Microsoft India (R&D) Pvt. Ltd., New Delhi V. DCIT, Circle-16(2), New Delhi

ITA 6027/DEL/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8422 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Appeal Filed On: 24-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAHESH SHAH
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction; Question of law; Competent authority; Revised return; TDS
• Section: 56; 271(1)(c); 143(3); 56(2); 234B; 144C; 22

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “I”: NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No. 6027/Del/2017 Assessment Year: 2013-14 O R D E R PER ASTHA CHANDRA The appeal of the assessee arises out of the order dated 29.08.2017 of the Ld. DCIT- Circle 16 (2), New Delhi (“AO”) pertaining to the assessment year (“AY”) 2013-14. 2. The assessee has taken the following grounds of the appeal before the Tribunal:- “1. The order passed by the Additional Commissioner of Income Tax, Transfer Pricing-2(2) (‘Ld. TPO’), draft assessment order passed by Deputy Commissioner of Income Tax, Circle - 16(2), New Delhi (‘Ld. AO’) and the final Microsoft India (R&D) Private Limited, 807, New Delhi House, Barakhamba Road, New Delhi-110 001 PAN AABCM6358F Vs. DCIT, Circle-16(2), New Delhi. (Appellant) (Respondent) Assessee by: Shri Nageshwar Rao, Advocate Ms. Deepika Aggarwal & Viyushti, Advocate Department by: Shri Mahesh Shah, CIT(DR) Date of Hearing: 15.06.2022 Date of pronouncement 11.08.2022 ITA No. 6027/Del/17 2 assessment order passed, on the directions of the Hon’ble Dispute Resolution Panel (‘DRP’), by the Ld. AO are bad in law. 2. The Ld. AO has erred on facts and in law in determining the total income of the Appellant at Rs. 5,67,14,80,070 as against a returned income of Rs. 3,43,98,78,300. Part I - Transfer Pricing Matters 3. That on facts and in law, the Hon’ble DRP and the Ld. TPO/ Ld.AO erred in making an adjustment of INR 1,890,534,850 and INR 213,288,571 to the returned income of the Appellant in respect of the international transactions pertaining to contract software development services (‘SWD’ or ‘Impugned Transaction I’) and provision of IT enabled services (‘ITES’ or 'Impugned Transaction II’) respectively. 4. The transfer pricing adjustments made to the Impugned Transactions by the Ld. AO based on the order of Ld. TPO giving effect to the directions issued of the Hon’ble DRP is bad in law inter-alia for the reason that: a) the order of the Ld. TPO is bad in law in as much as based on an invalid reference made by the Ld. AO without complying with the statutory requirements; b) the Appellant’s AE being chargeable to tax at a higher rate in the US, there was no question of shifting of any profit from a low tax paying country to a high tax paying country. 5. That on facts and in law, the Hon’ble DRP and the Ld. TPO/ Ld. AO have erred by not appreciating the correct functional profile of the Appellant and drawing an erroneous conclusion that the Appellant is engaged in providing high-end software services. 6. That on facts and in law, the Hon’ble DRP and the Ld. TPO/ Ld. AO have erred by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Income-tax Act, 1961 (‘the Act’) read with the Income Tax Rules, 1962 (‘IT Rules/Rules’), and modifying the economic analysis for the determination of the arm’s length price of Impugned Transaction I and Impugned Transaction II and holding that both the impugned transactions are not arm’s length. 7. That on facts and in law, the Hon’ble DRP and the Ld. TPO / Ld. AO have erred by a. Using single year data of companies to determine the arm’s length price of the impugned transaction and disregarding the Appellant’s claim for use of multiple year data for computing the arm’s length price; and ITA No. 6027/Del/17 3 b. Rejecting the data used by the Appellant which was available to it at the relevant time and proceeding to use the data which was available only at the time of transfer pricing audit. 8. That on facts and in law, the Hon’ble DRP and the Ld. TPO/ Ld. AO erred in rejecting certain comparables by applying arbitrary filters without any rationale: a. Rejection of comparable companies having turnover less than INR 750 crores and INR 20 crores from the Impugned Transaction I and Impugned Transaction II respectively. b. Rejection of companies having different financial year ending (i.e. not 31 March 2013) or if data of the company do not fall within 12 month period i.e. 01-04-2012 to 31-03-2013. Without prejudice to the other arguments, the Hon’ble DRP and the Ld. TPO/ Ld. AO have also ignored the fact that financial data for several companies for the year ended 31 March 2013 is available in public domain. c. Rejection of companies having export sales less than 75% of the sales. d. Rejection of companies having employee cost less than 25% of the sales. e. Rejection of companies with a diminishing revenue trend. f. Selection of only those companies which have generated patents in USA or in India in the field of software R&D for Impugned Transaction I. 9. The Hon’ble DRP and the Ld. TPO/ Ld. AO erred in facts and in law, by wrongfully rejecting certain companies and adding certain companies to the final set of comparables for the impugned transactions of the Appellant, on an adhoc basis. Thus, they have resorted to cherry picking of comparables to determine ALP for the impugned transactions. 10. That on facts and in law, the Ld. TPO/ Ld. AO erred by not following direction of the Hon’ble DRP to include “Microland limited” in the final list of final comparables with respect to Impugned Transaction II since it is passing all the filters applied by the Ld. TPO. The said ground is submitted without prejudice to the arguments of the Appellant against erroneous approach of the Hon’ble DRP and the Ld. TPO/ Ld. AO. 11. That on facts and in law, the Hon’ble DRP and the Ld. TPO/ Ld. AO have grossly erred by computing the operating profitability of the comparable companies incorrectly. 12. The Hon’ble DRP and the Ld. TPO/ Ld. AO erred in law and in facts by selecting certain companies which are earning super normal profits, as being comparable to the Appellant. 13. That on facts and in law, the Hon’ble DRP and the Ld. TPO/Ld. AO have grossly erred by not appreciating the fact that the Appellant operates as a risk free service provider and all the risks associated with the Impugned Transactions were borne by the foreign AE and not by the Appellant, thus, the ITA No. 6027/Del/17 4 Appellant is entitled to suitable adjustments to account for differences in its risk profile vis-a-vis the comparables 14. The Hon’ble DRP has erred in confirming that the Ld. TPO has discharged his statutory onus to establish that the conditions specified in clause (a) to (d) of Section 92C(3) of the Act have been satisfied before disregarding the ALP determined by the Appellant and proceeded to determine the ALP himself. 15. The Hon’ble DRP and the Ld. TPO/ Ld. AO has erred in law and in facts, by adding notional costs related to the Employee Stock Options and Employee Saving Plans of MS Corp, provided by MS Corp to the employees of MIRPL, to the cost base of the Appellant and thereby expecting the Appellant to earn a mark-up on such notional costs. Part II - Corporate tax matters 16. That on the facts and in law, the Ld. AO and the Hon’ble DRP are not justified and have erred by taxing gross composite rental income of Rs. 19,42,65,000 received from let out building space alongwith inbuilt infrastructure and other amenities under the head ‘Income from House Property’ instead of ‘Income from Other Sources’ completely disregarding the provisions of Section 56 of the Act and Hon’ble Jurisdictional High Court Judgment in the case of Garg Dyeing & Processing Industries vs. ACIT (2012) (ITA 319/2012) (Del) (Departmental SLP has been dismissed by Supreme Court). 16.1 That on the facts and in law, the Ld. AO and Hon’ble DRP erred in not allowing proportionate tax depreciation and expenses u/s 57 of the Act amounting to Rs. 18,68,45,710. 16.2 That on the facts and in law, the Ld. AO and Hon’ble DRP erred in applying res judicata which is not applicable in income tax proceedings and erred in not correcting mistakes made in earlier years. 17. Without prejudice to our contention that unrealized foreign exchange gain/ loss should not be adjusted from the WDV of the assets as observed by the Supreme Court in the case of CIT vs Honda Siel Power Products Ltd. (312 ITR 024) and plain reading of provisions of Section 43A of the Act, the Ld. AO/Hon’ble DRP have erred in not allowing the depreciation on unrealized foreign exchange loss on capital creditors amounting to Rs. 31,830,359 in view of the position taken by Ld. AO/ Hon’ble DRP in the earlier years. 18. That on facts and in law, the Ld. AO grossly erred n not granting credit for tax deducted at source amounting to Rs. 3,11,749. 19. That on the facts and in law, on disposal of this appeal material adjustment would be required in computing total income, tax, interest u/s 234B of the Act ITA No. 6027/Del/17 5 and refund added (along with Interest u/s 234D of the Act). Necessary directions may please be given to the Ld. AO in this regard. 20. That on the facts and in the circumstances of the case and n law, the Ld. AO has erred in initiating penalty under section 271(1)(c) of the Act.” 3. The assessee is a Private Limited Company engaged in the business of software development and product support services. It filed its return for AY 2013-14 on 29.11.2013 declaring total income of Rs. 342,96,62,520/- which was subsequently revised to Rs. 3,43,98,78,300/- on 31.03.2015. The case was selected for scrutiny under CASS. The Ld. AO completed the assessment under section 143(3) r.w.s 144C of the Income Tax Act, 1961 (the “Act”) on 29.08.2017 on total income of Rs. 567,14,80,070/- including therein addition of Rs. 210,38,23,421/- on account of transfer pricing adjustments and Rs. 12,77,04,481/- on account of difference of rental income offered as other source. 4. Aggrieved, the assessee filed appeal before the Tribunal and all the grounds of appeal relate to the above mentioned addition to the income returned. 5. We have heard the Ld. Representatives of the parties, considered their submission and perused the material available in the voluminous record. We proceed, taking the grounds in seriatim for our consideration and disposal. 6. Ground No. 1 and 2 are of general nature not requiring adjudication. 7. Ground No. 3 to 15 relate to transfer pricing adjustments of Rs. 189,05,34,850/- and Rs. 21,32,88,571/- made by the Hon’ble DRP and Ld. Transfer Pricing Officer (“TPO”) / AO to the income of the assessee in respect of international transactions pertaining to Contract Software Development Services and provision of IT Enabled Services (ITeS) respectively. ITA No. 6027/Del/17 6 7.1 The assessee filed an application dated 13 th April, 2022 addressed to the Registrar, ITAT seeking withdrawal of ground No. 3 to 15 of its appeal filed before the Tribunal as the issue involved therein has been settled under Mutual Agreement Procedure (“MAP”) in an application filed by its Associated Enterprise (“AE”) namely Microsoft Corporation before USA Competent Authority. The application dated 13 th April, 2022 filed by the assessee is reproduced hereunder:- “13 April 2022 The Registrar income-tax Appellate Tribunal Lok Nayak Bhawan, Khan Market New Delhi-110003 Dear Sir, Re: Microsoft India (R&D) Private Limited (‘MIRPL’ or ‘the Company’ or ‘the Appellant’) Application for withdrawal of Part Appeal in ITA No. 6027/Del/2017 for Assessment Year (“AY”) AY 2013-14 PAN No. - AABCM6358F This is with reference to the captioned appeal filed by MIRPL with the Income Tax Appellate Tribunal (“Hon’ble ITAT”) in respect of AY 2013-14 on 25 September 2017. MIRPL had filed the captioned appeal against the addition made by the Assessing officer on Transfer Pricing issues and Corporate Tax issues and the same is pending for adjudication with the Hon’ble ITAT. A copy of Grounds of Appeal filed by the Appellant before your office is enclosed as Annexure 1 for ready reference. The grounds of appeal (Ground No. 3 to 15 of the appeal filed) in the captioned appeal against the additions made on Transfer Pricing issues relate to determination of arm’s length price of international transactions in respect of provision of Software Development services (“SWD”) and IT Enabled services (“ITeS”). The Appellant’s associated enterprise (“AE”) in the United States of America (“USA”), namely Microsoft Corporation had also filed an application under Mutual Agreement Procedure (“MAP”) before USA Competent Authority to resolve the dispute relating to determination of arm’s length price for the transfer pricing adjustment made in the assessment order dated 29 August 2017 under Article 27 of India-USA Double Tax Avoidance Agreement. The Appellant has received a copy of the communication issued by the Indian Competent Authority on 04 April 2022 informing the Appellant about the resolution under MAP Proceedings for the captioned year. The MAP resolution has specified relief to be granted on account of transfer pricing adjustments in relation to the Appellant’s AE i.e., Microsoft Corporation. ITA No. 6027/Del/17 7 In view of Rule 44G(7) of the Income tax Rules, 1962 (“Rules”), the Appellant is required to communicate their acceptance or non-acceptance of the MAP resolution. In case of acceptance of such resolution, the Appellant is also required to withdraw the relevant grounds of appeal raised in relation to issues which were the subject matter of adjudication under MAP proceedings in accordance with Rule 44G(8) of the Rules. Accordingly, in view of Rule 44G(8) of the Rules and since the Appellant wishes to accept the aforesaid MAP resolution, the Appellant, hereby, wishes to withdraw Ground No. 3 to 15 (along with its sub grounds). However, MIRPL wishes to continue to agitate on additions made by AO on corporate tax issues (covered by Ground No. 1, 2 and 16 to 20 of the appeal filed) and above request of MIRPL for withdrawal for grounds of appeal pertaining to transfer pricing issues should not be construed as consent for withdrawal of entire appeal. We respectfully pray that we may be permitted to withdraw and not to press the grounds and contentions raised in the captioned appeal to the extent as mentioned herein above. We request you to take the above on record and accede to our request. We shall be pleased to provide you with any further information/ clarification that you may require in this regard. Thanking You Yours faithfully sd/- Authorized Signatory” 7.2 In view of the said application of the assessee seeking to withdraw ground No. 3 to 15 for which the Ld. DR had no objection, we accede to the request of the assessee and allow withdrawal of ground No. 3 to 15. In consequence thereof, we hereby dismiss ground No. 3 to 15 as withdrawn. 8. Vide letter dated 26 th May 2022 addressed to the Registrar, ITAT the assessee in view of withdrawal of the original ground No. 3 to 15, filed modified grounds of appeal No. 1 to 6 in place of original grounds No. 16 to 20 which have been taken on record being para materia the same as the original grounds No. 16-20 for adjudication. The modified ground No. 1, 2.1 and 2.2 relate to the rental income earned by the assessee. The Ld. AO has discussed this issue in para 4 at pages 3 to 16 of his order. The assessee received a composite rental income of Rs. 19,42,65,000/- from Microsoft ITA No. 6027/Del/17 8 Global Services Centre (India) Pvt. Ltd. in the year of account, namely AY 2013-14 and declared the said income in its return under the head “Income from other sources”. During assessment proceedings the assessee was asked to show cause why the said income be not taxed under the head income from house property. The assessee furnished explanation vide letter dated 11.11.2016 which has been reproduced by the Ld. AO in para 4.1 of his order. However, the Ld. AO did not accept the explanation mainly for the reason that in preceding AYs the assessee had been claiming the taxability of similar income as ‘income from other sources’ during the assessment proceedings only which claim had been rejected by the Revenue but it is for the first time that the assessee has preferred the said claim by way of filing the revised return. Nonetheless, the Ld. AO proceeded with the observation that in the current year also the facts of the case are similar to that of the earlier years. 8.1 The Ld. AO distinguished the facts of the case of the assessee from the facts of Sultan Brothers Pvt. Ltd. vs CIT (1964) 51 ITR 353 (SC), the decision of Hon’ble Supreme Court relied upon by the assessee. After discussing the differential facts, the Ld. AO held that rental income earned by the assessee is assessable as ‘income from house property’ and not as ‘income from other sources’ claimed by the assessee in the revised return. Accordingly, the Ld. AO computed the income form house property at Rs. 13,51,23,771/- and reducing there from income from other sources declared by the assessee at Rs. 74,19,290/- made addition of Rs. 12,77,04,481/- to the income of the assessee. As the after effect, the assessee’s claim of expenses made at Rs. 18,56,14,668/- under section 57(iii) of the Act was also rejected. 8.2 Against the aforesaid proposed addition, the objection of the assessee had been rejected by the Hon’ble DRP vide order dated 30.06.2017. 8.3 Aggrieved, the assessee is in appeal before the Tribunal. ITA No. 6027/Del/17 9 9. The Ld. AR submitted that the issue is covered in favour of the assessee by the order of the Tribunal in the assessee’s own case for AY 2011-12 and 2012-13. Whereas the Ld. DR took lot of pains and in his written submission filed before us attempted to prove that the facts in the case of Sultan Brothers Pvt. Ltd. (supra) and in Jay Metals Industries Pvt. Ltd. 84 taxmann.com 11 (Delhi High Court) are different from the facts in assessee’s case on following points:- “6. Submission distinguishing Sultan Brothers P Ltd and Jay Metals Industries P Ltd being on different facts- 1) The provisions of the section 56(2) are also being reproduced as under- "56 (2) in particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income fro other sources", namely:- .................................................................................................................................................................. ........................................................................................................................................... (iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income- tax under the head "Profits and gains of business or profession.” 2) In the present case which is before Hon'ble Bench, in the lease deed of the assessee company i.e. Microsoft India Pvt. Ltd with its associated enterprises i.e. M/s Global Service Centre India Pvt. Ltd, it is stated that the assessee company has let out the "Building" along with the infrastructure facilities which includes Centralised Air Conditioning, DG Power supply and other electrical equipments which forms the part of the building and are necessary for the proper functioning of the said 'Building'. It is respectfully submitted that the facts in the case of Sultan Brothers Pvt. Ltd in & in Jay Metal Industries Pvt. Ltd. are different from Microsoft India (R&D) Pvt. Ltd. on following points:- Facts in the case of Sultan Brothers Pvt. Ltd. (SC) ‘Annexure B’ Facts in M/s Microsoft India (R&D) Pvt. Ltd. Facts in the case of Metal Industries Pvt. Ltd. (Delhi HC) ‘Annexure C’  At page 9, the Hon'ble Supreme Court has referred to lease deed as-  "We will now refer to  The relevant clauses at page 5 para 1 of the lease deed in the present case under appeal before ITAT are reproduced below-  The Hon'ble High Court has stated at page 2 para 3-  Certain other clauses of the lease deed relevant to the ITA No. 6027/Del/17 10 the provisions in the lease to see whether the parties intended that the furniture, fixtures and the building shall all be enjoyed tighter. Clause 1 of The lessee's covenant, in our opinion, puts the matter beyond doubt and it is as follows:-  (a) To use the demised premises and the said furniture and fixtures for the purpose of running hotel, barding and the lodging house, restaurant, confectionary and such other ancillary business in the said premises such as providing show-cases show windows, newspapers stall, dancing and other exhibition of arts, meeting rooms etc., and not for any other purpose without the previous permission in writing of the Lessors.  It is clear from this clause that the building and the fixtures and furniture were to be used for one purpose, namely, for the purpose of running a hotel with them all tighter. Again cl.1 1(h) of the lessee's covenant provided that the lessee is not to remove any article of thing from the  "3.4 The Lessor shall provide adequate power load to the LESSEE to run its commercial operations smoothly without any hindrance from the LEASED PREMISES. The LESSOR has agreed to provide at the LEASED PREMISES electricity and power load of not less than 1 KW/SFT for the exclusive use of the LESSEE. The LESSOR shall provide to the le LESSEE additional/new electricity and power load in future as may be required by the LESSEE. Any payment which may be required to be made to the electricity board or authorities or any other agency for the additional/new electricity and power load to bring it to the LESSEE'S desired requirements shall be paid by the LESSOR."  At page 6 para 3-  "3.7.4 In the event the services mentioned in this clause 3.7 are not provided by the LESSOR to the satisfaction of the LESSEE, the LESSEE shall be entitled to avail the same from other sources and deduct the amount from the Rent payable by it to the LESSOR. Rent Additionally, in the event present case read thus:  "2(c) The Lessor shall provide a sanctioned load of 210 KVA electricity connection through an independent transformer installed at the premises. The Lessee agrees to pay directly to the concerned department all charges for electricity and water consumed by the lessee in the premises. The electricity charges will be based on the consumption shown by the meter on the basis of the bill received from Haryana Electricity Board. The water charges will be paid by the Lessee on the basis of the bill received from Haryana Water Authority. Both Electricity and water charges will be paid by the lessee directly to the departments on the basis of Bills received from time to time." • "2(d) The Lessor shall hand over the office with furniture & fixture 200 KVA diesel generator and adequate air conditioners to the Lessee in good working condition. The Lessee agrees to ITA No. 6027/Del/17 11 premises except for the purposes of and in the course of the hotel business which latter would be for effecting repairs to them or for replacing them where it was the duty of the lessee to do so under the lease. We think, therefore, that the lease clearly establishes that it was the intention of the parties to it that the furniture and fixture and the building should be enjoyed all tighter and not one separately from the other." the LESSSEE is not satisfied from the 100% power back provided by the LESSOR, the LESSEE shall be entitled to install such Diesel Generator Sets and of such capacity as it may require in the BUILDING for exclusive use of the LESSEE. It is clarified that the LESSOR shall, without any extra cost provide appropriate and suitable space to the LESSEE in the BUILLDING for the aforesaid The LESSEE shall be entitle to deduct the cost and expenses incurred by the it for installation of the Diesel Generator Sets and cost of running and maintaining the same from the Rent payable by the LESSEE to the LESSOR. In the event the LESSEE Could not procure air conditioning and 100% power back- up from third parties, the without any extra LESSEE shall be entitled to terminate this Lease Deed." pay directly all charges towards maintenance of the premises including comprehensive maintenance of Generator. Air conditioner and other fixture and findings as per Annexure ’A'." • At page 7 para 2- • However, in the present case, as already discussed, it is plain that letting is not merely of the building but a composite letting of both, the building as well as the equipment, furniture etc. and thereby Section 56 (2) (Hi) of the Act was attracted. Applying the test laid down in Sultan Bros, (supra) the income from the letting in the hands of the Assessee was "a new kind of income" which could be considered to be income from house property since the income not from the ownership of the building alone "but an income which though arising from a building would not have arisen if the plant, machinery and furniture had not also been let along with it". ITA No. 6027/Del/17 12 7. In view of the above, it is submitted that the judgment of the Hon'ble Supreme Court in the case of Sultan Brothers and the judgment of Hon'ble High Court in the case of Jay metals Industries Ltd cannot be relied upon in the present case as the facts in this case i.e M/s Microsoft India Pvt. Ltd are different. Moreover, from the conjoint reading of Para 3.4 (Pg5) and Para 3.7.4 of lease deed in M/s Microsoft India (R&D) Pvt. Ltd (Pg 6 it is apparent that the lessor is required to provide the Services in form of (electricity, Air Conditioning, Power Backup etc.) to the lessee for which the infrastructure such as (Central Air Conditioning with ducting, DG Power Supply, Network equipments, Occupancy Sensors, VAV's & Controllers, Smoke Detectors, Access Control Equipment, Electrical Equipments) are setup. It is the providing of services which is agreed upon as per lease deed. This inference flows out from Para 3.7.4 explicitly which mentions that if lessee is not satisfied with the services provided, then lessee is entitled to bring in his own infrastructure and lessee is entitled to deduct the cost and expenses from the rent payable. Moreover, at Para 7.7 of lease deed in M/s Microsoft India (R&D) Pvt. Ltd it is explicitly mentioned that on interruption of services, Lessee has the option to:- (1) Abatement of Rent. (2) Termination of lease deed. it is clear that the price of services is inbuilt in the rent, and in event of the services not provided, unsatisfactory and lessee bringing in own infrastructure in form of DG generator set, netting of such incurred cost with Rent is permitted in lease deed, which clearly shows that the rent is not composite as envisaged in the section 56(2) of the Act. The assessee company Microsoft India (R&D) Pvt. Ltd has leased out 'Building' along with infrastructure for providing certain services which can also be sourced by lessee in case of inadequacy. Thereby, the condition of the section 56(2) of the Income Tax Act is not satisfied. In the case of Sultan Brothers and Jay Metals Industries Ltd, the furniture and fixtures was composite with building rent as inseparable component. To that extent the facts of Sultan Brothers (P) Ltd and Jay Metal Industries P Ltd are different and ratio is inapplicable to Microsoft India (R&D) Ltd in the A.Y. 2013-14.” The emphasis of the Ld. DR is that the rent is not composite as envisaged in section 56(2) of the Act. 10. We have carefully considered the rival submissions of the parties and perused the material available in the records. It is not in dispute that in preceding years the assessee has been claiming that the rental income earned by it from let out building space along with inbuilt infrastructure and other amenities is taxable as income from other sources and not as income from house property. The Revenue has been rejecting the assessee’s claim on the flimsy ground that claim has not been made in the returns but the ITA No. 6027/Del/17 13 claim is made during the course of assessment proceedings. With a view to satisfy the Revenue and to overcome the above disability, the assessee after having filed the original return for AY 2013-14 filed revised return claiming therein that the rental income is assessable under the head ‘income from other sources’. Adopting the reasons given in earlier years, analyzing the nature of lease agreement, holding that the assessee is not receiving composite rent as recommended by the Hon’ble Supreme Court in Sultan Brothers Pvt. Ltd. (supra) and that the lease deed is between related parties, the Ld. AO made the impugned disallowance which is confirmed by the Hon’ble DRP. 11. We observe that this issue came up for consideration before the Tribunal pursuant to the directions of the Hon’ble Delhi High Court for AY 2011-12 and 2012-13. The Tribunal in its order in ITA No. 1479/Del/2016 and ITA No. 507/Del/2017 dated 14.06.2021 proceeded with considering the decision of Hon’ble High Court in Jay Metals Industries Pvt. Ltd. 84 taxmann.com 11 wherein similar issue was considered and decided. In para 9 the Tribunal set out the question of law before the Hon’ble Delhi High Court and in para 10 extracted the observations of the Hon’ble Delhi High Court and analysed the facts of the assessee’s case and the findings of the Ld. AO viz. a viz. the findings and the observations of the Hon’ble Delhi High Court in paras 11 to 15 thereof. The Tribunal, thereafter recorded its findings in paras 16-25 of its order (supra) which is extracted below:- “16. We have given thoughtful consideration to the findings of the Assessing Officer but we do not concur with the findings. There is no dispute that the lease agreement is a composite lease agreement which included the inbuilt infrastructural facilities provided which included central air conditions with ducting, DG power supply, net work equipments, access control equipments, electrical equipments, VAVs and controllers, smoke detectors and occupancy sensors. 17. The agreement also included other amenities, namely installation of dish antenna/satellite, parking space, repair and maintenance which includes repairs, interior or exterior, electrical and plumbing work, repair and maintenance of common and open areas and facilities provided at the building like compounds, gardens, passage, elevators, lifts, terrace, DG sets etc and also 100% power backup and centralised air conditioning. ITA No. 6027/Del/17 14 18. In our considered opinion, for similar set of amenities/facilities, the Hon'ble Supreme Court in the case of Sultan Brothers [supra] has laid down certain tests which have been followed by the Hon'ble High Court of Delhi in the case of Garg Dyeing & Processing Industries [supra] and later on in the case of Jay Metals [supra]. We are of the considered view that in light of the facts discussed hereinabove, there can be no doubt that lease deed was composite one and rental receipt thereunder answered the description u/s 56(2)(iii) of the Income tax Act, 1961. 19. We find that the main thrust in rejecting the claim of the assessee by the Assessing Officer is that it is a related party transaction. The undisputed fact is that the assessment was subject to transfer pricing assessment for determination of ALP with AE and no such determination has been done by the TPO. We further find that though the Assessing Officer has discarded the claim of the assessee stating that it is a related party transaction, but the provisions of section 40A(2) of the Act have never been invoked. 20. In fact, the Assessing Officer himself has extracted the relevant clauses of lease deed himself showing that the lessor has agreed to provide services which have been enumerated hereinabove elsewhere. Therefore, considering the facts of the case in hand, we find that letting is not merely of the building but a composite let out of both building as well as equipment/furniture etc and thereby 56(2)(iii) of the Act is attracted. 21. Respectfully following the ratio laid down by the Hon'ble Supreme Court in the case of Sultan Brothers [supra] and the Hon'ble High Court of Delhi in the case of Jay Metals [supra], we direct the Assessing Officer to treat the income from letting out of the building as income under the head “Income from other sources”. 22. The other ground which relates to the claim of expenses and depreciation u/s 57 of the Act has already been answered by the Hon'ble High Court of Delhi in the case of Jay Metals [supra] as under: 26. However, the last plea made by the Assessee is that in that event the entire income from the letting is treated as 'income from source sources', it cannot be deprived of the corresponding deduction in terms of Section 57 (iii) of the Act. The Revenue too has not disputed the fact that the Assessee has not claimed depreciation. 27. Accordingly, it is directed that while giving the appeal effect, the AO will grant the Assessee the benefit of Section 57 (iii) of the Act. 23. Respectfully following the findings of the Hon'ble High Court, we direct accordingly. 24. As mentioned elsewhere, facts of A.Y 2012-13 being identical to A.Y 2011-12, we decide accordingly. 25. In the result, the grounds restored to the file of the Tribunal by the Hon’ble High Court are decided in favour of the assessee and against the Revenue.” 12. We appreciate the efforts made by the Ld. DR to convince us that the lease deed in question is not composite and that the rental receipt does not ITA No. 6027/Del/17 15 answer the description under section 56(2)(iii) of the Act. We, however, do not subscribe to the views expressed by him in his written submission which are nothing but reiteration of what the Ld. AO has said in the assessment order which has been duly considered by the Tribunal in the order (supra). The Tribunal in para 18 has observed that for similar set of amenities/facilities, the Hon’ble Supreme Court in Sultan Brothers Pvt. Ltd. (supra) has laid down certain tests which have been followed by the Hon’ble Delhi High Court in Garg Dyeing & Processing Industries vs. ACIT (2012) (ITA 319/2012) (Del) and later in Jay Metals (supra). Testing the facts of the assessee’s case on the touchstone of the decisions (supra) the Tribunal recorded its unequivocal finding that the lease deed under consideration was composite one and that it answered the description under section 56(2)(iii) of the Act. Another objection of the Revenue that it is related party transaction has also been rejected by the Tribunal by saying that no adverse view has been taken in determination of ALP with AE by the Ld. TPO nor provisions of Section 40A(2) have ever been invoked. 13. In subsequent AYs 2014-15 and 2015-16 also the same issue has been decided by the Tribunal in favour of the assessee in its order dated 24.09.2021 in ITA No. 8229/Del/2018 and 8143/Del/2019 wherein the Tribunal followed its decision dated 14.06.2021 for AY 2011-12 and AY 2012-13. 14. The AY under our consideration falls in between. 15. Admittedly, as Ld. AO says in para 4.3 of his order, in AY 2013-14 also the facts of the case are similar to that of the earlier years. On such admitted fact situation, the co-ordinate benches of the Tribunal have decided this issue in earlier years as also in subsequent years in favour of the assessee. Therefore, there is no reason for us to deviate from the same in the absence of any fresh adverse material in the records. Accordingly the modified ground No.1, 2.1 and 2.2 are decided in favour of the assessee with the direction to the Ld. AO to follow the decision of the Hon’ble Delhi High Court in Jay Metals (supra) in respect of the assessee’s claim of expenses ITA No. 6027/Del/17 16 and depreciation under section 57 of the Act extracted by the Tribunal in para 22 of its order (supra) for AY 2011-12 and 2012-13. We order accordingly. 16. The modified ground No. 3 has not been pressed. It is dismissed as not pressed. 17. The modified ground No. 4 relates to denial of credit for TDS amounting to Rs. 3,11,749/-. After hearing the parties, we direct the Ld. AO to verify the claim of the assessee and allow the credit if the claim, on verification, is found to be correct. It is ordered accordingly. 18. The modified ground No. 5 is only consequential. The Ld. AO shall do the needful after giving appeal effect. 19. The modified ground No. 6 relates to initiation of penalty under section 271(1)(c) of the Act which is not a subject matter of this appeal. 20. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 11 th August, 2022. sd/- sd/- (SHAMIM YAHYA) (ASTHA CHANDRA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 11/08/2022 Veena Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi ITA No. 6027/Del/17 17 Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order