Delhi High Court – Orders
Pr. Commissioner Of Iricome Tax – 1 vs M/S. At&T Communication Services India … on 16 December, 2024
Author: Yashwant Varma
Bench: Yashwant Varma, Dharmesh Sharma
$~12
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 915/2019
PR. COMMISSIONER OF IRICOME TAX - 1 .....Appellant
Through: Mr. Vipul Agrawal, SSC.
versus
M/S. AT&T COMMUNICATION SERVICES INDIA PVT.
LTD. .....Respondent
Through: Mr. Sachit Jolly, Sr. Adv. with
Mr. Rishabh Malhotra, Ms.
Disha Jham, Ms. Soumya Singh
and Mr. Devansh Jain, Advs.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE DHARMESH SHARMA
ORDER
% 16.12.2024
CM APPL. 71570/2024 (Admission of Addl. Question of Law)
Bearing in mind the disclosures made in the application, it is
allowed.
The application shall stand disposed of.
ITA 915/2019
1. The Commissioner seeks to impugn the order of Income Tax
Appellate Tribunal1 dated 31 October 2018 and has posited the
following the questions of law for our consideration: –
“A. Whether the Order of the ITAT was incorrect in holding that
interest on delayed payment of outstanding receivables cannot be
an international transaction capable of TP adjustment is contrary to
the provision of Explanation (1)(c) to section 92B which states that
outstanding receivables are in the nature of capital financing and Is
an international transaction?
1
Tribunal
ITA 915/2019
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B. Whether on the facts and circumstances of the case and in law
the Hon’ble ITAT was correct in holding that the amounts
outstanding as receivable with foreign AE was not a separate
international transaction, especially when about 70% of the sale of
the assessee to its foreign AE is lying in debts and much beyond
the agreed time period of 180 days as per terms of contract of sale?
C. Whether on the facts and circumstances of the case and in law
the Hon’ble ITAT was correct in aggregating the amount remaining
outstanding/ receivables from the foreign AE, beyond the terms of
contract, with the sale consideration is arrived at, on the basis of
recovery in span of 180 days?
D. Whether the Hon’ble ITAT has erred in law and on the facts in
deleting the addition on account of non- changing of mark up on
support service charges billed to AGNSI amounting to Rs.
1,99,26,043/-, an Indian affiliate of the assessee company?
E. Whether the Hon’ble ITAT has erred in law and on the facts in
deleting the disallowance of expenses amounting to Rs.
1,58,40,885/-, represented by year end accruals on account of
excess provisioning and non-submission of supporting material
without appreciating the facts brought by the Assessing Officer that
the assesee was not able to substantiate its claim?
F. Whether the Hon’ble ITAT has erred in law and on the facts in
deleting the disallowance u/s 40(a)(ia) of the Income Tax Act,
1961 amounting to Rs. 4,17,56,851/- without appreciating the facts
brought by the Assessing Officer that the assessee was required to
deduct tax in hands of the AEs?”
2. Insofar as question „E‟ is concerned, we have already identified
the same to be one which would merit further consideration while
examining similar findings and conclusions which had been rendered
by the Tribunal in its order, which forms subject matter of challenge
before us in Pr. Commissioner of Income Tax, Delhi-1 v. AT&T
Global Network Services (India) Pvt. Ltd2.
3. Questions „A‟, „B‟ and „C‟ are concerned with the delayed
payment of outstanding receivables and whether they would fall
within the ambit of clause (c) of the Explanation (i) to Section 92B of
2
ITA 288/2018 and other connected appeals
ITA 915/2019
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the Income Tax Act, 19613. We had while examining this question in
Pr. Commissioner of Income Tax-4, New Delhi vs. Global Logic
India Ltd.4 taken note of the principles which had come to be
enunciated by the Court in Principal Commissioner of Income-tax
vs. Kusum Health Care Pvt. Ltd.5 and had observed in Global Logic
as follows: –
“1. After hearing learned counsels for parties, we had on 18 March
2024 flagged the following issues which appeared to arise for our
consideration: –
1. Having heard learned counsels for the parties we note that
one of the principal issues which would arise for consideration
would be whether the asserted deferral of payments would fall
within the ambit of clause (c) of Explanation (i) placed at the
end of Section 92B of the Income Tax Act, 1961 [“Act”]. The
appellants seek to draw support from the following observations
as rendered by the Court in PCIT vs Kusum Health Care Pvt.
Ltd. [(2017 SCC OnLine Del 12956]:
“10. The Court is unable to agree with the above
submissions. The inclusion in the Explanation to
Section 92B of the Act of the expression
“receivables” does not mean that de hors the context
every item of “receivables” appearing in the accounts
of an entity, which may have dealings with foreign
associated enterprises would automatically be
characterised as an international transaction. There
may be a delay in collection of monies for supplies
made, even beyond the agreed limit, due to a variety
of factors which will have to be investigated on a case
to case basis. Importantly, the impact this would have
on the working capital of the assessee will have to be
studied. In other words, there has to be a proper
inquiry by the Transfer Pricing Officer by analysing
the statistics over a period of time to discern a pattern
which would indicate that vis-à-vis the receivables for
the supplies made to an associated enterprise, the
arrangement reflects an international transaction
intended to benefit the associated enterprise in some
way.
11. The Court finds that the entire focus of the
3
Act
4
[ITA 845/2018 decided on 21 August 2024]
5
[2017 SCC OnLine Del 12956]ITA 915/2019
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Assessing Officer was on just one assessment year
and the figure of receivables in relation to that
assessment year can hardly reflect a pattern that
would justify a Transfer Pricing Officer concluding
that the figure of receivables beyond 180 days
constitutes an international transaction by itself. With
the Assessee having already factored in the impact of
the receivables on the working capital and thereby on
its pricing/profitability vis-à-vis that of its
comparables, any further adjustment only on the basis
of the outstanding receivables would have distorted
the picture and re-characterised the transaction. This
was clearly impermissible in law as explained by this
Court in CIT v. EKL Appliances Ltd. (2012) 345 ITR
241 (Delhi).”
2. Mr. Agarwal, learned counsel for the appellants, has
additionally submitted that the practice of deferred payment is
one which is being continuously replicated and provided by the
assessee right from Assessment Years [“AYs”] 2010-11 to
2017-18. According to learned counsel the aforesaid conduct
would itself be indicative of a practice adopted by the assessee
and consequently the payments being liable to be viewed as an
international transaction.
3. We, however, note that the instant appeals pertain to the first
year of operation and consequently the pattern as is alluded to
would have to be examined not merely on the basis of the orders
passed for subsequent AYs‟ but also in light of the data which
was available with the Assessing Officer [“AO”] for the AY in
question and whether that would indicate a practice of deferred
payment and consequently placing the transactions in clause (c)
of Explanation(i) to Section 92B of the Act.
4. We also take note of the submission addressed on behalf of
the respondent/assessee when it was contended that merely
providing a short-term deferral of payment would not fall within
clause (c) bearing in mind the following principles enunciated
by the Supreme Court in Bombay Steam Navigation Co. Ltd.
vs CIT [AIR 1965 SC 1201]:
“In our judgment this is not a permissible approach in
ascertaining the true nature of the transaction. The
parties had agreed that assets of the value of
Rs.81,55,000 be taken over by the assessee-company
from the Scindias. Out of that consideration
Rs.29,99,000 were paid by the assessee-company and
the balance remained unpaid. For agreeing to deferred
payment of a part of the consideration, the Scindias
were to be paid interest. An agreement to pay the
balance of consideration due by the purchaser doesITA 915/2019
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not in truth give rise to a loan. A loan of money
undoubtedly results in a debt, but every debt does not
involve a loan. Liability to pay a debt may arise from
diverse sources, and a loan is only one of such
sources. Every creditor who is entitled to receive a
debt cannot be regarded as a lender. If the requisite
amount of consideration had been borrowed from a
stranger, interest paid thereon for the purpose of
carrying on the business would have been regarded as
a permissible allowance; but that is wholly irrelevant
in considering the applicability of clause (iii) of sub-
section (2) to the problem arising in this case. The
legislature has under clause (iii) permitted as an
allowance interest paid on capital borrowed for the
purposes of the business; if interest be paid, but not on
capital borrowed, clause (iii) will have no
application.”
5. It was further submitted that the words „deferred payment’ or
„receivable’ would have to be interpreted ejusdem generis with
the other services and lending facilities which are spoken of.
6. In order to enable Mr. Agarwal, learned counsel to address
further submissions, let the appeals be re-notified for
03.05.2024.
7. We also accord liberty to the appellants to place such
additional material as may be chosen and advised within four
weeks from today.”
xxxx xxxx xxxx
3. We however note that insofar as the present appeals are
concerned and which are confined to Assessment Years 2010-
2011 and 2012-2013, the Income Tax Appellate Tribunal quite
apart from resting its decision on Kusum Health Care had also
rendered the following findings: –
“17. Furthermore when the taxpayer is undisputedly a debt free
company, as it is not the case of the ld. TPO that borrowed
funds have been appropriated enabling the AE to make the
delayed payment on receivables. So when outstanding
receivables is not a separate international transaction, the delay
in realization of the sale proceeds is incidental to the transaction
of sale and as such no notional interest can be levied by treating
the same as unsecured loan.
18. Furthermore it is the case of the taxpayer that when the
taxpayer is not charging interest from unrelated third party/non-
AE, in case of such delay, no adjustment on interest in case of
AE can be made and drew our attention towards the details of
invoices raised qua unrelated parties available at page 183A ofITA 915/2019
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the paper book wherein delay in realization of the receivables is
also up to 218 days for AY 2010-11 and up to 417 days qua AY
2012-13 as per detail of invoices raised on unrelated parties qua
AY 2012-13, available at page 236 of the paper book.”
4. We note that in Kusum Health Care apart from the aspect of
deferred payments ultimately transforming into a pattern, the Court
had also taken a note of those deferred payments having an impact
on the working capital of the assessee. As we go through the order
framed by Transfer Pricing Officer in these two appeals, the
authority has clearly failed to examine or answer the issue of
international transactions bearing in mind Explanation (i)(c) of
Section 92B of the Income Tax Act, 1961 in the aforesaid light. In
any case and in light of the factual findings which stand mirrored
in paragraphs 17 and 18, we find no justification to interfere with
the ultimate view expressed by the Tribunal.
5. Accordingly, while we dismiss these two appeals, we leave the
question of law which was posited for consideration open to be
addressed in appropriate proceedings.”
Bearing in mind the aforesaid, we find no justification to interfere
with the view ultimately taken by the Tribunal.
4. That only leaves us to examine question „F‟ and which is
concerned with the disallowance under Section 40(a)(ia). We note that
while dealing with this aspect, the Tribunal in para 31 had observed as
follows: –
“31. It can be seen from the above that so long as a payment to
non-resident entity is in the nature of payment consisting of income
chargeable under the head ‘Salaries’, the assessee does not have any
tax withholding applications u/s 195 of the Act. In our considered
view, the nature of income embedded in related payments is
relevant for deciding whether or not section 195 will come into
play. We have also gone through the agreements exhibited at pages
525-530 of the paper book and have also considered Form 16
which are placed on record on page 605 of the paper book.
Considering the facts on record, it can be reasonably concluded
that the employees seconded to the assessee company are working
as the employees of the assessee company, their salary is subject to
TDS u/s 192 of the Act and, therefore, provisions of section 195
are not applicable on the facts of the case in hand.”
5. Since this issue stands conclusively answered on facts, we find
that no substantial question of law can be said to arise. We thus find
ITA 915/2019
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no justification to admit the appeal on proposed question „F‟.
6. Insofar as question D is concerned, we take note of the
following conclusions which had come to be rendered by the
Tribunal:-
“24. We have carefully considered the orders of the authorities
below. The Assessing Officer has proceeded by referring to the
additions made in last year. We find that in earlier year, the
coordinate Bench in ITA No.1016/Del/2015, assessment year
2010-11, has deleted the similar additions. The relevant findings of
the coordinate Bench read:-
“16. So, in the instant case also, the Revenue has failed to
controvert the invoices, me details of payment made and
evidencing the payments thereof to dispute the genuineness
of the expenses and the fact that the taxpayer as well as
AGNSI are profit making entities and there was no tax
incentives for the purpose to deflate the revenues earned by
the taxpayer, the Revenue has based its decision on
commercial consideration. Moreover, in case of both the
resident parties, terms and conditions of the arrangement
cannot be questioned by the Revenue unless specifically
provided under the Act. In case of a contract by both the
parties who are admittedly resident Indian entities, they make
the law for themselves which cannot be interfered unless
contract is unlawful or specially barred by the law of the
land. Moreover by such a decision of not charging mark up
by the taxpayer on support services charges billed to AGNSI,
no loss of tax has been caused to Revenue. So, the findings
of the TPO/DRP that the taxpayer is not only to cut charges
but mark up also is not sustainable in the eyes of law. So we
order to delete the addition on account of not charging of
mark up on support charges billed to AGNSI.”
25. Respectfully following the findings of the coordinate Bench,
we direct the Assessing Officer to delete the impugned addition.
Ground No.4 is allowed. Ground No.5 is not pressed and the same
is dismissed as not pressed.”
7. In light of the above, we find no ground to entertain the appeal
on question „D‟ either.
8. The appeal shall consequently stand admitted on the following
question of law:-
A. Whether the Tribunal has erred in law and on facts in
ITA 915/2019
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deleting the disallowance of expenses amounting to INR
1,58,40,885/- represented by year end accruals on account of
excess provisioning and non-submission of supporting material
without appreciating the facts brought by the Assessing Officer
that the respondent-assessee was unable to substantiate its
claim?
9. List again on 25.02.2025.
YASHWANT VARMA, J.
DHARMESH SHARMA, J.
DECEMBER 16, 2024/DR
ITA 915/2019
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