9911796707
TMI Blog2024 (12) TMI 1258X X X X Extracts X X X X X X X X Extracts X X X X ..... argument of the assessee had been rejected by the ITAT in its order in the case of the assessee for Asst.Year 2007-08 to 2010-11.This argument of the assessee, therefore, is also dismissed. Principle of mirror ALP - argument of the assessee was that, if the ALP of a transaction with one of the AE s to an international transaction is determined, the same ALP is to be applied with respect to other AE also - HELD THAT:- No merit in the contentions of the ld.counsel that the ALP adjustment should be deleted by applying the principle of mirror ALP. We have gone through the order of the ITAT in the case of the assessee for Asst.Year 2011-12 to 13-14 and have noted that it had referred to the decision of Filtrex Technologies P.Ltd. [ 2018 (4) TMI 1957 - ITAT BANGALORE] has categorically held that in terms of provision of law relating to TP, there could not be any case of mirror ALP at all. Income received by the assessee on account of rendering of services was taxable in the source country only on receipt basis - We restore the issue back to the AO with the direction to apply the decision of the Special Bench in Ampacet Cyprus Ltd [ 2020 (9) TMI 25 - ITAT MUMBAI] on the issue of applicabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Year 2007- 08 onwards upto the immediately preceding assessment year i.e. Asst.Year 2013-14 and all adjudicated by the ITAT. Therefore, it was stated that all the issues were covered by the decision of the ITAT in the preceding years in the case of the assessee. It was, however, stated that with respect to the issues raised regarding transfer pricing adjustment made to the international transactions entered into by the assessee there were some distinguishing facts/proposition of law which needed to be brought to the notice of the Bench/argued before the Bench, and therefore, with respect of the said ground, exhaustive arguments needed to be made for the assessee. With respect to the other remaining grounds, it was stated that no distinguishing facts or proposition of law needed to be pointed out. Having stated so, the appeals were proceeded to be argued with. 4. Both the parties were heard. Since, admittedly, the issues raised in both the appeals of the assessee, pertaining to the Asst.Year 2014-15 and 2015-16, are identical we shall deal with the grounds raised by the assessee in Asst.Year 2014-15 and our decision rendered therein will apply pari passu to the appeal of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t than the provisions of the Income-tax Act, 1961 ('the Act') and by virtue of section 90(2) of the Act. 1.5. Without prejudice to the above, on the facts and in the circumstances of the case and in law, learned AO / TPO has erred and learned DRP has further erred in rejecting the approach of the Appellant of comparing the fixed and optional services provided to HLPL with respective fixed and optional services provided to comparable company. 1.6. Without prejudice to the above, the Appellant humbly submits that in case, if the contention of the Appellant on the non-taxability of INR 8,74,34,868 (received from HLPL) as fees for technical services under Article 12 of DTAA (as per Ground No. 4 below) is accepted, then the corresponding transfer pricing adjustment in relation to the services rendered to HLPL should also be reduced to that extent. 6. The above ground, it was contended, pertained to the Transfer Pricing (TP) adjustment made to the international transactions undertaken by the assessee with its Associate Enterprise (AE). 7. Giving a brief background of the case, it was pointed out that the assessee-company, M/s. Shell Global Solutions International BV was incorpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esult, the TPO proposed a total upward adjustment of Rs. 220,39,59,249/- to the international transaction entered by the assessee with its AE, HLPL and SIMPL. The upward adjustment proposed by the TPO are tabulated in his order as under: AE Nature of Contract Consideration Charged in INR Actual rate per man hour (Euro) ALP rate (Euro) Revised ALP consideration Adjustment HLPL Operation of LNG Storage and re- gasification terminal 421463206 371.21 2267.90 2574920947 2153457741 SIMPL Manpower services 103632408 217.56 323.58 154133915 50501507 Total 525095614 2729054863 2203959249 10. The assessee objected to the proposed upward adjustment to the DRP, who noted that this issue was under consideration before the DRP consistently in earlier years, i.e. Asst.Year 2007-08 to 2024-15 and the DRP had consistently rejected the objection of the assessee in the said years. The DRP also noted that, the assessee had carried the matter in appeal before the ITAT in Asst.Year 2007-08 and 2010-11 and all the contentions of the assessee had been rejected by the ITAT. Following the decision of the ITAT in the assessee s own case, and the consistent view of the DRP in the case of the assessee in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd therefore, it was held that on account of ALP adjustment made in the hands of the assessee there was no base erosion. The ld.counsel for the assessee contended that it was in these facts and circumstances that the base erosion arguments of the assessee had been rejected both by the Special Bench of the ITAT in the case of the assessee. He stated that the facts in the present case are, however, different and the assessee has made profits, and also paid taxes in the impugned year. In support of his contentions that the base erosion arguments need to be accepted, reliance was placed on the decision of the ITAT Pune Bench in the case of Cummins Inc. Vs. ADIT (2016) 73 taxmann.com 207 (Pune). The assessee also relied on the decision of Hon ble Apex Court in the case of CIT Vs. Glaxo Smithkline Asia P.Ltd., (2010) 195 Taxman 35 (SC) for the proposition that there ought to be no ALP adjustment if it is a revenue neutral exercise. 14. Having heard contentions of the ld.counsel for the assessee, and having gone through the orders of the Special Bench in the case of Instrumentarium (supra), as also decisions in the case of the assessee in the preceding year, we do not find any merit in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian AE, resulting in its expenses increasing to that extent, reducing taxable profits accordingly. The net effect would be that while there would be a gain of 10% taxes on the TP adjustment made, there would also be a corresponding loss of 26.75% taxes on account of the ALP adjustment in the hands of Indian AE. The assessee s argument was based on the interpretation of provision of section 92(3) read with section 92C(4) of the Act. 18. The Special Bench, however, rejected outright this contention of the assessee, noting that in terms of provision of law, any adjustment to the ALP of the international transaction of a foreign entity did not warrant an adjustment in ALP of its Indian AE also. The Special Bench categorically noted that the deduction for the ALP adjustment will not be available to the Indian AE, because there is no provision enabling deduction for the ALP adjustment. The assessee had referred to second provision to section 92C(4) for stating that in terms of second proviso, the Indian AE was not debarred from making the corresponding adjustment in ALP of the transaction, and this contention of the assessee was also rejected by the Special Bench, noting that second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y allow the income to the non-resident company. That is not the case before us, and in such a situation, in any event, ALP adjustments would not have come into play at all. As regards learned counsel's contention that if there is an enhancement to an income corresponding deduction cannot indeed be given to the related AE, but if an altogether new income is brought to tax in the hands of the assessee, as a result of ALP adjustment, corresponding deduction is required to be given to the Indian AE, we find no basis whatsoever for this contention. The scheme of transfer pricing legislation does not support the plea of the assessee. Learned counsel has not been able to point out any specific legal provision enabling such a corresponding deduction or demonstrate, or even remotely suggest, the line of demarcation as visualized by the learned counsel. As regards the reference to second proviso to Section 92C(4) made by the learned CIT(A), on incorrectness of which so much reliance has been placed by the learned counsel, the CIT(A) was indeed in error as it refers to re-computation of income in the hands of an AE, as a result of lower deduction being allowed, but then nothing really tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, thereafter pointed out that in the preceding year, it had raised an argument, regarding Benefit of Treaty (DTAA) against applicability of TP provisions in reference to Article 9(1) of the India Netherlands Tax Treaty . The ld.counsel for the assessee fairly conceded that this argument of the assessee had been rejected by the ITAT in its order in the case of the assessee for Asst.Year 2007-08 to 2010-11. This argument of the assessee, therefore, is also dismissed. 21. Next argument raised by the Ld.Counsel for the assessee was regarding the principle of mirror ALP . The argument of the ld.counsel for the assessee was that, if the ALP of a transaction with one of the AE s to an international transaction is determined, the same ALP is to be applied with respect to other AE also. In fact the specific argument of the ld.counsel for the assessee was that in the case of Indian AEs of the assessee i.e. HLPL and SIMPL , the ALP of the transaction entered into with the assessee had been determined by the TPO and accepted at the Price at which it was recorded by the assessee. Having done so, there was no cause of action now with the TPO of the assessee to make any adjustment in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of law, more particularly section 92(3) and second proviso to section 94CA(4) of the Act, and applying the ratio laid down by the Special Bench of the ITAT in the case of Instrumentarium Corpn. Ltd. (supra) held that in respect of a same transaction the Revenue can opt to determine total income on the basis of ALP determined in accordance with section 92(1) of the Act in the hands of one party to the said transaction, wherever tax base would erode and can desist from doing so in the assessment of the other party to the said transaction wherever there would not be tax base erosion. That therefore it cannot be said that consequent to acceptance of return of income filed by one party to the transaction, the price paid by the other party in the international transaction has to be accepted as at Arms Length. The relevant findings of the ITAT are reproduced at para 28 29 of its order as under; 28. It is clear from the above circular that second proviso to Sec. 94CA(4) is meant to apply only when ALP is determined in the case of FIPL and FHPL. Another aspect which the Circular makes it clear is that the commercial reality of a transaction will be looked into viz., wherever the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Assessing Officer on this issue and remand the question of determination of ALP to the TPO for fresh consideration. It is made clear that the TPO shall not dispute that services were rendered by the AE. If the approach of the Assessee in adopting TNMM at entity level is disputed by the TPO, the Assessee should be permitted to file TP study for each of the international transaction separately. The assessee is also directed to file the TP study, if not already filed which is in accordance with the provisions of the Act and substantiate that the price paid by it to its AE is at arm's length within the methods laid down in the Act and the judicial decisions rendered on this issue. The TPO will consider the same in accordance with the law, after affording an opportunity of being heard. 26. As regards reference to the earlier year decision in the case of the assessee by the Ld.Counsel for the assessee where the decision was stated to be made on the basis of facts of the case of there being no TP reference made in the case of the AE, the same merits no consideration in view of the proposition of law laid down in this regard by the ITAT in the case of Filtrex (supra). 27. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court. 29. The Hon ble High Court decision in the case of UED (supra) being rendered in the facts of the case, it cannot be said to be laying down any proposition of law. And therefore no benefit whatsoever can be derived by the assessee from the said decision. In view of the above discussion the Mirror ALP argument of the assessee also stands rejected following the decision of the ITAT in the case of Filtarex (supra). 30. The ld.counsel for the assessee, thereafter, stated that his next contention with respect to the adjustment made to the ALP of the transaction in the hands of the assessee was that the CUP method had not been correctly applied. He stated that this argument was applicable only to the international transaction with AE HLPL and not with SIMPL. He pointed out that in the preceding years i.e. Asst.Year 2011- 12 to 2013-14, this point had been raised before the Tribunal for the first time, contending that while the TPO had picked up Brunei LNG., as a comparable for applying CUP method, it had failed to make the comparison correctly. He contended that they were two components to the services provided by the assessee-company viz. one of fixed component and other of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alore in the case of Filtrex Technologies Pvt. Ltd. (supra), the matter is being restored to the file of Ld. AO for determination of ALP in respect of the aforesaid transactions. The assessee is also directed to file the relevant supporting documents to substantiate that the price paid by the AEs to the assessee is at arm's length within the methods laid down in the Act and the judicial precedents rendered on this issue. The Ld. TPO is directed to consider the same in accordance with the law, after affording an opportunity of being heard to the assessee. 32. He, therefore, contended that in the impugned order also identical direction be given to the TPO. The ld.DR fairly agreed to the same. 33. In view of the above therefore, the TPO is directed to determine the ALP in respect of the impugned international transactions with HLPL afresh after making a proper TP analysis in accordance with the direction of the ITAT in the preceding year as noted above. 34. Next argument raised by the ld.counsel for the assessee before us was that the income received by the assessee on account of rendering of services was taxable in the source country only on receipt basis. His contention was that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) : Rs.18,79,417/- Rs.28,68,584/- 38. The ld.counsel for the assessee stated that the DRP had dismissed the assessee s objection to the proposed treatment, by following its order for Asst.Year 2011-12. He pointed out that the issue had travelled to the ITAT in Asst.Year 2011-12 and the ITAT had ruled in favour of the assessee holding such payment did not qualify as Royalty, following the decision of the Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence P.Ltd., 125 taxmann.com 42 (SC). Our attention was drawn to para 11 to 12 of the order of the ITAT in Asst.Year 2011-12 as under: 11. The brief facts in relation to this ground of appeal are that the assessee earned revenues from provision of off the shelf standard software to certain Indian entities. The Assessing Officer taxed the aforesaid amounts as software royalty in the hands of the assessee under Section 9(1)(vi) of the Act read with the applicable Treaty law. While holding receipts as royalty payment, the DRP primarily relied upon the decision of Karnataka High Court in the case of CIT vs. Samsung Electronics Co. Ltd. 16 taxmann.com 141 to hold that the payments received by the assessee company f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount received for the above mentioned services is mere reimbursement of expenses incurred by the Appellant without any mark up and hence is in the nature of reimbursement of expenditure. 42. At the outset itself, ld.counsel for the assessee contended that the issue raised in the ground 3.1 stood covered in favour of the assessee by the decision of the ITAT in Asst.Year 2012-13 in ITA NO.747/Ahd/2017 dated 11.10.2023. He pointed out that the issue related to the treatment of service rendered by the assessee to its subsidiary SIMPL for providing Global P T Functional services as fee for technical services under section 9(1)(vii) of the Act read with applicable Tax Treaty. The services included providing strategy support services, human resources services, legal services, providing advice relating to environmental healthy and safety matters and provision of IT services etc. The AO has treated the same as in the nature of fee for technical services and subjected to tax in India under section 9(1)(vii) of the Act read with Tax Treaty. The objection of the assessee to the DRP against the same was dismissed following its decision for earlier years. 43. The ld.counsel for the assessee poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided by the assessee on recurring basis from year to year and if the technology had been made available to its subsidiary Shell India, there would have been no need for availing the aforesaid services on a recurring basis, from year to year. Accordingly, it was submitted that the aforesaid services do not qualify as FTS under the India-Netherlands Tax Treaty. 39. In response, the Ld. D.R. placed reliance on the observation made by the Assessing Officer in his order. 40. We have heard the rival contention and perused the material on record. On going through the nature of services, we are of the considered view that the aforesaid services do not qualify as fee for technical services in view of the specific exclusion provided under the India-Netherlands Tax Treaty excluding those services from the ambit of technical services, which do not make available technology to the recipient of such services. On perusal of the nature of services, in our considered view, no such technology has been made available to Shell India during the course of rendering of such services. From the facts placed before us it is evident that the Department has not been able to substantiate that the services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the ITAT on the issue for Asst.Year 2012-13,the addition made to the income of the assessee by treating the receipts on account of service rendered by the assessee to its subsidiary SIMPL for providing Global P T Functional services as fee for technical services under section 9(1)(vii) of the Act, amounting to Rs. 87,46,96,276/-, is deleted. Ground no.3.1 is allowed. 46. The ld.counsel for the assessee thereafter pointed out that in ground No.3.2 an alternate argument had been raised by the assessee with respect to the issue of treatment of amount received from SIMPL for rendering Global P T Functional services as fee for technical services. The assessee s alternate contention was that it was merely in the nature of reimbursement, and therefore also not liable to be subjected to tax. He pointed out that the ITAT in the preceding year had not adjudicated this ground since the assessee s plea against the treatment of the impugned amount as fee for technical services, had been accepted. The ld.DR fairly conceded to the same. 47. In view of the above, since, we have also treated this amount received by the assessee from SIMPL of Rs. 87.46 crores as not liable to be taxed as FTS in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T in Asst.Year 2012-13 and the issue had been decided in favour of the assessee by the ITAT. He drew our attention to para-15 to 19 of the order in this regard as under: 15. The assessee has raised the following grounds of appeal: 3. The learned AO based on the directions of the DRP has erred on the facts and in law in treating the revenues of Rs. 51,68,025 received by the Appellant from Hazim LNG Port Limited, Hazira Port Private Limited and Hindustan Petroleum Corporation Limited as Fee for technical services under section 9(1)(vii) of the Act and under Article 12 of Tax Treaty. 4. Income from HLPL treated as fees for technical services - Rs. 2,84,20,716 The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO on the facts and in law in treating the revenue of Rs. 2,84,20,716 received by the Appellant from HLPL as Fees for technical services under section 9(1)(vii) of the Act and under Article 12 of DTAA. 16. The brief facts in relation to these grounds of appeal are that the assessee provided Computational Fluid Dynamics (in short CFD ) modelling of the temperature effects on the Hazira Sea Water outflow into the port ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the services of the assessee further in the future and has been enabled by the assessee to perform such services on its own without any recourse or assistance of the assessee in the future. More specifically, with respect to Work Order No. 131965, we observe that the work performance on the analysis was done only with a view to advice HPCL to decide whether switchgear was obsolete and hence, required to be refurbished or replaced. Therefore, looking into the instant facts we are of the considered view that the condition of make available has not been satisfied in the instant set of facts and hence, the services do not qualify as FTS. In this connection it would be useful to reproduce the relevant extracts of the decision of Karnataka High Court in the case of CIT vs. De Beers Indian Minerals Pvt. Ltd. 21 taxmann.com 214 (Kar.):- Therefore, the assessee not being possessed with the technical know how to conduct this prospecting operations and reconnaissance operations, engaged the services of Fugro which is expert in the field. By way of technical services Fugro delivered to the assessee the data and information after such operations. The said data is certainly made use of by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, amounting to Rs. 73,92,399/-. The ld.counsel for the assessee contended that identical issue was adjudicated by the ITAT in Asst.Year 2011-12 in favour of the assessee vide para 22 to 28 as under: 22. The assessee has raised the following grounds of appeal:- 4. The learned AO based on the directions of the DRP has erred on the facts and in law in treating the revenues of Rs. 8,18,82,400 received from Larsen Toubro Limited ('L T') as taxable under section 9(1)(vii) of the Act. 4. Income from Larsen Toubro Limited ('L T') treated as fees for technical services The learned AO/TPO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO/TPO on the facts and in law in treating the revenue of Rs. 7,41,84,000 received from L T as taxable under section 9(1)(vii) of the Act. 5. Income from Larsen Toubro Limited ('L T') treated as fees for technical services - Rs. 2,44,01,667 The learned AO/TPO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO on the facts and in law in treating the revenue of Rs. 2,44,01,667 received from L T as taxable under section 9(1)(vii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Titan Industries Ltd. 11 SOT 206 wherein it was held that when the customers of the company are located outside India, then the source is outside India. 25. In response, Ld. D.R. placed reliance on the observations made by the DRP and AO. 26. We have heard the rival contentions and perused the material on record. On going through the facts of the instant case, we observe that the assessee entered into contract for provision of engineering services related to coal gasification equipment to be installed at the plant site in Vietnam and China. We observe that the services were to be rendered primarily from the office of the assessee located at Germany. Further, from the terms of the services it is seen that the services on relation to installation of equipment at China. Further, it has been also submitted before us that payment for the aforesaid services were received outside of India. It would be useful to reproduce the relevant extracts of the ruling rendered by the Gujarat High Court in the case of Motif India Infotech Pvt. Ltd. (supra) which held that as per clause (b) of Section 9(1)(vii) the income by way of fees for technical services payable by a person who is a resident of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,69,502. 56. The issue is related to short credit of TDS given to the assessee to the tune of Rs. 10,69,502/-. 57. The ld.counsel for the assessee contended that necessary rectification order in this regard has already been passed by the AO, and therefore, this ground has now become infructuous. In view of this submission of the ld.counsel for the assessee ground no.6 is dismissed as infructous . 58. In the result, the appeal of the assessee is partly allowed for statistical purpose. 59. Now we take up the assessee s appeal for Asst.Year 2015-16 in ITA No.1783/Ahd/2019. 60. As stated in paragraph 2 above of this order, the facts, grounds, and issues involved in both appeals for the assessment years 2014- 15 and 2015-16 are identical, except for the variation in the quantum of additions. Consequently, as fairly agreed by both the parties, the arguments and submissions made by them, as well as our observations and findings regarding the assessment year 2014-15, are equally applicable to the assessee's case for the assessment year 2015-16. Based on this premise, and after going through the grounds and issues in light of the material on record, we adjudicate the appeal for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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