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Income Tax Appellate Tribunal, “K ” BENCH, MUMBAI
Before: SHRI RAJENDRA & SHRI C.N. PRASAD
आदेश / O R D E R PER C.N. PRASAD, JM:
These cross appeals are filed by the assessee and the Revenue and the Cross objection is filed by the assessee against the order of the CIT(A)-58, Mumbai dated 10.3.2015 pertaining to assessment year 2009-10.
The assessee has raised following grounds in this appeal:
“1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in not adjudicating the issues himself and passing a speaking order but instead directing the Assessing Officer to dispose the rectification application without specific directions while deciding the following issues: Transfer Pricing Grounds: i) Associated Enterprise balance written-off of Rs. 8,521,725
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Corporate Tax Grounds: ii) Discounts given to distributors of Rs. 410,777,604 iii) Commission to agents of Rs. 90,387,940
The first issue in the appeal of the assessee is that the Ld. CIT(A) erred in not adjudicating the issues of Transfer Pricing Adjustment himself in respect of AEs balance written off of Rs. 85,21,725/- himself but instead directing the Assessing Officer to dispose the rectification application without specific directions.
At the outset, the Ld. Counsel for the assessee submits that the Ld. CIT(A) set aside this issue to the file of the Assessing Officer /TPO to dispose of the rectification application filed by the assessee u/s. 154 of the Act dated 20.1.2015 explaining the facts and nature of transaction write off. As the matter was set aside to the Assessing Officer /TPO to dispose of the rectification application pending before them, he submits that assessee has no serious objection with the directions of the Ld. CIT(A). Thus we sustain the order of the Ld. CIT(A) and his directions to the Assessing Officer/TPO. However, the Ld. Counsel for the assessee submits that a direction may be given to dispose of the rectification application within a period of 6 months. Taking note of the submissions of the Ld. Counsel into consideration, we direct the Assessing Officer/TPO to dispose of the rectification application filed u/s. 154 of the Act as expeditiously as possible.
The second issue in the appeal of the assessee is that the Ld. CIT(A) erred in not adjudicating the issue of Corporate tax grounds himself i.e. disallowance u/s. 40(a)(ia) in respect of discounts given
4 SABMiller India Ltd to distributors for non deduction of TDS but instead directing the Assessing Officer to dispose of the rectification application.
At the outset, the Ld. Counsel for the assessee submits that this issue has been decided by the Co-ordinate Bench of the Tribunal in assessee’s own case for Assessment Year 2007-08 and 2008-09 wherein the Tribunal set aside the matter for want of further details like scheme under which the benefit is passed on to the distributors and directed the Assessing Officer to verify and examine the relevant record and decide the issue as per law. Copy of the order is placed on record at page 84 of the Paper Book. Ld. Counsel for the assessee submits that similar directions may be given for this Assessment Year also to which the Ld. Departmental Representative has no serious objection.
We have perused the Tribunal’s order which is placed at page- 84 of the Paper Book and find that the Co-ordinate Bench set aside this issue with the following observations: “6. The fifth ground urged by the assessee relates to the disallowance made u/s 40(a)(ia) of the Act in respect of discount given to distributors amounting to Rs. 24,52,65,057/- by way of credit notes, for non-deduction of tax at source. 7. During the course of assessment proceedings, the A.O. observed that the assessee has claimed a sum of Rs. 39,90,92,351/- as expenditure incurred under the head “Sales Scheme Expenses”. The A.O. asked the assessee to furnish the details of Sales Scheme Expenses, which was furnished as under:- Sr. No. Particulars Amount (Rs.) 1. Volume/Bulk Discounts - 7,82,01,645/- Beer 2. Cash Discounts/COD 4,11,32,650/- 3. Sale Price Discounts 24,52,65,057/- 4. Special Discount 2,02,38,400/- 5. Commission of sales 1,42,54,598/- Total 39,90,92,351/-
5 SABMiller India Ltd The AO asked the assessee as to why the “Sale Price discount” offered by the assessee should not be treated as ‘commission expense’ falling under section 194H of the Act. After considering the explanations given by the assessee, the A.O. held that the assessee had failed to deduct tax at source from the “Sale price discounts” referred in item no.3 in the table, u/s 194H r.w.s. 200 of the Act and accordingly disallowed the same u/s 40(a)(ia) of the Act. The ld. DRP also concurred with the view taken by the A.O. and held that relationship between the assessee and distributor is in the nature of ‘Principal to Agent’ and hence the assessee had to deduct taxes on the payments made to the distributors.
The ld. Representatives of both the sides agreed that an identical issue was considered by the Tribunal in the case of Skol Breweries Ltd. (supra), as modified in M.P. No.136/Mum/2013 dated 04-10-2013 and the Tribunal, after discussing the issue in detail, has set aside this issue to the file of the A.O. to re-examine the same afresh. It is pertinent to note that the Tribunal, vide paragraph 9.4 of the order has held that the relationship between the parties, as per the agreement, in relation to sale and purchase of the product is on principal to principal basis and to that extent the decision of Hon’ble Delhi High Court rendered in the case of Mother Diary (249 CTR 559) is applicable. However, the Tribunal took the view that the scheme under which the impugned benefit/incentive is given needs to be examined in order to give a finding as to whether the impugned payment is commission or not. Hence, the matter was set aside to the file of the AO with a direction to verify and examine relevant record and decide the same as per law. Consistent with the view taken in earlier year, we set aside the order passed by AO on this issue and restore the same to his file with the direction to examine the same afresh after affording necessary opportunity of being heard to the assessee and take appropriate decision in accordance with the law. At the time of hearing, the ld A.R placed reliance on the decision rendered by Hon’ble Bombay High Court in the case of CIT Vs. Intervet India Pvt Ltd (ITA No.1616 of 2011 dated 01-01-2014), wherein it was held that the sale promotion benefit availed by the dealers is not payment of Commission. In the set aside proceedings, the AO should decide the issue by considering the applicability of the above said decision of Hon’ble jurisdictional High Court”.
Respectfully following the said decision, we restore this issue to the file of the Assessing Officer who shall decide the same in accordance with law keeping in view the order of the Tribunal for Assessment Year 2008-09 and the directions therein.
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8. The third issue in the appeal of the assessee is that the Ld. CIT(A) erred in not adjudicating the issue of Corporate tax grounds himself i.e. disallowance of commission to agents u/s. 40(a)(ia) of the Act for non deduction of TDS, but instead directing the Assessing Officer to dispose of the rectification application.
The Ld. Counsel for the assessee submits that the Ld. CIT(A) directed the Assessing Officer to dispose of the rectification application filed by the assessee u/s. 154 of the Act on 20.1.2015 comprising party-wise list of commission paid to agents alongwith TDS certificates and party-wise list of reimbursement paid alongwith sample copies of supporting documents. Therefore, he submits that the assessee has no serious objection with the directions of the Ld. CIT(A). Thus, we sustain the directions of the Ld. CIT(A) on this issue. However, the Ld. Counsel for the assessee submits that specific direction may be given to dispose of the rectification application within a period of 6 months. Taking note of the submissions of the Ld. Counsel for the assessee into consideration, we direct the Assessing Officer/TPO to dispose of the rectification application filed u/s. 154 of the Act as expeditiously as possible.
In the result the appeal filed by the assessee is partly allowed for statistical purpose.
ITA No. 3449/M/2015 – Revenue’s appeal
The Revenue has raised following grounds in this appeal:
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) while setting aside the issue of determination of Arm's Length Price of International
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Transactions, was justified in directing the Assessing Officer to apply Comparable Uncontrolled Price (CUP) method without recording any finding that the CUP method was the most appropriate method in the facts and circumstances of the assessee's case for the relevant assessment year?" 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that the provisions of section 40(a)(i) were not applicable in respect of depreciation claimed u/sec. 32 of the Act on Foster Brand for which payment was remitted without deducting tax in accordance with the provisions of Section 195 of the Act.?" 3. "Whether on facts and in the circumstances of the case and in law, the Ld. CIT (A) was justified in holding that license fees paid to group companies viz. SAB Miller A & A (pty) Limited for accessing Syspro Accounting does not fall under Section 40(a)(i) as the said expenditure is not Royalty within the meaning of Explanation of Section 40(a)(i) read with Explanation -2 to Section 9(1 )(vi) by relying on the decision of Sonata Information & Technology Vs DCIT (ITA No. 1507/Mum/2012) which has been contested by the Revenue before the Hon'ble Bombay High Court and without appreciating the ratio of the decision of the Hon'ble Karnataka High Court in the case of Commissioner of Income tax, International Taxation vs Samsung Electronics Co. Ltd (345 ITR 494), wherein it was held that the payment made for purchase of software falls within the definition of 'Royalty' as per clause (iv) of Explanation 2 to Section 9(1 )(vi) of the Act?"
The Ld. Counsel for the assessee at the outset submits that in so far as determination of arm’s length price of international transactions applying CUP method as most appropriate method in the facts and circumstances of the assessee’s case is concerned, the 8 SABMiller India Ltd Co-ordinate bench of the Tribunal had considered similar issue for the Assessment Year 2007-08(142 ITD 149) and Assessment Year 2008-09 in dated 3.7.2015 and the issue was set aside and restored to the Assessing Officer with a direction to examine the issue afresh after making reference to TPO for Bench marking royalty transaction. The Ld. Counsel for the assessee submits that a similar direction may be given for this Assessment Year also to which the Ld. Departmental Representative has no serious objection. The copy of the order is placed on record at pages 84 to 92 of the Paper book, the relevant paragraphs are at para 17 & 18.
We have perused the order of the Co-ordinate Bench and find that this matter has been restored to the file of the Assessing Officer with a direction to examine the issue afresh after making the reference to TPO and decide in accordance with law by observing as under:
“The next ground relates to the transfer pricing adjustment in respect of royalty payment to Associated Enterprises (AE) amounting to Rs. 12,26,22,853/-. The Ld A.R submitted that the assessee has undertaken fresh Transfer pricing study by taking fresh set of comparables, by following the directions given by the Tribunal in AY 2007-08 with regard to the approach to be followed for benchmarking royalty transaction. He further submitted that the TPO has recently passed the order for AY 2007-08 in the set aside proceedings and has accepted the fresh set of comparables furnished by the assessee. Accordingly, he prayed that the assessee may be given one more opportunity in this matter to represent its case in the current year also. 9 ITA 7123/M/2012 18. The Ld D.R did not object to the plea put forth by Ld A.R. Accordingly we set aside the order of the AO on this issue and restore the same to his file with the direction to examine this issue afresh by making reference to the TPO and decide the same in accordance with the law”.
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Respectfully following the said order, we direct the Assessing Officer to decide this issue afresh after making reference to TPO and following the directions of the Tribunal for the earlier Assessment Years i.e. Assessment Year 2007-08 and 2008-09. This ground of the Revenue is allowed for statistical purpose.
The second issue in Revenue’s appeal is whether the Ld. CIT(A) was justified in holding that the provisions of Sec. 40(a)(i) were not applicable in respect of depreciation claimed u/s. 32 of the Act on Foster Brand for which payment was remitted without deducting tax in accordance with the provisions of Sec. 195 of the Act.
The Ld. Counsel for the assessee submits that this issue has been decided in favour of the assessee by the Co-ordinate Bench for Assessment Years 2007-08 and 2008-09. Therefore he submits that similar order may be passed for this Assessment Year also.
The Ld. Departmental Representative supports the orders of the Assessing Officer.
The Co-ordinate Bench of the Tribunal for Assessment Year 2008-09 following the order in assessee’s own case for Assessment Year 2007-08 reported in 142 ITD 149 deleted the disallowance holding as under:
“9. The next issue urged by the assessee relates to the disallowance u/s 40(a)(ia) r.w.s. 195 and 200 of the Act in respect of depreciation on payment to Foster’s Australia amounting to Rs. 28,76,40,000/- made by the A.O. During assessment proceedings, the A.O. noticed that the assessee purchased “Foster’s Brand” and “Intellectual Property”, “Foster’s Brewing Intellectual Property” and Foster’s Trademarks from Foster’s Australia Ltd. for a consideration of Rs. 157,92,00,000/-. The assessee capitalized the said amount in its fixed assets schedule under the head “Trade Marks/Brands” and claimed depreciation thereon @ 25%. For the year under consideration, the assessee has claimed depreciation of Rs. 28,76,40,000/- in its return of income. The A.O. asked the assessee to explain as to why the depreciation
10 SABMiller India Ltd claimed should not be disallowed, since the assessee has not deducted tax at source on the payment of Rs.157.92 crores made to Foster’s Australia. The assessee explained that the assessee has capitalized the purchase value of Foster’s Brand and it is not required under law to deduct tax at source in respect of payment made for capital asset. However, the A.O. was not satisfied with the explanation offered by the assessee and following his order passed in the earlier year, he disallowed the claim of depreciation u/s 40(a)(i) r.w.s. 195 and 200 of the Act. The ld. DRP also upheld the view of the AO.
10. At the time of hearing, the ld. Counsel for the assessee submitted that the above said issue is squarely covered in favour of the assessee by the decision of the Tribunal rendered in the case of Skol Breweries Ltd. (supra) reported in (2013) 142 ITD 49 (Mumbai). We find that the Tribunal has considered an identical issue and decided the same in favour of the assesee by observing as under:- “16.3 The deduction u/s 32 is not in respect of the amount paid or payable which is subjected to TDS; but is a statutory deduction on an asset which is otherwise eligible for deduction of deprecation. Depreciation is not an outgoing expenditure and therefore, the provisions of sec. 40(a) (i) of the Act are not attracted on such deduction. This view has been fortified by the decision of the Hon'ble Punjab & Haryana High Court in the case of M/s Mark Auto Industries Ltd (supra) in pars 5 & 6 as under …………..” In view of the above, we direct the A.O to delete this disallowance”.
Respectfully following the said decision, we direct the Assessing Officer to delete the disallowance for this Assessment Year also. This ground of the Revenue is rejected.
The last issue in the appeal of the Revenue is regarding disallowance of payment for software charges u/s. 40(a)(ia) of the Act.
The Ld. Counsel for the assessee referring to page-89 at para- 11 of the Paper Book submits that the issue has been decided in favour of the assessee and therefore similar view may be taken for this Assessment Year also.
The Co-ordinate Bench of the Tribunal in Para- 11 to 13 of the order decided this issue in favour of the assessee holding as under:
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11. The next issue urged by the assessee relates to the disallowance made u/s 40(a)(i) of the Act of software charges amounting to Rs. 33,60,435/- for non-deduction of tax at source. During scrutiny assessment, the A.O. observed that the assessee has paid a sum of Rs. 33,60,435/- to SABMiller A & A (Pty) Ltd. towards the expenditure incurred on account of Syspro license fees, Report Generation charges in Syspro, customizing Syspro so as to enable Electronic Fund Transfer facility etc. These were claimed to be reimbursement of expenses, which were supported by third party invoices. The A.O. held that these payments are in the nature of royalty falling within the purview of sec. 9(1)(vi) of the Act and hence the assessee should have deducted Tax at source on the above said payment. In reply, the assessee submitted that the reimbursement represents a pure recovery of third party costs incurred by the overseas group entity for the benefit of the assessee. It was submitted that the payment of IT cost is not liable to income tax and thus there was no liability on the assessee to deduct any TDS while making the payment. It was also submitted that even if the payments received by it is termed as royalty under the Act, no disallowance u/s 40(a)(i) of the Act can be made as the same would fall under Explanation 4 and not under Explanation 2 of section 9(1)(vi) of the Act. The A.O. after considering the submissions of the assessee held that the assessee has made payment for “Syspro license” which is for a right to use intellectual property embedded in it. Accordingly he disallowed the expenditure u/s 40(a)(i) of the Act for non-deduction of tax at source. The ld. DRP held that the software is an intellectual property right and the periodical payments made to the group company for sharing the rights for its use and maintenance collectively payable to the owner of the rights and accordingly upheld the view taken by the A.O.
12. During the hearing before us, the ld. Representatives of both the sides agreed that an identical issue was considered in the assessee’s own case reported in (2013) 142 ITD 49 (Mum) and this issue has already been decided by the Tribunal in favour of the assessee. On perusal of the order of the Tribunal, we find that the Tribunal has held that the impugned expenditure does not fall under Explanation 2 to section 9(1)(vi); but the same falls under Explanation 4 to sec. 9(1)(iv). Since sec. 40(a)(i) refers to only Explanation w to sec. 9(1)(vi) of the Act, the same cannot be disallowed u/s 40(a)(i) of the Act. 13. When it was pointed out that the Explanation 4 is only a clarificatory amendment inserted by Finance Act, 2012 w.r.e.f. 1.6.1976 and hence Explanation 2 may encompass the same under its fold, the Ld A.R submitted that the assessee could not have visualized the amendment that is going to be brought in by Finance Act, 2012, when the impugned payment was made in Financial year 2007-08 and hence the provisions of sec. 40(a)(i) should not be applied on the payments that were hit by prospective amendment. We agree with this contention of the assessee and accordingly direct the AO to delete this disallowance”. Respectfully following the said order, we delete the disallowance made u/s. 40(a)(ia) in respect of software charges. This 12 SABMiller India Ltd ground of the Revenue is dismissed. Revenue’s appeal is partly allowed for statistic purpose.
Cross Objection No. 108/M/2015 – A.Y. 2009-10
The cross object filed by the assessee is in support of the order of the Ld. CIT(A), hence it is dismissed as infructuous.
In the result, the appeal filed by the assessee and the Revenue are partly allowed for statistical purpose and the cross objection filed by the assessee is dismissed.
Order pronounced in the open court on 15th July, 2016.