Income Tax Appellate Tribunal - Chennai
Nissan Motor India Private ... vs Dcit Corporate Circle 4(2), Chennai on 23 April, 2025
आयकर अपीलीय अिधकरण, 'डी' यायपीठ, चे ई।
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH: CHENNAI
ी एबी टी. वक , ाियक सद एवं
ी अिमताभ शु ा, लेखा सद के सम
BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND
SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER
IT (TP) A No.29/Chny/2019
िनधा रण वष /Assessment Year: 2013-14
M/s. Nissan Motor India Pvt. Ltd., v. The DCIT,
Plot No.1A, SIPCOT Industrial Park, Corporate Circle-4(2),
Mattur Post, Oragadam, Chennai.
Sriperumbudur,
Kanchipuram District,
Tamil Nadu-602 105.
[PAN: AACCN 0695 D]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओर से/ Appellant by : Mr.Ajit Tolani, Advocate
&
Mr. Darpan Kirpalani,
Advocate (Virtual)
यथ क ओर से /Respondent by : Mr. A. Sasikumar, CIT
सुनवाई क तारीख/Date of Hearing : 28.03.2025
घोषणा क तारीख /Date of Pronouncement : 23.04.2025
आदेश / O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Assessing Office passed under Section 143(3)/144C(13) of the Income Tax Act, 1961 (hereinafter in short 'the Act') dated 21.01.2019 for Assessment Year 2013-14 (hereinafter in short 'AY') pursuant to the DRP directions dated 10.01.2019.
IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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2. Grounds of appeal raised by the assessee are as under:
The grounds of appeal listed below are independent and without prejudice to each other.
1. GENERAL GROUND 1.1. The lower authorities had, in the facts and circumstances of the case, erred in passing orders with unwarranted unwarranted adjustments to the reported income of the Appellant by misapplying the provisions of the Act, by adopting faulty assessment procedure to finalize the adjustment, such as, but not limited to, rejection of transfer pricing study, analysis of the functions functions carried out by the Appellant and those of the comparable companies, selection of inappropriate comparables, erroneous accounting treatment of certain items, erroneous computation of profit margins of the comparable companies and not granting appropriate priate economic adjustments.
2. TRANSFER PRICING ADJUSTMENT-UPWARD ADJUSTMENT UPWARD ADJUSTMENT IN CARS AND AFTER-SALES SALES SEGMENT
21. The lower authorities had erred in the facts and circumstances of the case and in law, in making an upward adjustment to the Appellant's international inter transactions in the Cars and After-Sales After segment.
2.2 Segmentation between Export and Domestic Segment 2.2.1. The lower authorities had erred in the facts and circumstances of the case and in law, by not appreciating the fact that net margins of the the Appellant in the exports segment is higher than the net margins of the comparables selected by the lower authorities and hence at arm's length.
2.2.2. The lower authorities had erred in the facts and circumstances of the case and in law, by erroneously rejecting the independent certification submitted in relation to the segmentation between the export and domestic profitability of the Appellant 2.3.
3. Comparables adopted by the lower authorities 2.3.1. The lower authorities had erred in the facts and circumstances circumstances of the case and in law, in considering companies engaged in the manufacture of commercial vehicles and two wheelers for benchmarking the Appellant's international transactions, which were in fact rejected by the Transfer Pricing Officer (TPO) himself elf to be non-comparable non in the subsequent year.
2.3.2. The lower authorities had erred in the facts and circumstances of the case and in law, in undertaking a fresh search process using irrelevant parameters for determination of ALP of the Appellant's international international transactions, and not providing the details of the search conducted and filters adopted in identifying comparable companies, which amounts to cherry picking of companies 2.4 Computation of net margins of the Appellant 2.4.1. The lower authorities authorities had erred in the facts and circumstances of the case and in law, in treating the Investment Promotion Subsidy ('IPS') incentive as a non-operating operating item and excluding the same in computing the net IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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operating margins of the Appellant without appreciating the the nature of IPS incentive.
2.4.2. Without prejudice to other grounds, the lower authorities had erred in the facts and circumstances of the case and in law by considering IPS incentive as non-operating operating in nature for computation of the net margin of the Appellant, App and not excluding it from the computation of taxable income. 2.4.3. The lower authorities had erred in the facts and circumstances of the case and in law, in treating export incentives as a non-operating non operating item and excluding the same in computing the net operating margins of the Appellant without appreciating the nature of the incentive 2.4.4. The lower authorities had erred in the facts and circumstances of the case and in law, in treating the write-back write back of provisions no longer required as non-operating ing in nature, in computing its operating margins, without understanding the real nature of the said items. 2.5 Rejection of benchmarking analysis and computation of Arm's length price (ALP) 2.5.1. Without prejudice to the above grounds, the lower authorities authorities had erred in the facts and circumstances of the case and in law, in rejecting the 'one economic unit approach adopted by the Appellant for determining the ALP of its international transactions, without appreciating its business model and other economic aspects of its business.
2.5.2 Without prejudice to the above grounds, the lower authorities had erred in the facts and circumstances of the case and in law, in rejecting the overseas tested party approach used to benchmark the import as well as export related re international transactions in the Transfer Pricing study maintained by the Appellant, despite accepting the entrepreneurial functions and risk of the appellant, and not appreciating that a similar approach for benchmarking the imports was accepted in a previous year by TPO. 2.6 Economic Adjustment 2.6.1. The lower authorities had erred in the facts and circumstances of the case and in law, in not granting appropriate adjustments for customs duty and working capital as envisaged under Rule 100 of the Income Income Tax Rules, 1962 (IT Rules) in determination of ALP of the Appellant's international transactions 2.7 Corresponding relief 2.7.1. The lower authorities had erred in the facts and circumstances of the case and in law, in not understanding the business model of the Appellant, by imputing an adjustment in the case of the Appellant's domestic related party (Renault Nissan Automotive India Private Limited), and not providing a corresponding relief in relation to its transactions with the Appellant, which wass in fact provided by the TPO himself in the subsequent year. 2.8 Other grounds 2.8.1. The lower authorities erred in the facts and circumstances of the case and in law, by rejecting the Indian benchmarking analysis (using Indian comparable companies) submitted submitted by the Appellant as part of the transfer pricing assessment proceedings.
IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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3. DEDUCTIBILITY OF PROVISION FOR WARRANTY CREATED IN BOOKS OF ACCOUNTS 3.1 The lower authorities erred in the facts and circumstances of the case and in law, in not allowing deduction in respect of the provision for warranty accounted by the Appellant, stating that the same is not consistent on a year on year basis.
3.2 The lower authorities erred in the facts and circumstances of the case and in law, in not appreciating the scientific and consistent basis followed by the Appellant in relation to creation of provision for warranty and erred in concluding that the quantum of provision is in excess, without demonstrating any reasons as to why the same is found to be excessive.
3.3 .3 The lower authorities also erred in the facts and circumstances of the case and in law, in distinguishing the judicial precedents relied upon by the Appellant by stating that the same may not apply since the Appellant has engaged some other concern for the manufacturing of the goods without appreciating that contractually, the Appellant is liable for any claim that arises on account of product warranty 3.4. The lower authorities erred in the facts and circumstances of the case and in law, in disregarding the computation adopted by the Appellant for arriving at the amount of provision and instead determining the quantum of provision as an average of the provision for 5 years on an adhoc basis
4. APPLICABILITY OF WITHHOLDING TAX ON PAYMENTS MADE FOR SOFTWARE E CHARGES 4.1. The lower authorities erred in the facts and circumstances of the case and in law, in treating the payments made for software charges by the Appellant to tax resident of Japan to be in the nature of 'Royalty and thus, subject to withholding taxes under the provisions of the Income-tax Income Act, 1961.
4.2 The lower authorities erred in the facts and circumstances of the case and in law, in failing to appreciate that the Appellant has the option of availing of the provisions of the relevant tax treaty treaty where the same are more beneficial than the provisions of the income-tax income Act, 1961.
4.3. The lower authorities erred in the facts and circumstances of the case and in law, in failing to appreciate that the payment made by the Appellant towards software charges does not envisage the transfer of any right in the nature of copyright or similar nature in relation to the software. Consequently, the same would not be covered as 'Royalty' under the India-Japan India Japan tax treaty.
4.4 The lower authorities erred in the facts and circumstances of the case and in law, in failing to appreciate that the payment by the Appellant is merely acquiring a copy of the computer programme and cannot be treated as a payment for the "right to use the copyright in computer programme.
4.5.
5. Further, the lower authorities failed to appreciate that the payment made by the Appellant to the non-resident non resident for purchase of software is in the nature of business income which would be liable to tax in India only on the constitution of a PE of the non-resident.
non resident. Therefore, in the absence of PE of the non-resident resident in India, the subject payment is not liable to withholding tax in India IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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4.6. Further, the lower authorities failed to appreciate the applicability of the principles upheld by jurisdictional courts courts in the precedents relied on by the Appellant.
4.7 Also, the lower authorities erred in not taking cognizance of Hon'ble Chennai ITAT ruling in the Appellant's own case for AY 2014-15, 2014 15, rendered in the context of applicability of withholding on the subject subje payment.
5. REVERSAL OF PROVISIONS DISALLOWED IN EARLIER FINANCIAL YEARS 5.1. The Appellant wishes to submit that certain provisions were reversed to the Profit and Loss Account and reported as income in the books of accounts during the subject Financial Financia Year 2012-13 13 and offered to tax in the return of income. These reversals relate to provisions created in the prior financial years where such provisions were disallowed in computing the income of the Appellant for income-tax tax purposes. The Appellant prays that relief be granted in respect of these provision reversals since the same has inadvertently not been claimed by the Appellant in the return of income or during the assessment proceedings and has led to income tax being charged on the same income twice The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra and all consequential relief thereto.
The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal.
3. Before us, the Ld. AR placed on record, issue wise chart along with written submissions. Having heard the rival submissions and upon perusal of the case records, the appeal is disposed off as under.
4. Ground No.2 relates to the action of the lower authorities author confirming the transfer pricing adjustment to the extent of Rs.338.52 crores. The facts as noted are that, the assessee is an Indian subsidiary of the Nissan Group. The assessee is noted to be engaged in the distribution of Nissan branded cars in India, ia, apart from exporting the same to its Associated Enterprises (hereinafter in short 'AE'), for resale in other international markets. The modus operandi of the assessee's business is that it domestically sources the automobile parts and components, which is IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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exported to its AEs as well. The assessee is noted to have benchmarked the transactions with the AEs by applying internal TNMM Method. The Transfer Pricing Officer(TPO) Officer( is noted to have rejected the segmental data provided by the assessee and instead computed computed the operating margin at the entity level and compared the same with the operating margins of comparable entities identified by him. The TPO is noted to have computed the PLI of the assessee viz., OP/OC at 6.23%. Against this, the comparables chosen n by the TPO and their margins as computed, are noted to be as follows:
5. It is noted that, the Ld. DRP upheld the comparables chosen by the TPO and also rejected the objections raised by the assessee to the computation of its PLI. Aggrieved by the said order, the assessee is now in appeal before us.
6. The Ld. AR of the assessee had set out two different lines of arguments agitating the impugned transfer pricing adjustment. The first IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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line of argument of the Ld. AR was in support of the Transfer Pricing Study conducted by the assessee and the segmental workings as well as the application of internal TNMM. In the second alternative approach, the Ld. AR submitted that, some of the comparables identified by the TPO were functionally dissimilar and that if the the said comparables are excluded and at the same time, the apparent infirmities made by the th TPO in the computation of the assessee's PLI is considered, then the operating margins of the assessee would be higher than the operating margins of the comparables identified by the TPO and thus would satisfy the arm's length test. Per contra, the Ld. CIT, DR supported the orders of the lower authorities.
7. Heard both the parties. Having considered the rival contentions placed before us, we first deem it fit to take up the second line of argument of the assessee for adjudication. The Ld. AR of the assessee had pointed out that, out of the above five (5) comparables comparables identified by the TPO, three (3) comparables viz., M/s Ashok Leyland Limited, M/s Eicher Motors Ltd. and M/s VE Commercials Ltd., had been rejected by the TPO himself, holding it to be functionally dissimilar in the subsequent years. It is noted that, t, the TPO had conducted a broad base search during the year and had included companies engaged in manufacture of commercial vehicles viz., heavy trucks, heavy duty vehicles etc. According to us, the assessee has rightly pointed out that, these three companies, compa IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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which were engaged in manufacture of commercial vehicles were functionally dissimilar to the assessee's operations/activities in consumer automobiles as they operate in different economic markets and thus making them incomparable. We also note that these these three (3) comparables had been categorically rejected by the TPO himself in his orders passed u/s 92CA(3) of the Act for AYs 2014-15 2014 15 & 2015-16, 2015 copies of which have been placed before us at Page Nos. 624, 664 and 665 of the Paper-book.
book. Having taken note note of the same, we are in agreement with the assessee that, when the Revenue itself has held these three companies to be functionally dissimilar in the subsequent years, then it would be unjustified to retain them as comparables in the relevant year. Accordingly, dingly, the TPO/AO is directed to exclude these three (3) comparables while computing the comparable PLI.
8. The next plea of the assessee was on the manner of computation of its PLI by the TPO. According to the assessee, the TPO had erred in treating the export incentives and the provisions written back as non-
non operating in nature. We first take up the item of export incentives and subsidies received under the IPS Scheme. The assessee has pointed out that, these incentives/subsidies subsidies were received in the course course and for the purposes of business, and were also assessed to tax as business income being intrinsically related with the business operations of the assessee. It is observed that this Tribunal at Bangalore in the case of Reitzel India IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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Pvt Ltd vs. DCIT (IT(TP) No.2341/Bang/2019 has also held that, IT(TP) No.2341/Bang/2019) the export incentives and subsidies ought to be treated as operating income, for the purposes of computation of PLI. The relevant findings taken note of is as follows:
"11.
11. The issue relating to export incentives, incentives, i.e., whether they are part of operating income or not has since been settled by Hon'ble Bombay High Court in the case of Welspun Zucchi Textiles Ltd (supra). Accordingly, we direct the AO/TPO to consider export incentives as part of operating income. If scraps are generated during the course of processing of gherkins, we do not find any reason not to consider it as part of operating profit. Accordingly, we direct the AO/TPO to take scrap sales as part of operating income, if the scrap is generated during dur out of its business activities. "
9. It is also noted that the TPO himself has treated such export incentives and subsidies to be an operating item of income, for the purposes of computing the operating margins of the assessee as well as the comparables, s, in the subsequent AYs 2014-15 2014 15 and 2015-16.
2015 Having regard to the above decision (supra) and the fact that the TPO in assessee's own case has also treated the export incentives and subsidies to be an operating item of income in the later years, the AO/TPO AO is directed to rework the PLI of the assessee as well as the comparables, after considering the export incentive and IPS subsidies to be as an operating item of income.
10. Now we take up the treatment of item of provisions written back in the P&L Account.
t. It is observed that, for computing the operating margins, on the given facts of the case, the assessee had treated the IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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provisions written back as a part of operating income and the TPO also had accepted the same. The Ld. DRP however is noted to have suo-moto enhanced the assessment by treating the provisions written-back written as a non-operating operating item of income. Before us, the Ld. AR for the assessee showed us that the provisions were created in relation to the operating expenses/activities activities of the company. It was was brought to our notice that, when these provisions were created in the earlier years, they were treated as an item of operating expense and the same was accepted by the Revenue as well. He thus contended that, when the same provisions have now been written en back, it ought to be treated as an item of operating income, as a matter of parity. He further showed us that, though the Ld. DRP excluded the provisions written back as an item of operating income while computing the PLI of the assessee, but the provisions ions written back, in the case of comparables, was considered as an operating income by the Ld. DRP. This, according to the assessee, assesse showed the inconsistent stand taken by the Ld. DRP in as much as the Ld. DRP had arbitrarily disturbed the settled consistent position which was permeating through the years. Having regard to these peculiar facts of the case, and the fact that these provisions related to the operating expenses of the assessee, we direct the AO to rework the PLI of o the assessee as well as the comparables, after considering the provisions written back as an operating item of income, for the computation of PLI.
IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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11. In light of the above directions, we thus allow the alternate plea of the assessee for statistical purposes.
purposes. Accordingly, the primary contention raised by the assessee supporting its transfer pricing study in relation to application of internal TNMM based on their segmental results, has become academic in nature, and is therefore not being separately adjudicated cated upon. This ground is therefore allowed for statistical purposes.
12. Ground No.3 of the appeal relates to the disallowance of the provisions for warranty to the extent of Rs.45.77 crores. The facts as noted are that, the assessee had made a provision of Rs.145.73 crores on account of provision for warranties in relation to its domestic and export sales. In the course of assessment, the assessee is noted to have submitted the basis of arriving at the provision for warranty along with the granular level break-up, break up, copy of which is found placed at Pages 536 to 547 of the Paper Book. It was inter alia explained therein that, ordinarily the regular contractual warranty for the year worked out to Rs.46.56 crores, but a further additional warranty of Rs.99.17 crores was provided due to the global recall campaign of their Nissan Micra and Sunny Model cars due to the brake and oil pump fault found across their sales. For this, the assessee is also noted to have placed the news article covering this extraordinary event of their global recall campaign, which is found placed at Pages 545 to 546 of the Paper Book. The AO however is noted to have IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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questioned the increased quantum of provision for warranty created during the year. The AO is found to have analyzed the percentage per of warranty created and utilized for the period 2011-12 2011 12 to 2015-16 2015 and observed that the provision created during the year was excessive. Taking the average of the provision made for the past five (5) financial years, the AO observed that the reasonable reasonable provision for warranty ought to be Rs.99.96 crores and therefore disallowed the impugned sum of Rs.45.77 crores [Rs.145.73 minus Rs.99.66] by way of excess provision made during the year. On appeal, the Ld. DRP supported the order of the AO. Aggrieved d by the order of the lower authorities, the assessee is now in appeal before us.
13. Heard both the parties. Before adverting to the facts of this issue, we first take note of the settled legal position. It is observed that the Hon'ble Apex Court in the case of Rotorks Control (I) Ltd. vs. CIT (180 taxman 422) has held that the provision for warranty is an allowable item, only if the liability is measured using a substantial degree of estimation. According to the Hon'ble Supreme Court, the provision for warranty arranty is to be allowed if the assessee is able to satisfy three (3) conditions, viz. (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to o settle the obligation; and (c)
(c) a reliable estimate can be made of the IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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amount of the obligation.
obligation. According to the Hon'ble Apex Court, if these conditions are not met, then the provision cannot be allowed.
14. Coming to the facts of the present case. It has been observed by us that, the e assessee has been consistently providing warranty provision in relation to the cars sold by them. Upon enquiry from the Bench, it was gathered that the basis of the provision for warranty and the amount provided in all the past as well as the subsequent years, has been accepted by the Revenue and that no disallowance has been made on this issue in the assessments framed u/s 143(3) for the past as well as subsequent years. The case of the Revenue however for the relevant year is that, the assessee had made excessive provision in comparison to preceding and subsequent years. According to the Revenue, provision of Rs.145.78 crores was made, out of which, upon examination of the past and subsequent trend of provisions created in the books they had allowed provision ision of Rs.99.66 crores and the balance impugned sum of Rs.45.77 crores was held to be excessive and thus disallowed. We however note that, the assessee has provided the detailed break-up break up of the manner of making the provision of Rs.145.78 crores during the the year and the detailed granular bifurcation were also provided before the lower authorities, in which no specific defect or infirmity has been pointed out by them. It is observed that what the Revenue has done is that, they have aggregated the provisions made across the years, averaged the same, and thereafter IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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arrived at a figure, which in their view was a reasonable sum which ought to have been provided by the assessee. According to us, this analogy of the lower authorities was arbitrary, arbitrary whimsical and unjustified, justified, particularly in light of the scientific basis provided by the assessee giving the detailed computation of the provision created during the year, which has been placed at Pages 536 to 544 of the Paper-Book.
Paper Book. The assessee is also noted to have justifiably ifiably explained the reason for the comparatively higher provision made during the year. It is observed that, a large batch of two specific consumer automobiles sold by the assessee in India as well as outside was found to be defective and a global recall campaign was conducted during the year. This fact is noted to have been well documented in the public domain as well, copies of which, as noted above, has been placed at Pages 545 to 546 of the Paper Book. The break-up up of the manner of the computation of provision for warranty is noted to inter alia comprise of the liability to be incurred due to this extraordinary event of the global recall of the cars sold by the assessee. The assessee also showed us, from Page 547 of the Paper Book, that the provision for or warranty made during the year, in this regard, had been utilized to the extent of 85% in the immediately succeeding year itself and that the remaining sum was also utilized in the subsequent years thereafter. Accordingly, we find that, it was not a case that the higher provision made during the year remained unutilized in the subsequent IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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years, which would have raised doubt on the basis of making such provision for warranty. On these specific facts therefore, we find that the assessee had reasonably met the the conditions laid down by the Hon'ble Apex Court in the case of Rotorks Control (I) Ltd. (supra) and had demonstrated that, it had a present obligation as a result of this extraordinary event and that there was a probable outflow of resources which was required to settle the said obligation and that the same was utilized and settled as well and and that the assessee has placed before us, a reliable basis for making such an estimate. We therefore find that the lower authorities were unjustified in disallowing the provision for warranty to the extent of Rs.45.77 crores and the same is directed to be deleted.
This ground is therefore allowed.
15. Ground No. 4 relates to the disallowance of payment made for purchase of software due to non-deduction non deduction of TDS u/s 40(a)(ia) of the Act. The facts as noted are that, the assessee had made payments for acquiring ng 'Consult III Plus Software DVD' from their AE in Japan which was a system diagnostic tool, to be used for diagnosis and maintenance of electronic control system installed in Nissan vehicles. The AO is noted to have held that the impugned payment fell within within the ambit of royalty and therefore, was liable to be taxed u/s 195 of the Act. Since, the assessee had remitted the payment without deducting tax, the AO disallowed the impugned sum by invoking Section 40(a)(ia) of the Act. The said IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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disallowance was confirmed onfirmed by the Ld. DRP as well. Now, the assessee is in appeal before us.
16. Heard both the parties. At the onset, the Ld. AR for the assessee pointed out that the impugned issue was squarely covered in their favour by the decisions rendered by this Tribunal Tribunal in their own case in ITA No. 1854/Chny/2017 for AY 2014-15 2014 15 wherein identical disallowance of software payments made by the AO u/s 40(a)(ia) was deleted, by observing as under:
"5.5 5.5 We have heard the rival submissions and carefully perused the materials als on record. From the facts of the case it is apparent that the assessee has obtained license only for the usage of the software for a limited period and does not have the right to change or modify the software. This issue is squarely covered by the decision decision of the Chennai Bench of the Tribunal in the case DCIT Vs. Atmel R&D India (P) Ltd., cited by the Ld.AR wherein the Bench after relying on various decisions of the higher judiciary observed as follows:
"41. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non- non exclusive and non- non transferable licence enabling the use of a copyrighted product cannot be construed trued as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of DTAA. Where the purpose of the licence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally legall correct to state that the copyright itself or right to use copyright has been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licensee/customer is what is contemplated contemplated by the Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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to copyright or conferment conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially co-extensive co extensive with the owner/transferor nsferor who divests himself of the rights he possesses in his favour.
42. The license granted to the licensee permitting him to use the programme for its business purpose is only incidental to the facility extended to the licensee to make use of the copyrighted copyrighted product for its internal business purpose. The said process is necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said paragraph because it is only integral to the use of copyrighted product. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do.
43. There is no transfer of any right in respect of copyright by the Assessee and it is a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty either under the Income Tax Act or under the OTAA.
44. The licensees are not allowed to exploit the computer software commercially, they have acquired under licence agreement, only the copy righted software which by itself is an article and they have not acquired any copyright in the software. In the case of the Assessee company, the licensee to whom the Assessee company has sold/licensed the software were allowed to make only one copy of the software and associated support information for backup purposes with a condition that such copyright shall include Intra Asia Trading (P) Ltd. copyright and all copies of the software shall be exclusive properties of Intra Asia Trading (P) Ltd. Licensee was allowed to use the software only for its own business as specifically identified and was not permitted to loan/rent/sale/sub-licence loan/rent/sale/sub licence or transfer the copy co of software to any third party without the consent of Intra Asia Trading (P) Ltd.
45. The licensee has been prohibited from copying, de-compiling, de compiling, de-
de assembling, or reverse engineering the software without the written consent of lntra Asia Trading (P) Ltd.
Ltd. The licence agreement between the Assesseè company and its customers stipulates that all copyrights and intellectual property rights in the software and copies made by the licensee were owned by Intra Asia Trading (P) Ltd. and only Intra Asia Trading (P) P) Ltd. has the power to grant licence rights for use of the software. The licence agreement stipulates that upon termination of the agreement for any reason, the licencee shall return the IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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software including supporting information and licence authorization device to lntra Asia Trading (P) Ltd..
46. The incorporeal right to the software i.e. copyright remains with the owner and the same was not transferred by the Assessee. The right to use a copyright in a programme is totally different from the right to use a programme embedded in a software and the payment made for the same cannot be said to be received as consideration for the use of or right to use of any copyright to bring it within the definition of royalty as given in the DTAA. What the licensee has acquired quired is only a copy of the copyright article whereas the copyright remains with the owner and the Licensees have acquired a computer programme for being used in their business and no right is granted to them to utilize the copyright of a computer programme programme and thus the payment for the same is not in the nature of royalty.
47. We have not examined the effect of the subsequent amendment to section 9 (1)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof for the reason that the Assessee is covered by the DTAA, the provisions ot which are more beneficial. The amount received by the Assessee under the licence agreement for allowing the use of the software is not royalty under the DTAA.
48. What is transferred transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. The right that is transferred transferre is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be business income.
49. In view of elaborate discussion and in the light of the judgment of the Hon'ble Delhi High court in the case of DIT Vs. Infrasoft Ltd.
(supra), on which reliance placed by the learned AR, in the present case, the assessee has acquired a readymade off -- the shelf computer programme to be used in their business and no right ri was granted to the assessee to utilize the copy right of the programme and, therefore, consideration cannot be treated as royalty. As held by the CIT(A), the payments made by the assessee company cannot be held as 'royalties' coming into the ambit of Article Article 12 of DTAA or 'fee for technical services' u/s 9(1 )(vii) of the IT Act and accordingly no tax need to be deducted u/s 195 of the IT Act. We, therefore, uphold the order of the CIT(A) on this count and dismiss the grounds raised by the revenue in this th regard."
IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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In view of the above, we are inclined to allow the ground taken by the assessee. This ground is allowed."
Since the issue is squarely covered by the decision of the Chennai Bench of the Tribunal, following the same, we hereby hold that in the case c of the assessee, the payment made for obtaining license to use the software cannot be held as royalties coming into the ambit of the DTAA or fees for technical services under Section 9(1)(vii) of the Act and accordingly tax need not be deducted at source source U/s.195 of the Act.
17. The Ld. CIT, DR, on the other hand, supported the action of the lower authorities. Since, no change in facts or law could be pointed out, respectfully espectfully following the above decision (supra) in assessees' own case, we direct the AO to delete the impugned disallowance made u/s 40(a)(ia) of the Act. This ground is therefore allowed.
18. The assessee has further raised the following additional grounds at the time of hearing, which are as under:-
under:
"6.1 The appellant respectfully submits that that it had inadvertently made suo-moto moto disallowance under section 40(a) of the Act towards certain expenses on the premise that the same were not subject to tax deduction at source ('TDS') under the provisions of the Act, while in-fact in the same were duly subjected subjected to TDS/ TDS is not applicable on such items. The appellant submits that the disallowances were unintentional, inadvertent errors which have resulted in assessment of a higher amount of income and prays for relief.
6.2 The Appellant respectfully submits submits that it had inadvertently missed to claim deduction under section 40(a) of the Act towards certain expenses which were disallowed in earlier years on non-non-deduction of TDS, however, TDS on the same is deducted and paid in the subject AY.
6.3 The Appellant Appellant respectfully submits that it had inadvertently missed claiming as a deduction while computing income under the head 'profits and gains from business or profession' certain credits to the profit and loss account that are not taxable under the Act or were already offered to tax in other assessment years resulting in excess income being subjected to tax. The Appellant prays for relief in respect IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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of the said amounts which have the resulted in the said sums being taxed twice."
19. Relying ying upon the decisions decisio of the Hon'ble on'ble Supreme Court in the cases of NTPC Ltd (229 ITR 383)&Jute
383) Jute Corporation of India Ltd he assessee pleaded that these additional claims be (187 ITR 688),the admitted for adjudication. Per contra, the Ld. CIT, DR opposed the admission of these grounds ounds on the premise that, these grounds were not legal in nature but required factual verification as the details now being furnished by the assessee were never placed before the lower authorities.
According to him therefore, such additional grounds now being b raised deserves to be rejected.
20. We have heard the rival contentions. On the issue of admissibility of additional grounds, we e observe that the Hon'ble Gujrat High Court in the case of CIT v. Mitesh Impex (367 ITR 85) after considering the decisions rendered by the Hon'ble Apex Court in the case of NTPC v. CIT (229 ITR 383) 383 and Goetze (India) Ltd.
Ltd v. CIT (284 has held that that, if a claim which is available in law is not ITR 323)has raised either inadvertently or an account of erroneous understanding of legal position, such a relief cannot be shut up for all the times to come merely because it is raised for the first time in appellate proceedings in absence of a revised return filed before the Assessing Officer. Indeed, the factual details now being filed before us, were not available at the time of assessment. However, for that reason, this Tribunal cannot be prevented IT (TP) A No.29/Chny/201 /Chny/2019 (AY 2013-14) M/s. Nissan Motor India Pvt. Ltd.
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from om admitting an additional claim raised by the assessee, which it inadvertently omitted to raise in the return of income. For these reasons, we do not find any merit in the contention of the Ld. CIT, DR and therefore reject the same. At the same time, we note note that, the impugned claims (supra) raised by the assessee requires factual verification and were not raised before any of the lower authorities. Accordingly, in the fitness of the matters, we admit these grounds and set aside the same to the AO for de novo consideration. Needless to say, the AO shall allow sufficient opportunity of hearing to the assessee in this regard. These grounds are therefore allowed for statistical purposes.
21. In the result, appeal filed by the assessee is allowed for statistical statist purposes.
Order pronounced on the 23rd day of April, 2025,, in Chennai.
Sd/- Sd/
Sd/-
(अिमताभशुा) (एबीटी.. वक )
(AMITABH SHUKLA) (ABY
ABY T. VARKEY)
VARKEY
लेखासद य/ACCOUNTANT MEMBER याियकसद य/JUDICIAL MEMBER
चे ई/Chennai,
दनांक/Dated: 23rd April,, 2025.
20
TLN, Sr.PS
आदेशक ितिलिपअ ेिषत/Copy
Copy to:
to
1. अपीलाथ /Appellant
2. थ /Respondent
3. आयकरआयु /CIT,, Chennai / Madurai / Salem / Coimbatore.
4. िवभागीय ितिनिध/DR
5. गाडफाईल/GF