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Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI
Before: Shri Saktijit Dey, Hon’ble & Dr. B. R. R. Kumar
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI Before Shri Saktijit Dey, Hon’ble Vice President & Dr. B. R. R. Kumar, Accountant Member
ITA No. 381/Del/2023 : Asstt. Year: 2020-21 NCR Global Solutions Ltd., Vs The DCIT, Circle-2(2)(2), Lakeview Drive, Airside Business Park, International Tax, New Delhi Swords, Co. Dublin, K67, N2N9, Ireland-999999 (APPELLANT) (RESPONDENT) PAN No. AAECN 6554 B Assessee by : Sh. Nageshwar Rao, Adv. Sh. Akshey Uppal, Adv. Revenue by : Sh. Vizay B.Vasanta, CIT-DR Date of Hearing: 21.09.2023 Date of Pronouncement: .12.2023
ORDER Per Dr. B. R. R. Kumar:- The present appeal has been filed by assessee against the order of Dispute Resolution Panel-2 New Delhi dated 30.11.2022. 2. The assessee has raised the following grounds of appeal are as under:- 1. The learned AO/Hon'ble DRP has erred in making adjustment aggregating to IN 48,20,43,605 to the returned income of the Appellant and thereby, has erred in law and on facts in assessing the total income of the Appellant at INR 77,69,81,839. 2. The impugned order and Directions issued by the Hon'ble DRP are based on non/ incorrect appreciation of facts, ignoring to consider submissions and material on record as also wrong interpretation and application of law and therefore, are bad in law.
2 ITA No.381/Del/2023 NCR Global Solutions Ltd., 3. The learned AO/Hon'ble DRP, grossly erred, in alleging that Appellant has a Fixed place Permanent Establishment ("PE") for business in India, to carry on the business of sale of software products without indicating any basis for same. 3.1. Learned AO/ Hon'ble DRP have failed to provide even a vague indication on why contentions of Appellant are incorrect and further in substituting their own imaginary facts as basis for alleging that the Appellant has a Fixed place of business in India to carry on the business. 3.2. The learned AO in the impugned order erred in ignoring relevant and complete facts brought on record explaining Appellant's business with Indian entity and proceeded on unsubstantiated and imaginary presumptions to hold existence of PE and further perpetuated such error by attributing income on imaginary and baseless presumptions. 3.3. Learned AO erred and Hon'ble DRP erred in confirming existence of a Fixed place of business in India through NCR Corporation India Private Limited ("NCR India"), an independent legal entity conducting its own business, without indicating an iota of evidence to support that the place of business of NCR India is used or is at the disposal of the Appellant, either formally or informally and in the process ignoring material placed on record by the Appellant. 4. Learned AO/Hon'ble DRP has erred in confirming the allegation that NCR India is acting as an agent on behalf of the Appellant and thus, the Appellant has an Agency PE in India without any factual foundation / citing any basis. 4.1. The learned AO/ Hon'ble DRP has failed to prove on facts or provide any cogent reason or basis for concluding that the Appellant has an Agency PE in India. 4.2. The learned AO/ Hon'ble DRP has erred, in law and on facts, in alleging Agency PE on the surmise that NCR India works mainly or wholly on behalf of the Appellant, NCR India has authority to conclude contracts on behalf of the Appellant and NCR India habitually secures orders in India, mainly or wholly for the Appellant and is executing sales to India purchasers/ parties for and on behalf of the Appellant. 4.3. The learned AO/Hon'ble DRP has failed to appreciate the Appellant merely sells goods and software to NCR India, that NCR India is primarily engaged in manufacturing of ATMs for which goods and software are procured by NCR India from the Appellant on a principal-to-principal basis, the business carried on by NCR India in India is on its own account and that NCR India is not acting as an agent of the Appellant. Thus, the allegation of NCR India procuring orders and executing sales on behalf of Appellant is ex-facie erroneous and without any basis consequently, destroying very basis of allegation on existence of Agency PE.
3 ITA No.381/Del/2023 NCR Global Solutions Ltd., 4.4. The learned AO has failed to appreciate that significant portion of the goods and software sold by the Appellant to NCR India were used by NCR India in its manufacturing business and thus, the allegation made by the learned AO regarding NCR India being a dependent agent PE of the Appellant is erroneous and without any basis. 5. Learned AO/Hon'ble DRP has failed to discharge the burden of proof while arbitrarily holding that Appellant has a place of business in India and that NCR India has satisfied the conditions to be treated either as a Fixed place PE or has an Agency PE in India. 5.1. Hon'ble DRP has erred in law and on facts, in placing reliance on its directions issued for AY 2018-19 and AY 2019-20 wherein adverse conclusion on existence of Agency PE and Fixed place PE is drawn merely by placing reliance on clause 6. 1(a) and 6. 1(b) of the Distribution Agreement in vacuum without appreciating the business model of the Appellant and NCR India. 5.2. Both learned AO/ Hon'ble DRP have erred, in law and on facts, by not passing a speaking order, not considering material brought on record and assuming facts without bringing on record any material to establish the allegations made against Appellant. 6. Without prejudice to the above grounds of appeal, learned AO/ Hon'ble DRP have erred, in law and on facts, in attributing income to alleged PE without indicating any valid basis, purely based on speculations and without taking cognizance of the fact that profits/ income earned in relation to activities in India (by alleged PE, i.e., NCR India), have already been offered to tax in India and which is at arm's length. 7. Without prejudice to the above grounds of appeal, learned AO/ Hon'ble DRP have erred, in law and on facts, in attributing the profit to the alleged PE in India, in an arbitrary manner and not as per the authorized OECD approach, which is based on a separate and distinct enterprise approach. 8. Without prejudice to the above grounds of appeal, learned AO/ Hon'ble DRP erred, in law and on facts, in including consideration received towards sale of hardware (goods) while attributing income to the alleged PE without providing any basis/reasons for inclusion of such consideration. The learned AO/Hon'ble DRP has alleged fixed place PE and agency PE of the Appellant in India only in respect of the software distribution activities and has not established that the hardware sale is connected to the PE and therefore, the learned AO has erred in inclusion of consideration from sale of hardware for attributing income to the alleged PE in India.
4 ITA No.381/Del/2023 NCR Global Solutions Ltd., 9. Without prejudice to the above grounds of appeal, learned AO/ Hon'ble DRP has erred, in law and on facts, in taking 35% of the gross amount of international transactions as the net business income accruing from the business of Appellant in India, on an arbitrary basis without any explanation and reasoning 10. Without prejudice to the above grounds of appeal, learned AO/ Hon'ble DRP has erred, in law and on facts, in arbitrarily considering 70% of the alleged business income to be attributable to the alleged PE in India, on the pretext that substantial sales and marketing activities are being carried out in India. Other Grounds: 11. The learned AO has made an arithmetical error in the Computation Sheet in totaling the interest under Section 234A (INR 32,77,152) and Section 234B (INR 2,70,36,504) at INR 3,28,86,212 instead of INR 2,94,94,369. 12. The learned AO has in calculating interest under Section 234A for the period of 4 months instead of 3 months i.e., till the date of filing of return of income by the Appellant. 13. The learned AO has erred, in law and on facts, in considering INR 57,30,832 as a refund issued to the Appellant without appreciating that this amount pertains to tax deducted at source on interest on income-tax refund which is pending to be issued to the Appellant, and thereby has erred in raising a tax demand in this regard. 14. The learned AO has erred, in law and on facts, in initiating penalty proceedings under Section 270A of the Act. 3. At the outset, it was brought to our notice that the issues involved have been squarely covered by the order of the coordinate bench in ITA no. 1756 & 1776/Del/2022. The ld. DR fairly, accepted to this fact. For the sake of ready reference the relevant portion of the said order is reproduced herewith:-
We have heard Ld. Authorized Representatives of the parties and perused the material available on record and gone through the orders of the authorities below. In respect of transfer pricing adjustment related to sale of software/hardware, the contention of the assessee are multifold. It is stated that the assessee has no fixed place/PE during the period in appeal. The entire sale was
5 ITA No.381/Del/2023 NCR Global Solutions Ltd., executed at off shores and without prejudice, it was submitted that the impugned transaction of sale of software/hardware that was executed outside India to group company in India i.e. NCR Corporation India Pvt. Ltd. were subjected to transfer pricing scrutiny in the hands of alleged PE and were accepted to be at arm’s length. Therefore, nothing further would be attributable to the alleged PE in India. In respect of this contention, reliance is placed on the judgement of the Hon’ble Supreme Court in the case DIT vs Morgan Stanely & Co. (2007) 292 ITR 416 (SC). It is contended that in the facts and circumstances of the present case, the AO was not justified in making the transfer pricing adjustment. Consequently, making addition of Rs.43,91,20,359/- being the business income of PE taxable @ 40% plus applicable surcharge and cess. Ld. Counsel for the assessee has pointed out various discrepancies in the findings of the authorities below. Some of them being that the finding that the assessee concluded sales of software/hardware through its PE and affiliates. In India, NCR GSL has appointed a group entity namely, NCR Corporation India Pvt. Ltd. for executing software products and services and hardware services in exchange of payments of CIPL distribution activities. The say of the assessee is that sale affected in India is principal to principal. There is no evidence placed by the authorities below that the sales were affected through NCR Corporation India Pvt.Ltd. since no invoice was raised in the name of the assessee by the Indian customers. Moreover, the Revenue failed to rebut the fact that impugned transaction of sale of software/hardware was undertaken outside India to group company in India and were subjected to transfer pricing scrutiny in the hands of the alleged PE and same was accepted to be at arm’s length price. Therefore, nothing further would be attributable to the alleged PE. Hon’ble Supreme Court in the case of DIT vs Morgan Stanely & Co. (supra) has held as under:-
“To conclude, we hold that the AAR was right in ruling that MSAS would be a Service PE in India under Article 5(2)(l), though only on account of the services to be performed by the
6 ITA No.381/Del/2023 NCR Global Solutions Ltd., deputationists deployed by MSCo and not on account of stewardship activities. As regards income attributable to the PE (MSAS) we hold that the Transactional Net Margin Method was the appropriate method for determination of the arm's length price in respect of transaction between MSCo and MSAS. We accept as correct the computation of the remuneration based on cost plus mark-up worked out at 29% on the operating costs of MSAS. This position is also accepted by the Assessing Officer in his order dated 29.12.06 (after the impugned ruling) and also by the transfer pricing officer vide order dated 22.9.06. As regards attribution of further profits to the PE of MSCo where the transaction between the two are held to be at arm's length, we hold that the ruling is correct in principle provided that an associated enterprise (that also constitutes a PE) is remunerated on arm's length basis taking into account all the risk-taking functions of the multinational enterprise. In such a case nothing further would be left to attribute to the PE. The situation would be different if the transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a case, there would be need to attribute profits to the PE for those functions/risks that have not been considered. The entire exercise ultimately is to ascertain whether the service charges payable or paid to the service provider (MSAS in this case) fully represents the value of the profit attributable to his service. In this connection, the Department has also to examine whether the PE has obtained services from the multinational enterprise at lower than the arm's length cost? Therefore, the Department has to determine income, expense or cost allocations having regard to arm's length prices to decide the applicability of the transfer pricing regulations.
Economic nexus is an important aspect of the principle of Attribution of Profits.
7 ITA No.381/Del/2023 NCR Global Solutions Ltd., 35. In the light of what is stated above, the impugned ruling by AAR stands modified to the extent indicated hereinabove. Accordingly, both the civil appeals filed by the applicant (MSCo) and by the Department are partly allowed with no order as to costs.”
It is also argued that since the sale of software was affected outside India in the absence of PE, it would not be taxable in India as Royalty. Moreover, after the judgement of Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs CCIT [2021] 432 ITR 471 (SC), such consideration for sale of software cannot be lawfully categorized as Royalty and subjected to tax under the Act r.w. Article 12 of the India Ireland DTAA. The Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs CCIT (supra) has held as under:-
“Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non- resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment.”
Looking to the facts of the present case, we find merit into the contention of the assessee that the Assessing Authority was not justified in making addition in the hands of the assessee when in the case of alleged PE of the assessee, the transactions have been treated to be arm’s length price. Furthermore, the assessee has pointed out that while making addition, the AO has also included the transaction related to hardware whereas allegation of PE is related
8 ITA No.381/Del/2023 NCR Global Solutions Ltd., to software. In the light of the binding precedents, we are of the considered view that the authorities below erred in making the impugned additions. We therefore, direct the AO to delete the same. Ground Nos. 1 to 10 raised by the assessee are hence, allowed.
Ground No.11 raised by the assessee is against the levy of interest u/s 234B of the Act. The levy being consequential in nature we hold, accordingly.
Ground No.12 raised by the assessee is against the initiation of penalty us/ 270A of the Act. This ground being premature hence, dismissed.
In the result, the appeal of the assessee is partly allowed.
ITA No.1776/Del/2022 [Assessment Year : 2019-20]
Now, we take up assessee’s appeal in ITA No. 1776/Del/2022 pertaining to Assessment Year : 2019-20. The assessee has raised following grounds of appeal:-
“Based on the facts and circumstances of the case and in law, NCR Global Solutions Limited ("NCR GSL" or "the Company" or "the Appellant") respectfully craves, leave to prefer an appeal under Section 253(1)(d) of the Income-tax Act, 1961 ("the Act") against final assessment order dated 9 June 2022 ("impugned order") (received by the Company on 10 June 2022) issued under Section 143(3) read with Section 144C(13) of the Act, by the Deputy Commissioner of Income-tax, Circle- 2(2)(2), International Tax, New Delhi ("Ld. AO") purportedly in pursuance of the Directions dated 17 May 2022 issued under Section 144C(5) by the Dispute Resolution Panel -2 ("Ld. DRP"), New Delhi, interalia on the following grounds which are without prejudice to each other:
That ld. AO/ Ld. DRP erred, in law and on facts, in computing the total income of the Appellant at INR 86,99,01,785 as against returned income of INR 23,25,76,760.
9 ITA No.381/Del/2023 NCR Global Solutions Ltd., 2. Impugned Order and Directions issued by Ld. DRP are based on non/ incorrect appreciation of facts, ignoring to consider submissions and material on record as also wrong interpretation and application of law and therefore, are bad in law.
Impugned order and Directions issued by Ld. DRP, grossly erred, in alleging that Appellant has a Fixed place Permanent Establishment ("PE") for business in India, to carry on the business of sale of software products without indicating any basis for same.
3.1. Ld. AO/ Ld. DRP have failed to provide even a vague indication on why contentions of Appellant are incorrect and further in substituting their own imaginary facts as basis for alleging that the Appellant has a Fixed place of business in India to carry on the business.
3.2. Impugned order erred in ignoring relevant and complete facts brought on record explaining Appellant's business with Indian entity and proceeded on unsubstantiated and imaginary presumptions to hold existence of PE and further perpetuated such error by attributing income on imaginary and baseless presumptions.
3.3. Ld. AO erred and Ld. DRP erred in confirming existence of a Fixed place of business in India through NCR Corporation India Private Limited ("NCR India"), an independent legal entity conducting its own business, without indicating an iota of evidence to support that the place of business of NCR India is used or is at the disposal of the Appellant, either formally or informally and in the process ignoring material placed on record by the Appellant.
3.4. Impugned order erred in assuming that the Appellant is procuring orders and executing sales to Indian customers through NCR India without appreciating that NCR India
10 ITA No.381/Del/2023 NCR Global Solutions Ltd., transacts with Indian customers on its own account on a principal-to-principal basis and not as an Agent of the Appellant.
3.5. Ld. AO/ Ld. DRP have lightly ignored the fact on record that significant portion of the goods and software sold by the Appellant to NCR India were used by NCR India itself in its manufacturing business and thus, the allegation of NCR India procuring orders and executing sales on behalf of Appellant is ex- facie erroneous and without any basis consequently destroying very basis of allegation on existence of Agency PE.
Ld. AO erred and Ld DRP erred in confirming the allegation that NCR India is acting as an agent on behalf of the Appellant and thus, the Appellant has an Agency PE in India without any factual foundation / citing any basis.
4.1. The Ld. AOI Ld. DRP has failed to prove on facts or provide any cogent reason or basis for concluding that the Appellant has an Agency PE in India.
4.2. The Ld. AOI Ld. DRP has erred, in law and on facts, in alleging Agency PE on the surmise that NCR India works mainly or wholly on behalf of the Appellant, NCR India has authority to conclude contracts on behalf of the Appellant and NCR India habitually secures orders in India, mainly or wholly for the Appellant.
4.3. Impugned order has failed to appreciate that business activities undertaken by the Appellant and NCR India are on principal-to-principal basis and that NCR India is not an agent appointed by the Appellant.
Ld. AO/Ld. DRP has failed to discharge the burden of proof while arbitrarily holding that Appellant has a place of business in India and that NCR India has satisfied the conditions to be
11 ITA No.381/Del/2023 NCR Global Solutions Ltd., treated either as a Fixed place PE or has an Agency PE in India.
5.1. Lo. DRP has erred in law and on facts, in placing reliance on its directions issued for AY 2018- 19 wherein adverse conclusion on existence of Agency PE and Fixed place PE is drawn merely by placing reliance on clause 6.1 (a) and 6.1 (b) of the Distribution Agreement in vacuum without appreciating the business model of the Appellant and NCR India.
5.2. Both Ld. AO/ Ld. DRP have erred, in law and on facts, by not passing a speaking order, not considering material brought on record and assuming facts without bringing on record any material to establish the allegations made against Appellant.
Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP have erred, in law and on facts, in attributing income to alleged PE without indicating any valid basis, purely based on speculations and without taking cognizance of the fact that profits/ income earned in relation to activities in India (by alleged PE, i.e., NCR India), have already been offered to tax in India and margin earned on such activities has been accepted to be at arm's length.
Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP have erred, in law and on facts, in attributing the profit to the alleged PE in India, in an arbitrary manner and not as per the authorized OECD approach, which is based on a separate and distinct enterprise approach.
Without prejudice to the above grounds of appeal, Ld AO/ Ld DRP erred, in law and on facts, in including consideration received towards sale of hardware amounting to INR 1,08,21,81,046 while computing the alleged income attributable to the PE without appreciating that existence of PE has been alleged only in respect of the software distribution
12 ITA No.381/Del/2023 NCR Global Solutions Ltd., activities and sale of hardware has not even been alleged to be connected to the PE.
Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP has erred, in law and on facts, in assuming 35% of the gross amount of international transactions as the business income accruing from the business of Appellant in India on an arbitrary basis without any basis, explanation and reasoning.
Without prejudice to the above grounds of appeal, Ld AO/ Ld DRP has erred, in law and on facts, in arbitrarily considering 70% of the business income to be attributable to the alleged PE in India, on the pretext that substantial sales and marketing activities are being carried out in India.
Computation of tax payable:
Ld AO has erred, in law and on facts', in calculating tax on income from royalty at the rate of 20% (plus surcharge at the rate of 5% and education cess at the rate of 4%) as against the applicable tax rate of 10% under Article 12 of the India- Ireland Tax Treaty, applicable to royalty income.
Ld. AO has erred, in law and on facts, in considering INR 75,09,484, representing tax at source deducted ("TDS") by the Revenue on interest on income-tax refund which is not issued to the Appellant, as a refund already issued to the Appellant and has thereby, erred in raising a tax demand in this regard.
Other grounds:
The Ld. AO has erred in levying interest of INR 6,75,854 under Section 2340 of the Act in respect of TDS on interest on income-tax refund which refund is neither issued nor received by the Company.
The Ld. AO has erred in levying interest of INR 5,65,62,675 under Section 2348 of the Act.
13 ITA No.381/Del/2023 NCR Global Solutions Ltd., 15. The ld. AO has erred, in law and on facts, in initiating penalty proceedings under Section 270A of the Act. The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with law.” 14. We have heard Ld. Authorized representatives of the parties and perused the material available on record. We find that the facts and issues are similar and identical to the ITA No.1756/Del/2022 [AY 2018-19]. Ld. Representatives of the parties have adopted the same arguments in respect of grounds of appeal. Since the facts are identical and no change into the facts and circumstances has been pointed by the Revenue in the year under appeal, the grounds raised in this appeal filed by the assessee are partly allowed. Our decision in ITA No.1756/Del/2022 [AY 2018-19] would apply Mutatis Mutandi in this appeal filed by the assessee as well. 4. In the absence of any change in the factual matrix and legal proposition, we decline to deviate from the decision taken in the earlier order.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 06/12/2023.
Sd/- Sd/- (Saktijit Dey) (Dr. B. R. R. Kumar) Vice President Accountant Member Dated: 06/12/2023 *NV, Sr. PS*
14 ITA No.381/Del/2023 NCR Global Solutions Ltd.,