Ford Global Technoloiges LLC, Chengalput V. DICT, CHENNAI

ITA 1492/CHNY/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1427 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 07-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Assessee Lawyers: GIRISH S SUNDAR
• Keywords: Transfer pricing; Double taxation relief; International transaction; Competent authority
• Section: 143(3); 144C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI . . . , ! ' # , $ #% BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./ ITA NO.1492/CHNY/2017 & '& /ASSESSMENT YEAR: 2013-14 M/S. FORD GLOBAL TECHNOLOGIES LLC DEARBORN, MICHIGAN, USA. C/O FORD INDIA PVT. LTD., SP KOIL POST, MARAIMALAI NAGAR, CHENGALPATTU 603 204. VS. DY. COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION-I, CHENNAI. [PAN: AAACF 7286N] ( () /APPELLANT) ( *+() /RESPONDENT) () , - / APPELLANT BY : SHRI LALITH KUMAR, CA & SHRI GIRISH S. SUNDAR, CA *+() , - /RESPONDENT BY : SHRI M. SRINIVASA RAO, CIT . , /$ /DATE OF HEARING : 22.04.2019 01' , /$ / DATE OF PRONOUNCEMENT : 26.04.2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE DIRECTIONS OF THE LEARNED DISPUTE RESOLUTION PANEL, BANGALURU-2 (HEREINAFTER CALLED AS DRP) DATED 20.03.2017 FOR THE ASSESSMENT YEAR 2013-14. ITA NO.1492/CHNY/2017 (AY: 2013-14) :- 2 -: 2. THE APPELLANT RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1. GENERAL 1.1. THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME-TAX, INTERNATIONAL TAXATION I (DCIT OR AO) PURSUAN T TO THE DIRECTIONS ISSUED BY THE HONBLE DISPUTE RESOLUTION PANEL (DR P), UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME-TAX AC T, 1961 (THE ACT), IS BAD IN LAW AND ON FACTS. 2. GROUND IN RELATION TO JURISDICTION 2.1 THE LEARNED AO ERRED IN LAW BY PASSING A DRAFT ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 144C(1)- OF THE ACT WIT HOUT APPRECIATING THE FACT THAT THE APPELLANT WAS NOT AN ELIGIBLE AS SESSEE AS PER SECTION 144C( 15) OF THE ACT, AS THERE WAS NO VARIA TION TO THE TAXABLE RETURNED BY THE COMPANY FOR THE RELEVANT ASSESSMENT YEAR. 2.2 THE LEARNED AO ERRED ON FACTS AND IN LAW BY PAS SING A FINAL ASSESSMENT ORDER BEYOND THE STATUTORY TIMELINES PRE SCRIBED UNDER SECTION 153 OF THE ACT AND THEREFORE, THE FINAL ASS ESSMENT ORDER IS LIABLE TO BE QUASHED AB-INITIO. 3. TAXABILITY OF ROYALTY INCOME 3.1. WITHOUT PREJUDICE TO THE ABOVE GROUND, THE LEA RNED AO ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW BY C ONCLUDING THAT THAT THE ROYALTY INCOME EARNED BY THE COMPANY FROM FORD INDIA PRIVATE LIMITED (FIPL) IS TAXABLE AT 15% AS PER I NDIA-US TAX TREATY AS AGAINST THE BENEFICIAL RATE OF 10.506% UNDER THE ACT WITHOUT APPRECIATING THE FACT THAT THE ROYALTY INCOME HAS A CCRUED TO THE COMPANY PURSUANT TO THE LICENSE AGREEMENT DATED 01 APRIL 2012. 3.2. ERRED ON FACTS AND IN CIRCUMSTANCES OF THE CAS E BY NOT TAKING INTO COGNIZANCE THAT THE MANNER I RATE OF COMPUTATI ON ADOPTED FOR CALCULATING THE QUANTUM OF ROYALTY ACCRUING TO FGTL FOR FY 2012-13 AT 2.5% OF FIPLS REVENUE BASE (AS FIPLS RETURN ON SALES IS LESS THAN ZERO PERCENT FOR THE GIVEN FISCAL YEAR) IS AS PER THE TERMS OF THE NEW LICENSE AGREEMENT DATED 01 APRIL 2012. 3.3. ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE B Y NOT APPRECIATING THAT THE TRANSFER PRICING OFFICER (TPO), WHILE PA SSING THE TRANSFER PRICING ORDER FOR FIPL FOR FY 2012-13, HAD ACCEPTED THE SUBMISSION MADE BY FIPL THAT ROYALTY WAS PAID PURSUANT TO THE NEW AGREEMENT I.E. LICENSE DATED 01 APRIL2012. 4. CONSEQUENTIAL RELIEF 4.1. THE APPELLANT PRAYS THAT DIRECTIONS BE GIVEN T O GRANT ALL SUCH RELIEF ARISING FROM THE GROUNDS OF APPEAL MENTIONED SUPRA AS ALSO ALL CONSEQUENTIAL RELIEF THERETO. ITA NO.1492/CHNY/2017 (AY: 2013-14) :- 3 -: THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER, BY D ELETION, SUBSTITUTION OR OTHERWISE, ANY OR ALL OF THE ABOVE GROUNDS OF AP PEAL, AT ANY TIME BEFORE OR DURING THE HEARING OF THE APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT IS A FOREIGN COMPANY AND IS WHOLLY O WNED SUBSIDIARY OF FORD MOTOR COMPANY. THE RETURN OF INCOME FOR TH E AY 2013-14 WAS FILED ON 29.11.2013 DISCLOSING TOTAL INCOME OF RS. 65,38,76,269/-. AGAINST THE SAID RETURN OF INCOME, THE DRAFT ASSESS MENT ORDER WAS PASSED ON 24.11.2016 AND THE APPELLANT HAD FILED OB JECTIONS BEFORE HON'BLE DRP ON 26.12.2016 AND FINAL ASSESSMENT ORDE R WAS PASSED ON 28.02.2017 AFTER RECEIPT OF THE DIRECTIONS FROM THE HON'BLE DRP. 4. THE APPELLANT HAS BEEN MAKING AVAILABLE INTELLEC TUAL PROPERTY TO ITS SUBSIDIARY COMPANY IN INDIA NAMELY FORD INDIA PVT. LTD. FOR THE PURPOSE OF ASSEMBLY OF VEHICLES AND MANUFACTURE OF VEHICLE ASSEMBLIES, SUBASSEMBLIES AND COMPONENTS. IN CONSIDERATION OF THE INTELLECTUAL PROPERTY MADE AVAILABLE TO THE FORD INDIA PVT. LTD. IN TERMS OF AGREEMENT ENTERED BY IT ON 19.08.1996, THE APPELLANT WAS PAID ROYALTY OF RS. 65,06,82,466/- DURING THE FINANCIAL YEAR 2012-13 I. E., RELEVANT TO THE ASSESSMENT YEAR 2013-14. ON THE SAID PAYMENT, THE I NDIAN SUBSIDIARY COMPANY I.E., THE PAYER HAD DEDUCTED TAXED AT 10.50 6% AND 15% OF THE SAID PAYMENT HOLDING THAT THE PAYMENT WAS MADE PURS UANT TO THE ITA NO.1492/CHNY/2017 (AY: 2013-14) :- 4 -: AGREEMENT ENTERED ON THE 1 ST APRIL, 2012 AND FURTHER, NOTED THAT THE FORM-15CA HAS CLEARLY STATED THAT THE PAYMENT ATTRA CTS THE TAX AT 20%. 5. THE ASSESSING OFFICER MADE A REVERENCE TO THE TR ANSFER PRICING OFFICER (TPO) FOR THE PURPOSE OF DETERMINATION OF A RMS LENGTH PRICE ON THE INTERNATIONAL TRANSACTIONS. THE TPO VIDE ORDER DATED 31.10.2016 PASSED U/S. 92CA(3) OF THE ACT SUGGESTED NO ALP ADJ USTMENT. AFTER RECEIPT OF THE TPO ORDER, THE ASSESSING OFFICER PAS SED THE DRAFT ASSESSMENT ORDER DATED 24.11.2016 PASSED U/S. 143(3 ) R/W S. 144C(1) OF THE ACT PROPOSING NO VARIATION IN THE RETURNED INCO ME BUT PROPOSING THE TAX AT 15% IN TERMS OF THE US & INDIA DTAA OF THE A CT. THE APPELLANT HAD FILED AN OBJECTION BEFORE THE HONBLE DRP ON 26 .12.2016 OBJECTING THE LEVY OF TAX AT 15% ONLY. THE DRP ISSUED THE DI RECTION ON 26.03.2017 WITHOUT ACCEPTING THE OBJECTION IN THE ABSENCE OF V ARIATION BETWEEN THE RETURNED INCOME AND ASSESSED INCOME. AFTER RECEIPT OF THE DIRECTIONS FROM THE HONBLE DRP, THE ASSESSING OFFICER PASSED FINAL ASSESSMENT ORDER ON 07.06.2017. 6. BEING AGGRIEVED, THE APPELLANT IS IN APPEAL BEFO RE US IN THE PRESENT APPEAL CONTENDING THAT THE ASSESSMENT ORDER PASSED IS INVALID IN LAW, INASMUCH AS, THE AO OUGHT NOT TO HAVE PASSED THE DR AFT ASSESSMENT ORDER IN THE ABSENCE OF ANY VARIATION BETWEEN THE R ETURNED INCOME AND THE ASSESSED INCOME. THEREFORE, THE ASSESSMENT PROC EEDINGS SHOULD BE ITA NO.1492/CHNY/2017 (AY: 2013-14) :- 5 -: QUASHED. ON THE OTHER HAND, THE LD. DEPARTMENTAL R EPRESENTATIVE PLACED RELIANCE ON THE ORDERS OF LOWER AUTHORITIES. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE SHORT ISSUE INVOLVED IN THE PRESENT APP EAL IS WHETHER THE ASSESSMENT ORDER PASSED IS NULL AND VOID AS THE ASS ESSING OFFICER PASSED THE DRAFT ASSESSMENT ORDER DESPITE THE FACT THAT THERE IS NO VARIATION BETWEEN THE RETURNED INCOME AND ASSESSED INCOME. IN THE CASE OF ELIGIBLE ASSESSEE, THE ASSESSING OFFICER CAN PAS S DRAFT ASSESSMENT ORDER ONLY IN CASES WHERE THE ASSESSING OFFICER PRO POSES VARIATION TO THE RETURNED INCOME. THE RELEVANT PROVISION OF S. 144C (1) OF THE ACT IS EXTRACTED BELOW: REFERENCE TO DISPUTE RESOLUTION PANEL. 144C. (1) THE ASSESSING OFFICER SHALL, NOTWITHSTANDING AN YTHING TO THE CON-PROPOSED ORDER OF ASSESSMENT TO THE ELIG IBLE ASSESSEE IF HE PROPOSES TO MAKE, ON OR AFTER THE 1 ST DAY OF OCTOBER, 2009, ANY VARIATION IN THE INCOME OR LOSS RETURNED WHICH IS PREJUDICIAL TO THE INTEREST OF SUCH ASSESS EE. 8. ON BARE READING ABOVE PROVISION, IT IS CLEAR THA T DRAFT ASSESSMENT ORDER CAN BE PASSED BY ASSESSING OFFICER ONLY IN CA SE HE PROPOSES VARIATION TO THE RETURNED INCOME. IT IS A CONDITIO N PRECEDENT. ADMITTEDLY, IN THE INSTANT CASE, THERE IS NO VARIATION BETWEEN THE RETURNED INCOME AND ASSESSED INCOME. THE QUESTION THAT THEN ARISES IS WHETHER PASSING A DRAFT ASSESSMENT ORDER IN SUCH CASES VITIATES THE ENTIRE PROCEEDINGS? ITA NO.1492/CHNY/2017 (AY: 2013-14) :- 6 -: THE IMPORTANT FACT TO BE TAKEN NOTICE OF IS THE PRO VISIONS OF SUB S. (2) OF S. 144C MANDATES THAT AFTER RECEIPT OF THE DRAFT AS SESSMENT ORDER, THE ASSESSEE IS ENTITLED TO FILE OBJECTIONS BOTH BEFORE THE ASSESSING OFFICER AND DISPUTES RESOLUTION PANEL. IN THE PRESENT CASE, THOUGH THE OBJECTIONS WERE FILED BEFORE DRP OBJECTING THE LEVY OF TAX @ 18% BUT NOT OBJECTED TO THE JURISDICTION OF ASSESSING OFFICER T O PASS THE DRAFT ASSESSMENT ORDER. THUS, THE ASSESSEE HIMSELF ALSO C ONTRIBUTED TO THE WRONG COURSE OF ACTION ADOPTED BY THE ASSESSING OFF ICER. FURTHER, THE DRP MECHANISM IS NOT ADVERSE IN NATURE BUT INTENDED TO PROVIDE A MECHANISM FOR SPEEDY RESOLUTION OF DISPUTES AND TO ENSURE FINALITY TO LITIGATION. THE PROVISIONS OF S.144C DO NOT GO TO ROUTE OF THE MATTER AS NO PREJUDICE IS CAUSED TO THE ASSESSEE AND IN FACT, TH E ASSESSEE ALSO PARTICIPATED IN THE PROCEEDINGS U/S. 144C OF THE AC T. THEREFORE, MERE PASSING OF DRAFT ASSESSMENT ORDER WHICH IS NOT REQU IRED UNDER LAW DOES NOT RENDER THE ENTIRE PROCEEDINGS VOID. IN THIS CON TEXT, IT IS WORTH NOTING THE JUDGMENT OF HONBLE HIGH COURT OF ANDHRA PRADES H IN THE CASE OF RAIN CEMENTS LTD. V. DY. CIT [2017] 392 ITR 253, WH EREIN IT WAS HELD THAT THE PROVISIONS OF S. 144C OF THE ACT DO NOT GO TO ROOT OF JURISDICTION AND ANY IRREGULARITY CAN BE CURED BY THE APPELLATE AUTHORITY BY REMANDING THE MATTER BACK TO THE STAGE OF IRREGULARITY. IN T HIS CONTEXT, THE RELEVANT PARAGRAPHS WERE EXTRACTED BELOW: ITA NO.1492/CHNY/2017 (AY: 2013-14) :- 7 -: '40. BUT IN THIS CASE, SUB- SECTION (12) OF SECTION 144C, ON THE FACE OF IT, APPEARS TO POSE AN OBSTACLE. UNDER SUB- SECTION (12), NO DIRECTION CAN BE ISSUED BY THE DRP UNDER SUB- SECTION (5), AFTER THE EXPIRY OF NINE MONTHS FROM THE END OF THE MO NTH IN WHICH THE DRAFT ASSESSMENT ORDER WAS FORWARDED TO THE ELIGIBLE ASSESSEE. IN TH IS CASE WE HAVE FOUND THE DATE OF FORWARDING OF THE DRAFT ASSESSMEN T ORDER TO BE 22-8- 2014. HENCE, THE PERIOD STIPULATED UNDER SUB- SECTION (12) WOULD EXPIRE BY 31-5-2015. BUT THE DRP PASSED AN ORDER ON 22-6- 2015 HOLDING THAT IT HAD LOST JURISDICTION TO PASS AN OR DER ON 31-12- 2014 ITSELF EVEN THOUGH THE DATE MENTIONED IS NOT CORREC T, THE FACT REMAINS THAT THE DRP COULD NOT HAVE ISSUED ANY DIRECTION AF TER 31-5- 2015, EVEN ON UNDISPUTED FACTS. 41. THE QUESTION THAT THEN ARISES IS AS TO WHETHER THIS COURT CAN NOW ISSUE A DIRECTION TO THE DRP TO CONSIDER THE MATTER ON MERITS AND PASS AN ORDER. 42. WHILE CONSTRUING THE PROVISIONS RELATING TO LIMITAT ION, THE SUPREME COURT HAS MADE IT CLEAR THAT IF THE STATUTE HAS STIPULATED EV EN THE UPPER TIME LIMIT UP TO WHICH A DELAY IN FILING AN A PPEAL COULD BE CONDONED BY AN APPELLATE AUTHORITY, THE COURTS CANN OT DIRECT THE APPELLATE AUTHORITIES TO CONSIDER THE APPLICATIONS FOR CONDONATION OF THE DELAY OF A PERIOD EXCEEDING THE UPPER LIMIT. IT HAS ALSO BEEN HELD THAT EVEN THE COURT CANNOT CONDONE SUCH A DELAY. TH EREFORE A DOUBT ARISES AS TO WHETHER THE PRESCRIPTION CONTAINED IN SUB- SECTION (12) IS MANDATORY THAT GOES TO THE ROOT OF THE JURIS DICTION OF THE DRP TO PASS AN ORDER. IF WHAT IS PRESCRIBED BY SUB- SECTION (12) IS A JURISDICTIONAL ISSUE, THEN THE COURT CANNOT ASK THE DRP TO DO SOME THING FOR WHICH THEY HAVE NO JURISDICTION. 43. BUT THE BAR UNDER SUB-SECTION (12) OF SECTION 144C DOES NOT APPEAR TO BE ONE THAT GOES TO THE ROOT OF THE JURISDICTION AL ISSUE. THE REASONS ARE TWO- FOLD. THE FIRST IS THAT AS PER THE SCHEME OF SECTIO N 144C, THE DRP IS CONSTITUTED AS AN ALTERNATIVE MECHANISM FOR RESOLUTION OF DISPUTES. THEREFORE IT IS CONFERRED WITH THE POWERS OF A CIVIL COURT TO TAKE EVIDENCE, HOLD AN ENQUIRY AND EVEN CORRECT MIS TAKES OR ERRORS SUO MOTU OR ON AN APPLICATION OF EITHER OF THE PART IES. THE INTENTION BEHIND THE INSERTION OF SECTION 144C IS TO PROVIDE A MECHANISM FOR SPEEDY RESOLUTIO N OF DISPUTES AND TO ENSURE FINALITY TO LITIGATION. THEREFORE THE BAR UNDER SUB- SECTION (12) CANNOT BE TREATED AS ONE GOING TO THE ROOT OF THE MATTER. 44. THE SECOND REASON AS TO WHY WE OPINE SO IS THAT THE SUPREME COURT ITSELF HAS UNDERSTOOD SECTION 144C TO BE OF SUCH NA TURE. IN ADDL. CIT V. HCL TECHNOLOGIES LTD. [2010] 188 TAXMAN 303 (SC) , THE SUPREME COURT DISPOSED OF AN APPEAL FILED BY THE RE VENUE, DIRECTING THE A UTHORITIES TO TAKE RECOURSE TO THE ALTERNATIVE DISP UTE RESOLUTION MECHANISM SUGGESTED UNDER SECTION 144C. THOUGH THE SAID ORDER OF THE SUPREME. COURT IS A BRIEF ORDER, WHICH DID NOT LAY DOWN ANY RATIO, THE SAME GIVES AN INDICATION AS TO HOW TO UNDERSTAN D T HE PURPORT OF SECTION 144C. THE ORDER OF THE SUPREME COURT IN THE SAID CASE READS ITA NO.1492/CHNY/2017 (AY: 2013-14) :- 8 -: AS FOLLOWS: '3. WE ARE OF THE VIEW THAT IN THE PECULIAR FACTS A ND CIRCUMSTANCES OF THIS CASE, PARTICULARLY WHEN THE HIGH COURT HAS REM ITTED THE MATTER TO THE TRANSFER PRI CING OFFICER FROM WHOSE ORDER AN APPEAL IS PENDING BEFORE THE CIT (A), IT WOULD BE IN THE INTEREST OF BOTH SIDES TO RESORT TO ALTERNATIVE DISPUTE RESOLUTION MECHANISM SUGGESTED IN THE BUDGET OF 2009 (SEE SECTION 144C OF THE INCOME TAX ACT, 1961) . IT IS MAD E CLEAR THAT THE COMPETENT AUTHORITY WILL NOT REJECT THE APPLICATION HEREIN MADE BY THE ASSESSEE ON THE GROUND THAT THE PROPOSA L HAS COME AFTER THE CUT-OFF DATE.' 45. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT IT IS POSSIBLE FOR THIS COURT TO SET ASID E THE ORDER OF THE DISPUTE RESOLUTION PANEL AND REM IT THE MATTER BACK TO THEM FOR A CONSIDERATION ON MERI TS, INSPITE OF THE FACT THAT THE PERIOD STIPULATED IN SUB- SECTION (12) WOULD HAVE EXPIRED BY 31-5-2015.' 9. THE RATIO OF THE DECISION OF THE HONBLE HIGH CO URT OF ANDHRA PRADESH & TELANGANA STATE IN THE CASE OF RAIN CEMENTS LTD. (SUPRA) WAS FOLLOWED BY THE ORDER CO-ORDINATE BENCH OF ITAT , BANGALORE IN THE CASE OF HIMALAYAN DRUG CO. V. DY. CIT [2017] 84 TAXMANN.COM 8 (BAN- TRIB.), (HONBLE AM IS THE AUTHOR OF THE ORDER). 10. KEEPING IN VIEW OF THE ABOVE PRINCIPLES, WE REM IT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER TO PASS THE ASSESS MENT ORDER UNDER NORMAL PROVISIONS OF THE ASSESSMENT PRESCRIBED UNDE R THE ACT AND IT IS MADE CLEAR THAT THE ISSUES IN THE APPEAL ARE LEFT O PEN BEFORE THE ASSESSING OFFICER. ITA NO.1492/CHNY/2017 (AY: 2013-14) :- 9 -: 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THE 26 TH DAY OF APRIL, 2019 IN CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! ' # ) (INTURI RAMA RAO) $ /ACCOUNTANT MEMBER /CHENNAI, 2 /DATED: 26 TH APRIL, 2019. EDN, SR. P.S , */34 54'/ /COPY TO: 1. () /APPELLANT 2. *+() /RESPONDENT 3. . 6/ ( )/CIT(A) 4. . 6/ /CIT 5. 47 */ /DR 6. & 8 /GF