It is seen that in the course of the assessment proceedings the Assessing Officer found that the assessee had made payments towards purchase of land in the Devanahalli taluk of Bangalore District out of which sums amounting to Rs. 87,92,635 were found to have been paid in cash in contravention of the provisions of section 40A(3) of the Act. The assessee’s explanation in letter dated December 18, 2008, that the payments were made at places which were not served by any banking facilities was not accepted by the Assessing Officer for the reason that Devanahalli taluk is a well developed suburb of Bangalore having a large number of banks and the recipients of the consideration were residing in that area and some of them were in receipt of government compensation for land acquisition and had accounts and deposits in such banks.
On a plain reading of the provisions of section 54F of the Act, we do not find anything therein to suggest that the new residential house acquired should be situated in India. The jurisdictional High Court in the case of Mrs. Jennifer Bhide (supra) has held that introducing a word which is not there into a section amounts to legislating when Parliament has not used these words in the said section.
This issue is covered by the decision of the Hon’ble High Court of Karnataka in the case of Yokogawa India (cited Supra), wherein it has been held that for computing the deduction u/s 10A of the Act, the profit of eligible units have to be deducted at source and do not enter into the computation of income and as a consequence of which, the losses suffered by non eligible units cannot be set off against the profits of eligible units.
As regards the payment made by Gemini International Tours and Travels is concerned, we find that the agent receives the clients and leave them in the resorts or hotels for which he is paid commission. The nature of the activity of the agent at Maldives is only to facilitate the movements of the tourists of the assessee within the country of Maldives and to see that no inconvenience is caused to them. He is not entitled to take any decision as regards the destination of the tourists or with regard to their stay and accommodation. Therefore, services rendered by him also cannot be said to be technical services u/s 9(1)(vii) of the Income-tax Act. If the said services cannot be termed as technical services, then the payment made to the agent can only be considered as his business income which can be taxed in India only if he has a PE in India. As there is no PE in India for Mr. Hussain Shiham, respectfully following the decision of the Hon’ble Delhi High Court in the EON Technology (P.) Ltd. (cited Supra), this ground of appeal is also allowed.
The TPO has to work out the ALP of the international transaction by applying the methods recognized under the Act. He is not competent to hold that the expenditure in question has not been incurred by the assessee or that the assessee has not derived any benefits for the payment made by the assessee and consequently, he cannot consider the ALP as NIL.
It is seen from the methodology that the assessee takes into account the warranty liability for the accounting period after bifurcating the likely cost on account of labour, material etc. The summary of the provision also shows that wherever excess provision was made in an earlier year, the same was reversed in the subsequent period.
Commission paid to the credit card companies cannot be considered as falling within the purview of S.194H. Even though the definition of the term commission or brokerage used in the said section is an inclusive definition, it is clear that the liability to make TDS under the said section arises only when a person acts behalf of another person.
As far as the provisions of the Act are concerned, they lay down that the comparable companies should be functionally comparable to the tested party. There are no specific standards of comparability on the basis of abnormal profits or loss. Rule 10B(2) provides that the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the following, namely:-
Assessee is in the TT enabled services, whereas the said company Apex Knowledge Solutation Pvt. Ltd., is in the business of E-publishing which cannot be said to be in the same line of business. The functional differences are likely to affect the profit marking capacity of both the companies. In view of the same, we are of the opinion that this company is also to be excluded from the list of comparables.
From a perusal of the order of assessment, we find that all the submissions of the assessee before the Assessing Officer and his findings thereon are only in respect of whether the payment made by the assessee to the consultant M/s. IBM Corporation, USA was or was not taxable in India as royalty under Article 12(3) of the India-USA, DTAA or as Fees for included services under Article 12(4) of the India-USA, DTAA.
