DURR SYSTEMS AG ,MUMBAI vs. DCIT,INTERNATIONAL TAXATION -1(1), CHENNAI

ITTPA 16/CHNY/2022Status: DisposedITAT Chennai29 May 2024AY 2012-201313 pages
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What were the facts?

The assessee, Durr Systems AG, a German company, filed its return for Assessment Year 2012-13. The case was selected for scrutiny, and after revisions and notices, a draft assessment order was passed determining taxable income at Rs. 204,01,14,126/-. The assessee filed objections before the Dispute Resolution Panel (DRP), which issued directions. The Assessing Officer (AO) passed the final assessment order on February 28, 2022, in compliance with the DRP's directions. The assessee is aggrieved by this order, particularly concerning additions made on account of R&D fees, buy-back of shares, and attribution of income to a Permanent Establishment (PE). The amount in dispute for R&D fees was Rs. 10,42,89,500/-.

What did the Tribunal hold?

The Tribunal addressed three grounds of appeal. Firstly, regarding R&D fees, the Tribunal noted the assessee's reliance on the Cost Allocation Agreement (CAA) and the adverse ruling from the Authority for Advance Ruling (AAR) dated March 22, 2012, which held the payment as royalty. The Tribunal acknowledged that the assessee's writ petition against the AAR ruling was pending before the Madras High Court. The Tribunal, however, did not make a specific finding on this issue, stating that the DRP's observations were extracted and the judgment was incomplete. Secondly, concerning the buy-back of shares, the Tribunal upheld the AO's action, confirming the addition as long-term capital gains. The Tribunal noted the assessee's concession that it did not succeed before the AAR and was awaiting the High Court's verdict. The Tribunal found the AAR ruling binding on the AO. Therefore, ground of appeal number 2 was dismissed. Thirdly, regarding the attribution of income to a PE, the Tribunal heard rival submissions. The assessee argued that the addition included long-term capital gains already taxed, reimbursement of expenses, and fees for technical services offered to tax. The Tribunal, considering the ends of justice, set aside the issue to the AO for reconsideration, allowing the ground of appeal partly for statistical purposes. The Revenue concurred with this view. The appeal was partly allowed.

What were the issues?

1. Whether reimbursement of R&D expenses by Durr India Private Limited to the assessee constitutes Royalty income, ignoring the Cost Allocation Agreement (CAA), as per Section 5 and Section 9 of the Income Tax Act, 1961. - Assessee's contention: The AO/DRP erred in treating reimbursement of R&D expenses as Royalty income, disregarding the CAA. - Revenue's contention: Not recorded. 2. Whether the consideration received by the assessee on buy-back of shares of its wholly-owned subsidiary, Durr India, is taxable, ignoring Section 47(iv) of the Act. - Assessee's contention: The AO/DRP erred in taxing the buy-back consideration, ignoring Section 47(iv). - Revenue's contention: Not recorded. 3. Whether a portion of receipts from Durr India, as per Form 26AS, was wrongly attributed by the AO/DRP as consideration for alleged supply of goods, leading to double taxation, considering all receipts were offered to tax. - Assessee's contention: The AO/DRP erred in attributing income to an alleged PE based on conjecture, ignoring that all receipts were offered to tax, resulting in double taxation. - Revenue's contention: Not recorded.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 5,Section 9,Section 47(iv),Section 245R(2),Section 9(1)(vi),Section 12,Section 245S

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI MAHAVIR SINGH & SHRI AMITABH SHUKLA

Hearing: 01.05.2024Pronounced: 29.05.2024

PER AMITABH SHUKLA, A.M :

This appeal has arisen out of assessment order u/s 143(3) r.w.s 144C(13) dated 28/2/2022 of the Assessing officer passed in compliance to the directions of the DRP dated 27/12/2021. Aggrieved by the assessment order supra arising from DRP’s directions the assesse has

The order continues below.

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