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Income Tax Appellate Tribunal, DELHI BENCH “F” NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “F” NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI C.M. GARG: JUDICIAL MEMBER Asstt. Yr: 2005-06 Rolls Royce India Ltd., Vs. ADIT International Tax, 2nd Floor, Birla Tower (West), Circle-2(1), New Delhi. 25, Barakhamba Road, New Delhi. PAN: AAACR 4693 K ( Appellant ) (Respondent) Appellant by : Ms.Khyati Dadhwal Adv. Respondent by : Ms. Rakhi Bimal Sr. DR Date of hearing : 09/05/2016. Date of order : 12/05/2016. O R D E R PER S.V. MEHROTRA, A.M:
This is assessee’s appeal assailing the order dated 28.2.2014, passed by the ld. CIT(A)-XXII, New Delhi in appeal no. 37/20/08-09, for A.Y. 2005-06 2. Brief facts of the case are that the assessee Rolls Royce India Limited is incorporated in UK and is 100% owned by Rolls Royce International Ltd. which in turn is wholly owned by Rolls Royce PLC. The assessee operates through an office in India. It provides commercial information services and marketing support services to Rolls Royce International Ltd. relating to Indian Territory and neighboring countries. The Liaison Office is compensated on cost + 6% of the reimbursed expenses in pursuance of an agreement between Rolls Royce International Ltd. and Rolls Royce (India Ltd)., effective from 01.01.2001.
The assessee had filed return declaring its total income of Rs. 90,90,337/-. The AO, vide its order dated 3.9.2008, computed the total income as under: i) Total costs incurred by assessee during F.Y. 2004-05 15, 15,05,620 ii) Arm's Length margin over Costs (Also in the TPO Order) 19.30% iii) Arm's Length Price of said - transaction of providing services to the AE is determined at (Total Costs as in (i) + 19.30% of Total cost as in (i) 18,07,46,205 iv) Actual total amount received by the assessee for rendering Services (including Total Costs 15, 15,05,620 and 6% Margin 90,90,337) 16,05,95,957 v) Therefore, differential amount to be charged as taxable i.e. adjustment to the total income 2,01,50,248 Finally, Total Income is as below (a) Returned total Income 90,90,248 Add (b) Adjustment - to the arm's length margin 2,01,50,248 Net Assessed Income (Total Taxable Income) 2,92,40,585
4. The assessee preferred appeal before ld. CIT(A), who vide its order dated 28.2.2014 dismissed the assessee’s appeal. Being aggrieved with the order of ld. CIT(A), the assessee is in appeal before us and has taken following grounds of appeal:
“1. The order passed by the Learned Commissioner of Income Tax (Appeals) - XXII ("Ld. CIT(A)") under Section 250(6) of the Income Tax Act, 1961 ("the Act") is bad in law and on the facts of the case.
The Ld. CIT(A) has erred in law and on the facts of the case by holding that the appellant has used the pendency of Mutual Agreement Procedure ("MAP") as an excuse to delay appellate proceedings, and has deliberately avoided submission of details.
3. The Ld. CIT(A) has erred in law and on the facts of the case by not keeping the appellate proceedings in abeyance as the appellant was awaiting communication of MAP resolution from the Indian competent authority.
The Ld. CIT(A) has erred in law and on the facts of the case by observing that there is no certainty with regard to the MAP resolution, despite the appellant having submitted the communication received from the competent authority of the United Kingdom.
5. The Ld. CIT(A) has erred in law and on the facts of the case by observing that the appellant was apprehensive that further inquiry would lead to discovery of more evidence against the appellant.
6. The Ld. CIT(A) has erred in law and on the facts of the case by misunderstanding the business model of the appellant.
7. The Ld. CIT(A) has erred in law and on the facts of the case by summarily rejecting the Transfer Pricing analysis conducted by the appellant, due to non- submission of certain information.
8. The Ld. CIT(A) has erred in law and on the facts of the case by not examining the details that were filed by the appellant.
9. The Ld. CIT(A) has erred in law and on the facts of the case by making certain observations which are not relevant to the appellant's case, which speaks of non-application of mind.
The Ld. CIT(A) has erred in law and on the facts of the case by confirming the arm's length analysis conducted by the Learned Transfer Pricing Officer ("Ld. TPO"), and thereby confirming the Transfer Pricing adjustment of Rs. 2,01,50,248.
The Ld. CIT(A) has erred in law and on the facts of the case by relying upon findings of the IT AT in earlier years in the case of the Associated Enterprise of the appellant i.e. Rolls Royce PIc; but without bringing on record any contemporaneous evidence of the appellant having provided any services beyond the scope of its agreement. 12. The Ld. CIT(A) has erred in law and on the facts of the case by rejecting the arguments of the appellant against the choice of comparables made by the Ld. TPO. 13. The Ld. CIT(A) has erred in law and on the facts of the case by rejecting the arguments of the appellant against the action of the Ld. TPO in rejecting use of multiple year data. 14. The Ld. CIT(A) has erred in law and on the facts of the case by not allowing working capital adjustments in the case of the appellant. 15. The Ld. CIT(A) has erred in law and on the facts of the case by confirming the adjustment of 10% to the operating margin of the comparables on account of the low risk profile of the appellant; and in observing that the appellant bears marketing risk and therefore higher risk adjustment should not be made. 16. The Ld. CIT(A) has erred in law and on the facts and circumstances of the case by upholding the levy of interest under Section 234B of the Act. 17. The above grounds of appeal
s are independent and without prejudice to one another.
18. The appellant may be allowed to add / withdraw or mend any ground of appeal at the time of hearing.
Simultaneously, while assessee was pursuing its remedies provided under the Income-tax Act, it had also initiated the MAP proceedings under Article 27 of the DTAA for AY 1998-99 to AY 2005-06. For the present we are concerned with the AY 2005-06 only. The assessee vide its letter dated 23.1.2014 filed with the Tribunal on 23.1.2014 had stated as under:
“January 23, 2014 Law Offices The Deputy Director of Income Tax Circle - 2(1), International Taxation Room No. 419, Dr. S. P. Mukharjee Civic Center, J. L. N. Marg, New Delhi-l10002 Re: M/s. Rolls Royce India Limited /PAN AAACR 4693 K Sub: Conclusion of Mutual Agreement Procedure ' ("MAP") under the Double Taxation Avoidance Agreement between India and United Kingdom of Great 'Britain and Northern Ireland (“DTAA” ) for the AY 1998-99 to AY. 2005-06 Dear Sir This is with reference to the captioned subject. In this respect, we under the instructions of and on behalf of our J client M/s Rolls Royce India Limited ("the Company") submit that the Company has initiated the MAP proceedings under Article 27 of the DTAA in its case for the AY 1998-99 to A Y to AY 2005-06. The Company has received a written communication from the Competent Authority ill United Kingdom intimating conclusion of MAP proceedings, A copy of the aforesaid letter is enclosed herewith as Annexure 1. As per the MAP conclusion between Competent Authority of India and United Kingdom, the assessed income of the Company for ' the A Y 1998-99 to the A Y 2005-06 is required to be reduced by the agreed amounts. Thus, we humbly request your goodself to kindly verify the' enclosed letter at your end and let us know the tax demand payable by the Company after giving effect to the MAP conclusion. It may be noted that the Company has already furnished a Bank Guarantee amounting to Rs, 120 Million before your goodself in relation to the aforesaid MAP proceedings. Thanking you and assuring you of our full co-operation at all the times, For Luthra & Luthra Law Offices Xxx xxx xxx xxx HM Revenue& Customs
CTIM Business International Specialist International 3rd Floor 100 Parliament Street London SW1A2BQ Tel 02071472655 Fax 020 7147 2649 EMail mlke.hogan@hmrc.gsi.gov.uk www.hmrc.gov.uk MS Helen Johnson Head of International Tax Rolls Royce pic PO Box 31 Derby DE 24 8BJ Date 27 March 2013 Our Ref MAP/1347E/MH Your Ref JHIRR/INDIAMAP Dear Ms Johnson, ROLLS-ROYCE INDIA Ltd (RRIL) MUTUAL AGREEM~T PROCEDURE (MAP) UK/INDIA DOUBLE TAXATION AGREEMENT This letter confirms the mutual agreement reached between the UK and India at a meeting of the competent authorities in July 2012 to try to resolve issues of double taxation affecting the UK company Rolls-Royce India Ltd. India has agreed to withdraw the amounts of profits it has assessed as shown in the table below headed Indian MAP Settlement. The UK has agreed to relieve the amounts in the table subject to the years being in date for MAP applications. As I explained on the phone, the company was out of date in making its MAP applications for years prior to the year ended 31 December 2001 (albeit through no fault of its own) and the UK cannot relieve the Indian tax on the agreed adjustments included in their assessments on RRIL for the periods prior to 2001.
I have shown in more detail on a separate spreadsheet the basis for the MAP settlement. Please let me know if you have any enquiries about the figures. Information is available in large print, audio tape and Braille formats. Type Talk service prefix number-18001 Judith Knott (Director)
Accounts Calendar Indian Indian UK assessment UK Reduction in Ave exchange Year reduced by Rs. rate year (PY assessment assessment assessment UK assessment basis) reduced by £ reduced by £ in date £ reduced by Rs 1997/8 1998 6,443,181 88,019 6,001,309 97,582 61.5 1998/9 1999 6,193,885 88,865 6,866,828 98,520 69.7 1999/00 2000 8,215,751 121,715 9,108,371 134,939 67.5 2000/01 2001 11,102,720 164,485 12,309,002 180,220 152,210 68.3 2001/02 2002 9,709,603 142,161 9,709,603 129,808 131,796 74.8 2002/03 2003 4,1015,950 548,342 9,599,884 123,551 104,042 77.7 2003/04 2004 3,603,136 46,372 7,454,764 90,003 106,326 82.8 2004/05 2005 11,059,911 133,574 9,090,337 109,787 27,447 61.5 Total 96,314,137 1,333,533 70,140,098 658,587 521,820 excluding 97/8 99/00
Vide letter dated 5.1.2016 the assessee sought adjournment on the ground that formal communication regarding the resolution arrived as per the provisions of Article 27 of the India -UK DTAA was awaited from the Competent Authority. The case was adjourned on 3.5.2016 to enable the parties to find out the status of proceedings under MAP. Again assessee sought adjournment on 3.5.2016 on the ground that effect was to be given to the resolution passed. At the time of hearing ld. counsel for the assessee pointed out that effect is likely to be given to the resolution arrived at between UK & India.
We have considered the submissions of both the parties. A bare perusal of the letter dated 27.3.2013 from Judith Knott (Director), reproduced above, clearly shows that at a meeting of the Competent Authorities in July 2012, an agreement had been arrived at and along with the said letter all conclusions as per agreement were furnished which have been reproduced earlier.
Considering the contents of various letters filed before us including adjournment applications, we are of the considered opinion that (the matter should be restored to the file of AO to pass order as per the mutual agreement reached between UK & India at a meeting of the Competent Authorities in July 2012. Once the agreement has been arrived at between Competent Authoritis of UK and India and nothing has been brought on record by the department regarding any dispute on the terms of agreement then only effect remains to be given to the agreement arrived at by passing formal order by AO.
Under such circumstances, no fruitful purpose would be served by keeping the appeal pending as entire exercise is to be done by AO. However, we may clarify that in case there is any disagreement on any terms, then assessee would be free to take proper legal action, as deem fit. 10. In the result, assessees appeal is dismissed as infructuous. Order pronouncement in open court on 12/05/2016.