CRM Services India Private Limited, New Delhi V. DCIT, Circle-4(2), New Delhi

ITA 1518/DEL/2022

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 7961 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 16-01-2024
• Assessment Year: 2009-2010
• Appeal Filed On: 27-06-2022

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITAs No.1518 & 1519/Del/2022 Assessment Years: 2009-10 & 2010-11 CRM Services India Private Limited, E-44/3, Ground Floor, Okhla Industrial Area, Phase-2, New Delhi – 110 020. PAN: AABCC6211B Vs DCIT, Circle-4(2), New Delhi. (Appellant) (Respondent) Assessee by : Shri Ajay Vohra, Sr. Advocate, Shri Neeraj Jain, Advocate & Shri Abhishek Aggarwal, AR Revenue by : Shri Rajesh Kumar, CIT-DR Date of Hearing : 17.01.2024 Date of Pronouncement : 08.04.2024 ORDER PER ANUBHAV SHARMA, JM: These appeals are preferred by the Assessee against the orders dated 29.04.2022 passed u/s 254/143(3)/144C of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by Ld. Assessing Officer, Circle 4(2), Delhi (hereinafter referred to as the Ld. AO) for Assessment Years 2009-10 & 2010- 11. As the issues are common, except the amount involved, thus the facts of AY 2009-10 are taken as foundation for deciding the two appeals. ITAs No.1518 & 1519/Del/2022 2 2. The appellant, a wholly owned subsidiary of Teleperformance USA (‘TP USA’), is set up as a voice based ITES-BPO rendering voice based tele-services to its customers. AT&T, USA has a contract with TP USA for rendering voice based call center services. In terms of the Agreement between TP USA and the appellant, any calls made by the customers of AT&T for voice based call center services are attended to by the appellant in India. The time spent by the appellant in India for attending to calls from various customers of TP USA is metered and the appellant is compensated by TP USA at the agreed rate(s) for the time spent. TP USA in turn bills the customer(s) and recovers its revenue. Accordingly, the appellant provided voice based call center services to third parties, which are customers of TP USA, viz., Adobe, Microsoft, San-disc, etc. 3. In order to undertake the business as explained above, the appellant has entered Foreign collaboration agreement dated 02-01-2002 [Pages 208 to 213 of the paper book] with its associated enterprise which agrees that the appellant will provide services to customers of TP USA in different parts of the world through its facility situated in India. In terms of the agreement, TP USA, in addition to providing marketing, information technology and systems support to the appellant company and training to the employees, would provide management support and on-site technical assistance and training to ensure international standard of service. 4. Further, in terms of paragraph 5 of the foreign collaboration agreement dated 02-01-2002, TP USA pays to the appellant for the voice based call centre services on the basis of hourly rates agreed in advance for each of the clients of TPUSA, to whom service is provided. 5. The appellant has also entered into an Intangible and Proprietary Property and Licensing agreement’ (“the Agreement”) dated 02-01- ITAs No.1518 & 1519/Del/2022 3 2002[Pages 217 to 232 of the paper book] with TP USA, Teleperformance Group Inc., a Daleware Corporation, (TGI) and SR Teleperformance, a company incorporated in France (SRTP). The agreement provides the appellant license to use certain intangible property, know-how, customer relationship management (CRM) services, etc. on payment of royalty on accumulated gross revenue. The support systems and software used by the appellant including brand name of Teleperformance are proprietary brand, systems, services or tools of TP USA. 6. Accordingly, in terms of the above agreement dated 02-01-2002, the appellant during the relevant previous year paid royalty of Rs.1,28,68,402 to TP USA. 7. The case of appellant is that in the transfer pricing document maintained for the year under consideration, for the purpose of benchmarking transaction of payment of royalty applying TNMM, the appellant has considered itself as the tested party and OP/OC as the PLI. The result of TNMM analysis is summarized herein below: Particulars OP/OC Average of OP/OC of 16 comparable companies 3.71% OP/OC of CRM 18.05% 8. Accordingly, since the operating profit ratio of the appellant on controlled transactions, i.e., 18.05%is higher than the average of operating profit margin in respect of comparable companies, i.e., 3.71%, the international transactions of payment of royalty entered into by it are considered being at arm’s length. 9. It comes up that earlier in the first round of proceedings, the ld. TPO accepted the transaction of provision of call center services to be at arm’s length price applying TNMM as demonstrated above. The ld. TPO, however, applied ITAs No.1518 & 1519/Del/2022 4 CUP method for benchmarking the transaction of payment of royalty and held that since no recognizable benefit has been received by the appellant from such payment, the arm’s length price of the international transaction of payment of royalty shall be taken to be at NIL and TPO made disallowance of entire payment of Royalty of Rs.1,28,68,402. The DRP, in its directions dated 29.11.2013 passed for the assessment year 2009-10, has accepted the fact that the appellant has been benefitted from the payment of royalty made to the associated enterprise. The DRP, however, has held that royalty is allowed to be payable by the appellant only in respect to services rendered to unrelated third parties. The DRP, in its directions had interpreted certain clauses of the royalty agreement while sustaining addition made by the ld. TPO. DRP concluded that the appellant is obliged to make payment of royalty to TP USA for use of the “Teleperformance” trade mark and logo only in the sales made to third parties. Accordingly, royalty paid to TP USA qua revenues received from TP USA from sale of services was disallowed on the ground that the same not being part of sale of services to third parties did not form part of “accumulated gross revenues” and accordingly no royalty was payable with respect to such sale of services. In terms of the direction of DRP, the ld. TPO restricted the adjustment to Rs. 64,75,322 being royalty paid on sale of services made to TP USA out of the total payment of Rs. 1,28,68,402. 10. The parties have post facto entered into the addendum to the Intangible and Proprietary Property and Licensing agreement dated 02-01-2002 with TPUSA (enclosed at Pages 233-235 of Paper book), which is effective retrospectively, i.e. from 02-01-2002. The said addendum to the agreement was filed before the ITAT as additional evidence in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963. The Co-ordinate Bench in the appellate order dated 14.05.2018 passed for the year under consideration, set aside the issue to the file of TPO in the following terms - ITAs No.1518 & 1519/Del/2022 5 7.1 As far as the assessee’s plea regarding adjustment in respect of royalty is concerned, we have duly considered the assessee’s application for admission of additional evidence which has been filed under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and looking to the facts and circumstances, it is our considered opinion that this Addendum to the agreement goes to the very root of the matter and it will suitably assist the lower authorities to reach a logical conclusion on the issue. Since the lower authorities did not have the benefit of examining this document, the matter has to be necessarily restored to the file of the Assessing Officer/TPO for deciding the issue of royalty afresh after duly considering this agreement and after giving due opportunity to the assessee to present its case. Accordingly, ground no. 17 in assessee’s appeal for assessment year 2008-09 also stands allowed for statistical purposes. 9. Coming to the assessee’s appeal in ITA 1630/Del/2014, since we have already admitted additional evidence in respect of the issue pertaining to ALP of royalty in assessment year 2008-09, on identical reasoning, we admit additional evidence in this year as well. Since the lower authorities did not have the benefit of examining this document, the matter has to be necessarily restored to the file of the Assessing Officer/TPO for deciding the issue of royalty afresh after duly considering this agreement and after giving due opportunity to the assessee to present its case. 11. Accordingly, the issue which was left to be considered in the set aside proceedings was to verify whether the royalty paid by the appellant to the associated enterprise for services rendered to unrelated third parties are covered ITAs No.1518 & 1519/Del/2022 6 in the Addendum to Royalty Agreement entered by the appellant. The ld. TPO, however in the order passed in second round of proceedings sustained the adjustment in the transaction of payment of royalty in the manner consistent with the direction of the Hon’ble DRP in appellant case for the AY 2009-10 and disallowed the royalty in proportion to the revenue that has been generated through TP USA, holding as under - 6.16 Given the overall factual matrix of the case, this office is of the considered opinion that the services rendered by the Appellant to a third party customer on behalf of its AE are to be considered as sales made to AE. Also, because the bill(s) raised by the Asseessee to its AE was for the services rendered to the client of the AE, the Appellant was not required to pay the royalty on it. As such the amount of Royalty that has been paid by the appellant w.r.t. the clients of the AE is benchmarked using CUP as MAM, and as such be treated as NIL. Revenue Generated Amount of Revenue Generated during the AY 2009-10 Amount of Royalty paid during the AY 2009-10 Indirectly through TP USA 37,29,05,947 64,75,322 12. The ld.DRP vide directions dated 14.03.2022sustained the adjustment made by ld.TPO. Therefore, before us the assessee is in appeal raising the following grounds:- “1. That the assessing officer (‘AO’) erred on facts and in law in completing the assessment under section 143(3) r.w.s. 144C r.w.s. 254 of the Income-tax Act, 1961 (‘the Act’) at an income of ITAs No.1518 & 1519/Del/2022 7 Rs.8,94,09,981 as against the income of Rs.8,29,34,659 returned by the appellant. 2. That the AO erred on facts and in law in making an adjustment of Rs.64,75,322 to the arm’s length price of ‘international transactions’ of payment of royalty undertaken by the appellant with the associated enterprises (‘AEs’), on the basis of the order passed under section 92CA(3)/254 of the Act by the TPO and directions given by the DRP. 3. That the TPO/ DRP erred on facts and in law in making transfer pricing adjustment of Rs. 64,75,322 on account of difference in the arm’s length price of the international transaction of payment of royalty of Rs.1,28,68,402, allegedly holding that the appellant was not required to pay royalty in respect of services provided to the third party customer of associated enterprise. 4. That the TPO erred on facts and in law in rejecting the addendum to the agreement entered by the appellant with its associated enterprise, allegedly holding that the agreement is not registered or dated, not appreciating that (i) inter-company agreements are not required to be registered and (ii) the appellant has filed affidavit providing date of entering of addendum to the agreement between the parties. 5. That the DRP/TPO erred on facts and in law in not appreciating that the entire revenues of the appellant are from sale of services to third parties - whether such third parties are direct customers of the appellant or customers of the associated enterprise, and accordingly royalty was payable on the total revenue. ITAs No.1518 & 1519/Del/2022 8 6. That the TPO erred on facts and in law in allegedly concluding that “the intention of the assessee to modify the terms of the original agreement w.r.t. the definition of “third parties” is to nullify the interpretation given by the DRP w.r.t. the definition in its direction for the A.Y. 2009-10. The post-facto arrangement, therefore, has been entered into by the parties to avoid any tax liability that has arisen/ may arise on account of the ongoing TP proceeding for the A.Y(s) concerned.” 7. That the DRP/TPO erred on facts and in law in allegedly concluding that “post facto agreement effected by the assessee cannot change the substance of the transaction already entered into between the assessee and the AE as per an earlier original agreement” not appreciating that addendum to the agreement was entered to clarify the intention existing between the parties from the date of entering the agreement. 8. That on the facts and circumstances of the case and in law, the assessing officer erred in levying of interest under section 234B, 234C and 234D of the Act. The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal before or at the time of hearing.” 13. Heard and perused the record. 14. It is submitted by Ld. Sr. Counsel that for the services rendered to third parties, who are clients of TP USA, the assessee receives payment for the services rendered to such third parties from TP USA. Since the services are ITAs No.1518 & 1519/Del/2022 9 rendered to third parties, notwithstanding that the revenues are received from TP USA, the same are considered as part of ‘accumulated gross revenues’ on which royalty is calculated. Ld. Sr. Counsel has submitted that the royalty is paid by the assessee on direct sales by the assessee to third parties as well sales to third parties (who are customers of TP USA) for and on behalf of TP USA. Thus, according to Ld. Sr. Cunsel, the entire revenues of the assessee are from sale of services to third parties – whether such third parties are direct customers of the assessee or customers of TP USA to whom services are directly rendered by the assessee. 15. Ld. Sr. Counsel has relied on the proposition of law, that the agreement entered into between the parties is to be strictly construed and there is no scope of intending or implying anything while constructing the clauses of the agreement. Reliance is placed on the following decisions, for the proposition that in the absence of a suggestion of any bad faith or fraud, the liability to tax depends upon the meaning and content of the language of the document embodying the transaction: - CIT v. Motor & General Stores (P) Ltd.: 66 ITR 692 (SC) - CIT v. B.M. Kharwar: 72 ITR 603 (SC) 16. Ld. Sr. Counsel, has submitted that section 62 of the Indian Contract Act, 1872 provides for alteration in the original contract upon consent of the parties to the contract, meaning thereby, that as such, alteration in a contract is not prohibited under the law. He thus contended that as the payment of royalty on the aggregate revenues of the assessee is strictly in terms of the Agreement and, therefore, needs to be accepted to be at arm’s length price. ITAs No.1518 & 1519/Del/2022 10 17. Ld. Sr. Counsel has submitted that the two contracting parties, always had the intention that royalty has to be paid for use of intangible property, know- how, customer relationship management (CRM) services, etc. with respect to entire sale revenues of the assessee, including sales to third party customers of TP USA for which revenue is received from TP USA. It is accordingly not open to the Revenue to sit in judgement and interpret the Agreement in a manner different from what was intended and agreed between the parties. He has submitted that the appellant is free to conduct business in the manner that appellant deems fit and the commercial or business expediency of incurring any expenditure is to be seen from the appellant’s point of view. Attention was drawn to the following judgments for supporting the aforsaid contentios; - CIT vs. Malayalam Plantations Limited: 53 ITR 140 (SC) - CIT v. Walchand& Co. etc. (1967) 65 ITR 381 - J K Woollen Manufacturers v. CIT: 72 ITR 612(SC) - CIT v. Birla Cotton Spg. And Wvg. Mills Ltd.: 82 ITR 166 (SC) - Madhav Prasad Jatia v. CIT U.P.: 118 ITR 200 (SC) - S.A. Builders Ltd. vs. CIT : 288 ITR 1 (SC) - CIT V. Bharti Televentures Ltd: 331 ITR 502 (Del) - CIT vs. Padmani Packaging (P) Ltd. : 155 Taxmann 268 (Del) - CIT v. Rockman Cycle Industries Ltd.: 331 ITR 401 (P&H) (FB) - CIT vs. EKL Appliances Ltd. : ITA No. 1068/2011 & 1070/2011 (Del HC) - CIT v. Dalmia Cement (P.) Ltd: 254 ITR 377 (Del) 18. Ld. Sr. Counsel, refered to the Hon’ble Supreme Court judgment in the case of Vodafone International Holdings B.V. vs. Union of India &Anr., 341 ITR 1, wherein, the apex Court after considering the jurisprudence that has developed in India and England over the years, on the issue of tax avoidance and tax evasion, permissible and impermissible transaction, sham, bogus and ITAs No.1518 & 1519/Del/2022 11 colorable devices, held that on application of judicial anti-avoidance rule, the Revenue may, in the facts of a given case, invoke the “substance over form” principle or “piercing the corporate veil” test and disregard the transaction/structure, if there is abuse of organization/legal form without reasonable business purpose, which results in tax avoidance. 19. Ld. Sr. Counsel has then relied the Hon’ble Delhi High Court judgement in the case of CIT vs EKL Appliances Ltd. (ITA No 1068/2011 & 1070/2011) and submitted that in the context of transfer pricing, Hon’ble High Court has held that barring exceptional cases, the tax administration should not disregard / re-characterize the actual transaction or substitute other transactions for them. Similarly, he relied the Hon’ble High Court judgment in the case of Sony Ericsson Mobile Communications 374 ITR 118, where Hon’ble High Court has held as under: “147. Tax authorities examine a related and associated parties transaction as actually undertaken and structured by the parties. Normally, tax authorities cannot disregard the actual transaction or substitute the same for another transaction as per their perception. Restructuring of legitimate business transaction would be an arbitrary exercise. This legal position stands affirmed in EKL Appliances Ltd. (supra).” 20. On the other hand, Ld. DR has vehemently argued that as the agreement was very clear and specific and prohibited payment of royalty in respect of sales to AEs accordingly to circumvent the clauses of the agreement, the assessee has brought the "addendum" in 2014 which was basically submitted with the mala fide intention so that the adjustment made in the earlier assessment years can be deleted. He has relied the directions dated 29.11.2013 given by the DRP in the first round of proceedings and contended that DRP had made crystal clear that ITAs No.1518 & 1519/Del/2022 12 though the DRP has in principle allowed the royalty payment however based on the agreement of the assessee company with its AE has directed the AO to re compute the Royalty expenditure. The DRP has adopted the definition of Accumulated gross revenue and Affiliate from the agreement submitted by the assessee and held that based on the clauses of the agreement, the taxpayer is required to pay royalty only on the gross receipt from sales of services to third party and as the assessee has paid royalty to its AEs also on sales made both to AE and affiliates, accordingly in line with the agreement held that the royalty has to be paid to AE only proportionate to the sales made to the third party and no royalty is payable in respect of sales made to AE (affiliates). 21. Ld. DR has pointed out that the assessee has filed an undated addendum before the Hon’ble ITAT as additional evidence somewhere in 2014-2015 which was basically a post facto arrangement to change certain clauses of the agreement it has signed with its AE on 02.01.2002 and the intention behind this addendum was to somehow avoid the tax liability which has arisen because of DRP directions on the interpretation of clauses of the agreement. Thus by way of an undated, incomplete and invalid addendum with no mention of place, how it was signed etc. which came to surface only in 2015 i.e. at least 12-13 years after signing of agreement, the assessee has tried to change the conditions stipulated in the agreement with its AEs. As the AEs own entire share holding of the assessee company, this practice of changing the conditions in agreement was nothing but proves the collusive nature of transactions between the assessee company and its AE. In fact, by perusing the very sequence of events/dates, the only inference which can be drawn is that by an addendum the assessee tried to avoid the tax liability which has been imposed on it by the TPO/DRP based on the simple literal construction of the clauses of the agreement. ITAs No.1518 & 1519/Del/2022 13 22. Ld. DR has questioned the authenticity and genuineness of the addendum filed by assessee as an additional evidence and for that relied the questions raised by the TPO. Ld. DR has also questioned the authenticity of the addendum, by submitting that when the assessee was asked to prove its authenticity by the TPO, the asessee has submitted a so called affidavit (page 214 to 216) dated 27.11.2020 by one Mr. Aditya Arora, director of CRM Services., in fact as the addendum was signed between four different entities located at four difference places on earth how can an affidavit be filed by one person of the Indian entity clarifying the contractual terms and conditions of the agreement which was part of four companies, because in the affidavit it is nowhere mentioned that Mr. Aditya Arora is authorized by all the four companies to clarify the agreement signed on 02.01.2002. 23. We have taken into consideration the submission and the material on record. At outset we accept the plea of Ld. DR that in the first round the tribunal has merely admitted the additional evidence for providing opportunity to the AO/TPO for examining the issue and the Bench has not said anything on the merits/authenticity of the additional evidence. Certainly the evidentiary value of the additional evidence were open for view of AO/TPO. 24. In order to conveniently decide the controversy, we will like to reproduce the relevant clauses of the Licensing Agreement and the Addendum as follows:- “1.1. Accumulated Gross Revenue: Accumulated Gross Revenues” shall mean the gross receipts from sales of services in the Territory by TP India to Third Parties less customary deductions, including: (a) transportation charges, including insurance: (b) sales or excise taxes, customs, duties, tariffs, and any other governmental charges imposed on the production, importation, exportation, use, or sale of the Services; (c) quantity and cash discounts allowed; (d) returns; and (e) allowances of credits to customers.” ITAs No.1518 & 1519/Del/2022 14 “1.2 Affiliate or Affiliates "Affiliate" or "Affiliates" shall mean any corporation, firm, partnership, or other entity, whether de jure or de facto, that directly or indirectly owns, or is under common ownership with a party to this Agreement to the extent of at least 50 percent of the equity having the power to vote on or direct the affairs of the entity and any person, firm, partnership, corporation, or other entity actually controlled by, controlling, or under common control with a party to this Agreement." “1.15 Third Party or Third Parties “Third Party” or “Third Parties” shall mean any entity other than a party to this Agreement or an Affiliate.” 3.1 Compensation: a. Payment of Annual Royalty. Subject to Section 3.2 below, as consideration for the rights granted under this Agreement, TP India shall pay to TP USA an annual royalty (the “Royalty”) payable in monthly instalments in an amount equal to two percent (2%) (the “Royalty Rate) of the aggregate Accumulated Gross Revenues of TP India. The Royalty shall be paid to TP USA within ten (10) days following the end of each month, based upon the aggregate Accumulated Gross Revenues of TP India from the immediately preceding month and any of the aggregate Accumulated Gross Revenues of TP India from any other prior months with respect to which the Royalty has not been paid. At the time the Royalty is paid, TP India shall also provide such documentation of the aggregate Accumulated Gross Revenues of TP India in the form of the Royalty Notice. Any unpaid Royalties shall accrue and be payable by TP India as soon as cash is available. The parties hereby agree that no dividends shall be declared or paid by TP India if any Royalties remain unpaid and outstanding.” “1. ADDENDUM: Clause 1.15 of the Agreement, which read as follows: 1.15 Third Party or Third Parties “Third Party” or “Third Parties” shall mean any entity other than a party to this Agreement or an Affiliate.” ITAs No.1518 & 1519/Del/2022 15 shall be amended and replaced in its entirety, effective as of the Effective Date, to read as follows: 1.15 Third Party or Third Parties “Third Party” or “Third Parties” shall mean any entity or entities to which TP India has rendered services either directly or indirectly through an Affiliate but shall exclude direct services to an for the individual benefit of a party to this Agreement or an Affiliate.” The terms Affiliate and Services shall continue to remain the same as defined in clauses 1.2 and 1.13, respectively, as stated in the Agreement. 2. NO OTHER AMENDMENTS: Except as expressly stated in this Addendum, all the terms and conditions of the Agreement shall remain in full force and effect.” 25. In the present case, the rule of consistency is very material. Admittedly, in terms of Intangible and Proprietary Property and Licensing agreement dated 02-01-2002, the appellant is paying royalty on its entire sales since financial year 2002-03 and the transaction was accepted to be at arm’s length price up to assessment year 2007-08. Further there is no dispute that the underlying agreement and business model of the appellant has remained consistent for all these years and accordingly, such transaction of payment of royalty ought to be accepted for the year under consideration too on rule of consistency. However, we accept it not as one of the principle of res judicata but as establishing the consistency in the conduct of parties to the transaction, which is relevant to interpret and construe the transaction, agreement and the addendum. 26. It comes up that TPO has held that that the agreement and the addendum to the agreement in not registered/ dated and that the addendum is a post facto exercise to avoid tax liability arising out of TP proceedings undertaken in the first round of proceedings. This is the basic controversy. As to if the addendum has to be left out of consideration for determining the ALP of the transaction. ITAs No.1518 & 1519/Del/2022 16 We find substance in the contention of Ld. Sr. Counsel that for a transaction to be undertaken with any other entity, the inter-company agreement is not required to be registered/ notarized under any provisions of the law. In this context we may refer to the definition of “transaction” in Clause (v) of section 92F of the Act, where the term “transaction” is defined as under: “92F .......................... “(v) “transaction” includes an arrangement, understanding or action in concert, - (A) Whether or not such arrangement, understanding or action is formal or in writing; or (B) Whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding”. 27. Rule 10B(2) of the Rules, which provides for comparability of a transaction with uncontrolled price, also suggest that the contractual terms of the inter-company agreement has to be considered whether or not such terms are formal or in writing, as under:- “(2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:— (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective ITAs No.1518 & 1519/Del/2022 17 parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) .........” 28. Accordingly, there is no requirement under the provisions of the Act to have an underlying agreement, much less a registered or notarized agreement for undertaking an international transaction with the group companies. The mutual conduct of parties over the time is often determinative of actual intentions. In case of any ambiguity, the conduct is the best evidence to establish the real intention and effect of respective promises. The restriction is only that contrary to the written recitals, any separate supplementary or collateral, oral agreement cannot be pleaded. The discrepancies pointed by Ld. DR, with regard to manner of execution of addendum, are not of much consequence, when parties are themselves not questioning the document. Revenue is not alleging the document to be false but only the intention of execution post facto is questioned. 29. Secondly, the ld. TPO has emphasized on the fact that the addendum to the agreement was entered on 22 nd August 2014 as a post-facto arrangement to dilute the finding of the DRP. The relevant part being: “....the intention of the appellant to modify the terms of the original agreement w.r.t. the definition of “third parties” is to nullify the interpretation given by the DRP w.r.t. the definition in its direction for the A.Y. 2009-10. The post-facto arrangement, therefore, has been ITAs No.1518 & 1519/Del/2022 18 entered into by the parties to avoid any tax liability that has arisen/ may arise on account of the ongoing TP proceeding for the A.Y(s) concerned.” 30. In this regard, it comes up that appellant does not dispute the fact post facto agreement the addendum was entered. We have taken into consideration the facts and circumstances and the submissions and we find that more than the Intangible and Proprietary Licence Agreement dated 2 nd January, 2002, the Foreign Collaboration Agreement dated 2 nd January, 2002 between the TP USA and the assessee is of more significance. In this collaboration agreement, the relevant para 4.1, 5.1 to 5.9 read as under:- “4.1 The CRM INDIA’s principal business shall be to set up and operate Customer Response Centre unit in India to exploit growth opportunities in the IT enable arena. CRM INDIA will provide services to customers of TPUSA in different parts of the world through any and all medium of communications including using computers (Internet, email, etc.) and telephone through its Customer Response Call Centres. The services to be provided include inter alia eCRM  Web based support – chat, email  Telephone support – voice and tax  Outbound Marketing – voice and email Knowledge Management  eCRM Database Management  eCRM Database Mining  Web based Self Help Solutions IT Support Services  Remote Website Administration ITAs No.1518 & 1519/Del/2022 19  Remote back office support  Remote Systems Administration ...................... 5.1 TPUSA shall pay for the services provided by CRM INDIA to the overseas clients of TPUSA. 5.2 The payment for such services provided by CRM INDIA by TPUSA shall be done on the basis of an hourly rate for each hour of service time spent by the customer service executives on work related to the clients of TPUSA. 5.3 The hourly rate shall be fixed in advance between TPUSA and CRM INDIA for each client of TPUSA for whom service is provided. 5.4 CRM INDIA shall maintain record of the number of hours of service provided for each client of TPUSA and such information shall be sent to TPUSA on a regular basis. 5.5. CRM INDIA will at the beginning of each calendar month calculate the total hours of service provided for each client of TPUSA during the immediate previous calendar month. 5.6 CRM INDIA will raise bill(s) on TPUSA based on the total hours of service provided for each client at the hourly rate agreed to for that client within Fifteen days of the end of the month service was provided or such extended period as may be mutually agreed to in advance. 5.7 The bill(s) raised by CRM INDIA on TPUSA will be in US Dollars and shall be sent to TPUSA within Fifteen days of the end of ITAs No.1518 & 1519/Del/2022 20 the month service was provided or such extended period as may be mutually agreed to in advance. 5.8 TPUSA shall remit the payment against the bill(s) raised by CRM INDIA within 30 days of the date of the bill In US Dollars through the regular banking channel. Advance amounts, if any, paid by TPUSA, which may be outstanding in the books of CRM INDIA to the credit of TPUSA, may be adjusted from the billed amount before the remittance is made by TPUSA. 5.9 TPUSA may, at it discretion, pay CRM INDIA advance against future Services to be rendered by CRM INDIA for the clients of TPUSA. Such advance fees shall be adjusted against the amount payable by TPUSA from the bills raised by CRM INDIA for services provided to clients of TPUSA.” 31. It can be seen that these clauses as reproduced above make it explicit that a subsidiary in India was being established not for catering any local business, but, the assessee was supposed to provide services to clients of TP USA. These clauses categorically and conclusively lead us to believe that fundamental intention of the parties was that TP USA was supposed to solicit the work which was to be executed by the assessee. There is no material before us on record nor there is any case of the AO that apart from the work solicited by TP USA the assessee company had procured any work outside India on its own. When these clauses are read along with the licensing agreement dated 2 nd January, 2002, the only conclusion that can be drawn is that there was consensus ad idem between parties that royalty is to be paid with respect to the entire sales revenue of the assessee in regard to overseas clients of TP USA, including sales to third party customers for TP USA for which Revenue is received from TP USA. We are of the firm view that the addendum was entered ITAs No.1518 & 1519/Del/2022 21 upon to just bring more clarity to this understanding and it cannot be said that this post facto addendum was made with intention to undo the findings of DRP. 32. We fail to appreciate the observations and findings of DRP that a subsequent agreement executed in 2014 can not go back and influence the transactions already effected much earlier on the strength of an earlier agreement, so as to determine whether the earlier transaction was carried out at Arm's Length Price or not. If such a position is allowed, then an assessee can modify an agreement at any time after the date of international transaction as per an earlier agreement and by changing the clauses and terms, seek to modify the Arm's Length price already determined for earlier years. If at all, such post facto agreements should only have prospective effect as far as determination of Arm's length price of international transactions is concerned. 33. The addendum does not set forth any new terms or conditions, but, as we discussed earlier, the addendum only crystalises the conduct of parties and when it is related back to the date of original agreement dated 02.01.2002, it does not post facto recognize anything, which is proved to be, not, originally agreed. 34. Next, relying the earlier order of DRP, the TPO has observed that services rendered through TP USA fall under the category services rendered through an affiliate. In this regard, it is submitted on behalf of the assessee that “sales through TP USA “differs” from the sales made through an affiliate.” 35. As we take into consideration the definition reproduced earlier of ‘Affiliate’ and the definition of ‘Third Party’ in the original agreement or the Addendum, it becomes clear that the ‘Affiliates’ refers to an entity other than “Party to this Agreement.” TP USA being the holding company cannot be ITAs No.1518 & 1519/Del/2022 22 considered to be an affiliate so as to accept the conclusion of the DRP and TPO that no royalty is payable in respect of sales to AEs (including affiliates.) 36. Next the TPO has held that the services rendered by the Appellant to a third party customer on behalf of its AE are to be considered as sales made to AE. Also, because the bill(s) raised by the asseessee to its AE was for the services rendered to the client of the AE, the Appellant was not required to pay the royalty on it. On behalf of assessee it is reiterated that in the case of the appellant, the parties to the agreement, viz, TP USA and the appellant are ad idem that royalty needs to be paid on sale of services rendered by the appellant to third party customers of TP USA. 37. We have already concluded that in the understanding of the two contracting parties, it was always the intention that royalty has to be paid for use of intangible property, know-how, customer relationship management (CRM) services, etc. with respect to entire sale revenues of the appellant, including sales to third party customers of TP USA for which revenue is received from TP USA. 38. As we consider the Foreign Collaboration Agreement clause 5 with sub- clauses, it becomes clear that TP USA had agreed to pay for the services provided by the assessee to the overseas clients of TP USA. Sub-clause 5.7 specifically mentions that the bills can be raised by the assessee on TP USA. This clause 5 of the Collaboration Agreement leaves no doubt that merely due to the fact of raising bills or invoices on the TP USA for services actually rendered to third party customers solicited by TP USA, the sales have to be considered to be one made to TP USA itself. ITAs No.1518 & 1519/Del/2022 23 39. In the light of the aforesaid discussion, we are of the considered view that ld. DRP and TPO both have fallen in error in first rejecting the Addendum as a piece of evidence showing the consistency of the conduct and the actual intentions of the parties to the agreement and then has made erroneous interpretation to the clauses of the Collaboration Agreement and the Licence Agreement to conclude that the assessee was providing services to the TP USA only and not to third parties for whom TP USA had, in fact, acted as intermediary. We are inclined to sustain the grounds. Consequently, the appeals of the assessee are allowed with consequential effect. Order pronounced in the open court on 08.04.2024. Sd/- Sd/- (SHAMIM YAHYA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 08 th April, 2024. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi