DDIT (IT) 2(1), MUMBAI vs. SIEMENS AG, MUMBAI

Ground Nos.2-5 of the assessee’s appeal is with regard to characterization of receipts towards software as ‘royalty’. 6. The brief facts are that during the years under consideration assessee received an amount of Rs. 407,769,950/- as consideration for supply of software to Siemens Ltd and its 4 & 2179/Mum/2014 Siemens Sktiengesellshaft affiliate entities. Before the ld. AO assessee stated that the software suppy forms an integral part of the equipment supplied and, therefore, partakes the character of supply of equipment and mere supply of equipment without the software would amount to supply of incomplete machinery, as the machinery cannot function without the software. The software supplied by the assessee can only be used on the equipment / hardware supplied by the assessee. Therefore, these softwares have no other utility except on its own equipments. Before the ld. AO assessee submitted the copies of invoice on a sample basis and it was explained that the receipts are for non-exclusive, non- transferrable license for software which had to be utilized only on the equipment supplied by the assessee and therefore, it cannot be treated as royalty. In support of his contention it cannot be taxed as royalty, Assessee placed reliance on orders passed by the Tribunal in assessee’s own case from A.Ys. 2001-02 to A.Y.2006-07 and also placed reliance on the judgment of the Hon’ble Delhi High Court in the case of DIT vs. Ericson A.B.[2pll| 16jaxmann.com 371 and on the AAR ruling in the case of Dassault Systems K.K. (2010) 322 ITR 225. Ld. AO however, following the assessment orders in the previous year held that consideration for supply of software would be treated as royalty not only u/s.9(1)(vi) under the Income Tax Act as well as India- Germany DTAA. In sum and substance his observations were as under:- - The software supplied is of specialized nature and customized to the specification of the client.

Apart from that, the contention of the ld. AO was that income has to be assessed on accrual basis and not on actual receipt basis and for which he has relied upon Special Bench of the Tribunal in assessee’s own case for A.Y.1980-81. Though ld. AO had referred in detailed various observations made in the assessment order for the earlier years, however the same are not reiterated because all those observations have not been upheld by the Tribunal in assessee’s own case for A.Y. 2001-02 to 2006- 07.

Now, this issue of taxation of royalty under the DTAA has been decided by the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited vs. CIT reported in (2021) 432 ITR 471(SC). The Hon'ble Supreme Court vide its order grouped various appeals before it into following four categories: - The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer. - The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident Indian end-users.

Before us comparison between facts of the case and the terms and conditions which have been submitted to the ld. AO during the assessment proceedings for later assessment years vis-à-vis the conclusions outlined by Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. has been given in the following manner:- Facts in Engineering Analysis Facts in the case of Centre of Excellence (P.) Ltd. assessee 11 & 2179/Mum/2014 Siemens Sktiengesellshaft 1. GRANT OF LICENCE. The Purchaser shall have Samsung grants you a limited the perpetual and non- non-exclusive license to install, exclusive right to use the use, access, display and run Software Product on the one copy of the Samsung devices for which it is Software on a single Samsung intended, whereby each Mobile Device, local hard Software Product may only disk(s) or other permanent be used on one device at storage media of one computer any given time. and you may not make Samsung Software available over a network where it could be used by multiple computers at the same time.

LIMITATIONS ON END USER The Purchaser shall not RIGHTS change, reverse engineer or You shall not, and shall not reverse compile the enable or permit others to, Software Products and copy, reverse engineer, shall not extract any parts 12 & 2179/Mum/2014 Siemens Sktiengesellshaft decompile, disassemble, or thereof. Furthermore, the otherwise attempt to discover Purchaser shall not remove the source code or algorithms any alphanumeric of, the Software (except and identifiers, markings and only to the extent that such Copyright notices from the activity is expressly permitted data carriers and shall copy by applicable law such in their unchanged notwithstanding this form. The above provisions limitation), or modify, or shall apply analogously to disable any features of, the all associated Software, or create derivative documentation. works based on the Software. You may not rent, lease, lend, sublicense or provide commercial hosting services with the Software.

You may not transfer this The Supplier shall grant EULA or the rights to the the Purchaser the right to Samsung Software granted transfer the right to use herein to any third party granted to it to a third unless it is in connection with party. In such case, an the sale of the mobile device agreement is to be which the Samsung Software concluded with the third accompanied. In such event, party by which the third the transfer must include all of party shall not be granted the Samsung Software any rights of use over and (including all component parts, above those granted by the 13 ITA No.2153/Mum/2014 & 2179/Mum/2014 Siemens Sktiengesellshaft the media and printed Supplier to the Purchaser materials, any upgrades, this EULA) and you may not retain any copies of the Samsung Software. The transfer may not be an indirect transfer, such as a consignment. Prior to the transfer, the end user receiving the Samsung Software must agree to all the EULA terms. 5.

License Grant The Purchaser shall not " The Program is owned by change, reverse engineer or IBM or an IBM supplier, and is reverse compile the copyrighted and licensed, not Software Products and sold. shall not extract any parts Licensee receives a license to thereof. Furthermore, the the Programs from Assimil8 Purchaser shall not remove Limited through a sublicensing any alphanumeric agreement between IBM and identifiers, markings and Assimil8 Limited. Assimil8 Copyright notices from the Limited grants Licensee a non- data carriers and shall copy exclusive license to such in their unchanged (1) use the Program up to the form. The above provisions Authorized Use specified in the shall apply analogously to PoE all associated (2) make and install copies to documentation. support such Authorized Use, 14 & 2179/Mum/2014 Siemens Sktiengesellshaft and The Purchaser may make (3) make a backup copy, all up to three copies of the provided that Software Product to be a. Licensee has lawfully used for back-up purposes obtained the Program and only. complies with the terms of the Agreement; b. The backup copy does not execute unless the backed-up Program cannot execute c. Licensee reproduces all copyright notices and other legends of ownership on each copy, or partial copy of the Program. d……….. e. Licensee does not: (1) use, copy, modify, or distribute the Program except as expressly permitted in this agreement; (2) reverse assemble, reverse compile, otherwise translate, or reverse engineer the program, except as expressly permitted by law without the possibility of contractual 15 ITA No.2153/Mum/2014 & 2179/Mum/2014 Siemens Sktiengesellshaft waiver; (3) use any of the Program's components, files, modules, audiovisual content, or related licensed materials separately from that program; or (4) sublicense, rent, or lease the Program Thus, the ratio and principle laid down by the Hon’ble Supreme Court is clearly applicable on the facts of the assessee’s case and accordingly we hold that consideration received for supply of software cannot be taxed as royalty under India German DTAA.

During the course of hearing, the ld. DR had strongly relied upon the observation made in the assessment order and submitted that a review petition had also been filed before the Hon'ble Supreme Court in the matter of Engineering Analysis Centre of Excellence Pvt Ltd., However, the same is not entertained because judgment of the Hon’ble Supreme Court as on todfay is binding on us. Moreover, there are various other decisions of the Hon’ble High Courts on this issue which has been highlighted before us, the same is not being reproduced. Accordingly, we hold that this issue is covered in favour of the assessee not only in its own case as well as by the judgment of the Hon’ble Supreme Court and therefore, we hold that income derived by the assessee from supply of software cannot be subject to taxation as royalty either under Income Tax Act or 16 & 2179/Mum/2014 Siemens Sktiengesellshaft under the treaty. Thus, ground Nos. 2-5 raised by the assessee are allowed.

Ground Nos. 6-8 of assessee’s appeal and ground No.2-3 of Revenue’s appeal regarding Constitution of AOP which has been argued at length by both the parties.

The brief facts qua the issue are that the assessee, Siemens AG has received payments from various entities like Delhi Metro Rail Corporatin (DMRC), Reliance Industries Ltd, MCC PTA India Corp. Pvt. Ltd. Tata Power Ltd. Chemtrois Engineering Ltd. etc. in respect of off-shore supplies of electrical equipments etc., as well as services. During the year under consideration DMRC project itself involves 75.81% of the total turnover of off-shore supplies and 96.13% of the turnover of off-shore services and the controversy revolves around this contract, whether the project done by Siemens Ltd. Seimens AG constitue AOP a separate tax entity.

Delhi Metro Rail Corporation Limited ('DMRC') sought to extend Line-3 in Phase-II of the Mass Rapid Transport Systems for Delhi under the Japanese Yen Credit Loan. In this regard, it had inter alia invited tenders for design, manufacture, supply, installation, testing and commissioning of train control and signaling system on the extensions, integration with existing Line-3 systems for the BS03 project. Considering the terms and conditions of the tender documents, the assessee, Seimens AG and Siemens Limited desired to participate in the project and mutually agreed to work together in good faith on an exclusive 17 & 2179/Mum/2014 Siemens Sktiengesellshaft basis during the preparation and submission of the tender proposal for the project and to execute the project in their respective and independent scope of work if the tender proposal was accepted. For this purpose, a Memorandum of Understanding dated 11.09.2006 (MOU) was entered into between the assessee and Siemens Limited. The relevant MoU has been filed in the paper book from pages 540-562. The clauses therein, as may be relevant to adjudicate the issues under consideration, are as under: i. That the said arrangement was established only for the limited purpose of representation and dealings with DMRC with independent and separate scope of work as set-forth therein. That the parties shall be liable jointly and severally vis-à-vis DMRC for the obligations of the project in accordance with the terms and conditions of the tender documents. However, such joint and several liability shall not extend to any third party other than DMRC, nor for any purpose other than the project and each party shall be liable in respect of its separate and independent scope of work set forth therein (refer clause 1.2) ii. Nothing in the BS03 contract shall be deemed to constitute, create, give effect to or otherwise recognize a corporation, association, partnership, joint venture or formal or informal business entity of any kind. It shall also not be construed as providing for common management, capital contribution and sharing of profit and losses arising out of the project. (refer clause 1.3)

Before us, Ld. Sr. Counsel Mr, Pardiwala submitted that the scope of work to be carried out by each of the parties to the agreement was separate and identifiable. Since, each party had to independently carry out the work falling within its respective scope there was no joint management and control except for co- ordination required for smooth execution of the project. Though, they were jointly and severally liable to DMRC, they have agreed to indemnify the other party for loss suffered by them in view of 19 & 2179/Mum/2014 Siemens Sktiengesellshaft any default by either party. That the arrangement was to directly receive consideration relating to the individual scope of work carried out by the respective parties and there was no sharing of profits or losses. Theoretically, it was possible that one of the parties may make a profit while the other may make a loss. It has been submitted that, a bare perusal of the MOU shows that no Association of Person ('AOP') came into existence Limited) between the assessee and Siemens Limited 21. Since, the assessee, Seimens AG and Siemens Limited were successful in the tender, the project was awarded to them, and a contract dated 08 10.2007 was entered into between DMRC on one side (as the Employer) and the assessee and Siemens Limited on the other side (as the Contractor/s). Relevant contract has been placed before us at pages 510 to 582 of the Paper-book.

It has been pointed out from the contract of DMRC and as from the MoU, that there were four streams of income which has arisen from the execution of the said project being income from: (a) offshore supply of equipment, (ii) offshore rendering of services, (iii) onshore supply equipment and (iv) onshore rendering of services. Of the above, the assessee had to perform the former two activities and Siemens Limited had to perform the later two. In respect of individual work to be carried out by each of the parties they have raised their respective invoices and received payments in respect thereof. Siemens Limited has offered the income arising to them from the onshore supply of equipment and the onshore rendering of services which position 20 & 2179/Mum/2014 Siemens Sktiengesellshaft stands accepted in the assessment order passed in their case on a substantive basis. Similarly, the income arising from offshore rendering of services has been offered for tax by the assessee herein which has been accepted by the AO in the assessment order passed by him.

Thus, the issue arising in the grounds before us is, whether the said arrangement will constitute AoP between the assessee, Seimens AG and Siemens Ltd.

In the draft assessment order, the ld. AO has alleged that the income earned by the assessee from BS03 contract is in the nature of composite contract and the income therefrom is subject to tax on account by and large on the following observations made by him:- - The BS 03 Contract is a singular one even with a lump-sum payment for all services and supplies. - The BS 03 Contract is an indivisible one having closely inter-related elements of on-shore as well as off-shore supplies as well as services. - In sum and substance, the BS 03 contract is a composite one with no specific assignment or distribution of scope of work. Even para 5 and 6 of the MoU merely fixes the responsibility by making one of the parties as 'member-in- charge' and the paras do not specify that the relevant works have to be performed by the designated members only 21 ITA No.2153/Mum/2014 & 2179/Mum/2014 Siemens Sktiengesellshaft - On a reading of the contract entered into in the context of the object sought to be achieved by the contract, the conclusion is inevitable that it is a contract for installation and commissioning of equipment(s) which the tenderer itself has supplied and has been commissioned through an associated enterprise upon association and assignment by the tenderer. Hence, it is an indivisible and composite contract. - Through the cross-fall breach clause enshrined in Clause 9, the very nature of the contract becomes singular and composite. Any claims for an artificial division of the contract can be ignored. - In performance of the Contract, the assessee along with, Siemens Limited (SL), India, entered into an 'Consortium' arrangement (The term 'arrangement' is used as no 'Agreement" in that respect has been furnished by the Assessee) in respect of which no detail has been furnished. Hence, such an consortium arrangement appears to be informal but binding due to associated nature of the 2 parties. In such a scenario, association of 2 persons, viz., Siemens AG and Siemens Limited (India) has been formed to undertake the contract. - It is noteworthy that despite consortium of part of the contract, Siemens AG was to be solely bound by the terms of the tender and was to be liable to the Consortium Leader/lead partner for the performance of all obligations under the contract - The Permanent Establishment of Siemens AG in this case, Siemens Limited (India), is directly involved in the relevant contract as an 'associate of parts of the contract and directly stands to profit from the involve transaction.

Based on the above finding, the AO has alleged the existence of an AOP between the Seimens AG and Siemens Limited and held that the income from offshore supplies should be taxed in the hands of the said AOP. Accordingly, the AO proposed that the income arising from offshore supplies was taxed in the hands of the AOP on substantive basis and in assessee's hand only on protective basis.

The ld. DRP vide its directions held that the issue relating to constitution of the AOP cannot been gone into and the issue relating to taxability of offshore supply of equipment is considered on the basis as if a substantive assessment thereof has been made in the assessee's hands. The ld.DRP relied upon the judgment of the Hon’ble Supreme Court in the case of Ishikawajma-Harima Heavy Industries Limited (2007) 158 Тахman 259 (SC) and the tax Treaty between India and Germany including the protocol thereto and concluded that the income arising from the offshore supply of equipment is not chargeable to tax in India. The DRP has also followed the judgment of the Hon'ble Bombay High Court in the assessee's own case in of 2010 for the AY 1997- 23 ITA No.2153/Mum/2014 & 2179/Mum/2014 Siemens Sktiengesellshaft 98 and ITA No.5591 of 2010 for AY 1999-00 which is to the same effect.

However, pursuant to ld. DRP’s direction, the ld. AO while passing the final assessment order replicated the entire text from the draft assessment order and followed the DRP directions of non- taxability of offshore supplies in the hands of assessee. While the DRP's directions regarding the non-taxability of income from offshore equipment supply thus remain unchallenged by the Revenue before this Tribunal. Hence, the matter concerning the constitution of an AOP is the only issue for adjudication before this Tribunal.

We have heard both the parties and also perused the observation and the findings of the ld. AO whether the contract receipts from DMRC would be taxed as AOP of Siemens AG and Siemens Ltd. The term AOP has not been defined under the provisions of the Income-tax Act, 1961 ('the Act'). However as per Section 2(31) of the Act while defining "person' includes under clause (v) "an association of persons or body of individuals whether incorporated or not." The explanation to Section 2(31) of the Act clarifies that an AOP shall be deemed to be a person whether or not such association was formed, with the object of deriving income, profits or gains.

As the term AOP has not been defined in the Act, one has to consider certain judicial precedents to determine the characteristics of an AOP. The concept of when an AOP comes into existence can be fairly clear as a result of several Supreme 24 & 2179/Mum/2014 Siemens Sktiengesellshaft Court decisions on the subject. The Supreme Court in the case of CIT v. Indira Balkrishna [1960] 39 ITR 546 (SC) has held that to constitute an AOP, earning of income by joining together in a venture and sharing of profits or loss is essential. Further the Supreme Court in the case of G. Murugesan & Bros. v. CIT [1973] 88 ITR 432 (SC) held that the finding members "joined for common purpose or common action" or they helped in producing income to form an AOP is essential. Thus, it is evident that there must be a common design to produce income and in the absence of such a common design, there cannot be an association. Mere existence of common interest or the fact that the persons receive income jointly or that they are joint owners of the income yielding property is not enough.

From the above-mentioned decisions, it can be concluded that the following are the essential ingredients of an AOP: - joining together by two or more persons, - volition or will to come together, - for the purpose of producing income, - common management of affairs, and - sharing of profit or loss between the members of AOP. These ingredients are cumulative and not exclusive. All of them must be present for an entity to constitute an AOP. Even if one of the ingredients is absent, then such an association cannot be assessed in the status of a ΛΟΡ.

Thus, he submitted that the judgment of the Hon’ble Delhi High Court is squarely applicable on the facts of the assessee’s case and therefore, it cannot be held that this contract resulted into any kind of AoP.

Reliance was also placed on the decision of the Hon’ble Delhi High Court in the case of CIT vs. Oriental Structural Engineers (P.) Ltd. [2015] 374 ITR 35 (Delhi) which has relied on the Principles laid down in Linde AG (supra), and has held that JV was not an association of persons and liable to be taxed on that basis. 34. Now coming to the decision of Hyundai Rotem Co., which has been heavily relied upon by the revenue authorities, wherein similar issue was involved if the question of formation of an AoP in connection with a similar consortium contract of DMRC, held that an AoP does not exist as: i. the nature of work undertaken and capable of being executed by each party is very much different and the scope of work assigned to one party cannot be undertaken or relocated to another, 33 & 2179/Mum/2014 Siemens Sktiengesellshaft ii. both parties have different skill-sets, that is why the evaluation was also done by DMRC separately in relation to each member, iii. interchangeability or re-assignment of work and overseeing each other's work was not possible; iv. each party did not act as an agent of the other; v. though the performance guarantee was given by MRMB Consortium, the fact remains that DMRC insisted on a separate guarantee and undertaking from the parent company of each member; vi. above all, there is a specific declaration that "nothing in the agreement is intended or shall be construed as creating a partnership, joint venture or any other legal entity among the parties": vii. the profits and losses are being borne by the individual members themselves and common expenditure not being incurred by them; viii. the joint and several liabilities towards the employer have been apparently introduced as a safeguard to Company to have better hold over the Consortium members. 35. Further, the analysis of assessee’s case in Hyundai Rotem Co., (supra) have been highlighted in the following manner:-

Further reliance was also placed on the decision of another AA Ruling in the case of Hyosung Corporation v. DIT [2009] 314 ITR 343 (AAR) wherein similar observations as above were made and concluded that no AOP could be formed in that case also. The petition filed by the Revenue against the Ruling in Hyosung Corporation, was dismissed by Hon'ble Delhi High Court in WP(C) No. 2765/2010 dated25th March 2011 where it was held that price for offshore supply is not taxable and therefore other questions on formation of AOP would not arise for consideration. The AAR accepted the division of work between the parties to the contract and the customer and held that: .. , "... The assignment which was in terms of the Mo U paved the way for such separate contracts and the same was accepted 38 & 2179/Mum/2014 Siemens Sktiengesellshaft and acted upon by Power Grid. Each party performs the obligations under the respective contracts awarded to them separately and receives the monies payable under the contracts independent of each other. L&T, which was not a party to the bid, is recognized as an independent contractor in various documents. L&T is entitled to raise the bills for the work carried out by it separately and such bills shall be payable by Power Grid directly to L&T without recourse to the applicant (vide para 3 of Assignment Deed). Thus, the individual identity of each party in doing the part of work entrusted to it is preserved, notwithstanding the coordination between the two and the overall responsibility of the applicant. It cannot therefore be said that the two contractors have promoted a joint enterprise with a view to earn income".

Thus, ld. Counsel submitted that the action of the ld. AO bringing to tax other streams of income in the hands of the assessee and Siemens Ltd separately would itself show that no AOP has been constituted between the parties. 38. The case of the AO has been elaborated specifically in paras 11.7 to 11.9 of the final assessment order, whereby the aspects which have been put against the assessee for constitution of an AOP are that, the BS 03 contract between DMRC on the one side and the assessee and Siemens Limited on the other side is a single and composite one, where the contractors are jointly and severally liable to the employer A24 for execution of the contract. In this regard, AO has made reference to ‘Cross Fall Breach Clause’ in the said contract. AO has also made reference to the orders of the Authority for Advance Ruling in the case of Linde AG and Alstom Transport SA which according to the AO, on similar facts and circumstances an AOP has been found to be 39 & 2179/Mum/2014 Siemens Sktiengesellshaft constituted. But now this AAR decision has been reversed by the Hon’ble Delhi High Court.

On the other hand, ld. DR has filed his written submissions which is reproduced as under:- From perusal of the facts and circumstances of the case, it appears that the arguments of the assessee are not tenable on account of the following broad reasons: (1) The income of the Assesses is being earned from Indie in respect of a composite contract having significant on-shore elements also. In view of this, the income of the Assessee is taxable in India in terms of Sec. 9(1)() of the Income Tax Act 1961. The assessee has entered into a Consortium arrangement with its Indian A.E. Siemens (India) Limited: The Assessee is having regular income from India from the contract(s); hence the Assessee has a clear-cut business connection in India. In order to appreciate the nature of the contract and the associated income, the details of the contract and related information are discussed in detail below: 7 Scope of Contract The DMRC and Siemens AG Siemens (India) Limited Consortium Contract Agreement (BS 03) dated 08.10.2007 between as per Clause 1 mentions that DMRC agrees to hire and the Contractor agrees to be hired to implement the design, manufacture, supply, install and commission Train Control & Signaling system for Extension of Line 3 of the Mass Rapid Transport System Phase I Project under the terms and conditions specified in this Contract Agreement and the other Contract Documents attached hereto Delhi Metro Rail Corporation, hereinafter referred to as DMRC floated Instruction to Tenderers (ITT) in respect of the relevant Contract BS-03 with the following scope of work 40 & 2179/Mum/2014 Siemens Sktiengesellshaft "Instructions to Tenderers Volume I The work comprises design, manufacture, supply, installation, testing and commissioning Train Control & Signaling system on the extensions, integration with existing Line systems, supply of spares, and the training of Operation and Maintenance personnel “the Contract has established a consortium in accordance with Indian law and offered a tender for the design and construction of a rail based mass rapid transport system by procuring the design, execution and completion, and remedying any defects in the Works of the design, manufacture, supply, installation and commissioning of Train Control & Signaling system including training of operation and maintenance personnel, supervision of maintenance of Train Control & Signaling system, supply of spares, and Operation and Maintenance Manuals and agrees to undertake performance of work." Clause 2. Obligation of the Contractor ...To design, manufacture, supply, install, test and commission of Train Control & Signaling system, and To supply spares, O&M Manuals, training of 08M personnel, supervision of maintenance, and To provide all equipment, materials, labor and other facilities requisite for or incidental to the successful completion of the Works" In the tender process, the assessee, Siemens AG with its Associated Enterprise Siemens (India) Limited was the successful bidder. DMRC and the assessee entered into a contract on 08.10.2007. In the contract DMRC has been described as "Employer" and the Consortium comprising of Siemens (India) Limited and the assessee Siemen AG (Transport Systems TS R.A.) has been described as "Contractor". It has been mentioned that Siemens (India) Limited and Siemens AG would be jointly and severally liable for undertaking the contract, and collectively referred to as the Contractor It is relevant to set down the terms of the contract at this stage: Clause 4 Value of Work and Completion Time The Employer agrees to pay for the total cost of the Works and the Contractor agrees to accept the sums mentioned below in the Following currencies, to be the total cost for the Work carried out by him. Total Fixed Lump Sum Price. Foreign Currencies: Euro 23,573, 726 (Euro Twenty Three Million Five Hundred Seventy Three Thousand and Seven Hundred 'Twenty Six only); and In Local Currencies: INR 347,476,911 INR Three Hundred Forty Seven Million Four Hundred Seventy Six Thousand and Nine Hundred Eleven only) Hence, in this case the Contract document is a singular one even with a lump-sum payment for all services and supplies.

Further, the Annexure A to the MoU consists of a list of schedules which only list down the value of activities and does not clearly spell out the recipient of the amounts: Sr. Activity Value (In Value (INR) No. Euro) 1 Schedule 1 - Project Management 3132305 13180303 and Interface Management 2 Schedule 2- Application Design 5580693 3 Schedule 3- Onboard 4360026 2552688 Equipment (Manufacture, Supply, Delivery of Trainborne ATC system) 4 Schedule 4 - Depot Equipment 2018374 5794809 (Manufacture, Supply, Delivery of Depot Equipment) 5 Schedule 5 Trackside and 5320035 25526882 Station Equipment (Manufacture, Supply, Delivery of Trackside and Station Equipment)

Composite Nature of the Contract The MoU relevant to the BS 03 Contract mentions at Clause 3(6) that "Joint and Several Liability" means that the members of the consortium shall be jointly and severally liable to the Employer for the fulfillment of the terms of the Contract. However, between the members of the consortium, each Party shall indemnify and hold harmless the other party to this MOU from all costs, claims, actions, expenses or liabilities incurred by or imposed upon the other Party as a result of or in connection with its failure, breach, delay, or other default in the performance of its respective obligations under the Contract. Hence, in this case, even there no separate and independent contracts. The purpose of the Contract can be laid down to be as under: ".. to implement the design, manufacture, supply, install and commission Train Control & Signaling system for Extension of Line 3 of the Mass Rapid Transport System (MRTS) -Phase I Project..." However, the purpose for which the tender was invited by DMRC was for commissioning of Train Control & Signaling System. It was not for supply of offshore equipments and training independently of the designing, installation and commissioning project. Nor was it for independent installation and commissioning, divorced from the design and supply of the equipments necessary. Such a contract has necessarily to be read as a whole and is not capable of being split up. On analysis the terms of contract in the context of the tender floated and the purpose sought to be achieved, it is clear that the contract involved herein is a composite contract and it cannot be dissected into parts. Clearly, for the purpose of taxation, the contract can be considered as one, for installation and commissioning of a railway MRTS project in India.

Composite Nature of the Contract-Cross-fall Breach Clause In this case, Siemens (India) Limited has been made the Consortium Leader/lead partner. It has been mentioned in the Clause 4 of the relevant MoU that: "...4. Siemens Limited will be the Consortium Leader with the mandate to sign and submit all documents required to be submitted by the consortium in accordance with the requirement included in the Project Tender documents/bid documents, as well as to act as liaison officer for the consortium members each of whom has independent and defined scope of work under this MOU...." Siemens Limited shall be the member exclusively and independently in charge of the Consortium in so far as the competence limited to onshore activities under the offer is Concerned... Siemens AG shall be the member in charge of the Consortium in so far as the technical competence in relation to do sign, manufacture, 45 & 2179/Mum/2014 Siemens Sktiengesellshaft offshore supply of the products and Technical support services in relation there to under the offer are Concerned..." Siemens AG and Siemens Limited agree to co-operate with each other in the Project on an exclusive basis as a consortium members and will be Jointly and Severally liable for the execution of the Contract work... Liability of Parties: The lead partner in charge shall be authorized to incur liabilities, receive payments and receive instructions for and on behalf of other partner subject to that- Each Party shall be solely and entirely responsible to the other Party for the performance of the Contract in respect of its Scope of Work and for any and all liabilities arising in connection therewith. Each Party shall indemnify and hold harmless the other party from all costs, claims, actions, expenses or liabilities incurred by or imposed upon the Party as a result of or in connection with its failure, breach, delay or other default in the performance of its obligations under the Contract referred to for the purposes of this clause as "default"... Each Party shall undertake all reasonable efforts to mitigate the loss in the event of the other Party's default under the Contract. Hence, through the cross-fall breach clause enshrined in Clause 9, the very nature of the contract becomes singular and composite. Any claims for an artificial division of the contract can be ignored. In the case of Dongfang Electric Corporation, China V. DDIT (IT)- 1(1), Kolkata, the following has been held: "While one may have legitimate issues as to whether these observations regarding "looking at the transactions as a whole and not adopting dissecting approach" can indeed be applied in all cases in which separate contracts are entered into for offshore supplies and onshore services, in our considered view, these observations are certainly applicable in the cases in which the values assigned to the onshore services are prima facie unreasonable vis-a-vis values assigned to the offshore supplies, which make no economic sense when viewed in isolation with 46 & 2179/Mum/2014 Siemens Sktiengesellshaft offshore supplies contract. To that limited extent, our views are the same as of the learned Authority for Advance Ruling. In other words, the transactions are to be essentially looked at as a whole, and not on standalone basis, when the overall transaction is split in an unfair and unreasonable manner with a view to evade taxes. In order that such a situation can arise, it is sine qua non that while the assessee submits the bids for different segments (e.g. offshore and onshore in the present case) separately, these bids are considered together, as a single cohesive unit, by the other party, and this fact must be apparent from material on record. On the facts of this particular case, we have also noted that each set of contracts, i.e. offshore supply contract and onshore services and supply contract, has a cross fall breach clause which provides that a breach in one contract will automatically be classified as breach of the other contract. ... While these clauses undoubtedly give an indication that the offshore supplies contract' and 'onshore services and supplies contract' are required to be viewed as an integrated contract, this fact by itself does not indicate that the onshore services and supplies contract is understated so as to avoid tax in the source country... Hence, it is crystal clear that the Contract can be treated as a single, indivisible, composite Contract, which has been claimed by the assessee to be artificially split into several related and dependent parts. Hence from the above discussion , it is found that the assessee had entered into a contract with DMRC for off shore supply and services only, that the payment therefore was received outside India and that the transaction of sale was not taxable in India, In such a scenario, the following factors come into play in respect of the taxability of the underlying transaction to the instant contract.

Ratio of Roxar Maximum Reservoir Performance WLL: In the recent landmark ruling made by the Hon'ble Authority for Advance Rulings (AAR) In Re Roxar Maximum Reservoir Performance WLL (AAR), it has been held that a composite contract for installation & commissioning cannot be split so as to exempt the profits from offshore supply of goods. It has been held that:

Siemens AG and Siemens Ltd. (India) form an A_QP - Ratio of Alstom_T_ransport SA: In this case for the purpose of obtaining the Contract, the assessee Siemens AG has formed a 'Consortium' with an associate enterprise, Siemens Limited (India), as 'Consortium Partner1 and has shared the responsibilities of the contracts. In performance of the Contract, the assessee along with, Siemens Limited (SL), India, entered into an 'Consortium' arrangement (The term 'arrangement' is used as no Agreement' in that respect has been furnished by the Assessee) in respect of which no detail has been furnished. Hence, such an consortium arrangement appears to be informal but binding due to associated nature of the 2 parties. In such a scenario, association of 2 persons, viz., Siemens AG and Siemens Limited (India) has been formed to undertake the contract. However, it is noteworthy that despite consortium of part of the contract, Siemens AG was to be solely bound by the terms of the tender and was to be liable to the Consortium Leader/lead partner for the performance of all obligations under the Contract.

In rejoinder, ld. Counsel for the assessee submitted that in so far as reliance from the judgment of three Judges of the Hon’ble Supreme Court in the case of Vodafone International Holdings BV Netherlands vs. Union of India and another (supra) which has also been referred in AAr Ruling in the case of Linde AG, Linde Engineering Division, the same is not applicable in the fact of the present case and this has also been overruled by the Hon’ble Delhi High Court in the case of Linde AG, Linde Engineering Division (supra). Further, the Hon’ble Delhi High Court in the case of Nokia Networks OY [2012] 25 taxmann.com 225 which rejected the reliance placed by the Department on Vodafone International Holdings BV considering the same as not relevant and High Court relied on the Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd, (supra) and held that such contracts cannot be read as one by applying the "look at" approach as prescribed in the decision of the Supreme Court in the case of Vodafone International Holdings BV.

Once there are separate obligations to be performed and there is no over lapping of work and both the parties have received monies payable under the contract independent of each other and Indian party is entitled to raise the bill separately for the work carried out by it and assessee had received consideration separately for the supply carried out by it through off-shore, it cannot be inferred that both the parties acted in 55 & 2179/Mum/2014 Siemens Sktiengesellshaft consort to perform the contract together for the project. The nature of work undertaken is being executed by each member separately which has been clearly defined in Clause 5 and 6 of MOU. Once there is a separate invoicing and payments in respect of separate claim of work, then where is the question of treating them as AOP, because each member does not act as an agent of the other. In so far reliance placed on the ‘joint and several liability’ towards the DMRC as referred in Clause 9.1 has been imposed by DMRC, this was only to safeguard itself by having a better hold over the parties for timely and successful completion of the project which provides between the members of the consortium, each Party shall indemnify and hold harmless the other Party to its MOU from all costs, claims, actions, expenses or liabilities incurred by or imposed upon the other Party as a result of or in connection with its failure, breach, delay or other default in the performance of its respective obligations.

Lastly, Clause 1.3 of the MoU is very clear that nothing in the contract agreement shall be deemed to constitute, create, give effect to or otherwise recognize a corporation, association, partnership, joint venture or formal or informal business entity of any kind and the insurance qua the contract has been taken by each member separately and not by the consortium. Thus, we agree with the Ld. Sr. Counsel for the assessee that on these facts it cannot be held that there constitutes of AOP between Siemens AG and Siemens Ltd. Thus, this issue is decided in favour of the assessee and against department.

T he brief facts are that had entered into a contract with National Thermal Power Corporation Limited ('NTPC') for Gas Based Combined Cycle Power Project at Dadri, Uttar Pradesh on 6.12.1989. SAG had lodged claims against NTPC in accordance with Clause 22.2 of the contract for the extra expenses accrued due to delays in various activities caused by NTPC viz. failure to secure import licenses and letters of credit during the initial phases of the contract.

Before us the sequence of events of NTPC arbitration award was provided, which is as under:- Event Date The assessee entered into a contract with 06.12.1989 NTPC for Gas Based Combined Cycle Power Project at Dadri, Uttar Pradesh Reference made to arbitration 20.08.2001 Issue decided by Tribunal (also referred as partial award) on the grounds of: a) Claims made by SAG were time barred; b) NTPC counter claims The partial award was appealed by NTPC in High Court The Delhi High Court upheld the order of the 24.05.2005 Tribunal which upheld the order of the Tribunal which was then appealed before the Supreme Court The Supreme Court passed a favorable order 28.02.2007 in favour of SAG and thus the Tribunal was free to decide the claim submitted by SAG as described in the statement of claims plus interest. These claims were set to arise under Clause 22.2 of the GCC, being extra 57 ITA No.2153/Mum/2014 & 2179/Mum/2014 Siemens Sktiengesellshaft cost claimed for failure of various activities delayed by NTPC's failure to obtain import license, letter of credit. The Tribunal (International Court of 06.01.2009 Arbitration) - directed NTPC to pay a) Claims C2 to C8 b) Claim 9 was fully rejected c) NTPC was directed to pay 17,158,557 Euro plus an interest of 7,604,296 Euros calculated at 6% interest from the period from the period 20.08.2001 to 6 January 2009 d) NTPC to also pay simple interest on 17,158,557 Euros from the date of award till the date of payment NTPC to bear the costs of the Arbitration fixed by the International Court of Arbitration at 877,000 USD. Delhi High Court rejected the appeal to stay 07.11.2012 of payment to be made by NTPC Supreme Court directed NTPC to pay the 05.12.2012 disputed amount along with interest within four weeks of passing of the order. Siemens permitted to withdraw the said amount on furnishing a bank guarantee NTPC also appealed in the Delhi High Court 01.02.2013 to release only the amount after deducting TDS for which TDS certificates were issued and interest on TDS. The Delhi High Court acceded to the said appeal. Pursuant to the Delhi High Court order 19.04.2013 amount of INR 2,037,274,902 was released to SAG in FY 2013-14

The International Court of Arbitration directed NTPC to pay SAG a sum of Euros 1,71,58,557 on account of its claims C2 to C8 and Euro 76,04,296 being compensation for delayed payment 58 & 2179/Mum/2014 Siemens Sktiengesellshaft of such claims at the rate of 6% per annum till the date of payment of such claims. Relevant reference in respect of compensation of delayed receipt of the principal amount has been provided in the paper book from pages 661-668 and our attention was drawn to paras 137 to 155 of the arbitration award.

In so far as the taxability of principal amount of arbitration award, the same is not in dispute. However, while filing the income tax return, the assessee had not offered the interest in the arbitration award considering that interest from NTPC are in the nature of business receipts which are not taxable in absence of PE in India. The NTPC has withheld the taxes @10% of the interest component of the award in the current assessment year. The assessee received the payment of award including interest in A.Y.2014-15. 49. The issue before us is, whether the compensation for delayed receipt pursuant to the award would be taxable in India in absence of a PE. 50. The ld. AO did not accept assessee’s position and taxed the interest of arbitration award in his draft assessment order concluding that interest of arbitration award would be taxable on accrual basis. The ld. DRP has already rejected the assessee’s position that compensation in the nature of interest was the business receipt and no evidence was furnished in support of the same. Further, it would be taxable under income tax Act as well as India Germany DTAA. However, the ld. DRP directed the ld. AO to tax the interest included in arbitration award on 59 & 2179/Mum/2014 Siemens Sktiengesellshaft receipt basis and therefore, no addition was made in the final assessment order because the amount was received in A.Y.2014-15.

Before us, ld. Senior Counsel submitted that interest on arbitration award is not interest as understood in general parlance and it is not to be considered as an income. He submitted that there has to be debt claim prior to the passing of the arbitration award the compensation for delayed payment cannot be regarded in the nature of interest for the purposes of Article 11 of the Tax Treaty.

On the other hand, ld. DR relied upon the order of the ld. DRP.

After considering the relevant facts and submissions made by the parties, we find that it is not in dispute that international Court of Arbitration directed the NTPC to pay 17,158,557 Euro plus interest of 76,04,296 Euros at @ 6% interest from the period from the period 20.08.2001 to 6 January 2009 and NTPC was to also pay simple interest on 17,158,557 Euros from the date of award till the date of payment. Further, NTPC had to bear the costs of the Arbitration fixed by the International Court of Arbitration at 877,000 USD. Thus, the interest which is part of the arbitral award which was calculated @ 6% from the period 20/08/2001 to 06/01/2009 cannot be reckoned as interest in the form of a debt claim. The debt claim arises upon the issuance of the award by the International Court of Arbitration that is, from 06/01/2009 till date of payment. However, the 60 & 2179/Mum/2014 Siemens Sktiengesellshaft interest totaling to EURO 7,604,296 which was part of arbitration award cannot be treated as different from award and cannot be held to be income. Any interest due post date of award and till the final payment will fall in the nature of interest chargeable to tax not only under the Act but also under the Treaty, but in so far as the component of interest included in the arbitrary award till 06/01/2009 is part of a compensation only. This view was discussed by the Hon’ble High Court of Andhra Pradesh in the case of CIT vs. Visakhapatnam Port Trust (1983) 15 Taxman 72(AP) wherein it is held as under:- "..

Thus, the interest amount partakes the same character of the principal amount.

In so far as taxability of principle of arbitration award, the same has not been disputed because the receipt is not chargeable to tax in absence of PE or said income being attributable to PE. Similarly, the interest of arbitration award from NTPC is also in the nature of claim made by the assessee on NTPC and was not the debt claim only the arbitration was awarded. Hence, we hold that interest on arbitration award do not represent income in the current year. This view is also supported by the decision of the Hon’ble Supreme Court in the case of CIT vs. Govinda Choudhury & Sons [1993] 203 ITR 881 (SC) where it was held that interest awarded as a result of an arbitration award following a dispute in relation to a work executed by the assessee was a revenue receipt and incidental to the business carried on by the assessee and thus assessable as a business income and not income from other sources.

Further, reference can be made on the decision of Hon'ble Bombay High Court in the case of Islamic Investment Co. v.

Accordingly, this issue is decided in favour of the assessee holding that interest of arbitration award is not subject to tax in absence of PE in India.

In Ground Nos. 12-19 assessee has challenged the transfer pricing adjustment made by the ld. AO @10% of the value of international transaction declared by the assessee at Rs.12,49,83,884/-.

The brief facts are that during the year under consideration the assessee had received royalty for technical know-how and fees for technical assistance from Indian Associated Enterprises ('Indian AEs'). In this regard the Indian AE's have withheld tax at source at 10% for the payments made to the assessee under the provisions of India-Germany Tax Treaty ('Tax Treaty). The assessee filed its return of income and Form No. 3CEB on receipt / cash basis. In FAR analysis based on Rule 10B of Income Tax Rules and TP study report was submitted before the ld. AO. Assessee has mainly relied upon the transfer pricing documentation submitted by the Indian AE’s in support of the transaction with the assessee. Relying upon the TP study report assessee submitted that the impugned transaction is complying 63 ITA No.2153/Mum/2014 & 2179/Mum/2014 Siemens Sktiengesellshaft with the principle at arm’s length. The India AEs earned Net Cost Plus mark-up ('NCP') / Net Profit Margin ('NPM') (after considering services availed from assessee) that are consistent with the margins earned by independent comparable companies. Accordingly, applying the Transactional Net Margin Method ('TNMM') and from the analysis as aforesaid, the services rendered by assessee are considered to be compliant with the arm's length principle.

Additionally, the assessee followed the Comparable Uncontrolled Price ('CUP') method to benchmark the transactions considering that the rates are approved by the Central Government / Reserve Bank of India / any regulatory authority which is considered to be compliant with the arm's length principle under CUP.

The TPO observed that the amount disclosed by the assessee and the amount having been considered by the group entities in their in their Form 3CEB, did not tally with one another. The summary of the differences was as under:- Sr.No. Name of the Amount of Amount of Difference in Associated international international the amount of Enterprises Amount transactions international transactions as reported by transactions (in Form respective the assessee Rs.) AEs with the (in Rs.) Assessee (in Rs.) 1 Siemens Limited 19,180,521,092 1,042,184,030 18,138,337,062 64 & 2179/Mum/2014 Siemens Sktiengesellshaft 2 832,559,120 28,320,352 804,238,768 Siemens Power Engineering Private Limited 3 Siemens 3,739,581,946 133,534,831 3,606,047,115 Information Systems Limited 4 Siemens 99,763,387 2,897,190 96,866,197 Corporate Finance Private Limited 5 Siemens 10,523,828 10,503,550 20,278 Enterprise Communications Private Limited 6 Siemens 32,398,890 -2,236,406 Information 30,162,484 Processing Services Private Limited TOTAL: 23,893,111,857 1,249,838,843 22,643,273,014

Thus, the ld. TPO observed that assessee had disclosed the amounts received on account of Royalty and FTS, on receipt basis, the corresponding Form 3CEB submitted by the Indian AEs disclosed these amounts on accrual basis. Hence there was a mismatch in respect of these two amounts to the extent of Rs 2264 crores. Thus, he concluded that the TP study report in the case of the associated enterprises cannot be relied upon to benchmark the assessee's transactions. Accordingly, he added 65 & 2179/Mum/2014 Siemens Sktiengesellshaft 10% on adhoc basis to the value of international transaction and made an adjustment of Rs. 12,49,83,884/-.

The ld. DRP confirmed the action of the ld. TPO on the same ground and stated that identical issue has been considered by the ld.DRP in the earlier years and it was held that to the extent the transactions remain unreconciled, the action of the TPO is upheld. During the present year also, the assessee has been unable to reconcile the value of transactions as disclosed by the AEs in their Form 3CEB with the value of transaction as disclosed by the assessee in its return of income. Therefore, it cannot be said that the impugned transactions are mirror transactions of the transactions disclosed by the AEs in their form 3CEB.

Before us ld. Sr. Counsel Shri P.J. Pardiwala submitted that assessee has carried out detailed functional analysis and also undertaken such process while undertaking the benchmarking in their TP study report. He further submitted that TP adjustment cannot be made merely on the basis of alleged discrepancy in the amount of transaction reported by the assessee and it’s Indian AE. The ld. TPO is bound to determine the arm's length price of the international transaction within the framework of the transfer pricing regulations, by selecting a specific method prescribed in section 92C of the Act and as per the parameters laid down in the Rule 10B of the Rules.

He submitted that it is not the case of the TPO and there is not a whisper of allegation in the TP order of the assessee and 66 & 2179/Mum/2014 Siemens Sktiengesellshaft the Indian AE's that the services were not provided by the assessee or the royalty for use of technical know-how was not made available by the assessee. Despite being so satisfied, the TPO proceeded with an ad-hoc disallowance only on account of alleged discrepancies in the amount of transactions reported by the assessee and its Indian AE's. In support he relied upon the decision of Judgment of the Hon’ble Bombay High Court in the case of CIT vs. Johnson and Johnson Limited reported in (2017) 80 taxmann.com 337, wherein the Hon’ble High Court was dealing with a case of assessee who paid royalty at the rate of 2%. The TPO restricted the royalty to 1% without providing any reasoning. In said facts, the Hon'ble High Court held in favour of the Assessee by making the following important observations: “….We find that the impugned order of the Tribunal upholding the order of the CIT(A) in the present facts cannot be found fault with. The TPO is mandated by law to determine the ALP by following one of the methods prescribed in Section 92C of the Act read with Rule 10B of the Income Tax Rules. However, the aforesaid exercise of determining the ALP in respect of the royalty payable for technical know-how has not been carried out as required under the Act. Further, as held by the CIT(A) and upheld by the impugned order of the Tribunal, the TPO has given no reasons justifying the technical know-how royalty paid by the Assessing Officer to its Associated Enterprise being restricted to 1% instead of 2%, as claimed by the respondent assessee. This determination of ALP of technical know-how royalty by the TPO was ad-hoc and arbitrary as held by the CIT(A) and the Tribunal In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained”. 66. He also relied upon the following judgments on similar point.

Accordingly, he submitted that adhoc adjustment of 10% o the value of international transaction declared by the assessee is not justified.

In so far as relying on the TP study report of the Indian AEs to justify the arm’s length nature of its international transaction, Ld. Sr. Counsel submitted that Indian AEs have benchmarked all the transactions after detailed FAR analysis entered into with the assessee. The Indian AEs have earned Net Cost Plus Margin / Net Profit Margin (after considering services availed from assessee) that are consistent with the margins earned by comparable independent companies. Accordingly, applying the TNMM method and based on the analysis of the Indian AEs, the services rendered by the assessee were considered at arm's length from the perspective of Indian transfer pricing regulations. 69. He further submitted that, the Indian AEs had demonstrated through their Transfer Pricing Study Reports which are also adopted by the assessee that these transactions meet the arm's length principle as prescribed by Indian Transfer Pricing Regulations. The copies of Transfer Pricing Study Reports of Indian AEs were also submitted to the TPO vide submission 68 & 2179/Mum/2014 Siemens Sktiengesellshaft dated 31/08/2012 during the course of TP assessment proceedings. Ld. Sr. Counsel further submitted that under the transfer pricing regulations the Indian AEs (being the recipient of the technical services) are required to document their compliance with the arm's length principle as a payer. And the Indian AEs have documented the same and determined the transaction to be consistent having regards to the arm's length principle. 70. In view of the above and having regard to the economic and commercial factors, the compliance by associated enterprise with the provisions of Sections 92, 92A to 92F of the Act is considered, then it has to be reckoned as sufficient compliance by the assessee for the arm's length standard prescribed by the Indian transfer pricing regulations. Without prejudice he submitted that during the transfer pricing assessment proceedings of the Indian AEs for the same year under consideration following upward adjustment have also been made to the taxable income of Indian AEs. Sr. No. Name of the Associated Adjustment made for Enterprise FY 2008-09 as per TPO 1 Siemens Limited 85.93 crores 2 Siemens Information 47.04 crores Systems Limited 3 Siemens Corporate 0.64 Crores Finance Private Limited

Thus, in the case of the Indian AEs the same ld.TPO concluded that the Indian AEs have paid excess expense including royalty and fees to the assessee as said expense basis are different set of comparable used in his process. On the contrary, in the TP assessment, the ld. TPO while making the ad-hoc adjustment arrives at a result in which the assessee has under charged from the AE for the same transaction in question. Thus, ld. TPO has taken exact contrary positions for the same transaction which would only lead to double taxation and therefore, this ground also no further adjustment should be made. In support of its contention that once the ALP has been adjudicated by the ld. TPO in the hands of the AE, it is not open to adopt a different ALP in the hands of the assessee. He relied upon the decision of Mumbai ITAT in the case of Tecnimont SPA India Office 22] 145 taxmann.com 477 (Mumbai - Trib.) wherein the ITAT held as under:- “14. Having heard both the parties and after perusal of the records, we note that the payments made by the assessee PE to its AE's i.e. assessee with TICB and EDTICB were held to be at Arm's Length by this Tribunal (supra); and since the same international transaction of the instant assessee's procurement cost (being subcontracting income for the AE's i.e. of assessee viz TICB and EDTJCB) has been accepted as Arm's Length for the AE 's and the same beins mirror transaction cannot be considered excessive in the hands of the assessee/appellant. Therefore, on the same reasoning/ratio of the decision of the Tribunal (Banglore) in UE Development India Pvt. Ltd. (supra) which has been upheld by Hon 'ble High Court (supra), we hold that where the Tribunal has accepted the international transaction 70 & 2179/Mum/2014 Siemens Sktiengesellshaft to be at Arm's Lensth Price in the hands ofAEt then the international transaction that the assessee had with the AE's to be also at Arm's Lensth Price and therefore no adjustment was warranted in the facts and circumstances of the case. And the revenue could not point out any change in facts/law in respect to the ratio-decidendi of Bangalore Tribunal/Karnataka High Court in the case of UE Development India Pvt. Ltd. (supra). So we allow the ground no. 6 of the assessee s appeal and direct deletion of Arm's Length Price made as per the impugned order.”

Reliance was also placed on the decision of Hon'ble Karnataka High Court in the case of CIT v. UE Development India (P.) Ltd. [IT Appeal Nos. 52 to 55 of 2014, dated 12- 7- 2018] which was also subsequently followed by other Coutts and Tribunals as well, in which it was held that if the transaction is considered to be at arm's length price in the hands of the Indian AEs, then no transfer pricing adjustment should be made in the hands of the Assessee company with respect to the same transaction.

On the other hand ld. DR submitted that assessee should have done independent benchmarking instead of relying upon benchmarking activity carried out by the Indian AEs. The determination of arm’s length price has to be done separately because what is required to be seen whether assessee payment received is at arm’s length price independently. Apart from that, he submitted that the reason for making the TP adjustment was on account of difference in the amount reported by the assessee as well as Indian AE and therefore, the arm’s length ALP determined in the case of assessee on this issue cannot be accepted on the transaction of royalty received by the assessee.

In rejoinder, ld. Sr. Counsel had explained reasons for differences reported by the assessee in its Indian AE in the following manner:- -The assessee reports the amount on receipt basis whereas the Indian AEs report transaction on accrual basis. This is a consistent position followed by the assessee basis the provisions of the tax treaty. This position has also been upheld by the Bombay High Court in the assessee's own case. Therefore, amounts received by assessee and amounts recorded by Indian AE's would not be identical. - The assessee reports only those transactions that are subject to tax in India e.g. fees for technical services, whereas Indian AEs report all the transactions like purchase / sale of goods, provision and availing of services, reimbursement / recovery of expenses whether income/expense. It is thus natural that these would be differences in the transactions reported by the assessee and the AE's.

Thus, he submitted that reconciling the amounts reported by itself and its Indian AEs was unfeasible due to the provision of manual TDS certificates issued by payers during the relevant period. This made it challenging to match individual invoices with TDS certificates which were issued at a consolidated level. Nonetheless, it has been able to achieve a substantial reconciliation of the transactions, which were placed on record during the TP proceedings before the TPO vide submission dated 31/08/2012 as well as 27/09/2012.

We have heard the rival submissions and perused the relevant finding given in the impugned orders. One of the reasons given by the ld. TPO and the ld. DRP is that assessee has been earning to reconcile the value of transaction disclosed by the Indian AEs in the Form 3CEB if the value disclosed by the assessee in its return of income. The assessee had explained that the difference is for the reason that assessee accounts the amount on receipt basis whereas the Indian AE’s reports the transaction on accrual basis and this assessee has been doing in accordance with the provisions of the tax treaty. It is important to note here that, this position has also been upheld by the Hon’ble Bombay High court in assessee’s own case that it should be taxed on receipt basis. It was for this reason amounts recorded by the Indian AE cannot be the same. Apart from that, the assessee reports only those transactions that are subject to tax in India, i.e., element of Fees for Technical Services only, whereas Indian AEs report all the transactions like purchase / sale of goods, provision and availing of services, reimbursement / recovery of expenses whether income/expense. It is thus quite natural that there would be differences in the transactions reported by the assessee and the AE's. Once this fact has been brought on records and assessee has given this explanation for reconciliation, then this cannot be the reason or the ground for making adhoc adjustment @10% by taking 10% mark-up on the value of international transaction. Such an exercise is completely against the concept of transfer pricing 73 & 2179/Mum/2014 Siemens Sktiengesellshaft revelation. The ld. TPO was bound to determine the ALP in accordance with the Rules after analyzing the nature of transaction and the arm’s length price after applying method provided under the Rules. If in the case of the Indian AE, the same transaction has been benchmarked and has been accepted to the ALP, then, unless there are different factors which need to be analyzed on the same transaction, it cannot be held that the same ALP cannot be accepted in the case of recipient foreign company. In fact it has been informed that ld. TPO has made adjustment under various heads which also includes payment of royalty. Any further adjustment is not called for in the case of the assessee to adopt a different ALP. Though the true course would have been that ALP of FTS and royalty should have been benchmarked separately as per the Rules, however, when assessee had carried out and furnished TP study report and also relied upon the margins declared by the Indian AEs after carrying out different study report, then without finding any defect in such TP analysis and determination of ALP by the assessee, ld. TPO could not have resorted to adhoc mechanism for adding 10% mark-up on adhoc basis. Thus, in absence of any contrary inference drawn by the ld. TPO on the TP study report of the assessee and at the same time in the case of Indian AE, same transaction has been benchmarked and ALP has been determined then we do not find any reason for taking adhoc 10% mark-up. Accordingly, the same is deleted. In the result, grounds No.12-19 are allowed.

The assessee is a non-resident Company, incorporated in Germany, having taxable income in India. With regard to FTS and royalty is has shown income on receipt basis as per the India Germany DTAA. The issue before us is, whether the income of the assessee is to be taxed on receipt basis as against accrual basis. The ld. AO has relied upon the judgment of Hon'ble Madras High Court in the case of Standard Triumph Motors Ltd. (119 ITR 573) which has held that in case of non-resident, Section 5(2)(a) of the Income tax Act i.e., will have no application and taxability will be determined only under Section 5(2)(b) of the Income Tax Act, i.e., by accrual. Subsequently, the Supreme Court in the case of Standard Triumph Motor Co Ltd. v. CIT [1993] 201 ITR 391 (SC) held that in the particular case, the credit entry to the account of the assessee non-resident in the books of Indian company amounted to receipt by the non- resident. Further, in the case of the assessee this issue has been settled by the Tribunal right from A.Yrs.1990-91,1991-92,1994- 95,1996-97,1997-98,2001-02,2002-03 and 2003-04. The ld. AO has not accepted the decision of the Tribunal stating that Revenue has preferred an appeal before the Hon’ble Bombay High Court.

The ld. DRP held that Hon’ble Bombay High Court in assessee’s own case has accepted the contentions of the assessee in A.Y.1986-87 to 1992-93, 1996-97, 1997-98 and 2001-02 75 & 2179/Mum/2014 Siemens Sktiengesellshaft wherein the Hon'ble Bombay High Court has considered the various ITAT decisions in assessee's own case and the stand of the assessee has been upheld that the receipt is to be taxed on actual receipts. Therefore, the AO is directed not to bring tax the income on account of royalty and FTS on accrual basis but to tax the same on receipt basis. After considering the submissions and decisions of the Tribunal and the Hon’ble Bombay High Court in the case of the Tribunal, this issue is decided in favour of the assessee that income on account of Royalty and FTS can be taxed only on receipt basis.

Even otherwise Article-12 of India-German tax treaty used the word “paid, payments of any kind received and payments of any amount”. The Article 12 of India-Germany Tax Treaty which has been reproduced below:- “ARTICLE 12-Royalties and fees for technical services -

Hence, we do not find any reason to take any different position. Before us the ld. DR had submitted that there is a reference in the case of Ampacet Cyprus Ltd. vs. DCIT reported in (2020) 119 Taxmann.com 277 (Mumbai Trib)

In so far as the additional ground raised by the assessee regarding final assessment order is barred by limitation u/s.144C and u/s.153, it was agreed by the ld. Counsel for the assessee that if this issue is decided on merits and this additional ground should be kept open and to be treated ‘academic’, accordingly, we are not adjudicating the additional grounds and the same is kept open.

In the result, appeal of the assessee is allowed and appeal of the Revenue is dismissed.