EXXON MOBIL COMPANY INDIA PRIVATE LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX (OSD)-3(1), MUMBAI

ITA 4521/MUM/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8830 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 20-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUHAS KULKARNI JCIT LAST
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency; TDS; Set aside
• Section: 143(3); 195; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4521/MUM/2017 ASSESSMENT YEAR: 2008 - 09 EXXON MOBIL COMPANY INDIA PVT. LTD.POINT, PLOT NO. 107, KALPATARU POINT , GROUND F LOOR, ROAD NO. 8, SION (E) MUMBAI - 400022 VS. DEPUTY COMMISSIONER OF INCOME TAX (OSD) - 3(1), AAYAKAR BHAVAN, MUMBAI. PAN NO. AAACE3157H APPELLANT RESPONDENT ASSESSEE BY : MR. GIRISH DAVE, AR REVENUE BY : MR. SUHAS KULKARNI, JCIT LAST DATE OF HEARING : 03/01/2020 DATE OF P RONOUNCEMENT : 27/07/2020 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2009 - 10. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 56, MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF ASSESSMENT COMPLETED U/S 143(3) OF THE I NCOME TAX ACT 1961 (THE ACT). 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE APPELLANT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2009 - 10 ON 25.09.2009 DECLARING TOTAL INCOME OF RS.44,59,83,972/ - . EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 2 HEREIN, WE ARE CONCERNED WITH TRANS FER PRICING ADJUSTMENT OF RS.2,38,79,893/ - AND DISALLOWANCE U/S 40(A)(I) OF GLOBAL SUPPORT SERVICE FEES OF RS.1,85,29,377/ - MADE BY THE AO. WE BEGIN WITH THE TRANSFER PRICING ADJUSTMENTS MADE BY THE AO. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT WAS ENGAGED IN PROVIDING TECHNICAL SUPPORT, BACK OFFICE SUPPORT AND MARKET SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES (AES). THE DISPUTE HERE IS THE FOLLOWING INTERNATIONAL TRANSACTION S THE APPELLANT HAD WITH ITS AES : S R . NO. DESCRIPTION OF THE TRANSA CTIONS TOTAL VALUE OF TRANSACTIONS (RS.) 1. PROVISION OF TECHNICAL SERVICES 87,335,044 / - 2. PROVISION OF BACK - OFFICE SUPPORT SERVICES 76,455,489 / - IN TECHNICAL SUPPORT SERVICE SEGMENT, THE ARMS LENGTH PRICE (ALP) FOR RENDERING SERVICES WAS DETERMINED TO BE AT 16.96% AS AGAINST 5.44% RECEIVED BY THE APPELLANT. THE APPELLANT SUO MOTU COMPUTED THE ALP AT 16% UNDER TECHNICAL SUPPORT SERVICES. ACCORDINGLY, IT EXERCISED ITS OPTION AS PER PROVISO TO SECTION 92C(2) OF THE ACT AND VOLUNTARILY OFFERED THE DIFFERENCE FOR TAX. THE TRANSFER PRICING OFFICER (TPO) DISAGREED WITH THE TRANSFER PRICING METHODOLOGY ADOPTED BY THE APPELLANT AND REJECTED SOME OF THE COMPARABLE COMPANIES SELECTED BY THE APPELLANT AND ADDED A FEW COMPARABLES SELECTED BY HIM. THE FINAL SET OF COMPARABLES SE LECTED BY THE TPO IS AS UNDER : SR. NO. COMPARABLES SELECTED BY OP/TC 1. CHOKSI LABORATORIES LIMITED ASSESSEE 23.19% 2. DOLPHIN MEDICAL SERVICES LIMITED ASSESSEE 6.60% 3. N G INDUSTRIES LIMITED ASSESSEE 20.34% 4. VIMTA LABS LIMITED ASSESSEE 12.09% EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 3 5. NEEMAN MEDICAL INTL. (ASIA) LIMITED CLINICAL ASSESSEE 8.88% 6. PFIZER LIMITED (SERVICE SEGMENT) ASSESSEE 45.34% 7. TCG LIFESCIENCES TPO 29.54% 8. ALPHAGEO (INDIA) LTD. TPO 20.30% 9. TRANSGENE BIOTECH LTD. (DIAGNOSTIC SERVICES) TPO - 2.93% AVERAGE 18.55% ASSESSEES MARGINS 16.00% THUS THE TPO MADE AN ADJUSTMENT BASED ON PLI OF THE NINE COMPARABLES OF 18.15% AND MADE AN ADJUSTMENT WHICH IS PRODUCED BELOW : PARTICULARS YEAR ENDED 31 MARCH 2009 TOTAL COST 4,75,69,866/ - OP/TC AS PER COMPARABLE @ 18.15% TOTAL INCOME AS PER COMPARABLE (A) 86,33,931/ - ADJUSTMENT OFFERED BY ASSESSEE TO TAX (B) 45,84,756/ - AMOUNT OF ADJUSTMENT UNDER TECHNICAL SUPPORT SERVICES 40,49,175/ - WITH RESPECT TO BACK OFFICE SUPPORT SEGMENT, THE TPO COMPLETELY REJECTED T HE COMPARABILITY ANALYSIS CONDUCTED BY THE APPELLANT AND INSTEAD CARRIED OUT A FRESH BENCHMARKING STUDY BASED ON THE VARIOUS QUANTITATIVE FILTERS SELECTED BY HIM AND MADE AN ADJUSTMENT OF RS.1,98,30,718/ - . THE AO BY FOLLOWING THE ORDER OF THE TPO MADE AN ADJUSTMENT OF RS.40,49,175/ - AND RS.1,98,30,718/ - . 3 . AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT VIDE ORDER DATED 29.03.2017 THE LD. CIT(A) CONFIRMED THE ADJUSTMENT ON ACCOUNT OF TECHNICAL SERVICES OF RS.40,49,175/ - ON THE GROUND THAT THE APPELLANT HAD NOT GIVEN SUFF ICIENT AND APPROPRIATE EVIDENCE FOR EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 4 THE REJECTION OF 3 COMPARABLES SELECTED BY THE TPO I.E. TCG LIFESCIENCE LTD., ALPHAGEO (INDIA) LTD. AND TRANSGENE BIOTECH LTD. IN RESPECT OF BACK OFFICE SUPPORT SERVICES, THE LD. CIT(A) FOLLOWED THE ORDER OF HIS PREDECESSOR - IN - OFFICE FOR AY 2008 - 09 AND CONFIRMED THE ADJUSTMENT OF RS.1,98,30,718/ - . 4 . BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS TH AT ALPHAGEO (INDIA) LTD. (ALPHAGEO), INCLUDED BY THE TPO IN THE FINAL SET AND UPHELD BY THE LD. CIT(A) IS FUNCTIONALLY DISSIMILAR AND THEREFORE, SHOULD BE EXCLUDED FROM THE COMPARABLE SET. REFERENCE WAS MADE TO THE ANNUAL REPORT OF THE COMPANY, WHEREIN I T IS FOUND THAT THE COMPANY IS ENGAGED IN THE PROVISION OF SEISMIC DATA ACQUISITION AND IT PROVIDES 2D AND 3D SEISMIC SERVICES INCLUDING DATA ACQUISITION, PROCESSING AND INTERPRETATION. FURTHER, THE PROFIT AND LOSS ACCOUNT OF THE COMPANY REFLECTS THAT THE WHOLE OPERATING INCOME OF THE COMPANY IS FROM SEISMIC SURVEY AND RELATED SERVICE. IT IS ALSO STATED THAT THE COMPANYS BUSINESS CONSISTS OF ONE REPORTABLE AND GEOGRAPHICAL SEGMENT OF SEISMIC DATA ACQUISITION AND ITS RELATED SERVICE WITHIN INDIA. THUS IT IS STATED THAT ALPHAGEO SEGMENT SHOULD BE REJECTED BECAUSE IT IS FUNCTIONALLY DIFFERENT FROM THE APPELLANTS BUSINESS OF PROVISION OF TECHNICAL SERVICES. IN RESPECT OF TCG LIFESCIENCES (TCG) THE LD. COUNSEL ARGUES THAT THE SAME INCLUDED BY THE TPO IN THE FINAL SET AND UPHELD BY THE LD. CIT(A) IS FUNCTIONALLY DISSIMILAR AND THEREFORE, SHOULD BE EXCLUDED FROM THE COMPARABLE SET. REFERENCE IS MADE TO THE DIRECTORS REPORT, WHEREIN IT CAN BE SEEN THAT THE COMPANY IS ENGAGED IN THE BUSINESS OF CONTRACT RESEARC H OPERATION WHICH IS FUNCTIONALLY DIFFERENT FROM THE BUSINESS OF THE APPELLANT. IN THE NOTES TO EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 5 ACCOUNTS , IT IS STATED THAT THE COMPANY HAS EARNED ITS WHOLE OPERATING INCOME FROM CONTRACT RESEARCH OPERATION AND HENCE IT CAN BE CONCLUDED THAT THE BUSINESS OF THE APPELLANT OF PROVISION OF TECHNICAL SUPPORT SERVICE IS FUNCTIONALLY DIFFERENT TO THAT OF THE COMPAN Y. THUS THE LD. COUNSEL SUBMITS THAT TCG SHOULD BE REJECTED BECAUSE IT IS FUNCTIONALLY DIFFERENT FROM THE APPELLANTS BUSINESS OF PROVISION OF TECHNICAL SERVICES. IN RESPECT OF PFIZER LTD. SERVICE SEGMENT (PFIZER), THE LD. COUNSEL ARGUES FOR ITS EXCL USION ON THE GROUND THAT THE DATA OF THE COMPANY IS UNRELIABLE BECAUSE THE MARGIN CALCULATED BASED ON THE FINANCIALS OF THE YEAR UNDER CONSIDERATION (YE NOVEMBER 2008) WORKS OUT TO 45.34% ; HOWEVER, IF THE MARGINS ARE CALCULATED BASED ON THE IMMEDIATE SUBS EQUENT (YE 2009) BY TAKING PREVIOUS YEARS FIGURE , IT WORKS OUT TO 4.81%. IT IS STATED THAT THE COMPANY PREPARES ANNUAL ACCOUNTS WITH DIFFERENT YEAR END - I.E. THE COMPANY HAS PREPARED AND REPORTED FINANCIALS WITH NOVEMBER END WHEREAS THE APPELLANT PREPARES AND REPORTS FINANCIAL DATA FOR THE FINANCIAL YEAR END I.E. MARCH. THUS IT IS STATED THAT SINCE THE DATA CONSIDERED ARE FOR DIFFERENT PERIODS WHICH MAY RESULT IN DIFFERENT BUSINESS CONDITIONS, THE SAID COMPANY SHOULD BE REJECTED. THUS SUMMING UP, THE LD. COUNSEL SUBMITS THAT EVEN IF THE ABOVE COMPARABLES ARE CONSIDERED IN THE FINAL SET , THE MARGIN OF THE APPELLANT FALLS WITHIN +/ - 5% ARMS LENGTH RANGE AS PER SECTION 92C(2) AND THEREFORE THE INTERNATIONAL TRANSACTION OF THE APPELLANT IS AT ALP AS PER INDIAN TRANSFER PRICING REGULATIONS. IT IS STATED THAT IN APPELLANTS OWN CASE FOR AY 2006 - 07, THE TRIBUNAL HAS ALSO PROVIDED RANGE BENEFIT OF +/ - 5% AND HAS DIRECTED THE AO TO CONSIDER THE SAME AND DELETE THE ADJUSTMENT, IF IT IS WITHIN THE RANGE OF 5%. EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 6 5 . ON TH E OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) REFERS TO THE FOLLOWING PARAGRAPH (PAGE 22 - 23) OF THE ORDER THE LD. CIT(A) WHICH IS PRODUCED BELOW: IN THE PREVIOUS YEAR, THE DEPARTMENT HAD TAKEN 3 MORE COMPANIES, TCG LIFESCIENCE LIMITED (TCG), ALP HAGEO (INDIA) LTD. AND TRANSGENE BIOTECH LIMITED (TBL). THE ASSESSEE WAS ASKED BY ORDER SHEET DATED 25.10.2012, THAT WHY THESE COMPANIES HAVE BEEN REJECTED DURING THE CURRENT YEAR. THE APPELLANT IN THIS CASE SUBMITTED THAT DATA WAS NOT AVAILABLE AT THE TIM E OF PREPARING TP REPORT. THE ASSESSEE UNDERTOOK A FRESH SEARCH AND THE DATA OF THESE COMPANIES. IN RESPECT OF ALPHAGEO (INDIA) LTD. & TCG LIFESCIENCE LTD., THE ASSESSEE TOOK A PLEA THAT THIS IS NOT A FUNCTIONALLY COMPARABLE COMPANY. WHEN ASSESSEE WAS CONF RONTED WITH THE FACT THAT IN PREVIOUS YEAR, IT WAS TAKEN IN THE TP REPORT BY THE ASSESSEE HIMSELF AND THE ACTIVITIES OF THE COMPANY HAVE NOT CHANGED, THEN THERE IS NO JUSTIFICATION FOR EXCLUDING THIS COMPANY. FURTHER, THE APPELLANT HAS NOT SUBMITTED ANY JU STIFICATION ON THE ACCEPTANCE OF THE THIRD COMPANY VIZ. TRANSGENE BIOTECH LIMITED AS IT IS BENEFICIAL TO THE INTEREST OF THE APPELLANT. SINCE, THE APPELLANT IN THE GIVEN CASE HAS NOT GIVEN SUFFICIENT AND APPROPRIATE EVIDENCE FOR THE REJECTION OF THE 3 COM PARABLES SELECTED BY THE TPO, I AM IN AGREEMENT WITH THE CONTENTIONS OF THE TPO THAT TRANSGENE BIOTECH LIMITED, ALPHAGEO (INDIA) LTD. & TCG LIFESCIENCE LTD. ARE VALID COMPARABLE WHICH WERE ALSO SELECTED JUSTIFIED IN THE TP ORDER OF MY PREDECESSOR IN THE CA SE OF THE APPELLANT ITSELF IN AY 2008 - 09. THUS THE LD. DR EXPLAINS THAT THE AO HAS RIGHTLY INCLUDED THE COMPARABLE COMPANIES AND CORRECTLY MADE AN ADJUSTMENT OF RS.40,49,175/ - ON ACCOUNT OF TECHNICAL SERVICES. AS REGARDS THE BACK OFFICE SUPPORT SERVICES, THE LD. DR SUPPORTS THE ORDER OF THE CIT(A) REFERRING TO SIMILAR DECISION FOR AY 2008 - 09. THUS IT IS EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 7 STATED BY HIM THAT THE ORDER PASSED BY THE LD. CIT(A) CONFIRMING THE ADJUSTMENT OF RS.1,98,30,718/ - MADE BY TH E AO BE AFFIRMED. 6 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. LET US DISCUSS THE 3 COMPARABLES, FINALLY SELECTED BY THE TPO/AO WHICH ARE IN DISPUTE. IN THE CASE OF AL PHAGEO, AS PER THE ANNUAL REPORT FOR THE FY 2008 - 09, THEY PROVIDE 2D AND 3D SEISMIC AND RELATED SERVICES LIKE SEISMIC DATA ACQUISITION, PROCESSING AND INTERPRETATION. THE COMPANYS COMPREHENSIVE PORTFOLIO OF SERVICES COMPRISES : SEISMIC DATA ACQ UISITION DESIGNING AND PREPLANNING OF 2D AND 3D SURVEYS SEISMIC DATA ACQUISITION IN 2D AND 3D SEISMIC DATA PROCESSING SEISMIC DATA PROCESSING OF 2D AND 3D DATA REPROCESSING SPECIAL PROCESSING INCLUDING PRE - STACK IMAGING AVO INVERSION AND OTHER SERVICES SEISMIC DATA INTERPRETATION STRUCTURAL AND STRATIGRAPHIC INTERPRETATION GENERATION, EVALUATION AND RANKING OF PROSPECTS RESERVOIR DATA ACQUISITION RESERVOIR ANALYSIS EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 8 ALSO WE OBSERVE THAT THE PROFIT AND LOSS ACCOUNT OF THE COMPANY REFLECTS THAT THE WHOL E OPERATING INCOME IS FROM SEISMIC SURVEY AND RELATED SERVICE. THE COMPANYS BUSINESS CONSISTS OF ONE REPORTABLE AND GEOGRAPHICAL SEGMENT OF SEISMIC DATA ACQUISITION AND ITS RELATED SERVICE WITHIN INDIA. ON THE OTHER HAND, THE APPELLANT IN THE INSTANT CASE IS PRIMARILY ENGAGED IN RENDERING MARKETING SERVICES TO ITS AES IN INDIA AND OTHER DESIGNATED TERRITORIES RELATING TO EXXONMOBIL CHEMICAL PRODUCTS ; IT ALSO RENDERS TECHNICAL SERVICES TO VARIOUS AES IN THE ASIA - PACIFIC REGION. THE APPELLANT ALSO PROVIDES BACK - OFFICE SERVICES, NAMELY CUSTOMER SUPPORT SERVICES ALSO CALLED AS GLOBAL CUSTOMER SERVICE, BUSINESS PLANNING, MARKETING ANALYSIS AND REGIONAL SALES PLANNER SERVICES TO ITS AE S . TO SUMMARIZE, THE APPELLANT HEREIN IS ENGAGED IN THE BUSINESS OF MARKET DE VELOPMENT AND DISSEMINATION OF PRODUCT INFORMATION OF SPECIALITY CHEMICALS AND POLYMERS. IT IS ALSO ENGAGED IN RESEARCH AND DEVELOPMENT ACTIVITIES AND PROVIDES ONSITE TECHNICAL AND BACK - OFFICE SUPPORT SERVICES. IN VIEW OF THE ABOVE FACTS, WE HAVE NO HESITATION IN REJECTING ALPHAGEO AS A COMPARABLE AS IT IS FUNCTIONALLY DIFFERENT FROM THE APPELLANTS BUSINESS. NEXT WE DEAL WITH TCG. AN EXAMINATION OF THE ANNUAL REPORT CLEARLY INDICATES THE TCG IS ENGAGED IN THE BUSINESS OF CONTRACT RESEARCH OPERATION. THIS IS EVIDENT FROM THE REVENUE OF RS.1,131,931,865/ - , IT DERIVED FROM SALES (CONTRACT RESEARCH OPERATIONS). A PERUSAL OF THE ACCOUNTS ALSO INDICATES THAT TCG HAS EARNED ITS WHOLE OPERATING INCOME FROM CONTRACT RESEARCH OPERATIONS. THUS ONE CAN SAFELY CONCLUDE THAT THE BUSINESS OF THE APPELLANT IS FUNCTIONALLY EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 9 DIFFERENT FROM TCG. THEREFORE, TCG IS REJECTED AS A CO MPARABLE BECAUSE IT IS FUNCTIONALLY DIFFERENT FROM THE APPELLANTS BUSINESS. THEN WE COME TO PFIZER. AN EXAMINATION OF THE ACCOUNTS CLEARLY INDICATES THAT PFIZER HAS PREPARED AND REPORTED FINANCIALS WITH NOVEMBER END, WHEREAS THE APPELLANT PREPARES AND RE PORTS FINANCIAL DATA FOR FINANCIAL YEAR END I.E. MARCH. IN CIT V PTC SOFTWARE (I)(P) LTD. (2016) 75 TAXMANN.COM 31 (BOM.), THE HONBLE BOMBAY HIGH COURT HAS HELD THAT DATA TO BE USED FOR THE COMPARABILITY ANALYSIS SHOULD BE OF THE SAME FINANCIAL YEAR IN W HICH THE INTERNATIONAL TRANSACTIONS WERE ENTERED INTO BY THE TESTED PARTY. IN VIEW OF THE FACTS THAT THE DATA CONSIDERED ARE FOR DIFFERENT PERIODS, WHICH MAY RESULT IN DIFFERENT BUSINESS CONDITIONS, WE HAVE NO HESITATION IN REJECTING PFIZER AS A COMPARABL E TO THE APPELLANT. IN VIEW OF THE ABOVE FINDINGS, WE DELETE THE ADJUSTMENT OF RS.40,49,175/ - MADE BY THE AO. 7 . IN RESPECT OF PROVISION OF BACK - OFFICE SUPPORT SERVICES, WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE ITAT K BENCH, MUMBAI IN THE CASE OF TH E APPELLANT FOR AY 2008 - 09 (ITA NO. 3601 /MUM/201 4 ). AS MENTIONED EARLIER, THE LD. CIT(A) WHILE CONFIRMING THE ADJUSTMENT OF RS.1,98,30,718/ - HAS FOLLOWED THE ORDER OF HIS PREDECESSOR - IN - OFFICE FOR AY 2008 - 09. THE TRIBUNAL VIDE ITS ORDER DATED 23.05.2018 FO R THE AY 2008 - 09 HAS SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORED THE MATTER TO THE FILE OF THE AO/TPO FOR FRESH ADJUDICATION. FACTS BEING IDENTICAL, WE FOLLOW THE ABOVE ORDER OF THE CO - ORDINATE BENCH AND RESTORE THE MATTER IN RESPECT OF PROVISION OF BACK - OFFICE SUPPORT SERVICES TO EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 10 THE FILE OF THE AO/TPO FOR FRESH ADJUDICATION, AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE APPELLANT. 8 . FINALLY WE DEAL WITH THE DISALLOWANCE OF RS.1,85,29,377/ - MADE BY THE AO U/S 40(A)(I) OF THE ACT. D URING THE PREVIOUS YEAR 2008 - 09, THE APPELLANT PAID GLOBAL SUPPORT SERVICE CHARGES OF RS.1,85,29,377/ - TO EXXONMOBIL CHEMICAL ASIA PACIFIC PTE. LTD., SINGAPORE (EMCAP) ON WHICH NO TDS WAS MADE . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT SUB MITTED BEFORE THE AO THAT : PROVISIONS OF SECTION 195 CAST AN OBLIGATION ON THE ASSESSEE TO DEDUCT TAX AT SOURCE IN RESPECT OF ANY PAYMENT MADE TO NON - RESIDENT WHICH IS CHARGEABLE TO INCOME - TAX. THE APPELLANT HAS NOT DEDUCTED TAX AT SOURCE FROM THE OTHER GLOBAL SUPPORT SERVICE CHARGES SINCE THEY WERE NOT CHARGEABLE TO TAX IN INDIA. THE REMITTANCE OF THE ABOVE AMOUNTS WITHOUT DEDUCTION OF TAX AT SOURCE WAS MADE BASED ON THE CERTIFICATES OBTAINED FROM THE CHARTERED ACCOUNTANT. HOWEVER, THE AO WAS NOT CONVIN CED WITH THE ABOVE CONTENTION OF THE APPELLANT AND MAD A DISALLOWANCE OF RS.1,85,29,377/ - U/S 40(A)(I) OF THE ACT. IN APPEAL, THE LD. CIT(A) FOLLOWED THE ORDER OF HIS PREDECESSOR - IN - OFFICE FOR AY 2008 - 09 AND CONFIRMED THE DISALLOWANCE MADE BY THE AO. BE FORE US, THE LD. COUNSEL FOR THE ASSESSEE RELIES ON THE ORDER OF THE ITAT K BENCH, IN THE CASE OF THE APPELLANT FOR AY 2007 - 08 (ITA NO. 6708/MUM/2011) AND AY 2008 - 09 (ITA NO. 3601/MUM/2014) . THE LD. DR RELIES ON THE ORDER OF THE CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT SIMILAR DISALLOWANCE MADE BY THE AO, THEN CONFIRMED EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 11 BY THE LD. CIT(A) HAS BEEN DELETED BY THE TRIBUNAL VIDE ORDER DATED 21.02.2018 FOR AY 2007 - 08, BY OBSERVING THAT : 48. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. IT IS EVIDENT, WHILE DISALLOWING THE AMOUNT IN DISPUTE UNDER SECTION 40(A)(I) OF THE ACT, THE ASSESSING OFFICER HAS HELD THAT THE PA YMENT MADE BY THE ASSESSEE TO EMCAP TOWARDS GLOBAL SUPPORT SERVICES IS IN THE NATURE OF FEES FOR TECHNICAL SERVICE AS DEFINED UNDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. IT IS ALSO RELEVANT TO NOTE, UNDER ARTICLE 12 OF INDIA SINGAPORE TAX TREATY, FEES FOR TECHNICAL SERVICES, THOUGH, IS TAXABLE IN THE HANDS OF THE RECIPIENT IN SINGAPORE, HOWEVER, IT CAN ALSO BE TAXED IN INDIA UNDER CERTAIN CIRCUMSTANCES. APPLYING THE SAID PROVISION, IT IS NECESSARY TO DETERMINE WHETHER THE PAYMENT MADE CAN AT ALL BE TERMED AS FEE FOR TECHNICAL SERVICES AS DEFINED UNDER ARTICLE 12 OF INDIA SINGAPORE TAX TREATY. IN OUR CONSIDERED OPINION, WE HAVE TO ADDRESS THIS ISSUE AT THE VERY OUTSET. ARTICLE 12(4) OF INDIA SINGAPORE TAX TREATY DEFINES FEE FOR TECHNICAL SERVICES AS UNDER: 12.4 THE TERM FEES FOR TECHNICAL SERVICES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION OF SERVICES OF A MANAGERIAL, TECHNICAL OR CONSULTANCY NATURE (INCLUDING THE PROVISION OF SUCH SERVICES THROUGH TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED; OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, S KILL, KNOW HOW OR PROCESSES, WHICH ENABLES THE PERSON ACQUIRING THE SERVICES TO APPLY THE TECHNOLOGY CONTAINED THEREIN; OR (C) CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN, BUT EXCLUDES ANY SERVICE THAT DOES NOT ENABLE TH E PERSON ACQUIRING THE SERVICE TO APPLY THE TECHNOLOGY CONTAINED THEREIN. EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 12 49. THE ASSESSING OFFICER HAS TREATED THE PAYMENT MADE AS FEES FOR TECHNICAL SERVICES ON THE REASONING THAT UNDER THE AGREEMENT EMCAP HAS MADE AVAILABLE MANAGERIAL AND TECHNICAL SER VICES TO THE ASSESSEE. THE EXPRESSION MAKE AVAILABLE WHICH ALSO APPEARS IN ARTICLE 12(4)(B) OF THE INDIA US TAX TREATY WOULD MEAN THE RECIPIENT OF SUCH SERVICE IS ABLE TO APPLY OR MAKE USE OF THE TECHNICAL KNOWLEDGE, KNOWHOW, ETC., BY HIMSELF IN HIS BUSI NESS OR FOR HIS OWN BENEFIT AND WITHOUT RECOURSE TO THE SERVICE PROVIDER IN FUTURE AND FOR THIS PURPOSE A TRANSACTION OF THE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILLS, ETC., FROM THE SERVICE PROVIDER TO THE SERVICE RECIPIENT IS NECESSARY. SOME SORT OF DURABI LITY OR PERMANENCY OF THE RESULT OF THE RENDERING OF SERVICES IS ENVISAGED WHICH WILL REMAIN AT THE DISPOSAL OF THE SERVICE RECIPIENT. IN OTHER WORDS, THE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, ETC., MUST REMAIN WITH THE SERVICE RECIPIENT EVEN AFTER THE R ENDERING OF THE SERVICES HAS COME TO AN END. IN CONTRAST TO ARTICLE 12(4)(B) OF THE INDIA U.S. TAX TREATY, ARTICLE 12(4)(B) OF INDIA SINGAPORE TAX TREATY HAS MADE IT MORE SPECIFIC BY PROVIDING THAT TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOWHOW OR PROCESS , WOULD NOT AMOUNT TO FEES FOR TECHNICAL SERVICE UNLESS IT ENABLES THE PERSON ACQUIRING THE SERVICE TO APPLY THE TECHNOLOGY THEREIN. A PERUSAL OF THE AGREEMENT BETWEEN THE ASSESSEE AND EMCAP MAKES IT CLEAR THAT AS PER THE TERMS OF THE AGREEMENT EMCAP WOULD PROVIDE MANAGEMENT CONSULTING, FUNCTIONAL ADVICE, ADMINISTRATIVE, TECHNICAL, PROFESSIONAL AND OTHER SUPPORT SERVICES TO THE ASSESSEE EITHER ITSELF OR THROUGH ANY AFFILIATE OR THROUGH THIRD PARTIES. HOWEVER, THERE IS NOTHING IN THE AGREEMENT TO CONCLUDE TH AT IN THE COURSE OF SUCH PROVISION OF SERVICE, EMCAP HAS MADE AVAILABLE ANY TECHNICAL KNOWLEDGE EXPERIENCE, SKILL, KNOWHOW, OR PROCESS WHICH ENABLES THE ASSESSEE TO APPLY THE TECHNOLOGY CONTAINED THEREIN ON ITS OWN WITHOUT THE AID OF EMCAP. THE HON'BLE KAR NATAKA HIGH COURT WHILE EXPLAINING THE TRUE IMPORT OF EXPRESSION MAKE AVAILABLE IN CASE OF DE BEERS INDIA MINERAL PVT. LTD. (SUPRA) HAS OBSERVED AS UNDER: WHAT IS THE MEANING OF 'MAKE AVAILABLE'. THE TECHNICAL OR CONSU LTANCY SERVICE RENDERED SHOULD B E OF SUCH A NATURE THAT IT MAKES AVAILABLE' TO THE RECIPIENT TECHNICAL KNOWLEDGE, KNOW - HOW AND THE LIKE. THE SERVICE SHOULD HE EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 13 AIMED AT AND RESULT IN TRANSMITTING TECHNICAL KNOWLEDGE, ETC., SO THAT THE PAYER OF THE SERVICE COULD DERIVE AN ENDURING BENEFIT A ND UTILIZE THE KNOWLEDGE OR KNOW - HOW ON HIS OWN IN FUTURE WITHOUT THE AID OF THE SERVICE PROVIDER. IN OTHER WORDS, TO FIT INTO THE TERMINOLOGY 'MAKING AVAILABLE', THE TECHNICAL KNOWLEDGE, SKILL, ETC., MUST REMAIN WITH THE PERSON RECEIVING THE SERVICES EVEN AFTER THE PARTICULAR CONTRACT COMES TO AN END. IT IS NOT ENOUGH THAT THE SERVICES OFFERED ARE THE PRODUCT OF INTENSE TECHNOLOGICAL EFFORT AND A LOT OF TECHNICAL KNOWLEDGE AND EXPERIENCE OF THE SERVICE PROVIDER HAVE GONE INTO IT. THE TECHNICAL KNOWLEDGE OR SKILLS OF THE PROVIDER SHOULD HE IMPARTED TO AND ABSORBED BY THE RECEIVER SO THAT THE RECEIVER CAN DEPLOY SIMILAR TECHNOLOGY OR TECHNIQUES IN THE FUTURE WITHOUT DEPENDING UPON THE PROVIDER. TECHNOLOGY WILL BE CONSIDERED 'MADE AVAILABLE' WHEN THE PERSON AC QUIRING THE SERVICE IS ENABLED TO APPLY THE TECHNOLOGY. THE FACT THAT THE PROVISION OF THE SERVICE THAT MAY REQUIRE TECHNICAL KNOWLEDGE, SKILLS, ETC., DOES NOT MEAN THAT TECHNOLOGY IS MADE AVAILABLE TO THE PERSON PURCHASING THE SERVICE, WITHIN THE MEANING OF PARAGRAPH (4)(B). SIMILARLY, THE USE OF A PRODUCT WHICH EMBODIES TECHNOLOGY SHALL NOT PER SE BE CONSIDERED TO MAKE THE TECHNOLOGY AVAILABLE, IN OTHER WORDS, PAYMENT OF CONSIDERATION WOULD BE REGARDED AS 'FEES FOR TECHNICAL/INCLUDED SERVICES' ONLY IF THE TWIN TEST OF RENDERING SERVICES AND MAKING TECHNICAL KNOWLEDGE AVAILABLE AT THE SAME TIME IS SATISFIED. 50. A CAREFUL ANALYSIS OF THE OBSERVATIONS OF THE HIGH COURT, MAKES IT CLEAR THAT MAKE AVAILABLE NOT ONLY WOULD MEAN THAT RECIPIENT OF THE SERVICE I S IN A POSITION TO DERIVE AN ENDURING BENEFIT OUT OF UTILISATION OF THE KNOWLEDGE OR KNOWHOW ON HIS OWN IN FUTURE WITHOUT THE AID OF THE SERVICE PROVIDER BUT SUCH TECHNICAL KNOWLEDGE, SKILL, KNOWHOW, ETC., MUST REMAIN WITH THE RECIPIENT EVEN AFTER THE CONT RACT COMES TO AN END. THE COURT HAS OBSERVED, THE TECHNOLOGY WILL BE CONSIDERED TO HAVE BEEN MADE AVAILABLE WHEN THE PERSON ACQUIRING THE SERVICE ENABLE HIM TO APPLY THE TECHNOLOGY. FURTHER, THE COURT WENT ON TO HOLD THAT THE PAYMENT CAN BE CONSIDERED AS F EES FOR TECHNICAL SERVICES ONLY IF THE TWIN TEST OF RENDERING SERVICE AND MAKING EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 14 TECHNICAL KNOWLEDGE AVAILABLE AT THE SAME TIME IS SATISFIED. IF WE APPLY THE AFORESAID TESTS LAID DOWN BY THE HON'BLE KARNATAKA HIGH COURT TO THE FACTS OF THE PRESENT CASE IT BECOMES CLEAR THAT IT HAS NOT BEEN ESTABLISHED ON RECORD THAT WHILE RENDERING THE SERVICES, EMCAP HAS MADE AVAILABLE TECHNICAL KNOWLEDGE, KNOWHOW, SKILL, ETC., TO THE ASSESSEE IN A MANNER TO ENABLE HIM TO APPLY THEM INDEPENDENTLY OR ON ITS OWN. THEREFORE, THE PAYMENT MADE BY THE ASSESSEE CANNOT BE CONSIDERED AS FEES FOR TECHNICAL SERVICES AS DEFINED UNDER ARTICLE 12(4)(B) OF THE INDIA SINGAPORE TAX TREATY AND FOR THIS REASON ALSO WE DO NOT HAVE TO EXAMINE TAXABILITY OF THE SAME UNDER SECTION 9(1)(VII) OF TH E ACT. MOREOVER, IT IS A FACT ON RECORD THAT THE PAYMENT OF GLOBAL SUPPORT SERVICE FEE WAS MADE UNDER THE AGREEMENT WHICH HAS CONTINUED FROM THE YEAR 2003. IT IS A MATTER OF RECORD THAT IN THE PRECEDING ASSESSMENT YEARS THOUGH THE ASSESSEE HAS PAID GLOBAL SUPPORT SERVICE FEES TO EMCAP WITHOUT DEDUCTING TAX AT SOURCE, NO DISALLOWANCE UNDER SECTION 40(A)(I) WAS EVER MADE. THEREFORE, THERE BEING NO DIFFERENCE IN FACTS IN THE IMPUGNED ASSESSMENT YEAR, CONSIDERING THAT THE PAYMENT WAS MADE UNDER THE SAME CONTRAC T, EVEN, APPLYING THE RULE OF CONSISTENCY, NO DISALLOWANCE UNDER SECTION 40(A)(I) CAN BE MADE IN THE IMPUGNED ASSESSMENT YEAR. ACCORDINGLY, WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THESE GROUNDS ARE ALLOWED. 9.1 FOR AY 2008 - 09, THE TRIBUNAL HAS FOLLOWED THE ABOVE ORDER WHILE DECIDING SIMILAR ADDITION MADE BY THE AO U/S 40(A)(I) OF THE ACT FACTS BEING IDENTICAL, WE FOLLOW THE ABOVE ORDER OF THE CO - ORDINATE BENCH IN APPELLANTS OWN CASE FOR AY 2007 - 08 AND AY 2008 - 09 AND DELETE THE ADDITION OF RS.1,85,29,377/ - MADE BY THE AO U/S 40(A)(I) OF THE ACT. 10 . HOWEVER, BEFORE WE PART WITH THE MATTER, WE MUST DEAL WITH ONE PROCEDURAL ISSUE AS WELL. WHILE HEARING OF THESE APPEALS WAS CONCLUDED ON 03.01.2020, THIS ORDER THEREO N IS BEING PRONOUNCED TODAY, MUCH AFTER THE EXPIRY OF 90 DAYS FROM THE DATE OF CONCLUSION OF HEARING. WE ARE ALSO ALIVE TO EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 15 THE FACT THAT RULE 34(5) OF THE INCOME TAX APPELLATE TRIBUNAL RULES 1963, WHICH DEALS WITH PRONOUNCEMENT OF ORDERS. LET US IN THIS LI GHT REVERT TO THE PREVAILING SITUATION IN THE COUNTRY. ON 24TH MARCH, 2020, A NATIONWIDE LOCKDOWN WAS IMPOSED FOR 21 DAYS TO PREVENT THE SPREAD OF COVID - 19 EPIDEMIC, AND THIS LOCKDOWN WAS EXTENDED FROM TIME TO TIME. AS A MATTER OF FACT, EVEN BEFORE THIS FO RMAL NATIONWIDE LOCKDOWN, THE FUNCTIONING OF THE INCOME TAX APPELLATE TRIBUNAL AT MUMBAI WAS SEVERELY RESTRICTED ON ACCOUNT OF LOCKDOWN BY THE MAHARASHTRA GOVERNMENT, AND ON ACCOUNT OF STRICT ENFORCEMENT OF HEALTH ADVISORIES WITH A VIEW OF CHECKING SPREAD OF COVID - 19. THE EPIDEMIC SITUATION IN MUMBAI BEING GRAVE, THERE WAS NOT MUCH OF A RELAXATION IN SUBSEQUENT LOCKDOWNS ALSO. IN ANY CASE, THERE WAS UNPRECEDENTED DISRUPTION OF JUDICIAL WORK ALL OVER THE COUNTRY. AS A MATTER OF FACT, IT HAS BEEN SUCH AN UNPR ECEDENTED SITUATION, CAUSING DISRUPTION IN THE FUNCTIONING OF JUDICIAL MACHINERY, THAT HON'BLE SUPREME COURT OF INDIA, IN AN UNPRECEDENTED ORDER IN THE HISTORY OF INDIA AND VIDE ORDER DATED 6.5.2020 READ WITH ORDER DATED 23.3.2020, EXTENDED THE LIMITATION TO EXCLUDE NOT ONLY THIS LOCKDOWN PERIOD BUT ALSO A FEW MORE DAYS PRIOR TO, AND AFTER, THE LOCKDOWN BY OBSERVING THAT 'IN CASE THE LIMITATION HAS EXPIRED AFTER 15.03.2020 THEN THE PERIOD FROM 15.03.2020 TILL THE DATE ON WHICH THE LOCKDOWN IS LIFTED IN THE JURISDICTIONAL AREA WHERE THE DISPUTE LIES OR WHERE THE CAUSE OF ACTION ARISES SHALL BE EXTENDED FOR A PERIOD OF 15 DAYS AFTER THE LIFTING OF LOCKDOWN'. HON'BLE BOMBAY HIGH COURT, IN AN ORDER DATED 15TH APRIL 2020, HAS, BESIDES EXTENDING THE VALIDITY OF AL L INTERIM ORDERS, HAS ALSO OBSERVED THAT, 'IT IS ALSO CLARIFIED THAT WHILE CALCULATING TIME FOR DISPOSAL OF MATTERS MADE TIME - BOUND BY THIS COURT, THE PERIOD FOR WHICH THE ORDER DATED 26TH MARCH 2020 CONTINUES TO OPERATE SHALL BE ADDED AND TIME SHALL STAND EXTENDED ACCORDINGLY', AND ALSO EXXON MOBIL COMPANY ITA NO. 4521/MUM/2017 16 OBSERVED THAT 'ARRANGEMENT CONTINUED BY AN ORDER DATED 26TH MARCH 2020 TILL 30TH APRIL 2020 SHALL CONTINUE FURTHER TILL 15TH JUNE 2020'. THE HONBLE BOMBAY HIGH COURT ITSELF HAS, VIDE JUDGMENT DATED 15 TH APRIL 2020, HELD TH AT 'WHILE CALCULATING THE TIME FOR DISPOSAL OF MATTERS MADE TIME - BOUND BY THIS COURT, THE PERIOD FOR WHICH THE ORDER DATED 26TH MARCH 2020 CONTINUES TO OPERATE SHALL BE ADDED AND TIME SHALL STAND EXTENDED ACCORDINGLY'. VIEWED THUS, THE EXCEPTION TO 90 DAY TIME LIMIT FOR PRONOUNCEMENT OF ORDERS INHERENT IN RULE 34(5)(C) CLEARLY COMES INTO PLAY IN THE PRESENT CASE. 11 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED UNDER RULE 34(4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1962, BY PLACING THE DETAILS ON THE NOTICE BOARD. SD/ - SD/ - ( SAKTIJIT DEY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 27/07/2020 RAHUL SHARMA SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI