Karnataka High Court
Harman Connected Services Corporation ... vs Joint Secretary on 22 April, 2022
Author: B. M. Shyam Prasad
Bench: B. M. Shyam Prasad
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 22ND DAY OF APRIL 2022
BEFORE
THE HON'BLE MR. JUSTICE B. M. SHYAM PRASAD
WRIT PETITION NO.8114/2021 (T-IT)
BETWEEN :
HARMAN CONNECTED SERVICES
CORPORATION INDIA PVT LTD
(FORMERLY SYMPHONY TELECA
CORPORATION (INDIA) PRIVATE LTD)
NO.3 AND 3A EOIZ INDUSTRIAL AREA
SURVEY NOS. 85 AND 86
SADARAMANAGALA VILLAGE
KRISHNARAJAPURA HOBLI
BENGALURU - 560 066
REPRESENTED HEREIN BY ITS
VICE PRESIDENT FINANCE
MR VIVEK KHEMKA.
... PETITIONER
(BY SRI. S.GANESH, SENIOR ADVOCATE
FOR SMT. TANMAYEE RAJKUMAR, ADVOCATE)
AND :
1. JOINT SECRETARY
(FOREIGN TAX AND TAX RSEARCH-I)
AND THE COMPETENT AUTHORITY
CENTRAL BOARD OF DIRECT TAXES
DEPARTMENT OF REVENUE
MINISTRY OF FINANCE
GOVERNMENT OF INDIA
8TH FLOOR C WING
HUDCO-VISHALA BUILDING
2
BHIKAJI CAMA PLACE
R K PURAM, NEW DELHI - 110 066.
2. THE PRINCIPAL COMMISSIONER OF
INCOME TAX-2, BANGALORE
5TH FLOOR, BMTC BUILDING
KORAMANGALA. BANGALORE - 560 095.
3. DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE-3 (1) (2)
2ND FLOOR, BMTC BUILDING
KORAMANGALA
BANGALORE - 560 095.
... RESPONDENTS
(BY SRI.K.V. ARAVIND, ADVOCATE)
THIS WRIT PETITION IS FILED UNDER ARTICLE 227
OF THE CONSTITUTION OF INDIA PRAYING TO DIRECT
THE RESPONDENTS AND THEIR SUBORDINATES TO
IMPLEMENT AND GIVE FULL EFFECT TO THE SAID MAP
SETTLEMENT COMMUNICATED TO THE PETITIONER VIDE
COMMUNICATION DATED 16.10.2020 ANNEXURE-D AND
TO MAKE FRESH INCOME-TAX ASSESSMENTS ON THE
PETITIONERS FOR THE ASSESSMENT YEARS 2010-11 TO
2013-14 IN CONFORMITY WITH THE MAP SETTLEMENT
AND TO REFUND EXCESS AMOUNTS OF TAX ALREADY
RECOVERED, TO THE PETITIONER.
THIS PETITION HAVING BEEN HEARD AND COMING
ON FOR PRONOUNCEMENT OF ORDERS THIS DAY, THIS
COURT MADE THE FOLLOWING:
3
ORDER
The petitioner has filed this petition for mandamus to the respondents, and their subordinates, to implement and give full effect to the Mutual Agreement Procedure [MAP] Settlement communicated to the petitioner by the Under Secretary [APA-1] and Foreign Tax Research-1, Central Board of Direct Taxes [CBDT] vide the Communication dated 16.10.2020 [Annexure- D], to reassess the petitioner's assessment for the Assessment Years 2010-11 to 2013-14 in accordance with the MAP Settlement and to refund excess amounts of tax paid by the petitioner.
2. The petitioner is a company incorporated under the Companies Act, 1956 and is engaged in providing Software Development and related services to its Group Companies as well as the third parties. During the financial years 2009-10 to 2012-13, the petitioner has rendered software development and 4 related services to its Holding Company, M/s. Symphony Teleca Corporation, USA [presently, Harman International Industries Inc., USA, and for convenience is referred to either as M/s Symphony Inc or M/s Harman Inc]. The petitioner asserts it has received compensation for its services at the rate of 15% on costs until 31.03.2010, and with effect from 01.04.2010 at the rate, of 17.5%.
3. In the month of September 2013, the United States Internal Revenue Service [US-IRS] has initiated an audit of M/s Symphony Inc's transactions with the petitioner and has made Transfer Pricing [TP] adjustments for the years ending December 2010, December 2011 and December 2012 [the relevant assessment years in India being assessment years 2010-11 to 2013-14]. The US-IRS has made TP adjustments in the premise that M/s Symphony Inc has paid compensation to the petitioner for Software 5 development without Arms Length Pricing opining that excessive payments are because of excessive mark up percentage and incorrect cost base. The US-IRS has also made TP adjustments on the ground that the petitioner was required to pay royalty to M/s Symphony Inc for the use of its trademark and trade names in generating third party sales.
4. The jurisdictional Assessing Officer has referred the petitioner's transaction with M/s Symphony Inc during the relevant assessment years 2010-11 to 2013-14 to the Transfer Pricing Officer [TPO] under Section 92CA of the Income Tax Act, 1961 [for short, 'the I-T Act']. The TPO has concluded that no adjustments are required for the assessment years 2010-11 and 2012-13. But insofar as the assessment years 2011-12 and 2013-14, TPO has proposed certain adjustments. The AO has incorporated the TPO's proposals in these regards in the Draft Assessment 6 Orders. The petitioner has contested the Draft Assessment Orders before the Dispute Resolution Panel [DRP]. Ultimately, the final Assessment Order are passed for the assessment year 2011-12 with Nil TP adjustments but with certain other additions to the petitioner's income, and insofar as the assessment year 2013-14, certain TP adjustment has prevailed and consequentially final Assessment Orders are passed. The petitioner has filed appropriate appeals challenging the additions in the income for the assessment year 2011-12 and the TP adjustment for the assessment year 2013-14. The Department has also filed its appeal insofar as the Nil TP Adjustments for the assessment year 2011-12.
5. The petitioner has filed applications1 in prescribed Form No.34F on 05.02.2018 invoking the 1 The respondents, in their additional statement of objections dated 08.04.2022 have stated that the MAP proceedings were invoked by the US Competent Authorities by its Letter of October 2000 addressed to the Indian Competent Authorities. 7 MAP contending that it believed that the action of the US-IRS is not in accordance with the Convention between the Government of India and the Government of the United States of America for avoidance of fiscal evasion. The MAP is commenced between the US Competent Authority [US-CA] and the Indian-Competent Authority [Indian-CA], and the first respondent has called upon the petitioner to furnish certain details. The petitioner has handed over an Accountant's Report to the first respondent in USB drive on 22.08.2019, and this is in addition to furnishing a Note on the petitioner's historical background and the details of the year end exchange rates2.
6. The first respondent has issued communication dated 16.10.2020 [Annexure-D]3 informing the petitioner that both the US-CA and 2 In this regard, the petitioner has relied upon certain e-mails exchanged in the month of July 2019.
3 This Communication forms the basis for this writ petition. 8 Indian-CA have agreed to certain TP adjustments by the US Tax Authorities for M/s. Symphony Inc for the assessment years 2010-11 to 2013-14. The petitioner is informed that the settlement is to split the US TP adjustment in the ratio of three months and nine months and the petitioner would also be given the corresponding correlative relief in India as per the MAP Settlement. The correlative relief to the petitioner by the Indian Income--tax authorities as mentioned in Annexure-D are as follows:
Provision for Software Development [SWD] Assessment Year Correlative Relief to be given to the petitioner 2010-11 Rs.4,72,36,877/-
2011-12 Rs.17,40,86,934/-
2012-13 Rs.15,55,51,059/-
2013-14 Rs.13,69,38,696/-
Total Rs.51,38,13,567
Royalty Payment
Assessment Year Correlative Relief to be
given to the petitioner
2010-11 Rs.14,14,699/-
2011-12 Rs.81,47,699/-
9
2012-13 Rs.2,03,24,244/-
2013-14 Rs. 2,37,09,041/-
Total Rs. 5,35,95,682/-
Thus, the petitioner is also informed of the refund entitlement, and the petitioner is called upon, citing Rule-44G of the Income Tax Rules, 1962, to communicate its acceptance, or non-acceptance, of the MAP settlement in writing within thirty days.
7. The petitioner has responded positively to Annexure-D informing the first respondent that it has accepted the terms of the MAP Settlement. The petitioner, in compliance with the terms of the Annexure
- D, has also placed on record the petitioner's Letter to the Tribunal in the pending appeals informing that it proposes to withdraw the appeal as regards the TP adjustment by the TPO/Assessing Officer. In these regards, the petitioner relies upon Annexures -E and F. However, the first respondent has addressed an e-mail dated 27.11.2020 to the petitioner calling upon it not to 10 withdraw the appeal pending before the Tribunal indicating that the MAP settlement may not be given effect to. Hence, the petitioner has filed this petition.
8. The respondents have filed Statement of Objections/additional Statement of Objections. The respondent's other contentions are prefaced by the specific averment that in the petitioner's case, the MAP proceedings were invoked by the US-CA by its letter of October 2017 in the case of M/s Harman Inc [M/s Symphony Inc] and the petitioner has also filed an application on 12.03.2018 in Form No.34F in accordance with Rule 44G of the Income Tax Rules, 1962 [IT Rules]. As per the settled practice in MAP, the US-CA provided their position paper in the month of March 2019 and this position paper detailed the TP adjustment made by the US Tax authorities but did not refer to any Indian TP adjustments. The petitioner also did not disclose the Indian TP adjustments. 11
9. The respondents have further averred that the negotiations were held between the US-CA and Indian-CA in New Delhi between 22nd and 26th April 2019 and they agreed upon a resolution. Thereafter, both sides have exchanged calculation with each other and have also discussed the finer points for Mutual Agreement [MA]. The US-CA sent the MA letter dated 07.05.2020 by e-mail. Though the mutual agreement letter is dated 07.05.2020, both the calculations and the language of the MA are agreed upon in April 2019 meetings. The period between May 2019 and October 2020 relates only to the procedural part of communication of acceptance to the US-CA. As such, the MA as per MAP is much before May 2020.
10. The respondents have relied upon Rule 44H(1) of the IT Rules [which is now omitted with effect from 06.05.2020] to contend that when the MAP was invoked by the US-CA, the Indian-CA should call for 12 and examine the relevant records as regards any action taken by any Income Tax authority in India. However, when MAP is commenced on an application by an assessee in the prescribed Form under the IT Rules, the Indian-CA is under no such obligation. Neither the letter/position paper from US-CA nor the petitioner's applications in Form No.34F mentioned anything about the Indian TP adjustments. Therefore, the Indian-CA did not have called for any information or record in terms of Rule 44H(1). But, the Petitioner, who was obliged to disclose all information without any concealment, in not furnishing the details of the Indian TP adjustment in the assessment year 2013-14 has suppressed material circumstances.
11. The respondents have next detailed the procedure/practice followed in a MAP with US-CA. It is stated that MAP case begins with a request to any or both of the CAs who may then accept/reject the MAP 13 request or call for any additional information on a case by case basis. The CAs will inform the tax payer and the treaty partner if there is either acceptance or rejection of a MAP case. Once a MAP case is accepted, the CA of the jurisdiction where the adjustment is made may provide the other treaty partner with their position paper. The other treaty partner may provide a rebuttal to the position paper. The case is then discussed between the treaty partners and a resolution may or may not be arrived. The treaty provides that the CAs will endeavour to arrive at a resolution in a MAP case but it is not mandatory for the CAs to reach a resolution in all the MAP cases. Once the CAs arrive at a resolution, calculations are exchanged and agreed amongst the CAs based on the resolution arrived. Later the CAs exchange Mutual Agreements [MA] detailing the terms and conditions of the resolution. The terms of mutual agreement are then shared with tax payers both by the Indian-CA and the US-CA.14
12. The respondents have also averred that the MAP Settlement with the US-CA was finalized in the month of April 2019. The Rule 44G is amended by substitution with effect from 06.05.2020. The IT Rules as it existed when the MAP settlement was finalized must be applied; in that event Rule 44G as it stood prior to the amendment would apply. This Rule did not place any onus on the Indian-CA to call for all the information when an application is made in the prescribed Form 34F. The Rule 44H, which enjoins the Indian- CA with the onus of calling for records/information with the view to give response to the CA of the other country, would apply only when a reference is received from a CA from outside India. It is emphasized that the first respondent did not have an opportunity to call for the TP adjustments either from the TPO or from AO because neither the letter/position paper nor the petitioner's application referred to any Indian TP adjustment. 15
13. Sri. Vivek Khemka, the petitioner's Vice President-finance, has filed an affidavit on 17.12.2021 stating that the petitioner has made enquiries with its associated company, M/s Symphony Inc [M/s Harman Inc] and the petitioner is informed that the discussions between the US and Indian-CAs were commenced in the month of April 2019, but the binding final MAP settlement was concluded only in October 2020. With the Rule 44G being amended with effect from 06.05.2020, the Indian-CA was bound to comply with the provisions of amended Rule 44G and to call for a report from the TPO and the jurisdictional AO. Even otherwise, the general practice in every MAP case is to call for a report from the TPO and the jurisdictional AO.
M/s Symphony Inc [M/s Harman Inc] has informed the petitioner that the US-IRS has implemented the MAP settlement giving full effect thereto and the entire 16 differential tax amount consequent to the MAP settlement has been recovered from M/s Harman Inc.
14. The first respondent has filed additional Statement of Objections stating that the Indian-CA has now ascertained that even M/s Harman Inc [M/s Symphony Inc] did not disclose the Indian TP adjustments to the US-IRS. Both the Indian and US - CAs were blind sighted [sic] during MAP. The first respondent has enclosed certain emails exchanged with the US tax authorities stating that the copies of these emails have not been shared with the petitioner because of Article 28 of the India-USA Double Taxation Avoidance Agreement [DTAA].
15. This Court must record at this stage that though there were some initial objections to the first respondent relying upon emails that are not disclosed to the petitioner, Sri Ganesh, the learned Senior counsel for the petitioner, was categorical that the petitioner 17 would waive all objections to the confidentiality asserted by the first respondent and this Court could look into the emails. Further, this Court has also called upon the first respondent to place on record, in a sealed cover, the original file relating to the petitioner's MAP settlement with the US-CA. Sri Ganesh is also categorical that this Court could look into the original file and the petitioner would waive any objections to the petitioner being denied access to the original file. Sri Ganesh and Sri K.V. Aravind have been heard for final disposal of the writ petition in the light of these waivers and on perusal of the emails and the original file.
16. Sri S. Ganesh submits that admittedly there is not only a MAP settlement but US-IRS has also completely implemented the settlement. M/s Harman Inc, after this settlement, has been assessed on the differential amount of income, and the tax thereon has already been demanded and recovered by the US 18 authorities. Consequent thereto, M/s Harman Inc has also raised the demand on the petitioner for differential amount of US dollars 11.28 million. Sri. S. Ganesh, drawing support from the provisions of Section 90(2) of the I-T Act4 and Article 27(2) of the DTAA5, submits that the provisions of India-USA Double Taxation Avoidance Agreement [DTAA] and the terms of a MAP Settlement thereunder will prevail over the provisions of the I-T Act so long as they are beneficial to the concerned assessee. Sri. S. Ganesh, relying upon the aforesaid reading of the provisions of Section 90(2) of the I-T Act and Article 27 of DTAA and the aforesaid asserted facts, canvasses that once it is admitted that there is a MAP settlement as 4 The provisions of section 90(2) of the IT Act reads that where the Central Government has entered into an agreement with the government of any country outside India, or a specified territory outside India, under subsection (1) for granting relief of tax or avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of the I-T Act shall apply to the extent they are more beneficial to that assessee. 5 Article 27(2) of the DTAA reads that any agreement "shall be implemented notwithstanding any time limits or other procedural limitations in the domestic law of the contracting states" 19
contemplated under DTAA and the settlement is beneficial to the petitioner, the respondents must implement such settlement notwithstanding any discrepancy in calling for the Indian TP adjustments for the relevant assessment years as that would only be a procedural aspect.
17. Sri S.Ganesh submits that the MA is concluded in the month of October 2020, and with the Rules 44G and 44H of the I-T Rules being amended with effect from 06.05.2020, the relief to the petitioner must necessarily be processed under the amended Rule 44G. This is also accepted by the respondents with the issuance of communication dated 16.10.2020 [Annexure-D] calling upon the petitioner to communicate its acceptance of the MAP settlement citing the provisions of amended Rule 44G(7) and further stipulating that, as contemplated under amended Rule 44G(6), the petitioner must communicate 20 such acceptance within 30 days from the date of receipt of the communication. The petitioner is also called upon to file proof of withdrawal of the appeal in accordance with the amended Rule 44G(8).
18. Sri S.Ganesh argues that with the petitioner complying with these requirements, the respondents cannot now contend that the petitioner's request for refund must be examined in the light of the un- amended provisions of Rule 44G. The CBDT has issued MAP Guidance/2020 on 07.08.2020 stipulating that the "new rule is applicable w.e.f May, 2020 and, accordingly, applies to all MAP cases pending with the CS of India as on 6th May, 2020". The respondents, with the issuance of this Guidance, cannot even contend that the onus was on the petitioner to disclose the Indian TP adjustment or there is concealment because the same is not mentioned in the petitioner's applications in the prescribed Form 34F.21
19. Sri Ganesh summarizes that the respondents cannot contend that they must revisit the MAP settlement with the US-CA either because the petitioner or M/s Symphony Inc [M/s Harman Inc] did not disclose the Indian TP adjustments for the relevant assessment years for the following:
[a] The petitioner, given the provisions of amended Rule 44G(3), was under no legal duty or obligation to disclose any TP adjustment by the Indian authorities. On the other hand, it was for the Indian-CA, with the amendment before the MA, to call for all the records/information from the Indian tax authorities and hold discussions with them to understand the actions taken by them;
[b] In any event, admittedly even prior to the amendment to the I-T Rules, the general practice 22 in every MAP case was to call for records from the jurisdictional AO and the concerned TPO. If the Indian-CA, for any reason, notwithstanding the provisions of amended Rule 44G(3) and the general practice, has failed to call for the necessary documents/information, the respondents cannot take advantage of such failure and resile from a concluded and binding MAP settlement;
[c] If the authorities have failed to call for the necessary records or information, despite the provisions of amended Rule 44G[3], they cannot blame the petitioner or take undue advantage of their own wrong. He relies upon the maxim that 'no man shall take advantage of his own wrong' even to gain a favourable interpretation of law, and draws the attention of this Court to the decision of the Hon'ble Supreme Court in 23 Kushweshwar Prasad Singh v. State of Bihar6 wherein it is held that:
'it is a settled principle of law that a man cannot be permitted to take undue and unfair advantage of his own wrong to gain favourable interpretation of law. It is sound principle that he who prevents a thing from being done shall not avail himself of the non performance he has occasioned. To put it differently a wrong doer ought not to be permitted to make a profit out of his own wrong"'
20. Sri Ganesh concludes that in the light of [i] the provisions of section 90(2) of the I-T Act which give precedence to the provisions of India-US DTAA when the terms of the agreement are beneficial to the assessee; [ii] the provisions of Article 27 of India-US DTAA which stipulate that any agreement shall be implemented notwithstanding time limits or other
6 [2007] 11 SCC 447 24 procedural limitations; [iii] the fact that the onus of calling for documents/information would be on the Indian-CA both according to the applicable statutory provisions and the general practice; [iv] the fact that the petitioner is called upon to signify acceptance of the MAP settlement and comply with the conditions as required under relevant provisions of amended Rule 44G and [v] the fact that the petitioner has complied with those conditions, respondents cannot resile from the MAP settlement contending that the petitioner has not disclosed the Indian TP adjustments authorities. Hence, this Court must direct the respondents to refund to the petitioner the entire correlative relief in terms of the Annexure-D with appropriate interest for the assessment years 2010-11 to 2013-14.
21. Sri K V Aravind, learned counsel for the respondents, submits that the petitioner cannot dispute that the MAP Settlement is commenced also because 25 the petitioner has filed applications in the prescribed Form 34F. These applications are filed in the month of February 2018. The provisions of Rule 44G, as it existed as of the date of the petitioner's applications, and unlike the amended Rule 44G(2), did not impose any onus on the Indian-CA to call for the records. The onus to call for records when a reference is received by her CA of another country is because of the provisions of the now omitted Rule 44H, and for the obvious reason that, when the MAP is initiated at the instance of CA of another country, all the details would not be available with the Indian-CA to commence MAP.
22. Sri K V. Aravind submits that the petitioner, who has filed applications in the prescribed Form in Form No.34F, cannot deny that it had to disclose all true information without any concealment. In this regard Sri K. V. Aravind relies upon a declaration in the 26 prescribed Form as part of the verification7. He argues that the petitioner, who does not dispute that TP adjustments were made on the proposals by the DPR in the final assessment order for the assessment year 2013-14 and the petitioner's appeal in this regard as also the Department's appeal as against the Nil TP adjustment for the assessment year 2011-12 are pending, has admittedly not disclosed these proceedings. This has blind-sighted [Sic] the Indian-CA in negotiating MAP Settlement, and there is enough material for the first respondent to bona fide believe that even M/s Symphony Inc [M/s Harman Inc] has not informed the US-CA about the Indian TP for the assessment year 2013-14. Thus, a material circumstance is deliberately kept out and hence, the respondents are justified in awaiting appropriate communication from the US-CA before granting refund. 7 The declaration is: "I also declare that to the best of my knowledge, I have not concealed any fact or information which could be relevant for deciding my application" 27
23. Sri. K.V. Aravind further submits that though the final computations and the language of MA are finalised only after May 2020, the MAP agreement was arrived at with the US-CA in the month of April 2019. Therefore, the questions whether the petitioner has deliberately suppressed material facts or whether the Indian-CA was under an obligation to call for the details of the TP adjustments by the TPO and the jurisdictional AO must necessarily be considered in the light of the provisions of the un-amended Rules 44G and 44H. When an application was filed in the prescribed Form 34F under the provisions of the un- amended Rule 44G there was no onus, unlike in a reference received from another country as contemplated under the provisions of now omitted Rule 44H, to call for information or documents. As such, it was incumbent upon the petitioner - the applicant - to disclose all relevant information.28
24. Sri. K.V. Aravind further submits8 that the completeness and accuracy of the information included in a request [under the provisions of un-amended Rule 44G] would have a direct impact on the time required for the competent authorities to carry out the MAP process and the effectiveness of the process. A competent authority would need sufficient details to analyse, understand and ultimately prepare to discuss a position with both the taxpayer and the other competent authority. An assessee's cooperation and transparency/ accuracy in the information disclosed are the touchstones for conclusion of MAP Settlement. The petitioner in concealing Indian TP adjustments has neither co-operated nor has been transparent. This has resulted in accepting a settlement in MAP without consideration of all the relevant circumstances.
8 Sri. K V Aravind relies upon Best Practice No. 5 in Chapter 2 and Best Practice No. 14 in Chapter 3 of the Manual on Effective Mutual Agreement Procedures [MEMAP] -a February 2007 version.
29
25. Sri. K.V. Aravind, relying upon the provisions of Article 28 of the DTAA submits that the Competent Authorities are required to endeavour to resolve the case by mutual agreement when it appears inter alia that an assessee's objection is justified. In the absence of the details of the Indian TP adjustments, the assessment of the justifiability of the objections would be incomplete and therefore the mutual agreement would itself be vitiated. He argues that it is undisputed that the Indian TP Adjustment for the Assessment Year 2013-14 on the mark up percentage of the cost base towards SWD services is 25% as against the petitioner's admitted mark up percentage of 17.5%, but in the MA, the petitioner is permitted correlated relief at the mark up percentage of 15%. This has resulted in reduced assessment. The Indian-CA would not have agreed to the MA with the mark-up percentage of 15% if the details of the Indian TP Adjustments were available. 30 The provisions of Article 27[2] of the DTAA would only apply if the entire material necessary for assessing the justifiability of the objections were available to the Indian-CA.
26. Sri K.V. Arvind lastly submits that this Court, in the circumstances of this case, must therefore defer directions to refund or extend Correlative Relief to the petitioner in terms of Annexure-D for the assessment year 2013 -14 until such time that the respondents can cross verify completely with the US-CA and renegotiate, if necessary. However, the respondents would refund/extend Correlative Relief to the petitioner in terms of Annexure-D for the assessment years 2010- 11 to 2012-13 because admittedly there is no TP adjustment by the Indian authorities for these assessment years.
27. In rejoinder, Sri.Ganesh submits that the petitioner's application for MAP Settlement in Form 34F 31 is because of the TP adjustment by the US-IRS in the assessment of M/s Symphony Inc [M/s Harman Inc]. The reference by the US-CA is also because of the US- TP adjustment. As such, any Indian TP adjustment would be irrelevant and immaterial. The respondent's contention that the terms of the MAP Settlement has resulted in reduced assessment must necessarily be examined in the light of the provisions of amended Section 44G[5]. He submits that the provisions of this Rule clearly stipulate that if the MAP is invoked on the account of action taken by any Indian Tax authority, the MAP Settlement shall not result in decrease of the income or increase the loss; conversely, if the MAP Settlement is because of a reference by the US authorities, and is because of US TP adjustment, the embargo that the MAP Settlement shall not result in the decrease of income or increase of loss would not apply. 32
28. Sri. S. Ganesh submits that as such, the respondents cannot persuade this Court to refuse relief to the petitioner even insofar as the assessment year 2013-14 on the ground that the respective claims in the proceedings pending before the Tribunal are not disclosed. This Court, notwithstanding the current submission on behalf of the respondents that the MAP settlement for the assessment years 2010-11 to 2012- 13 as per Annexure -D would be implemented, this Court must direct the respondents to refund the respective amounts with interest.
29. In view of a categorical statement on behalf of the respondents-authorities that they do not contest the MAP Settlement insofar as the assessment years 2010-11 to 2012-13 and the terms of the resolution as per annexure-D for these assessment years will be implemented, the petitioner will have to succeed to this extent. It is clarified in unison that consequentially the 33 assessment orders for these assessment years 2010-11 to 2012-13 will have to be amended. In the light of these circumstances therefor, and the rival submissions, the questions for consideration would be:
[a] Whether, in the facts and circumstances of the present case, it is lawful and permissible for the respondents - Tax authorities - to defer implementation of the MAP Settlement, and to give effect to the terms of such resolution, insofar as the assessment year 2013-14, on the ground that the petitioner did not disclose the Indian TP adjustments for that year; and [b] Whether the respondents must be directed to take measures to refund the amounts based on the correlative relief as per Annexure-D with permissible interest within a certain timeframe
30. The facts foundational to the above controversy are mostly undisputed. The US-CA has 34 made a reference for MAP Settlement based on the TP adjustments by its authorities for the petitioner's transaction with its related party, M/s Symphony Inc [M/s Harman Inc] corresponding to the Indian assessment years 2010-11 to 2013-14. The petitioner has also filed applications in the prescribed Form 34F for MAP Settlement corresponding to these assessment years and referring to the US TP adjustments. The Indian-CA has called upon the petitioner to furnish certain details, including a historical note. But neither the Indian-CA has called for information from the petitioner on Indian TP adjustments nor the petitioner has volunteered such information. The reference by the US-CA and the petitioner's applications are prior to amendment to Rule 44G and Rule 44H.
31. It cannot be gainsaid that if MAP was initiated only by the US-CA, the same would be considered by the India-CA subject to the procedure 35 under the now omitted Rule 44H, and if MAP was initiated only on the basis of the petitioner's application which is in the prescribed Form 34F, the same would be considered subject to the procedure under the unamended Rule 44G. The crucial difference between the procedure under Rule 44G and Rule 44H is that, under Rule 44H the Indian-CA is obliged to call for and examine the relevant records with the view to give his response to the CA of the other country outside India. This emerges on a conjoint reading of the unamended provisions of Rule 44 G and 44 H which are as follows:
44(G) Application for 44H Action by the giving effect to the terms Competent Authority of any agreement under of India and clause (h) of procedure for giving subsection(2) of section effect to the decision
295. - . Where a resident under the assessee is aggrieved by agreement. - (1) any action of the tax Where a reference has authorities of any country been received from the outside India for the reason competent authority of that, according to him, such a country outside India action is not in accordance under any agreement with the terms of with that country with agreement with such other regard to any action country outside India, he taken by any income-
may make an application to tax authority in India, the Competent Authority in the Competent 36 India seeking to invoke the Authority in India shall mutual agreement call for and examine procedure, if any, provided the relevant records therein, in terms of Form with a view to give his No. 34F response to the competent authority of the country outside India9.
The underlining is by this Court
32. If the dispute was at a stage prior to the amendment of Rule 44G and the omission of Rule 44H, the petitioner, who has not disclosed the Indian TP adjustments, could perhaps have been called upon to explain the import of the failure to disclose the same and held to the consequences of such failure, if material. However, the provisions of Rule 44G are amended and the provisions of Rule 44H are omitted. The amendment in this regard is with effect from 06.05.2020, and with this amendment, the MAP both on a reference by the CA of the other country and on an application by an assessee 9 The further procedures are being detailed insofar as this Rule, and the provisions in these regards are not extracted as they are not relied upon would not be germane to the present controversy 37 is unified and made common . The present provisions of Rule 44G read as under:
"Application seeking to give effect to the terms of any agreement under clause (h) of sub-section (2) of section 295 and the procedure for giving effect to the decision under the Agreement.
44G. (1) Where an assessee, being a resident of India, is aggrieved by any action of the tax authorities of any country or specified territory outside India for the reason that, according to him, such action is not in accordance with the terms of agreement with such other country or specified territory, he may make an application to the Competent Authority in India seeking to invoke the mutual agreement procedure, if provided in such agreement, in Form No. 34F. (2) Where a reference has been received from the competent authority of any country or specified territory outside India under any agreement with that country or specified territory with regard to any action taken by any income-tax authority in India or by the tax authorities of such country or specified territory, the Competent Authority in India shall convey his acceptance or otherwise for taking up the reference under mutual agreement procedure to the competent authority of the other country or specified territory.
(3) The Competent Authority in India shall, with regard to the issues contained in Form No. 34F or in the reference from the competent authority of a country or specified territory outside India, call for the relevant records and additional document from the income-tax authorities or the 38 assessee or his authorised representative in India, or have a discussion with such authorities or assessee or representative, to understand the actions taken by the income-tax authorities in India or outside that are not in accordance with the terms of the agreements between India and the other country or specified territory.
(4) The Competent Authority in India shall endeavour to arrive at a mutually agreeable resolution of the tax disputes, arising from such actions of the income-tax authorities, in accordance with the agreement between India and the other country or specified territory within an average time period of twenty-four months.
(5) In case the mutual agreement procedure is invoked on account of action taken by any income-tax authority in India, the resolution arrived at under sub-rule (4) in a previous year shall not result in decreasing the income or increasing the loss, as the case may be, of the assessee in India, as declared by him in the return of income of the said year.
(6) If a resolution is arrived at under sub-rule (4) between the Competent Authority in India and that of the other country or specified territory, the same shall be communicated in writing to the assessee.
(7) The assessee shall communicate his acceptance or non-acceptance of the resolution in writing to the Competent Authority in India within thirty days of receipt of the communication under sub-rule (6).
39(8) The assessee's acceptance of the resolution shall be accompanied by proof of withdrawal of appeal, if any, pending on the issues that were the subject matter of the resolution arrived at under sub-rule (4).
(9) On receipt of acceptance under sub-rule (7), the Competent Authority in India shall communicate the resolution arrived at under sub-rule (4) and the acceptance by the assessee alongwith proof of withdrawal of appeal, if any, submitted by the assessee under sub-rule (8), to the Principal Chief Commissioner or the Chief Commissioner or the Principal Director General or Director General, as the case may be, who in turn shall forward it to the Assessing Officer. (10) On receipt of communication under sub-rule (9), the Assessing Officer shall give effect to the resolution arrived at under sub-rule (4), by an order in writing, within one month from the end of the month in which the communication was received by him and intimate the assessee about the tax payable determined by him, if any.
(11) The assessee shall pay the tax as determined under sub-rule (10) within the time allowed by the Assessing Officer and shall submit the proof of payment of taxes to the Assessing officer who shall then proceed to withdraw the pending appeal, if any, pertaining to subject matter of the resolution under sub- rule (4), which were filed by the Assessing Officer or the Principal Commissioner or Commissioner or any other income-tax authority 40 (12) A copy of the order under sub-rule (10), shall be sent to the Competent Authority in India and to the assessee.
(13) The amount of tax, interest or penalty already determined shall be adjusted in accordance with the resolution arrived at under sub-rule (4) and in the manner provided under the Act or the rules made thereunder to the extent that such manner is not contrary to the resolution arrived at.
Further, after this amendment with effect from 06.05.2020, the Central Board of Direct Taxes [CBDT] has issued MAP Guidance/2020 on 07.08.2020 stipulating that:
'The new rule is applicable w.e.f 6th May, 2020 and, accordingly, applies to all MAP case is pending with the CS of India as on 6th May, 2020.
33. Significantly, with the reference from the US-
CA, the petitioner is also called upon to furnish certain details before negotiations are completed. This is established by the emails relied upon by the petitioner. It is also seen from the original records made over to this Court that the Indian-CA has proceeded to hold 41 discussions and negotiate with the US-CA on the basis of the reference by the US-CA and that there are certain emails exchanged between the Indian-CA and the US- CA for closure of MAP. In this regard this Court must refer first to the email dated 21.04.2020 from the Indian-CA to the US-CA which begins with the expression that, "this is regarding the Harman MAP case that we resolved" and the letter dated 07.05.2020 by the US-CA and the Minutes of the Meeting held between Indian and US CA's during 22.042019 to 26.04.2019. Insofar as the reduction in the cost base, markup percentage and brand royalty, the decision is as follows:
"India considered the adjustments made in the US and the proposal by the US side. India agreed to the reduction in the cost base of the Indian entity but asked for a markup of 17.5% on such reduced costs. Secondly, India offered to pay a brand royalty at the rate 1.5% on third party sales instead of 5% royalty. US and India agreed to apply a 15% markup to the reduced cost base and a reduced royalty of 1.5%. This agreement reduced 42 the income adjustment in the hands of the US entity to about USD 11 million. India would provide a corresponding adjustment of this amount in the hands of the Indian taxpayers. India requested the US side to provide the detailed calculations.
In view of the above this Court must opine that as of 06.05.2020, a decision was taken on the MAP settlement between the Indian-CA and US-CA.
34. Thereafter, the communication dated 06.10.2020 [Annexure-D], with the necessary approvals, is issued to the petitioner informing that it must communicate its acceptance of the terms MAP settlement within 30 days and must also withdraw the appeal. This Communication dated 06.10.2020 [Annexure-D] is undoubtedly issued in compliance with the procedure of the amended Rule 44G which inter alia requires communication of acceptance of the terms of the MAP settlement and withdrawal of pending appeals. 43 The petitioner has undisputedly complied with these terms. The only reasonable conclusion from these circumstances is that the Indian tax authorities, including Indian-CA, have dealt with the MAP as proceedings that were pending as of 06.05.2020. It cannot be that either the Indian tax authorities or the Indian-CA would not be aware of MAP Guidance 2020.
35. Thus, after the MAP is processed on a reference from US-CA under the provisions of the omitted Rule 44H, the Indian-CA has commenced discussions and negotiations are concluded on the cost base, markup percentage and brand royalty payments on the basis of the US TP adjustments. If the Indian- CA, after the amendment with effect from 06.05.2020, has proceeded with the MAP according to the amended Rules, and if the Communication as per Annexure - D is issued, with necessary approvals and conclusion of MA but without calling for details, the respondents cannot 44 now contend that the provisions of unamended Rule 44G must apply and it must defer the implementation of the concluded MAP because the petitioner did not invite the attention of the Indian-CA to the Indian TP adjustments.
36. The cost base, markup percentage and brand royalty payments are discussed and settlement is arrived at after due process. There could be consequential benefit to the Petitioner with loss of Revenue to the Department. However, the provisions of the amended Rule 44G(5) stipulate that there shall not be a decrease in the income or increase in the loss of an assessee in the return of income of a given year, if the MAP is invoked on account of action taken by any income tax authority in India. As rightly, argued by Sri S. Ganesh, this stipulation by converse excludes this rigor when MAP is because of the action taken by an income tax authority of the other contracting country. 45
37. It is settled law that the terms of DTAA will have precedence even over the provisions of the I-T Act when it is beneficial to an assessee because of the provisions of section 90(2) of the I-T act. An useful reference in this regard could be made to the decisions of division bench of this Court in Wipro Ltd and others v the Deputy Commissioner of Income Tax and others - reported in [2016] 236 Taxmann 209 Kar. and also of the Delhi High Court in Director of Income Tax v. Infrasoft Ltd based on the decision of the Hon'ble Supreme Court in Union of India and another v. Azadi Bachao Andolan and another (2004) 10 SCC 1. The Division Bench of the Delhi High Court has held as follows:
"Section 90 of the Act gives relief to the taxpayer who have paid the tax to a country with which India has signed the double taxation avoidance agreement. Section 90 confers the power on the Central government to enter into any agreement with the government of another country for granting relief to 46 an Assessee who has paid income tax under this Act and also income tax in that other country and also in respect of income tax which is chargeable under this Act and under the corresponding law of that country. This has been done with a view to promote mutual economic relations, trade and investment and for avoidance of double taxation of income under this Act as well as the act of the said contracting country. Section 90(2) lays down that where the Central Government has entered into an agreement with the government of any other country for granting relief of tax or for avoidance of double taxation, then the provisions of this Act shall apply to the Assessee only to the extent that they are more beneficial to the said Assessee. In case the provisions of this Act are more onerous and burdensome then the provisions of this Act would not apply and the Assessee would be governed squarely by the provisions of the double taxation avoidance agreement.
38. The petitioner in this case, for the reasons discussed and the provisions of amended Rule 44G(5), would be entitled to seek precedence to the MAP Settlement. This is also so because of article 27(2) of the DTAA. If the petitioner is entitled for correlative 47 benefits, and consequentially refund, as per the communication dated 06.10.2020 [Annexure-D] and the benefits are withheld, even for those undisputed assessment years viz., 2010-11 to 2012-13, the respondents must not only amend the assessment orders but also take necessary measures to refund the appropriate amount in terms of the correlative benefits along with interest permissible, and there would be no justifiable reason for denying the same. The petitioner, despite the MAP settlement and the benefit pursuant thereto, has not been given the same and therefore, the respondents must be directed to take necessary measures within a reasonable time. Hence, the questions framed for consideration is answered in favour of the petitioner and against the respondents, and the following:48
ORDER The petition is allowed. It is declared that the respondents cannot defer implementing or giving effect to the MAP Settlement as per Annexure - D either for the assessment years 2010-11 to 2012-13, which is not contested, or for the subsequent assessment year 2013-
14. The respondents are directed to take necessary measures to amend the assessment orders for the assessment years 2010-11 to 2013-14 in conformity with the MAP settlement and allow refund as aforesaid with permissible interest in accordance with the prescribed procedure therefor. The respondents are directed to do needful in this regard and complete the exercise within a period of 4 [four] months from the date of receipt of a certified copy of this order.
Sd/-
JUDGE nv*