various Sony Group and are not sold to outside customers. In relation to such services, its AEs enter into agreement with other Sony Group entities and are responsible for negotiation of commercial aspects and terms and conditions of contracts signed with other Sony Group entities. 4.010.3. Risks Assumed Listed below are some of the key risks, which are typically faced by a business organization and their applicability to SID in relation to provision of application support services. Business risk SID is rendering services to its AEs and such services are used by its AEs for the development of software program for other Sony Group entities. SID does not render such services to third parties. However, since SID's revenue & profits would vary according to AEs market conditions, it bears indirect market risk. Price risk SISC renders services to its AEs and is compensated on a pre determined hourly rates or on fixed fee basis. In relation to such services prices are determined based on the negotiation carried out by SID with its AEs. Hence, SID bears the associated price risk. Utilisation risk SID has invested its capital irito infra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its AES. Conceptualization and scoping of project work 81D's AEs are primarily responsible for initial conceptualization of the software required to be developed by SID. The scope of work required to be undertaken is subsequently decided upon and communicated to SID. Project management SID is responsible for day to day management of activities undertaken to ensure that work is carried out as per the prescribed deadlines. Under the off-shore model, the entire project is developed and managed off-site (i.e. in India) by SID. In some cases, an employee of SID acts as the onsite coordinator for managing the expectations of its AEs, communicating with the off-shore team and acting as an interface between SID and its AES. Under the onsite model, which is rarely followed, an employee of SID is deputed to its AEs, where software development work is undertaken with the overseas team of its AEs. Coding, testing and documentation SID undertakes code generation in accordance with the functional specifications and protocols defined by its AES. The code generated is thereafter tested, to ensure that the functions performed by the code are in accordance with the protocol desi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Overview Infinite Date Systems Private Limited ("IDS" or "The Company") was incorporated on 26 th September, 2006. The company is wholly owned subsidiary of Infinite Computer Solutions (India) Limited. It provides solutions that encompass technical consulting, design & development of software, maintenance, systems integration, implementation, testing and infrastructure management services. Further the functional profile is reinforced in page 117 of the PB with regard to quantitative details column. It is also the fact that the assessee company is deriving its entire revenue from software tax services, as is evident from page 116 in para 17.2.7 (Page116). Thus from the perusal of the assessee functional profile and the profile of Infinite Data Services, it is seen that both the companies are involved in software development service and undertakes complete development of the software which includes design and development of software, integration, testing and implementation. Thus the functional profile of the assessee company and M/s Infinite Data Services Ltd are similar and the assessee contentions are baseless. B. Related Party transactions The assessee compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 taxmann.com 417 , 2015 (Delhi) . For ready reference, the operating part i.e para 44 is given below:- 44. In light of the above findings, this Court concludes as follows: a. The mere fact that an entity makes high/extremely high profits/losses does not, ipso facto, lead to its exclusion from the list of comparables for the purposes of determination of ALP. In such circumstances, an enquiry under Rule 10B(3) ought to be carried out, to determine as to whether the material differences between the assessee and the said entity can be eliminated. Unless such differences cannot be eliminated, the entity should be included as a comparable. Thus this company i.e M/s Infinite Data Services Ltd is functionally comparable and also comparable on other parameters to the assessee company. 2 Thirdware solutions ltd.: The assessee company has requested for exclusion of this company based on the following facts: 1. Functionally different 2. Non availability of the segmental data 3. Out sourcing of services All the objections raised by the assessee have been duly disposed by the TPO and the DRP (Pl. refer to page 42-43 of TPOs/page 21 of DRP) From the functional profile, as ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of 'Sales' as per Schedule 12 consisted of Export from SEZ units, Export from STPI unit, Revenue from subscription Sale of Licence & Software services. It was further discernible from the segment reporting, that the figures had, been given on the basis of Geographical segments, viz., 'India' comprising of Products and other services and 'Overseas' comprising of Software services. The TPO had taken only the 'Overseas' segment for the purposes of inclusion in the list of comparables, which encompassed only export of software services. As the segment of the assessee under consideration was also only Software services, said segment of Thirdware Solutions - taken by the TPO fully matched and was held to be comparable. 11. This court is also of the view that said Company's operation comprised of software development, implementation and support services. Primary segmental reporting is based on geographical areas. Said company's earning are to a significant extent export oriented. Separate books of account were maintained for the reported segments and wherever costs are directly identifiable with the reported segment, Revenue in the overseas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) Even though in the segmental information at page 45, para 16 it is mentioned that the assessee company is engaged in software development and IT enabled services, however at all the other places in the annual report, it is clearly mentioned that the company is involved in development of software/ software services only. To buttress the fact that the company is not in ITES section, reference is also invited to schedule 8 of the P&L a/c where in, the communication expenses are claimed of only around 35 lakhs which is less than 1% of the turnover. As usually the ITes companies have lot of communication expenses, thus this company cannot be taken as involved in ITes functions. Thus this company M/s E Infochips Bangalore Ltd. is functionally comparable to the assessee company. 4 Persistance systems ltd. The assessee has requested for exclusion based on the fact that it is functionally different. The assessee has stated that this company is engaged in sale of software products and not software services. At the outset it is submitted that it is assessee's own comparable selected by itself and based on functional similarity it is accepted by TPO. The assessee has not taken the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal representative vehemently supported the order of the learned dispute resolution panel and the learned transfer-pricing officer and submitted that they have discussed the functionality of this company in detail and therefore this company is functionally comparable. 117. We have carefully considered the rival contentions and perused the standalone financial statement of the above company placed in the paper book at page number 110 - 153 (annual report page number 156 - 198). In its revenue stream as per page no 166 of Standalone Financial statements its revenue recognition shows that:- "Income from software services Revenue from time and material engagements is recognized on time proportion basis as and when the services are rendered in accordance with the terms of the contracts with customers. In case of fixed price contracts, revenue is recognized based on the milestones achieved as specified in the contracts, on proportionate completion basis. Revenue from royalty is recognized in accordance with the terms of the relevant agreements. Revenue from maintenance contracts is recognized on a pro-rata basis over the period of the contract. Unbilled revenue represents revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utsourced software product development services as investment in Intellectual property led sales. The ld. counsel for the assessee further stated that this company has undertaken significant restructuring and has very high turnover, but failed in convincing us the impact of these things on the overall margin of the company. Therefore, we are of the considered view that this company passes all the filters and has been rightly taken in the final set of comparables. No interference is called for. Thus in view of the above, it is absolutely clear that this company is involved in sale of software services only, like the assessee company and these are the findings/decisions of Hon'ble Jurisdictional ITAT only, which have a binding precedence. Also, even though the P&L account shows M/s PSL has income from sale of software services and products, however this is further clarified by schedule 15/page 325 of paper book wherein in the nature of operations it is clearly mention that the assessee company is engaged in software product development services only. Also, this issue of software product v/s services becomes redundant as it is already settled by the Hon'ble ITAT above noted decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f revenue. In fact Sony is bigger and much well known brand in the world market then Infosys. (iv) High turnover. The assessee has alleged that the Infosys has turnover of 21,140 crores i.e. high as compared to the assessee company and M/s Infosys enjoys economic of scale. This fact has been answered by the TPO in detail in para 28 / page 44-48 of his order and for the sake of brevity, arguments are not repeated. Further , it is not fair to exclude a company based on high profits/ fluctuating profits / high turnover and this issue has already been decided by the Hon'ble Delhi High Court in the case of Chrys Capital Investment advisers ( India) Pvt Ltd. v/s DCIT in 56 taxmann.com 417 , 2015 (Delhi) Thus based on the above analysis, this company i.e M/s Infosys is functionally similar and also comparable on all parameters/aspects to the assessee company. B) Second issue of AMP On the issue of AMP, the department has given the written submission on 11- 04-2018 and the present submissions are in continuation of those submissions. 1) In this case, the TPO has made addition of Rs. 293.87 Cr. on the issue of incurring of AMP expense by assessee company by holding that, firstly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not fall within the purview of an "international transaction" pertaining to rendition of service, as defined in section 92B of the Act, distinct from its functional profile and responsibility as a distributor. 5. That the Ld. AO/ Ld. TPO/ Hon'ble DRP erred in not appreciating that the AMP expenses were incurred by the Appellant as part of its distribution business and not for the purpose of providing sole benefit to its associated enterprise and thus could not be considered to be a transaction under section 92F(v) of the Act, since there was no understanding or arrangement or action in concert for provision of service. 6. That the Ld. AO/ Ld. TPO/ Hon'ble DRP failed to appreciate that AMP is one of the functions performed along with other functions such as purchase, inventory management dealer management, after sales, etc. by the appellant in conducting the "International Transaction" which is import & distribution and in view of the appellant's functional profile, it cannot be benchmarked and compensated separate from the international transaction of import of products. 7. That the Ld. AO/Ld. TPO/ Hon'ble DRP erred in not appreciating that the function perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/- only. 6) Whether the incurring expenses is separate international transaction or not- This issue has been adjudicated in the case of Sony Ericsson Mobile Communications India (P.) Ltd. Vs. CIT (55 taxmann.com 240 (Delhi)) by the Hon'ble Jurisdiction Delhi High Court after the detailed analysis and review of several case laws on the subject. The operative part of the decisions is reproduced below- 51. The term 'international transaction' has been defined in Section 92B. The section also had retrospective amendment which was inserted by the Finance Act, 2012 w.r.e.f. 1st April, 2002. Section 92B(1) reads as under: "92B Meaning of international transaction. - (1) For the purposes of this section and sections 92, 92C, 92D and 92E, "international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises and shall include a mutual agreement or arrangement between two or more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sake of brevity, the decision is not reproduced, however the entire decision of Hon'ble ITAT was discussed in detail before the Hon'ble Bench. The operative part of the decision in para 11 for AMP issue which is on internal page 8-9 of ITAT order and on page 199 /200 of paper book / convenience compendium. The facts of the case are exactly identical as in that case as there was reimbursement of nominal amount incurred by assessee for promotion of Sony brand which is owned by the AE. Further in that case also, the assessee has raised the similar grounds of appeal with regard to AMP expenses are not a separate international transaction. The Hon'ble Bench dismissed the assessee's contention and held that reimbursement from AE constitute international transaction u/s 92B of the Act and for determination of the ALP, it was remitted back to the TPO. 8) Why order of ITAT for A.Y 2007-08 is not binding precedent- Aggrieved with the decision of the Hon'ble Bench , the assessee filed a appeal before the Delhi High Court, and as submitted before the Hon'ble Bench, the Hon'ble Delhi High Court has not deleted the decision of the Hon'ble ITAT and neither its stay by the Hon'ble Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and promotion activities which was incurred mainly for promotion of the BMW brand which is owned by its AE's i.e BMW Germany . Against that expenditure, the AE of BMW India, reimbursed only a nominal part of the expenditure. And the Hon'ble Tribunal after relying on the Hon'ble Delhi High Court in the case of Sony Ericsson, has held that even though a small part of expenditure is reimbursed, it proves the existence of arrangement between the assessee and the AE for promotion of BMW brand. 8. There is another interesting aspect of the matter. One of the reported international transactions is "Reimbursement of expenses (Amount received)" amounting to Rs. 67,21,54,60/-. On being pointed out to give the nature of such Reimbursement of expenses received, the learned AR took us through page 47 of the paper book, which is a part of the assessee's Transfer Pricing study report, reading as under:- "Clause IV- Reimbursement of expenses from BMW Group Under Class IV transactions, reimbursement of expenses by BMW Group to BMW India is included. During the year, such reimbursements were primarily on account of BMW Service Inclusive Package / normal warranty claims raised by BMW India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further the AE also acknowledging such service of the assessee but reimbursing a minuscule part of expenses incurred by the assessee on advertisement marketing and promotion. It is further relevant to note that the judgment in the case of Maruti Suzuki (Supra) is based on a manufacturing company performing advertisement and promotion. In contrast, the assessee is engaged not only in the sale of manufactured goods but also the traded goods. Profit and loss accounts of the assessee shows Sale of manufactured goods at Rs. 624.66/- crore and those of traded goods of Rs. 611.87 crore. Thus, it is manifest that the volume of assessee's business from trading and manufacturing is almost equal and it is not a case of manufacture alone as was there in the case of Maruti Suzuki (Supra). It is, ergo, vivid that the ratio laid down in Maruti Suzuki (Supra) is not applicable due to differentiation in the facts of the extant case. 12. It is further relevant to note that the Tribunal in assessee's own case for immediately preceding assessment year, namely, 2009-10 has decided such issue against the assessee vide its order dated 21.10.2014 in BMW India (P.) Ltd. v. Asstt. CIT [2015] 53 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. The Hon'ble Bench has held that there is no essential requirement of having a separate agreement and held that that even in its absence, clear understanding, arrangement and acting in concert between the assessee and the AE for carrying out the AMP expenses, constitutes separate international transaction. Further, in that case also the assessee counsel has relied on all the decisions which has been relied by the assessee counsel in the present case. Further the Hon'ble Bench has rejected the assessee contention and clearly held that incurring of AMP expenses is a separate international transaction which is to be benchmarked separately and for determining the ALP, the case was restored to the TPO for deciding in accordance of Sony Ericsson case. 10) Assessee's other contentions a) As the assessee's profit margin are more than the profit margin of the comparable companies, separate ALP expenses is not to be benchmarked. This argument is completely mistaken and fallacious. In fact in Transfer Pricing, rule is to benchmark transactions by transactions. Only if the transactions are closely linked, then the same can be aggregated, but aggregation is more of exception, than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were used for limited purpose of comparison before TPO), the same can't be taken for comparison without comparing the functional profile of the assessee's company whose marketing functions / expenditure are way beyond the similar functions / expenditure incurred by distribution companies. The above proposition has been laid down by Hon'ble ITAT in above noted cases of BMW India Private Limited and Olympus India (cited supra). Thus based on the proposition of law laid down by Hon'ble Delhi High Court in the case of Sony Ericsson, it is conclusively proved that AMP expenses constitute a separate international transactions which is required to be separately benchmarked, as laid down by Hon'ble High Court. Further without analysing AMP functions performed by assessee and comparable companies, it is not possible to determine the ALP of AMP expenses at the level of Hon'ble tribunal, which has already decided that issue while deciding the case of assessee only for A.Y 2009-10 in ITA number 837/Del/2014. Further as the facts are identical, the decision of Hon'ble ITAT for A.Y 2009- 10 is the binding precedent. For that, reliance is placed on the decision of Hon'ble Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of administration of justice under our system. This is a fundamental principle which every presiding officer of a judicial forum ought to know, for consistency in interpretation of law alone can lead to public confidence in our judicial system. This Court has laid down time and again that precedent law must be followed by all concerned; deviation from the same should be only on a procedure known to law. A subordinate court is bound by the enunciation of law made by the superior courts. A Coordinate Bench of a Court cannot pronounce judgment contrary to declaration of law made by another Bench. It can only refer it to a larger Bench if it disagrees with the earlier pronouncement." We respectfully concur with these observations and are confident that all the Courts and various Tribunals in the country shall follow these salutary observations in letter and spirit Thus it is humbly prayed that in line with the above noted decision of the Hon'ble Supreme Court, the decision of the Hon'ble coordinate bench in the case of assessee only on identical facts for A.Y 2009-10 is binding on the Hon'ble bench. Lastly it is submitted that all the above contentions have already been made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Tribunal's decision excluding E-infochips, Infinite and Persistent as comparables (copy is annexed and marked as "Annexure A"). Most importantly, it is necessary to appreciate that reference to comparable data has to be viewed in context. Same standard as may be applicable to assessee's own facts may not be valid when using comparable data available in public domain. Assessee has a responsibility for details relating to its own business NOT for comparable data, for the later one depends on availability in public domain. If there is lack of clarity, in information available incomparable company's financials (OR) due to different courts taking contrary views on same comparable, company deserves to be excluded from comparable set. Comparative facts on record: Final comparable set selected by Transfer pricing officer (TPO) can be found at internal page 12 para 21 of TP order in appeal set (AS).Same final set selected by TPO in Sony Mobile Communications case (relied upon case -please refer para 14 on page 269 of convenience compendium) TPO noted Assessee's request for exclusion of 4 companies from set of comparable companies at page 48 para 28.11 of TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Deputy Commissioner of Income-tax,[2022] 142 taxmann.com 168 (Hyd. Trib.) more particularly on para 10 of the said order where Hon'ble Tribunal notes that after Schedule 1- 6 only Schedule 11 is furnished. In absence of evidence showing consultancy income, Hon'ble Tribunal rejected the request to exclude. Hon'ble Tribunal specifically notes absence of schedule 7 in case of EPAM (supra). Kindly refer to pages 29, 36, 41, 43, 44 and 45 of the Annual Report PB. Schedule 7of E - lnfochips is available at page 41. Consultancy services area different segment however no separate segment details are available on page 45 at para 16. The jurisdictional High Court in PC/T vs. Mentor Graphics {India) Pvt. ltd., ITANo.126/2022 has upheld exclusion of E-lnfochips Bangalore Limited as a comparable.(Please refer paras 4 and 5 of the said decision). c. Infinite Data Systems Pvt. Ltd. Ld. DR relied upon the decision of Head Strong Services India (P.)Ltd. vs. DCIT, [2016] 68taxmann.com 363(Delhi-Trib.).Para 13.2 of the said decision was relied upon by Ld.DR. Reference to page 107 and 113 of the Annual Report PAPER BOOK would show that the company is engaged into technical consulti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'I' showing income from software services also indicated revenue from licensing of products. There are no segmental details as is evident from page 329. These very aspects are discussed at para 30 on page 278 of the Convenience Compendium in the case of Sony Mobile Communications International AB in relation to assessment year AY 2010- 11. We request kind attention to details mentioned in comparables chart filed on record wherein all the above aspects are set out. Attention is also invited to para 32 and 33 at page 184 and 185 of the Case Law PAPER BOOK for Software Development Segment where exclusion of Persistent Systems Ltd., was upheld. As pointed out above, objections to the comparables were raised before the Ld. TPO except (Persistent Systems Ltd). Objections to inclusion of Persistent Systems Ltd. are raised before this Hon'ble Tribunal as permitted in law. kindly refer decision of special bench in DCIT vs. Quark systems Pvt limited 38 SOT 207 (CHD) and Hon'ble Punjab & Haryana High court in CIT vs .Quark Systems India Pvt. ltd., [2011] 11 taxmann.com 427. Thus these 5 comparables requested for exclusion may kindly be excluded by following Coordinate Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benchmarking of INR 50,44,649 being receipt of advertisement cost from AE. This transaction of receipt of reimbursement of INR 50,44,649 is declared as international transaction by assessee itself in its TP documents. If not satisfied with cost-to-cost reimbursement this amount of INR 50,44,649 can be evaluated for appropriate mark-up but in the garb of doing so transaction of distribution and AMP function cost cannot be counted and re-counted multiple times. Categorical finding on page 103 of TPO order that - no adverse inference is drawn in respect of other transactions can only mean distribution transaction as ALP of software development and receipt of reimbursement are disputed by TPO. 4. It is not in dispute between parties that margin earned on distribution after considering AMP costs is better than comparables who themselves have admittedly undertaken marketing function (refer pages 485 to 487, 326, 526 of paper book 2B and para 40 on page 81 of TP order would show). TPO and Tribunal in AY 2009-10 - refer para 11, 199 last line continued on next page) view to the contrary is directly in conflict with para 193 of jurisdictional High Court decision in 374 ITR 118 as also co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -12 which was rectified, similar relief was prayed for-kindly refer items 12, 13 and 14 of the convenience compendium pages 361 to 374 in relation to AY 2011-12. Similar relief if allowed would be in interest of justice and fairplay AND; lastly issue relating to dividend tax rate raised by additional grounds of appeal filed on 15th November 2019. A separate synopsis is filed during the hearing on DDT rate of tax issue post decision of the Special bench. Appellant requests consideration of all the above material for deciding the issues in appeal in addition to 3 synopsis already filed as indicated hereinabove." 19. At the time of hearing, ld. AR for the assessee heavily relied on the assessee's own group concern Sony Mobile BPO case and submitted that the issue under consideration is squarely covered and the Bench directed to submit a note on similarity and functions as well as transaction model with the group concern i.e. Sony Mobile BPO. In this regard, ld. AR submitted as under :- 1. Sony India Private Limited ('Sony India') benchmarked captive software development services ('SDS') provided by itself. Kindly refer pages 47 and 50 - paras 4.010 of TP study place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Yes (para 5 of ITAT order on running, page 253, 254 and para 21 on page 272 of compendium) Upgradation/ Enhancement Yes (Page 48 and 51 of Paper book 2A) Yes (para 5 of ITAT order on running, page 253, 254 and para 21 on page 272 of compendium) Maintenance Yes (Page 48 and 51 of Paper book 2A) Yes (para 5 of ITAT order on running, page 253, 254 and para 21 on page 272 of compendium) B. Similarity in transaction model Sony India Sony Mobile BO Offshore Centre Yes - SISC and SARD (Para 4.010.1 and 4.011.1 on page 47 of Paper book 2A) Yes - Branch office of Sony Mobile Communications International AB in SEZ in India (Para 5 on page 253 of compendium) Customers Associated Enterprises ('AE') ASSESSEE Intangibles Not owned by Sony India (Para 4.016, Para 5.02.2, Para 5.03.2 on pages 63, 76 and 83 of Paper book 2A respectively) Not owned by Sony Mobile BO (Page 255 of compendium) Entity Characterisation Software Development Service Provider (Para 10.3 on page 16 of Appeal Set) Software Development Service Provider (Para 5.1 of ITAT order, compendium page 255) 20. Considered the rival submissions and material placed on record. We observed from the record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's net operating margin was 3.29%, whereas, the arithmetic mean of the net operating margin of comparables chosen by the TPO was 2.09%. (v) Fifth, the TPO had accepted other international transactions under the TNM method employed by the respondent/assessee, except for AMP activities. 17. Given the aforesaid facts, what emerges is that, in the period in issue, the respondent/assessee was only in the business of import and distribution of Sony products. The amount spent on AMP activities by the respondent/assessee in the relevant FY was Rs. 119,54,43,600/-. 17.1 The compensation for this expense was, according to the Tribunal, received by the respondent/assessee in terms of higher profitability for the product sold. 17.2 Furthermore, even according to the TPO, the AMP expenditure incurred by the respondent/assessee resulted in increased sales in India for products, albeit developed by the AE but sold by the respondent/assessee. 18. The fact that the comparables chosen by the TPO had a net margin lower than that registered by the respondent/assessee would persuade us to hold that no upward adjustment concerning AMP expenses ought to have been made. 19. Lastly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no deviation observed from the submissions made by the parties, we are inclined allow the grounds raised by the assessee that separate AMP adjustment is uncalled for when the distribution business of the assessee are already bench marked separately. 23. Coming to the issue of bench marking of reimbursement of marketing expenses, we observe that the TPO has proceeded to make the bench marking based on the disclosure made by the assessee as a International transaction, he proceeded to make bench marking of the AMP expenses based on the BLT, however, the same is not the proper way. However, we observed that coordinate bench has not given any finding on this issue but remitted the issue back to the file of AO/TPO to verify the AMP expenses. We cannot refer this issue to special bench as suggested by the Ld DR since the issue is not adjudicated by the coordinate bench in subsequent AY 2009-10. After careful consideration, in our view, the issue has to be addressed such a way that the parties to come to terms to resolve the issue rather than keeping it alive infinitely. In our view, after decision of Hon'ble High Court, what remains is the bench marking of reimbursement of marketin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities of the both the group concerns, the assessee has filed comparative chart before us, the same is reproduced in this order elsewhere, we have convinced that both the concerns having similar activities and functions, we are inclined to follow the decision of coordinate bench in selecting the comparables. Accordingly, we direct the AO/TPO to follow the same and relevant decisions of the coordinate bench are reproduced below: (in AY 2010-11, which is relevant for the current assessment year under consideration) "E-Infochips Bangalore Ltd. 24. Having considered the rival submissions, we find that the co-ordinate Bench of ITAT, in the identical facts and circumstances has considered this company as excludable from the final set of comparables in the case of Sunlife India Services Centre Pvt. Ltd. vs. DCIT (ITA No. 750/Del./2015- order dated 27.06.2016) on the basis of functional disparity observing as under : "10.3. After considering the rival contentions and perusing the annual reports placed on record, we are of the opinion that this company cannot be selected as comparable for TP analysis, because it is engaged in both software development as well as ITes. Assessee being ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices to its AE alone without acquiring any intellectual property rights in the work done by it in the development of software. The Hon'ble Delhi High Court in CIT vs. Agnity India Technologies (P) Ltd. (2013) 219 Taxmann 26 (Del) considered the giantness of Infosys Ltd., in terms of risk profile, nature of services, number of employees, ownership of branded products and brand related profits, etc. in comparison with the factors prevailing in the case of Agnity India Technologies Pvt. Ltd., being, a captive unit providing software development services without having any IP rights in the work done by it. After making comparison of various factors as enumerated above, the Hon'ble Delhi High Court held Infosys Ltd. to be incomparable with Agnity India Technologies Pvt. Ltd. The facts of the instant case are more or less similar inasmuch as the extant assessee is also a captive service provider and also not owning any branded products with no expenditure of its own on R&D etc. When we consider the above factors in a holistic manner, there remains absolutely no doubt in our minds that Infosys Technologies Ltd. is non-comparable with the assessee company. Respectfully following th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t services alone to the exclusion of revenue from product licences. As the assessee is not engaged in the sale of any software products, this company on entity level, cannot be considered as comparable. The Delhi Bench of the Tribunal in the case of Toluna India Pvt. Ltd. vs. ACIT (ITA No.5645/Del/2011, vide its order dated 26.8.2014 has 6006 & 6751/Del./2014 33 held Persistent Systems Ltd. to be incomparable with Toluna India Pvt. Ltd., also a company engaged in providing software development services to its related parties alone. Similar view has been taken by the Tribunal in Lear Automotive India Pvt. Ltd. vs. ACIT (ITA No.5612/Del/2011) vide its order dated 22.12.2014. The ld. DR could not point out any distinguishing feature in the factual matrix of the assessee in question and Toluna India Pvt. Ltd., and Lear Automotive India Pvt. Ltd. Since both these companies are also engaged in the business of providing software development services to its AEs, similar to the activity done by the assessee, respectfully following the precedents, we order for the exclusion of this company from the list of comparables." Similarly, in the case of assessee's group company, viz., Fiserv I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tures of the functional profile of this company and the assessee for the current year vis-a-vis the preceding year have been 6006 & 6751/Del./2014 35 brought out to our notice, following the preceding, we direct the TPO/AO for removal of this company from the list of comparables." In view of the above decision, this company is directed to be excluded from the final set of comparables." 26. In the result, we direct the AO/TPO to exclude the 5 comparables as per the findings of coordinate bench as discussed in the above paragraph. Accordingly, the relevant grounds raised by the assessee are allowed. 27. With regard to ground nos.22-24 on Depreciation on Dharuhera Unit, at the time of hearing both the parties agreed that this issue is covered issue and brought to our notice page 214 of the paper book wherein the Hon'ble High court considered the relevant issue and decided the issue as under: "11. In Ansal Properties (supra), the facts indicated - in para 4 are that the assessee had sold the entire plant and machinery of its paper division and stopped and seized to carry on its business. Likewise, in Oswal (supra) too, the assessee had claimed depreciation of its various assets, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular no. 469 issued on 23.09.1986. The same reads as follows: "6.3 As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate bookkeeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc., the more disaggregated has to be the record-keeping. Moreover, the practice of granting the terminal allowance as per section 32(1)(iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation lump sum amount of depreciation for the entire block of depreciable assets in each of the four classes of assets, namely, buildings, machinery, plant and furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, the Division Bench in Ansal Properties (supra) observed as follows: "26. Learned counsel for the Revenue has relied upon Section 32 of the Act and has submitted that the effect of the said Section should be examined while computing short term capital gains and interpreting Section 50. It is not possible to accept the said contention. Capital gains is chargeable to tax under Chapter IV-E. The provisions of the said Chapter are independent and separate. The provisions of the said chapter relating to capital gains have to be examined and interpreted. Only if there is a contradiction or conflict, we have to harmoniously interpret the two provisions. Section 50 incorporates a deeming fiction and has to be given and interpreted accordingly. Section 32 forms part of Chapter IV-D and relates to computation of income from profession and business. It is not the case of the Revenue that the gain on transfer of the block of assets is taxable as business income. The two sections operate in their own field and there is no conflict. In these circumstances, we do not think we should refer and rely upon Section 32 and accordingly compute and decide whether short term capital gains is payable u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come as per order dated 02/03/2016 u/ s 154/143(3) Rs. 342,58,24,445/- Less: Relief as per discussion above. Rs. 22,14,23,852/- Revised total income: Rs. 320,44,00,593/- Based on the above submissions and on acceptance of both the parties, we are inclined to remit this issue to the file of AO to verify the calculations submitted and allow the claim of the assessee after verification as per law. Therefore, the grounds raised by the assessee are allowed for statistical purpose. 29. Coming to the additional grounds raised by the assessee, the relevant submission of the assessee are given below: "1. Submission supporting claim of refund of Dividend Distribution Tax, ('DDT') paid in excess of the rate prescribed under the applicable Double Tax Avoidance Agreement (DTAA). 1.1. Hon'ble Mumbai ITAT (Special Bench) in Total Oil India Private Limited (ITA No.6997/Mum/2019) has denied the claim of refund of DDT paid u/s 115-o on certain grounds. These grounds along with our submissions are as under: a) Sovereign has the prerogative to tax dividend either in the hands of recipient or otherwise and there is nothing in the fundamental concepts of income-tax to pervert the imposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2003 (with effect from the assessment year 200.J-Oj) since it was easier to collect tax at a single point and the new system was leading to increase in compliance burden. However, with the advent of technology and easy tracking system available, the justification for current system of taxation of dividend has outlived itself." * Therefore, the primary & rightful intent behind introduction of Section 115-O was to achieve ease in tax collection mechanism & administrative convenience. c) Sec. 115-O is a code by itself in so far as levy and collection of tax on distributed profits are concerned. Non-obstante clause of Sec. 115-O indicates that this section is independent and divorced from the concept of 'total income' (Para No. 58) Our Submission: * Hon'ble Supreme Court in Tata Tea [2017] 398 ITR 260 while upholding the constitutional validity of Sec. 115-O referred to the provisions of Sec. 2(24) of the Act (i.e.. definition of income) read with Entry 82 of List I of the Constitution of India (union list). Hon'ble SC held that under Entry 82 since Central Govt. has power to charge taxes on income other than agricultural income and dividend forms part of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have been distinguished in lines similar to Tata Tea (supra). e) Hon'ble Bombay High Court in case of Godrej & Boyce has held that DDT was not a tax on income of the shareholder but was instead a tax on Company. Also, Hon'ble SC while did not conclude on whether it is a tax on Company or shareholder. it did not disturb the conclusion That 'DDT is nor a payment on behalf of the shareholder' (para No.71 to 74) Our Submission: * Hon'ble Bombay High Court or even Hon'ble Supreme Court for that matter in the case of Godrej & Boyce (supra) did not convey any contrary or contradictory principles with respect to the provisions of Section 115-0. Instead, the issue before the Hon'ble Courts pertained to applicability of provision of Section 14A on the dividend income of a shareholder. Therefore, since the Hon'ble courts never decided on the nature of levy u/s 115-O of the Act - It should not be considered to disregard the finding of the Hon 'ble Supreme Court in Tata Tea (supra) wherein the nature of levy of Section 115-0 was specifically addressed. * Further, attention is also drawn towards the decision of Hon'ble Kolkata ITAT in Indian Oil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt shareholder. * Further, Sec. 191 of the Act states that in case there is no provision for withholding of taxes in respect of any taxable income then such income tax shall be payable by the assessee directly. Therefore. had it been the intent of legislation that DDT is a tax on the company, there was no need for specific inclusion of Sec. 115-O(3) & Sec. 115-O(4) - which going by the interpretation of Hon'ble Special Bench shall stand redundant as the same effect is provided under Section 191 of the Act. h) DDT is a tax not on the shareholder but on the income of the company and thus, (here is no double taxation and thus. DTAA does not apply (Pam No. 79 & 80) Our Submission: * Memorandum to Finance Bill 2020 has neither been discussed nor evaluated by the Hon'ble Mumbai Tribunal Special Bench while issuing the order in case of Total Oil (supra). The memorandum clearly provides for the objective of introduction of Section 115-O - "now with technology advent, tracking is easier and hence, charge of company which was created initially is irrelevant and is restored to (he shareholders" * Explanatory Memorandum to Finance Bill 2020 states that shifting of incidence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein it is held as under: "83. For the reasons give above, we hold that where dividend is declared, distributed or paid by a domestic company to a non-resident shareholder(s), which attracts Additional Income Tax (Tax on Distributed Profits) referred to in Sec.115-O of the Act, such additional income tax payable by the domestic company shall be at the rate mentioned in Section 115 O of the Act and not at the rate of tax applicable to the non-resident shareholder(s) as specified in the relevant DTAA with reference to such dividend income. Nevertheless, we are conscious 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. Thus, the question before the Special Bench is answered, accordingly." 32. Respectfully, following the above decision, we are inclined to dismiss the additional grounds raised by the assessee. 33. Finally, the appeal filed by the assessee is part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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