VESTAS WIND TECHOLOGY INDIA PRIVATE LIMITED,CHENNAI vs. ACIT, CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

This appeal of the assessee is directed against the order of

the Assessing Officer dated 11.01.2016 consequent to the direction

of Dispute Resolution Panel, for the assessment year 2011-12.

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submitted that the assessee-company engaged in manufacturing

and service of wind turbine generators and sale of wind turbine

components. According to the Ld. representative, the assessee is

selling the wind turbine generators and its components in the

domestic market as well as in the international markets. Referring

to the objection raised before the Dispute Resolution Panel in the

grounds of objection No.6, a copy of which is available at page 71 of

the appeal folder, the Ld. representative submitted that the

assessee claimed before the Dispute Resolution Panel that the

Transfer Pricing Officer computed the sales of the assessee by

excluding the income from annual maintenance service without

excluding the corresponding cost of rendering such services. The

Ld. representative further submitted that since the income from

annual maintenance service is not included in the operating

revenue, the corresponding cost also needs to be excluded from the

total cost for computation of the operating margins. Referring to the

direction of the Dispute Resolution Panel, the Ld. representative

submitted that this objection of the assessee was not taken

cognizance of Dispute Resolution Panel, therefore, it remains to be

disposed of. Referring to the order of the Transfer Pricing Officer,

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more particularly the computation of income, the Ld. representative

submitted that the Transfer Pricing Officer excluded the income

from annual maintenance service, however, failed to exclude the

expenditure. Referring to the order of the Transfer Pricing Officer,

more particularly para 9.1, the Ld. representative submitted that the

shortfall in revenue recognition from annual maintenance charges

and the adjustment thereunder requires no consideration as the

service income from annual maintenance income is proposed to be

excluded while computing the profit from manufacture and sale of

wind turbine generators. Once the income is excluded, according to

the Ld. representative, the cost is also to be excluded. Since the

cost / expenditure is not excluded, the Assessing Officer may be

directed to exclude the expenditure incurred by the assessee for

annual maintenance service.

Departmental Representative, submitted that the Transfer Pricing

Officer found that income from annual maintenance service needs

to be excluded. Therefore, the expenditure incurred for annual

maintenance service also needs to be excluded. However, it is not

clear from the assessment order and the order of the Transfer

4 I.T.A. No.177/Mds/16

Pricing Officer whether it was really excluded from the operating

cost. Therefore, the Assessing Officer may be directed to verify

whether the expenditure for annual maintenance service is excluded

or not.

perused the relevant material available on record. The Transfer

Pricing Officer by way of show cause notice observed that the

miscellaneous income in the form annual maintenance service

requires to be excluded. Therefore, the justice requires that the

corresponding cost incurred for earning the miscellaneous income

also requires to be excluded. After reproducing the show cause

notice dated 03.11.2014, the Transfer Pricing Officer found at para

9.1 that the shortfall in revenue recognition from AMC, the

adjustment thereunder requires no consideration as the service

income from annual maintenance is proposed to be excluded while

computing the profit from manufacture and sale of wind turbine

generators. Therefore, it is obvious that the Transfer Pricing Officer

has proposed to exclude the income from annual maintenance

charges from the total income. Once the income was excluded, the

expenditure for earning the annual maintenance income also needs

5 I.T.A. No.177/Mds/16

to be excluded. As rightly submitted by the Ld. D.R., it is not clear

either from the assessment order or TPO’s order. This aspect was

not considered by the Dispute Resolution Panel in their order.

Therefore, this Tribunal is of the considered opinion that the matter

needs to be verified by the Assessing Officer. Accordingly, the

orders of the lower authorities are set aside and the Assessing

Officer is directed to refer the issue of expenditure for maintenance

charges to the Dispute Resolution Panel. In such reference, the

DRP shall examine whether the expenditure said to be incurred by

the assessee for earning income from annual maintenance is to be

excluded or not? The Assessing Officer after receiving the report

from the DRP, shall pass order in conformity with the direction of the

DRP as provided in Section 144C(13) of the Act.

towards sales commission. The assessee had filed copy of the

invoice before the Assessing Officer. The Assessing Officer

disallowed the claim of the assessee only on the ground that there

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was no agreement between the parties. According to the Ld.

representative, the payment of sales commission is not in dispute.

According to the Ld. representative, since the assessee filed the

invoices before the authorities below, there cannot be any

disallowance, especially when the payments were not in dispute.

Departmental Representative, submitted that the assessee has not

filed the details of service rendered by the person to whom the

commission was paid. Even the names and address of the agents

were not produced. The assessee has not filed any other details.

Therefore, the Dispute Resolution Panel has confirmed the order of

the Transfer Pricing Officer. In the absence of any evidence to

indicate the service said to be rendered by the agents, an identical

disallowance which was made for the assessment year 2010-11.

Hence, DRP has rightly confirmed the order of the TPO for the year

under consideration also.

perused the relevant material available on record. The assessee claims that a sum of `10,50,000/- was paid towards sales

commission. The assessee has filed copies of invoice. On perusal

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of the direction of the Dispute Resolution Panel, it shows that the

assessee has not produced the details of the service rendered, the

names and address of the commission agents and the details of the

commission paid, etc. Even before this Tribunal, the details of the

agents, the payment of commission are not available. The assessee claims a lump sum payment of `10,50,000/-. In the

absence of any details with regard to names and address of

commission agents and the commission paid, this Tribunal is of the

considered opinion that the disallowance has rightly been made. It

is not in dispute that an identical disallowance was made in the

earlier assessment year 2010-11 on identical set of facts.

Therefore, this Tribunal do not find any reason to interfere with the

order of the lower authority and accordingly, the same is confirmed.

submitted that the parent company of the assessee, namely, Vestas

Denmark, gave guarantee to the customers of the assessee who

purchased windmill in India. The assessee has paid corporate performance guarantee fee of `3,87,91,750/- and claimed the same

8 I.T.A. No.177/Mds/16

as expenditure. The Assessing Officer, however, found that the

payment made by the assessee is in the nature of interest,

therefore, the assessee is liable to deduct tax under Section 194-I of

the Act . Referring to the order of the Tribunal in ACIT v. GMAC

Financial Services India Ltd. in I.T.A. Nos.1509, 1537, 1538 &

1539/Mds/2009 dated 20.04.2011, the Ld. representative submitted

that an identical payment was held to be not in the nature of

interest. In fact, this Tribunal placed his reliance on the Double

Taxation Avoidance Agreement between India and USA. In the

case before us, the payment was made to the parent company at

Denmark. Placing reliance on the Double Taxation Avoidance

Agreement between Government of India and Government of

Denmark, the Ld. representative submitted that “interest” is defined

in Article 12. Article 12(4) clearly says that “interest” means income

from debt-claimed of every kind and income from bonds or

debentures. However, the payment of penalty for late payment

shall not be regarded as interest for the purpose of this Article. In

view of the Double Taxation Avoidance Agreement, according to the

Ld. representative, what is paid by the assessee as guarantee to

the parent company cannot be regarded as interest. On a query

from the Bench, when the assessee has paid to the parent company

9 I.T.A. No.177/Mds/16

on the basis of guarantee performance given to the customers, why

such payment shall not be treated as business profits in the hands

of the parent company? The Ld. representative submitted that in

case the payment was considered as business profit, then naturally

there should be a permanent establishment for parent company in

India. In this case, there is no permanent establishment, therefore,

payment made to the parent company is not chargeable under the

Indian income-tax. The Ld. representative further submitted that a

copy of the guarantee performance given by the parent company is

available at page 49 of the paper-book. The parent company

guarantees to perform the contract of warranty and service in case

the assessee-company fails to perform. In view of this guarantee,

according to the Ld. representative, the image of the assessee-

company in the market increases, therefore, the assessee was able

to sell its product in the Indian market. On a query from the Bench,

the Ld. representative clarified that the guarantee was given to the

Indian customers by the assessee’s parent company. The Ld.

representative further clarified that there is no provision in the

guarantee performance agreement for a dispute resolution in case it

arises between the Indian customers and the assessee. On a query

from the Bench, when the Indian customer is aggrieved over the

10 I.T.A. No.177/Mds/16

performance of wind turbine generators, where he can raise the

dispute either in India or in Denmark? The Ld. representative

submitted that the agreement is silent on this aspect. The Ld.

representative further submitted that in view of the guarantee given

by the parent company, the payment was made, therefore, it is a

business expenditure.

Departmental Representative, submitted that the so-called

guarantee said to be given by the parent company is in the nature of

interest. Therefore, the Dispute Resolution Panel has rightly

confirmed the order of the Transfer Pricing Officer.

perused the relevant material available on record. The Transfer

Pricing Officer proceeded on the presumption that what was paid by

the assessee is interest. A perusal of the Double Taxation

Avoidance Agreement between India and Denmark clearly shows

that what was paid by the assessee is not interest. It is a payment

for the so-called guarantee said to be given by the parent company.

The question arises for consideration is what kind of services are

rendered by the parent company and whether such services are

11 I.T.A. No.177/Mds/16

rendered in India and whether such payment is liable for taxation in

India. This Tribunal is of the considered opinion that since the

payment does not partake the character of interest, it would

naturally be a business profit for the parent company. In the course

of its business activity, the parent company of the assessee gives

guarantee to Indian customers for performance in case the

assessee-company fails to perform its obligations. The agreement,

namely, performance guarantee agreement, is silent in respect of

dispute resolution. An Indian company or customer naturally cannot

be expected to travel all the way to Denmark for enforcing this

guarantee. This guarantee agreement does not provide for any

arbitration in India. Therefore, it has to be examined whether the

guarantee said to be given by the parent company is enforceable in

India? If it is not enforceable in India, whether such kind of

agreement is for business purpose or not? It also needs to be

examined when the parent company gives guarantee to Indian

customers in respect of the product sold by the assessee-company

in India, whether the assessee-company can be considered as

permanent establishment in India in respect of the income earned

by the assessee in the form of guarantee performance fee? These

aspects were not considered either by the Transfer Pricing Officer

12 I.T.A. No.177/Mds/16

or by the Dispute Resolution Panel. Therefore, this Tribunal is of the considered opinion that the matter needs to be re-examined. Accordingly, the orders of the lower authorities are set aside. The issue of performance guarantee fee is remitted back to the file of the Assessing Officer. The Assessing Officer shall refer the matter to the DRP. The DRP shall examine the issue in the light of the material available on record and thereafter decide the issue after giving reasonable opportunity to the assessee. Thereafter, the Assessing Officer shall pass necessary order under Section 144C(13) of the Act.

Order pronounced on 22nd April, 2016 at Chennai.

sd/- sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 22nd April, 2016.

Kri.

13 I.T.A. No.177/Mds/16

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. Secretary, DRP-2, Bangalore 4. Principal CIT-3, Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.