ADDL/JOINT COMMISSIONER OF INCOME TAX (LTU) , BANGALORE vs. M/S TEXAS INSTRUMENTS (INDIA) PVT LTD , BANGALORE

PER Bench: These cross appeals are directed against the order dated 17.12.2018 passed by Ld. CIT(A)-2, Bengaluru and they relate to the assessment year 2011-12.

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Page 2 of 18 2. The grounds of appeal urged by the assessee relate to the following issues:- a) Disallowance of information technology support services treating it as capital in nature. b) Disallowance of lease rentals paid on motor cars.

4.1 In this additional ground, the assessee has raised a legal issue contending that the dividend distribution tax payable on the dividend amount paid to its A.E. in USA should be restricted to the rate prescribed under DTAA. It is submitted that this is a purely legal issue and no new facts are necessary. Relying on the decision rendered by Hon’ble Supreme Court in the case of National Thermal Power Corporation Ltd (229 ITR 283), the assessee has prayed for admission of this additional ground.

4.2. The Ld A.R submitted that this issue is covered in favour of the assessee by the decision rendered by the co-ordinate benches of Tribunal in the following cases:- (a) Giesecke & Devrient (India) (P) Ltd vs. ACIT (2020)(120 taxmann.com 338)(Delhi-Trib)

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Page 3 of 18 (b) DCIT vs Indian Oil Petronas (P) Ltd (2021)(127 taxmann.com 389)(Kolkatta – Trib). (c) Maruti Suzuki India Ltd vs. DCIT (2019)(ITA No.961/Del/2015)(Delhi) (d) PCIT vs. Maruti Suzuki India Ltd (2019)(W.P. (C) 13241/2019) The Ld A.R has also placed reliance on the interim order passed by the Delhi bench of Tribunal in the case of Maruti Suzuki India Ltd vs. DCIT (2019)(ITA No.961/Del/2015 dated 31.10.2019), wherein the Delhi bench has expressed the view that the Dividend Distribution tax (DDT) is a “tax on income” and hence additional ground can be raised by the assessee in appellate proceedings.

4.3 The present appeal pertains to the assessment order passed u/s 143(3) of the Act and we noticed that, in the impugned assessment order, the AO did not discuss anything about Dividend Distribution Tax either affirming the tax paid by the assessee u/s 115-O of the Act or raising any additional demand. In this context, the bench asked the Ld A.R as to how the issue of DDT can be said to arise out of the impugned assessment order and whether the assessee can raise additional ground relating to the same in the present appeal, when no discussion is there on DDT liability.

4.4 The Ld A.R heavily placed his reliance on the decision rendered by Hon’ble Supreme Court in the case of Genpact India (P) Ltd (2019)(111 taxmann.com402) and submitted that the Hon’ble Supreme Court has held that the additional tax payable u/s 115QA can be challenged u/s 246A under the clause “an order against the assessee where the assessee denies his liability”. He submitted that the Hon’ble Supreme Court did not lay down proposition that there has to be a separate appeal filed before Ld CIT(A) for the liability u/s 115QA. He further submitted that the Hon’ble Supreme Court did not advert to the point that the “denial of liability to tax” may

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Page 4 of 18 not be a subject matter of the assessment proceedings u/s 143(3) and it did not put a bar on raising the said issue as an additional ground in the appeal filed against the assessment order passed u/s 143(3) of the Act.

4.5 The Ld A.R also submitted that the details of DDT are given in the Income tax return filed by the assessee and further there is no separate assessment procedure prescribed for assessing the correct amount of DDT liability u/s 115-O. He submitted that the assessment order did not discuss anything about DDT and hence it should be assumed that this amounts to deemed acceptance of DDT liability by the AO. He submitted that the same amounts to application of mind as held in the case of Kelvinator (2002)(256 ITR 1) by Hon’ble Delhi High Court. Accordingly he submitted that it cannot be said that the DDT liability is not part of assessment order passed u/s 143(3), if it is not specifically discussed in the assessment order, especially when there is no other section in the Act dealing with the assessment of DDT liability like the case of Fringe Benefit Tax assessment. He further submitted that the Hon’ble Madras High Court in the case of CIT vs. Indian Express (Madurai) (1983)(13 Taxman 441)(Mad) has held that any point which goes into the adjustment of tax liability can be looked into by ITAT.

4.6 He submitted that in the case of Maruti Suzuki vs. DCIT (2019)(ITA No.961/Del/2015), the revenue has stated that the DDT was not part of tax liability of the assessee nor it is part of assessment record and accordingly contended that the ground on DDT cannot be admitted. However, the Delhi Tribunal has admitted additional ground on DDT liability.

4.7 Without prejudice to the above arguments that the Tribunal should admit additional ground, the Ld A.R submitted that if the

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Page 5 of 18 ITAT were to hold that the appellant had to first file appeal on this ground before Ld CIT(A) u/s 246A, then the ITAT may direct Ld CIT(A) to admit the appeal of the appellant condoning the delay in filing the appeal.

4.8 We heard Ld D.R on this issue and perused the record. The DDT is paid as per the provisions of sec.115-O, which is titled as “Tax on Distributed Profits of Domestic Companies”. The assessment order is passed u/s 143(3) of the Act, wherein the assessing officer is required to make assessment of the “total income or loss” of the assessee. The expression “total income” is defined in sec. 2(45) of the Income tax Act to mean the “total amount of income referred to in section 5, computed in the manner laid down in this Act. It can be noticed from section 5, it talks about the income received or deemed to be received or accrued or deemed to accrue or arise. Thus when the assessing officer is determining “total income” of the assessee, he is required to look into the income received or deemed to be received or accrued or deemed to accrue or arise. On the contrary, it can be noticed that the DDT is a “tax payable on the distribution of dividend” and it is in no way connected to the determination of “total income”. The appeal filed by the assessee before us is related to the “determination of total income” u/s 143(3) of the Act.

4.9 Now the question that arises is whether the assessee can raise the issue relating to payment of DDT in an appellate proceeding relating to determination of total income u/s 143(3) of the Act. We notice that the Hon’ble Delhi Court in the case of Genpact India (P) Ltd vs. DCIT (2019)(108 taxmann.com 340) dealt with a writ petition filed before it by the assessee challenging the demand raised u/s 115QA of the Act, which relates to tax on distributed income by way of buy back of shares. The writ petition was filed on the reasoning that the Income tax Act does not provide

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Page 6 of 18 appeal remedy for the additional tax demanded u/s 115QA of the Act. However, the revenue submitted that the assessee is having alternative remedy for filing appeal before Ld CIT(A) and accordingly prayed for rejection of Writ petition filed by the assessee. It is pertinent to note that the said assessment order passed by the AO included the demand raised u/s 115QA of the Act also besides the demand raised u/s 143(3) of the Act. The Hon’ble Delhi High Court rejected the writ petition and allowed the assessee to file separate appeal before Ld CIT(A) u/s 246A of the Act against the tax liability raised u/s 115QA of the Act. With regard to the contention of the assessee that the additional tax payable u/s 115QA should not be construed as forming part of assessment order, the Hon’ble Delhi High Court answered the same as under:- “16. At the outset, the Court would first like to deal with the submissions of Mr Ganesh that the impugned demand raised under Section 115-QA of the Act should not be construed as forming part of the impugned assessment order and that it is something separate from it. While it is true that the demand under Section 115-QA of the Act would be in addition to the total income, the fact of the matter is that in the present case it forms an integral part of the impugned assessment order under Section 143 (3) of the Act. Reading the assessment order as a whole, it is plain to the Court that this demand under Section 115-QA of the Act is in addition to demands under other issues, all of which form part of the impugned assessment order. In fact, Paragraph 11 of the impugned assessment order, which gives the computation of the total taxable income, includes the demands raised under all heads and it includes the demand under Section 115-QA of the Act. Therefore, it is not possible for this Court to read this part of the order separate from the rest of the assessment order.”

4.10 It is pertinent to note that the M/s Genpact India P Ltd challenged the above said decision rendered by Hon’ble Delhi High Court before Hon’ble Supreme Court and the decision of Hon’ble Supreme Court is reported in (2019)(111 taxmann.com 402). As noticed earlier the Hon’ble Apex Court held that the contention of the assessee that it is not liable to pay tax u/s 115QA would fall under the clause “an order against the assessee where the assessee denies his liability to be assessed under this Act”. mentioned in clause (a) of sub. Section (1) of sec. 246A of the Act. Since the DDT

IT(TP)A No.525 /Bang/2019 M/s. Texas Instruments (India) Pvt. Ltd., Bangalore Page 7 of 18 payable u/s 115-O of the Act is an additional tax liability akin to the tax payable u/s 115QA of the Act, there should not be any dispute that the assessee can challenge the liability imposed on it u/s 115-O of the Act as held by Hon’ble Supreme Court in the case of Genpact India P Ltd (supra).

4.11 However, the question that arises is whether the assessee can challenged the liability u/s 115-O of the Act by raising an additional ground in the appeal filed against the assessment order passed u/s 143(3) of the Act. It is pertinent to note that clause (a) of sub. Sec. (1) of sec. 246A contains various types of the orders passed by the tax authorities which, inter alia, includes (a) an order against the assessee where the assessee denies his liability to be assessed under this Act and (b) any order of assessment under sub-section (3) of section 143. Thus the grievance of the assessee on DDT liability falls under different class of liabilities mentioned in sec. 246A of the Act. Further, Sec. 246A provides for appellate remedy for different types of tax demands raised upon the assessee and there should not be any dispute that the assessees have been filing separate appeals for the demand raised under different sections of the Act.

4.12 In the case of Genpact India P Ltd, the Hon’ble Delhi High Court noticed that the additional tax liability u/s 115QA was raised in the assessment order itself. Hence the Hon’ble Delhi High Court held that “it is not possible for this Court to read this part of the order separate from the rest of the assessment order”. We also notice that M/s Genpact India P Ltd had filed appeal before Ld CIT(A) challenging various additions made by the AO while determining the total income of the assessee and by the time the writ petition was disposed of by Hon’ble Delhi High Court, the Ld CIT(A) had disposed of the appeal filed by the assessee and further the revenue

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Page 8 of 18 had challenged his order by filing appeal before ITAT. However, the assessee was directed by Hon’ble Delhi High Court to agitate the issue of tax liability u/s 115QA by filing appeal before Ld CIT(A) only.

4.13 In the instant case, first of all, the DDT liability is not forming part of assessment order passed u/s 143(3) of the Act. Further, the liability u/s 115-O can be challenged under the clause “an order against the assessee where the assessee denies his liability to be assessed under this Act” mentioned in sec.246A(1)(a) as held by Hon’ble Supreme Court. The above said clause is a separate clause unconnected with the clause “any order of assessment under sub-section (3) of section 143”.

4.14 Accordingly, we are of the view that the assessee cannot raise the additional ground relating to DDT liability in the present appeal. The assessee, if so advised, may prefer appeal in that regard before Ld CIT(A). Since the assessee had entertained bonafide belief that its grievance on DDT liability can be raised as additional ground before ITAT, it did not file appeal before Ld CIT(A). Accordingly, we direct the Ld CIT(A) to take a lenient view on the matter of condonation of delay, if the assessee prefers appeal before him on DDT liability of the year under consideration.

4.15 In view of the foregoing discussions, we reject the additional ground raised by the assessee on DDT liability.

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Page 9 of 18 the appeal before Ld. CIT(A) and got partial relief. Aggrieved, both the parties have filed appeals before us on the issues discussed above.

6.1 The Ld. A.R. submitted that identical payments made in assessment year 2008-09 came to be considered by coordinate bench of Tribunal in the assessee’s own case reported in (2020) 115 Taxmann.com 154 and it was decided in favour of the assessee. The Ld. A.R. submitted that the assessee had claimed similar expenditure in that year under the name “Data automation software expenses”. The Ld. A.R. submitted that the said decision may kindly be followed on this issue.

6.2 We heard Ld. D.R. on this issue. He admitted that this issue is covered in favour of the assessee by the order passed by the Tribunal. However, he pleaded that this issue may be restored to the file of the A.O. for examining applicability of TDS provisions for

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Page 10 of 18 the impugned payments, since there was no occasion for the A.O. to examine it.

6.3 We heard the parties on this issue and perused the record. We notice that the A.O. has disallowed the claim of the assessee treating it as capital in nature. Hence, we restrict ourselves to the reasoning given by A.O. We notice that an identical issue came to be considered by the coordinate bench in the assessee’s own case in assessment year 2008-09 referred (supra) and the addition made in that year was deleted with the following observations:- 30. We have heard the rival submissions. A copy of the group cost allocation Agreement dated 24.3-2006 is at page 406 of Assessee’s paper book. The agreement is between Texas Instruments Inc., USA and the Assessee. The Agreement refers to the US parent company of the Assessee having acquired license to use EDA tools from the vendors and the right of the Assessee to use the same and the fact that billing will be done on the Assessee on the basis of actual use of the software by the Assessee. It is thus clear that the Assessee had acquired no right or interest whatsoever in the EDA tools and had only a right to use the software. It is not the case of the revenue that the EDA tools was not connected to the business of the Assessee. In such circumstances, we are of the view that the deduction was rightly allowed by the CIT(A) as revenue expenditure. We find no grounds to interfere with the order of the CIT(A) and dismiss Gr.No.2 raised by the revenue.”

Following the above said decision, we set aside the order passed by Ld. CIT(A) and direct the A.O. to delete the disallowance made by him on this issue.

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Page 11 of 18 7.2 The Ld. A.R. submitted that an identical disallowance made by the A.O. in assessment year 2008-09 was deleted by the Tribunal and the order passed by Tribunal has been confirmed by the Hon’ble High Court of Karnataka reported in (2021) 435 ITR 1.

7.3 We heard Ld. D.R. on this issue and perused the record. We notice that an identical issue has been decided in favour of the assessee by the Hon’ble High Court of Karnataka in the assessee’s own case in assessment year 2008-09. The relevant discussions made by the Hon’ble High Court on this issue are extracted below:-

“17. Answer to Question No.2: Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance made under section 40(a)(ia) for sum of Rs.7,87,93,536/-sum of Rs.7,87,93,536/- claimed towards finance of cars by holding that assessing authority did not invoke the provisions of section 194I of the Act without observing that for making disallowance under section 40(a)(i)/(ia) of the Act does not require assessing authority to invoke specific provisions relating to TDS and it is sufficient if there is violation of any provision of chapter XVIIB of the Act by way of Non Deduction of tax or Non Payment of tax? Answer to Question Nos. 3: Whether on the facts of the case, the Tribunal’s order can be said as perverse in nature as Tribunal failed to appreciate that mentioning of wrong provision of law does not invalidate disallowance if the order passed in sum and substance meets the legal requirements then it is said to be a valid order and appellate authorities has power to either enhance or reduce tax liability?”.

17.1. Both the questions being inter-related to each other are answered together. These questions arise specifically out of ITA No.151/2020 and are not germane to ITA No.141/2020. As stated supra, the Assessee had taken on lease financing various motor vehicles, which are given to the employees of the Assessee. The Assessing Officer had disallowed the deduction sought for by the Assessee towards the payment made to the lease financing company on the ground that there had been no tax deduction at source by the Assessee under Section 194-C or under Section 194-I of the Act. On a challenge being made by the Assessee, the CIT(A) accepted the contentions of the Assessee and held that Section 194-C was inapplicable to such a transaction and on an appeal the

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Page 12 of 18 Revenue to the Tribunal, the Tribunal upheld the order of the CIT(A), and it is aggrieved by the said order, the present appeals have been filed. 17.2. The contention of Sri. Aravind is that the Assessee ought to have deducted tax at source under Section 194-I of the Act, and not having done the same, no deduction for the payments could be claimed by the Assessee. At the outset, we are of the opinion that such a contention cannot be raised now by the Revenue. The contention of the Revenue before this Court is that Section 194-I of the Act was required to be invoked and deductions made at source, not having so done disallowance made by the Assessing Officer is proper and correct. In this regard, he submits that the term ‘work’ as used in sub-clause (c) of Clause (iv) of Section 194-C would include as per the Explanation to the said provision “carriage of goods or passengers by any mode of transport other than by railways” and as such it is contended that there ought to have been a tax deduction at source.

17.3. Sri. Percy Pardiwalla, learned Senior Counsel for the respondent, on the other hand, had contended that there is no carriage of goods or passengers in the present case, the Assessee has entered into an agreement of lease financing and obtained motor vehicles by making payment of lease rentals and provided the cars to its employees. This car is used by the concerned employees themselves, and such usage is not facilitated in any manner by the leasing company. 17.4. It is in the above conspectus of arguments, substantial questions are to be considered. 17.5 .Admittedly, the Assessee had lease financed the vehicles for the use of its employees. The lease financing company did not provide any particular service as a driver or otherwise for the purpose of usage of the car. On the car having been provided, the maintenance of the same was to be carried out by the employee of the Assessee, and the lease financing company had no role to play in the same. The only transaction entered into between the Assessee and the lease financing company was to make payment of the amounts due to the company, and the car would be handed over to the employee through the Assessee. Thus there being no work as such being carried out by the lease financing company nor any service as such being rendered by the said company, we are of the opinion neither Section 194-C, nor 194-I of the Act are applicable.

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Page 13 of 18 17.6. The decisions relied upon by Sri. Aravind, learned Senior Panel counsel in Shree Choudhary Transport Company’s case and Smt. J.Rama’scase (supra) are not applicable to the present facts and circumstances since, in these cases, the vehicles were used for transport of goods and or passengers, and the applicability of Section 194-I of the Act was in the context of the vehicles being used for transport purposes under the transport contract. The same not being the situation in the present case, those would not be of any help to the Revenue.

17.7. In view thereof, the substantial question Nos.2 and 3 are answered accordingly. Neither Section 194-C nor 194-I of the Act would be applicable to the lease financing of motor vehicles; thus there could have been no disallowance on the ground that there is no tax deduction at source made by the Assessee. 17.8. The orders passed by the Tribunal are proper and correct and do not require to be interfered with.

17.9. Accordingly, we answer Question No.2 by holding that there is no deduction required to be made either under Section 194-C or under Section 194-I of the Act in respect of the payments made to the lease financial company on the lease financial amounts paid to such company by the assessee. Therefore, there is no violation of the said provisions and Section 40(a)(i)/(ia) is not attracted to the present case.”

Accordingly, following the binding decision of Hon’ble jurisdictional High Court, we set aside the order passed by Ld. CIT(A) and direct the A.O. to delete the impugned disallowance.

8.1 We heard the parties on this issue and perused the record. We notice that both these comparables have been held to be not good comparables in the case of Electronics for Imaging India Pvt.

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Page 14 of 18 Ltd. (IT TP A No.1506/Bang/2015 & IT TP A No.16/Bang/2016 relating to assessment year 2011-12).(85 taxmann.com 124). It has been held in the above said cases that these two companies are not functionally comparable. The relevant observations are extracted below:- “12. Out of these three companies, the assessee challenged the functional comparability of two companies viz. Asian Business Exhibition and Conferences Limited and ICC International Agencies Limited. The DRP rejected one company namely ICC International Agencies Limited therefore both the revenue as well as the assessee have raised grounds in respect of the inclusion as well as exclusion of these two companies. The assessee is seeking exclusion of Asian Business Exhibition & Conferences Limited which was retained by the DRP whereas the department is seeking inclusion of ICC International Agencies Limited. 13. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. At the outset we note that the functional comparability of Asian Business Exhibition & Conferences Limited has been examined by this Tribunal in assessee's own case for the Assessment Year 2010-11 vide order dt.24.2.2016 reported in Dy. CIT v. Electronics For Imaging India (P.) Ltd. [2016] 70 taxmann.com 299 (Bang. - Trib.) in paras 53 & 54 as under: " 53. We have considered the rival submissions and considered the relevant material on record. As it is clear that the assessee is providing sales and marketing services to its AE which includes identifying potential customers by conducting road shows, presentation and the like, the working also includes educating potential users of the benefit and features of the AEs range of products. However, products for which the assessee is providing sales and marketing services is only software/information technology products. Therefore, Asian Business Exhibition & Conference Ltd. which is mainly engaged in the organization of exhibitions and events as well as conducting conferences on behalf of the various clients for their various products and businesses. The functions of this company are entirely different from the assessee who is providing sales and marketing support services to its AE for software/IT products. The Mumbai Bench of the Tribunal in the case of RGA Services India (P.) Ltd. (supra) while considering the functional comparability of this company has held at paras 11 and 12 as under:—

'11. We have considered the submission of the parties and perused the relevant material on record. On perusal of the order passed by the TPO it is noticed that the TPO while dealing with assessee's objection with regard to selection of Asian Business Exhibition and Conferences Limited as a comparable has admitted that the nature of function performed by this company is event management. It is

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Page 15 of 18 further relevant to observe, on perusal of annual report of this company it is seen that as per directors report, the main operation is organizing exhibition and events. Further, schedule 12 of the profit and loss account as well as notes to the accounts reveals, revenue earned by the company is from sponsorship, delegates attending conferences, events and entry fees charged from visitors for visiting exhibition, sale of stall place etc.

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Page 16 of 18 assessee and accordingly, the TPO/AO is directed to exclude the same from the set of comparables. ICC International Agencies Limited

' 2. ICC International Agencies Ltd. : The assessee submitted before the DRP that this company is functionally not comparable since it is engaged in trading activity and thereby functionally different. The DRP rejected this company for the reason that this company is functionally dissimilar and for incorrect margin computation made by the TPO. The Revenue is on appeal. The assessee pleaded that this is functionally different and relies on this Tribunal decision in ITO v. Interwoven Software Services (India) (P.) Ltd. [TS -723-ITAT -2016 -Bang-TP ay 2010- 11. The relevant portion of the order from ITO v. Interwoven Software Services (India) (P.) Ltd. [IT(TP) A.No.451/Bang/2015 dt. 26.8.2016 for a.y. 2010-11 is extracted as under:

"28. For this segment, the assessee is seeking exclusion of two comparables i.e. M/s Acentia Technologies Ltd., and M/s ICC International Agencies Ltd., The claim of assessee regarding exclusion of M/s Acentia Technologies Ltd. is also covered in favour of the assessee by the same Tribunal order rendered in the case of M/s Electronics for Imaging India (P.) Ltd., (Supra) and respectfully following the same Tribunal order, we direct the AO/TPO to exclude this company from the list of final comparable because the ld. DR of the revenue could not point out any difference in facts.

IT(TP)A No.525 /Bang/2019 M/s. Texas Instruments (India) Pvt. Ltd., Bangalore Page 17 of 18 29. Regarding exclusion of second company, it was submitted by the learned AR of the assessee that i.e. M/s ICC International Agencies Ltd., (Supra) this is the claim of the assessee that annual report of this company available on pages 1100 & 1104 of the paper book. As per the same, we find that this company is deriving income from trading activity and also maintaining inventories. Both these arguments are supported by annual report of this company available on pages 1100 & 1104 of the paper book. Since the assessee is not engaged in trading activity, in our considered opinion, this company cannot be considered as good comparable in the present case and hence, we direct the AO/TPO to exclude his company from the list of final comparable. 30. In the combined result, the appeal of the assessee and revenue are partly allowed." We heard the rival submissions and gone through relevant material. Following the above decision, the assessee's plea and the DRP's directions are upheld and the Revenue's appeal is dismissed.' Thus it is clear that the Tribunal after considering the nature of functions has followed the earlier order of this Tribunal in the case of Interwoven Software Services India (P.) Ltd. (supra) and taken a similar view. Accordingly, in view of the above decisions of the Tribunal, we do not find any error or illegality in the order of the DRP in rejecting this company.”

Accordingly, following the above said decision, we confirm the exclusion of both the companies.

Order pronounced in the open court on 11th March, 2022

Sd/- Sd/- (Beena Pillai) (B.R. Baskaran) Judicial Member Accountant Member

Bangalore, Dated 11th March, 2022. VG/SPS

IT(TP)A No.525 /Bang/2019 M/s. Texas Instruments (India) Pvt. Ltd., Bangalore Page 18 of 18 Copy to:

Asst. Registrar, ITAT, Bangalore.