PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : In this appeal filed by the assessee, directed against an assessment done on 28.10.2010 pursuant to directions of Dispute Resolution Panel (DRP), Chennai, altogether nine grounds have been raised. Of these, Ground Nos.1 and 9 are general needing no adjudication.

2. Vide its ground No.2, assessee assails an adjustment of ` 10,89,404/- made to certain international transactions.

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3. Facts apropos are that assessee, engaged in the business of distributing and servicing information technology products, had procured a number of products from its group concern called Redington Distribution Pvt. Ltd., Singapore, which was in turn sold by it in India through various distribution channels and retail sellers. It also had other international transactions of export and loans as well, during the relevant previous year. The details of international transactions by the assessee, as compiled from TPO order dated 12.10.2009, are as under:- Name of the Description of the transaction Amount paid / Received ALP Rate of interest Method adopted Redington Distribution Pvt. Ltd. Singapore Export of Trading Goods 150853167 150853167 NA TNMM Backend Rebate 70695205 70695205 NA TNMM Purchase of Trading goods 1929527743 1929527743 NA TNMM Redington Pvt. Ltd. Singapore Purchase of Trading goods 300679193 300679193 NA TNMM Redington Gulf FZE, Dubai, UAE Loan Granted 131800000 131800000 6.80% CUP Loan Repayment received 131800000 131800000 6.80% Loan Granted 133567500 133567500 8% CUP Loan Repayment received 133567500 133567500 8% CUP Receipt of Interest 1424716 1424716 6.85 Receipt of Interest 322222 322222 8% CUP TOTAL 2984237246

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4. Assessee had adopted Transaction Net Margin Method (TNMM) as most appropriate method for bench marking its international transactions involving import and export of goods. The imported items, which were re-sold by the assessee, included computer peripherals as well as computers. In the transfer pricing documents filed by the assessee, it seems assessee had first preferred the CUP method. What was stated by the assessee in the transfer pricing document, read as under:- In the instant case, REDIL is purchasing the products from its AEs, who in turn purchase the product from the manufacturer of hardware equipments. Price charged by the manufacturers of computer peripherals suppliers on the AEs can be compared with the price charged on REDIL by the AEs. Price charged by the manufactuers of computer peripherals on the AEs can be verified with the manufacturers list price. Hence, CUP may be considered as the appropriate method. However, the manufacturers of computer peripherals have listed the price of the products in their website. Price comparison is provided Appendix VII. However, considering the fact that only person registered in the website would be able to obtain the price list other method has to be relied upon. However, in Form No.3CEB filed by the assessee, it had adopted TNMM method for working out the arm's length price (ALP) of the goods imported and exported. Reason cited by assessee for not using Comparable Uncontrolled Price (CUP) was that the price list of

I.T.A. No. 2164/Mds/10 4 vendor, which could be used for such comparison, was available only to registered users and not available in the public domain. The vendor involved in the transactions was one M/s Intel Semiconductor Limited, USA. Assessees Associate Enterprise in Singapore had purchased items from M/s Intel Semiconductor Limited and sold them to the assessee.

5. The TPO, when the matter was referred to her, for determining the ALP, made a comparison of the list price, extracted by the assessee from the website of M/s Intel Semiconductor Limited, with the price at which assessee had purchased such items from its Associate Enterprise at Singapore. It is to be noted that the price list as available in the website of M/s Intel Semiconductor Limited was provided by the assessee itself to the TPO. It was found by the TPO that in respect of procurement of 1250 numbers of Pentium IV (32 Bit Micro processors) assembled in Malaysia, the price paid by the assessee was in excess of 5% of list price. The per unit list price of this item was only US $ 124, whereas, assessee had paid US $ 144 per piece. Secondly, the TPO noted that assessee had sold an item called WS-C2980T-2424 to its Associate Enterprise, for a sum of ` 31,050/-, whereas, the same item was sold by it to an unrelated party at the rate of ` 33,954/-.

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6. Assessee was required to explain both the above transactions and as to why CUP method should not be preferred over the TNMM method adopted by the assessee. Reply of the assessee was that list price, which it had produced before Assessing Officer, compiled from the website of M/s Intel Semiconductor Limited was only an indicative price. Further, according to assessee, such list price was not in the public domain and was only available to registered users of M/s Intel Semiconductor Limited. Hence, as per the assessee, it was not proper to make a comparison with such list price and TNMM method was more appropriate. As per the assessee, if TNMM method was adopted, no adjustment was required to be made to the purchase cost of Pentium IV. Vis--vis the second item, namely, WS- C2980T-2424, assessee submitted that it was only due to the competitive nature of export that lower prices were realized.

7. However, TPO was not impressed. According to him, the list price of M/s Intel Semiconductor Limited was not something which was not available in public domain and assessee itself had, in its transfer pricing documents submitted, considered CUP method as the most appropriate one. As per TPO, reason given by the assessee for not adopting CUP method was not supported by any evidence. In

I.T.A. No. 2164/Mds/10 6 other words, according to her, assessee could not prove that the list price was only indicative price. Insofar as the explanation for variation in the second item, TPO was of the opinion that comparison required was between export to an Associate Enterprise and export to an unrelated party and therefore, the question of domestic market constraints did not apply. Further, as per TPO, the TNMM method was the result of outcome of pricing, whereas, the CUP method was the result of pricing itself. Assessee was having the price list given by the original manufacturer and therefore, it could not say that these were not good for a comparison. In this view of the matter, she made an adjustment for these two transactions, viz. one involving purchase of 150 items of Pentium IV and the second involving sale of the item WS-C2980T-2424. The effect of the former which was a downward adjustment on purchase price was ` 10,86,500/- and effect of the latter which was an upward adjustment of sale price was ` 2,904/-.

8. When the draft proposal on these lines was given to the assessee, assessee preferred an application before Dispute Resolution Panel. Argument of the assessee before the DRP once again was that it had preferred the TNMM method over its own earlier proposal of CUP method, since it could not maintain details regarding requisite comparables. Contentions before the DRP were more or

I.T.A. No. 2164/Mds/10 7 less on the same lines as taken before TPO. However, DRP was not impressed. It confirmed TPOs order on both the above international transactions. Assessment was accordingly completed.

9. Now before us, learned A.R., strongly assailing the orders of authorities below, submitted that a one-to-one comparison made by the Assessing Officer, based on the list price available in the website of M/s Intel Semiconductor Limited, was incorrect. According to him, there were thousands of items purchased by the assessee. The variation in excess of 5% of the list price was noted only in one item, namely, Pentium IV. Relying on paper-book page 7, learned A.R. submitted that this was a single transaction of purchase of 1250 numbers of such Pentium IV micro processors. According to him, these were purchased by the Associate Enterprise, namely, M/s Redington Distribution Pvt. Ltd., Singapore, who had sold it to the assessee, from M/s Intel Semiconductor Limited. The price at which the item was acquired from M/s Intel Semiconductor Limited and the price at which it was sold to the assessee were same. Relying on the copy of the invoice raised by M/s Intel Semiconductor Limited on the Associate Enterprise, placed at paper-book page 7, learned A.R. submitted that it amply demonstrated the above facts. In such a situation, according to him, comparison based on list price available

I.T.A. No. 2164/Mds/10 8 in website of M/s Intel Semiconductor Limited was not called for. The invoice raised by M/s Intel Semiconductor Limited on the Associate Enterprise itself was a comparable transaction. Further, according to him, no preference could be placed on CUP method vis--vis TNMM method. List price was available only to registered users of M/s Intel Semiconductor Limited and it was not in public domain. At the best, such list price was only indicative and did not represent the true price between parties. When the assessee was required to produce such list price, it had duly produced. The TPO had made an analysis based on such list price, and she could find only one transaction of purchase of 1250 Pentium IV processors, where there was a variation exceeding 5%. With regard to all other transactions, the variations were not significant even by the analysis done by the TPO. There were a large number of items which were sold by the AE to the assessee at prices significantly lesser than the price list of M/s Intel Semiconductor Limited. According to him, in a series of transaction, where purchase quantities and items varied from transaction to transaction, adherence to the list price of a vendor, which list price was common to all registered users of the website of such vendor, would not be possible. A comparison with such result will not lead to a rational result. It was because of this, assessee adopted TNMM

I.T.A. No. 2164/Mds/10 9 method, though it had at the first instance mentioned that CUP method could be appropriate. Rule 10B (1)(a) of Income-tax Rules, 1962, clearly specified that a series of transactions also could be considered for a comparison. Whether to make one-to-one analysis or an analysis based on series of transaction, had to be determined based on facts and circumstances of each case. Here, the circumstances called for an analysis based on a series of transactions grouped together and not transaction-wise. Insofar as the adjustment made on the item sold by the assessee, learned A.R. fairly agreed that the amount involved was insignificant and he was not seriously pressing the upward adjustments carried out.

10. Per contra, learned D.R., strongly supporting the order of TPO, submitted that assessee had given a list price and such list price was compiled by the assessee itself from the website of M/s Intel Semiconductor Limited. Admittedly, assessee was a registered user and the list price was the best indicator of the prices at which M/s Intel Semiconductor Limited sold the items to various parties. A comparison with such list price was found by the assessee itself to be appropriate in its transfer pricing documents, but it changed its stand later. According to learned D.R., TPO had made a correct analysis and made an adjustment only on the item, where the cost of

I.T.A. No. 2164/Mds/10 10 acquisition was more than 5% of such list price. Learned D.R. submitted that arm's length price had to be determined considering each transaction independently and also using the most appropriate method. It has been demonstrated by the TPO that most appropriate method was CUP method, since a reliable list price was available. Assessee itself having given the list price and also having made a comparison of such list price, with the actual price at which it had purchases the products from its Associate Enterprise, could not turn back to say that TNMM was better. Reliance was placed on the decision of Mumbai Bench of this Tribunal in the case of Serdia Pharmaceuticals (India) Pvt. Ltd. v. ACIT (2011) 50 DTR 98 and that of Delhi Bench of this Tribunal in the case of Clear Plus India (P.) Ltd.

v. DCIT (I.T.A. No. 3944 of 2010 dated 11th January, 2011). According to him, in the circumstances of the case, the TPO was justified in adopting CUP method for comparing the prices at which assessee had purchased various items from its Associate Enterprise.

11. We have perused the orders and heard the rival submissions. There is no dispute that in the transfer pricing document submitted by the assessee before the TPO, assessee itself had considered CUP method to be the appropriate one. However, in the audit report in Form No.3CEB, it was mentioned that TNMM was being followed.

I.T.A. No. 2164/Mds/10 11 Reason given by the assessee was that list price, based on which CUP method could be adopted, was only indicative and was not in public domain. Assessee itself had submitted the list price of various items purchased by it, as available in the website of M/s Intel Semiconductor Limited, and the TPO had gone ahead with comparative study based on such list. Section 92C(1) requires determination of arm's length price by following one of the most appropriate methods out of the six methods mentioned therein. Sixth method is one prescribed by the Board as most appropriate method. Sub-clause (1) of Rule 10C of Income-tax Rules, 1962 states that the most appropriate method shall be one which provides the most reliable measure of an arm's length price in relation to an international transaction. The documents to be kept by a person, who had entered into international transactions, are given in Rule 10D of which, sub- clause (g) of clause (1) speaks about the record of uncontrolled transactions that are to be taken into account for making a comparability study. The said clause is reproduced hereunder:- (g) a record of uncontrolled transactions taken into account for analysing their comparability with the international transactions entered into, including a record of the nature, terms and conditions relating to any uncontrolled transaction with third parties which may be of relevance to the pricing of the international transactions

I.T.A. No. 2164/Mds/10 12 The documents which can be used for supporting the data in the record maintained as per Rule 10D(1) is mentioned in sub-rule (3). This reads as under:- (3) The information specified in sub-rule (1) shall be supported by authentic documents, which may include the following: (a) official publications, reports, studies and data bases from the Government of the country of residence of the associate enterprise, or of any other country; (b) reports of market research studies carried out and technical publications brought out by institutions of national or international repute; (c) price publications including stock exchange and commodity market quotations; (d) Published accounts and financial statements relating to the business affairs of the associate enterprises; (e) Agreements and contracts entered into with associate enterprises in respect of transactions similar to the international transactions; (f) letters and other correspondence documenting any terms negotiated between the assessee and the associate enterprise; (g) documents normally issued in connection with various transactions under the accounting practices followed. A reading of the above clearly shows that it is not essential that the record of uncontrolled transactions to be taken into account for analyzing the comparability should always be supported by official publications and reports. It can include even documents normally issued in connection with the transactions under the accounting

I.T.A. No. 2164/Mds/10 13 practices followed. Therefore, contention of the assessee that the list price could not have been used, for the reason that it was not in public domain, cannot be accepted. The list price was available not only to assessee but all registered users of the website of M/s Intel Semiconductor Limited. It will be hard to believe that M/s Intel Semiconductor Limited had different set of list price for different users. However, the contention of the assessee that such list price was only indicative, in our opinion, carries considerable strength. We cannot say that M/s Intel Semiconductor Limited would have entered into sale transactions with its customers at the very same price as given in the list price. Prices are always a measure of market exigencies and economic rules of demand and supply. Prices are negotiated between parties according to quantity, value and other aspects which are determinant of market forces. For making a comparative study under CUP method also, what is required is a comparison with actual sale and purchase with unassociated enterprise or transaction between unassociated enterprises. It cannot solely be based on list prices, which at the best can be considered only as a reference point.

12. Leaving aside the merits and demerits of different methods used for ascertaining the ALP, in the given instance, what was bought

I.T.A. No. 2164/Mds/10 14 by the assessee was 1250 items of Pentium IV processors from its Associate Enterprise in Singapore. A look at the invoice raised by M/s Intel Semiconductor Limited, on the said Associate Enterprise, clearly shows that these items though sold to the Singapore entity but, directly shipped to the assessee in India. The invoice mentions the unit price as 144 US $. The said invoice clearly shows that the price at which M/s Intel Semiconductor Limited supplied to Redington Distribution Pvt. Ltd., Singapore and price at which the latter sold to the assessee in India, was one and the same. We are of the opinion that when the Associate Enterprise had sold the items to the assessee at the same price at which it had purchased it, there cannot be any arm's length price adjustment done, unless and until the original vendor was also an Associate Enterprise. Here, admittedly, M/s Intel Semiconductor Limited was not an Associate Enterprise of assessee or its Associate Enterprise in Singapore. Therefore, we cannot say that the price at which M/s Intel Semiconductor Limited sold to Redington Distribution Pvt. Ltd., Singapore, was not at arm's length price. In our opinion, when Redington Distribution Pvt. Ltd. sold the items to assessee at very same price at which it had purchased from M/s Intel Semiconductor Limited, there cannot be any question of under pricing or over pricing. We are, therefore, of the

I.T.A. No. 2164/Mds/10 15 opinion that the adjustment carried out by the lower authorities, based on list price, on the purchase of 1250 Pentium IV processors from Associate Enterprise was not called for. Such adjustment, therefore, stands deleted.

13. However, so far as the sale of the item WS-C2980 T-2424 effected by the assessee, learned A.R. has fairly admitted that the amount involved was insignificant. Therefore, the adjustment of ` carried on this transaction will stand. In the result, Ground Nos.2 and

3 of the assessee are treated as partly allowed.

14. Vide its ground No.4, grievance raised by the assessee is on a disallowance of depreciation claim of ` 1,06,25,793/-.

15. Facts apropos are that assessee had considered expenses incurred on erection of office cabins, partitions, installation charges, flooring charges, waterproofing treatment, etc. to be of temporary nature and therefore, charged 100% depreciation. According to assessee, these were all temporary structures and it was eligible for such depreciation. However, Assessing Officer on scrutiny of vouchers found that the outgo involved major items and was not for simple temporary structures. Against the total claim of depreciation of ` 1,14,87,058/-, Assessing Officer found that depreciation could be

I.T.A. No. 2164/Mds/10 16 allowed at 100% only on a sum of ` 8,61,265/-. In other words, he disallowed the claim to the extent of ` 1,06,25,793/-.

16. When the matter reached DRP, assessee argued that the Tribunal in assessee's own case for assessment years 1999-2000, 2001-02 and 2002-03, had in its order in I.T.A. No.544 and 545, on a similar issue, remitted the matter back to Assessing Officer for consideration afresh. However, the DRP was not impressed. According to it, Assessing Officer had already considered such directions of the Tribunal while considering the allowability of claim of 100% depreciation. Further as per the DRP, Assessing Officer had rightly demarcated the items which were temporary in nature and allowed 100% depreciation thereon. What was disallowed was only with regard to those items which were not temporary in nature. In this view of the matter, DRP confirmed the disallowance.

17. Now before us, learned A.R., strongly assailing the orders of authorities below, submitted that temporary structures were eligible for 100% depreciation. According to him, demarcation of office space through office cabins and partitions were expenses for restructuring. Similarly, giving waterproofing treatment could never be considered as a capital expense. These were only revenue in nature and did not give any enduring benefit to assessee. Therefore, according to him,

I.T.A. No. 2164/Mds/10 17 assessee was eligible for the claim. In any case, learned A.R. submitted that Assessing Officer had not given an analysis as required by the Tribunal in the earlier year with regard to similar claims.

18. Per contra, learned D.R., supporting the orders of lower authorities, submitted that depreciation could be allowed at 100% only on wooden structures and explanation (1) to Section 32(1) of the Act clearly showed that such work, which resulted in renovation or extension or improvement to a building, had to be classified as capital expenditure. What could be allowed as depreciation was only at the rate prescribed for building and nothing more. Assessing Officer had made an analysis of the various expenditure and found that the claim was justified only to the extent of ` 8,61,265/-. Reliance was placed on the decision of co-ordinate Bench of this Tribunal in the case of ABT Ltd. v. ACIT (I.T.A. No. 1557, 1558 and 1633 & 1705/Mds/2011 dated 3rd January, 2013).

19. We have perused the orders and heard the rival submissions. Rate at which the depreciation could be claimed on building, as applicable for the impugned assessment year, is given in New Appendix 1 of Income-tax Rules, 1962. 100% depreciation is

I.T.A. No. 2164/Mds/10 18 available only to purely temporary erections such as wooden structures, vide entry number (4) under the caption Building. Therefore, unless and until an assessee can show that expenditure incurred was on purely temporary erection such as a wooden structure, it will not be eligible for depreciation rate of 100%. It is to be noted that assessee had itself never claimed it as a revenue expenditure in its Profit & Loss account. It had categorized such expenditure incurred as a capital outgo and then claimed depreciation of 100%. Assessee itself having treated it as an asset in its books under the head building / temporary structure, it cannot turn back to say that these were only revenue outgo. Had it been in the nature of revenue outgo, the item would have been entered in the Profit & Loss account as an expense. Once assessee claims 100% depreciation, it is necessary for it to show that the claim is purely on a temporary erection. Earlier order of the Tribunal did direct the Assessing Officer to make an analysis as to whether the expenditure could be allowed as revenue outgo. However, such analysis has already been done by the Assessing Officer for the impugned assessment year. Out of the total claim, a sum of ` 8,61,265/- was allowed considering it to temporary erection. Nothing has been brought on record by the assessee to show that erection of office cabins, partitions, installation

I.T.A. No. 2164/Mds/10 19 charges, flooring charges, waterproofing treatment, etc. were in the nature of pure temporary erections which alone qualified for 100% depreciation. In such circumstances, we are of the opinion that Assessing Officer was justified in making a disallowance to the extent of ` 1,06,25,793/-. No interference is required.

20. Ground No.4 of the assessee stands dismissed.

21. There is one sub-ground taken by the assessee in its ground No.4, which assails disallowance of 60% depreciation claimed on UPS. According to the learned A.R., assessee had never made any claim of 60% depreciation on UPS. Therefore, this ground has become infructuous.

22. In its ground No.5, assessee assails disallowance of ` 64,58,193/- for non-deduction of tax on royalty payment effected by it to M/s Microsoft Corporation Inc.

23. Facts apropos are that M/s Microsoft Corporation Inc. had authorized replicators to copy its software and sell such software in the market through various distributors. The distributors were to buy the Compact Discs from replicators and sell it to end-customers through their network. Assessee was one such distributor of M/s

I.T.A. No. 2164/Mds/10 20 Microsoft Corporation Inc. Royalty was payable based on the number of software CDs sold. As per the assessee, the royalty was paid to M/s Microsoft Corporation Inc. only after deduction of tax. Royalty was payable once in a month based on gross quantities sold. Credit notes were issued by M/s Microsoft Corporation Inc. for royalty refund arising out of sales returns. Assessee had deducted tax at source on payments effected to M/s Microsoft Corporation Inc., on net of the returns. In other words, while effecting payment to M/s Microsoft Corporation Inc., it had considered the credit notes from them and tax was deducted only on the net payments.

24. Assessing Officer was not happy with the explanation given by the assessee in this regard. According to him, Section 195 stipulated deduction of tax at source on any sum payable on cross border transactions. Assessee was liable to deduct tax at source on the gross amount and not on the net amount. Therefore, he considered the assessee to be one at default. Difference between gross amount billed by M/s Microsoft Corporation Inc. and net amount paid by the assessee to it was disallowed under Section 40(a)(i) of the Act. Such disallowance came to ` 64,58,193/-.

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25. Before the DRP, assessee reiterated the same contentions which were taken before the Assessing Officer. However, the DRP was of the opinion that the question of making debits based on purchase returns would arise only after giving the credit based on original invoice raised. According to DRP, assessee, despite their specific query, had failed to produce the books of accounts and ledger folio of M/s Microsoft Corporation Inc. to prove its case. They confirmed the disallowance.

26. Now before us, learned A.R., strongly assailing the orders of lower authorities, submitted that duty to deduct tax at source under Section 195 arose only if the sum payable was chargeable under the provisions of the Act, in the hands of the recipient non-resident. According to him, even if M/s Microsoft Corporation Inc. was considered as an Indian entity, what could be charged to tax in its hand was only the net royalty amount received by it and not the gross royalty amount billed by it. What was chargeable to tax in India was the royalty actually received by M/s Microsoft Corporation Inc. from the assessee and such amount could only be reckoned after considering the returns. According to him, assessee was having a bonafide belief that tax was required to be deducted only on the net amount and not from the gross amount. Reliance was placed on the

I.T.A. No. 2164/Mds/10 22 decision of Hon'ble Apex Court in the case of GE India Technology Centre Pvt. Ltd. v. CIT (327 ITR 456).

27. Per contra, learned D.R., strongly supporting the orders of lower authorities, submitted that assessee was bound to deduct tax at source on the amount which was billed by the non-resident at the time of giving credit to the non-resident in its books of accounts. The question of reversing the royalty payable to the extent of refunds happened at a later date when credit notes were given by M/s Microsoft Corporation Inc. Assessee had failed to produce ledger copy to show that against each invoice raised by M/s Microsoft Corporation Inc., it had given credit only after deducting royalty refunds and credit notes. Assessee having not produced the ledger folio of M/s Microsoft Corporation Inc. despite repeated requests of the DRP, presumption arose that had it produced such record, it would have gone against it. Therefore, according to him, Section 40(a)(i) of the Act was rightly applies.

28. We have perused the orders and heard the rival submissions. No doubt, it has been mentioned by the DRP that assessee had not produced the ledger account of M/s Microsoft Corporation Inc. as appearing in its books of accounts, despite various opportunities

I.T.A. No. 2164/Mds/10 23 given to it. However, a look at the assessment order clearly shows that assessee had indeed produced its books. At para 2.5 of the assessment order, it is mentioned that books of accounts were produced and examined in detail. Therefore, to presume that Assessing Officer had not seen the ledger folio of M/s Microsoft Corporation Inc. in the books of the assessee will be incorrect. Contention of the assessee was that the payments effected by it to M/s Microsoft Corporation Inc. was net of refunds. A look at Section 195(1) is required at this juncture. This is reproduced hereunder:-

195 (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income- tax thereon at the rates in force. Argument of the assessee is that M/s Microsoft Corporation Inc. would have been chargeable to tax under the Act, only on the net royalty and not on the gross royalty. However, a reading of the above Section clearly show that chargeability to tax has to be determined at the time of credit of such income to the account of the payee or at the time of payment, whichever was earlier. Assessee was following mercantile system of account, without doubt. Therefore, when M/s

I.T.A. No. 2164/Mds/10 24 Microsoft Corporation Inc. raised invoices on the assessee for the royalty amount, it had to pass entries crediting the account of M/s Microsoft Corporation Inc. in its books and debiting the royalty account. The question thus is whether the royalty due to M/s Microsoft Corporation Inc. is chargeable to tax in India, at point of credit based on their invoice or based on actual payments. Assessee cannot say that refunds of royalty or issue of credit note by M/s Microsoft Corporation Inc. were all within its knowledge, when credit entries for royalty were passed. Even if it was within its knowledge, there was no legal obligation on behalf of M/s Microsoft Corporation Inc. to give such refund unless and until the sales returns stood proved. In our opinion, assessee was obliged to deduct tax at source at the time when credit was given to M/s Microsoft Corporation Inc. No doubt, Hon'ble Apex Court in the case of GE India Technology Centre Pvt. Ltd. (supra) has clearly held that a person is bound to deduct tax at source only when the sum paid is assessable to tax in India. Here, there is no dispute that the sum paid to M/s Microsoft Corporation Inc. was taxable in India. In such a situation, in our opinion, contention of the assessee that only the net amount actually paid could be considered for effecting deduction of tax at source, cannot be accepted. Assessee was obliged to deduct tax at source

I.T.A. No. 2164/Mds/10 25 when credit entries were passed in its books based on invoices or demands raised by M/s Microsoft Corporation Inc. In our opinion, lower authorities were justified in applying Section 40(a)(i) of the Act, to the extent assessee failed to make such deduction. No interference is required.

29. Ground No.5 is dismissed.

30. Vide ground No.6, grievance raised by the assessee is regarding disallowance of ` 53,76,494/- paid to International Finance Corporation (IFC) on which also Section 40(a)(i) was applied.

31. Facts apropos are that assessee had shown a sum of ` 35 lakhs as provision for consultancy charges payable to M/s IFC in its accounts. No deduction of tax at source was effected. When the assessee was put on notice, its argument was that such payments were not taxable in India under the Income-tax Act and therefore, it was not obliged to deduct any tax at source. However, Assessing Officer was not impressed. According to him, assessee could neither prove the business necessity of expenditure nor could it show that M/s IFC enjoyed any immunity from taxation in India. He, therefore, applied Section 40(a)(i) and made disallowance of ` 35 lakhs for non- deduction of tax at source.

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32. Before the DRP, argument of the assessee was that the recipient was not taxable under Income-tax Act and therefore, it was not obliged to deduct tax at source. As per the assessee, M/s IFC was a subsidiary of World Bank and its income was not taxable in India. However, the DRP was not impressed. It confirmed the disallowance.

33. Now before us, learned A.R. submitted that IFC was an arm of World Bank, and the amount was paid to them for carrying out a due diligence for raising financial assistance. According to him, the payments were non-refundable processing fee for appraising its proposal for Initial Public Offering of US $ 50 million. According to learned A.R., International Finance Corporation (Status, Immunities and Privileges) Act, 1958 exempted the income of IFC from Indian income-tax. According to him, this Act was not properly considered by the authorities below. Assessee was not obliged to deduct tax at source when the payments were effected and therefore, the disallowance was not called for.

34. Per contra, learned D.R., strongly supporting the orders of authorities below, submitted that the payments were related to a proposed public offering of US $ 50 million and it could only be

I.T.A. No. 2164/Mds/10 27 considered as a capital outgo. According to him, Assessing Officer had taken an alternative ground that amounts could not be considered as revenue outgo.

35. We have perused the orders and heard the rival submissions. Assessing Officer had applied Section 40(a)(i) of the Act on the payments effected to IFC for the reason that there was no provision in the Income-tax Act which gave immunity to the said Corporation. As per the Assessing Officer, United Nations (Privileges and Immunity) Act, 1947 exempted only public utility services and not commercial transactions. The DRP at para 6.2 of its order referred to the same enactment for ruling that the said Corporation did not enjoy any tax exemption. As against this, now before us, learned A.R. pointed out that the applicable law was International Finance Corporation (Status, Immunities and Privileges) Act (No.42) of 1958, a copy of which has been placed at paper-book pages 213 to 217. He has relied on Section 9 which, according to him, gave immunity to IFC. Lower authorities had considered the claim of the assessee vis- -vis United Nations (Privileges and Immunity) Act, 1947, whereas, the enactment which has to be applied is International Finance Corporation (Status, Immunities and Privileges) Act, 1958. We are, therefore, of the opinion that the matter requires a fresh look by the

I.T.A. No. 2164/Mds/10 28 Assessing Officer. We, therefore, set aside the orders of lower authorities and remit the issue back to the file of the A.O. for consideration afresh. Assessee has to produce copy of the enactment called International Finance Corporation (Status, Immunities and Privileges) Act, 1958 before the Assessing Officer and also show why it will not fall under any of exemption clauses mentioned in Section 3(1) thereof.

36. Ground No.6 of the assessee is allowed for statistical purposes.

37. Vide its ground No.7, grievance raised by the assessee with regard to disallowance of a claim under Section 80G, for a donation of ` 5 lakhs made to M/s Vidya Mandir.

38. We find that assessee had filed before the lower authorities a certificate from M/s Vidya Mandir, (copy of which has been placed at paper-book page 246) which clearly acknowledges receipt of ` 5 lakhs from assessee, as donation. Copy of the approval under Section 80G, issued to M/s Vidya Mandir, by Director of Income-tax (Exemptions) has also been placed on record (paper-book page 245) which clearly says that the said approval applied for the period 1.4.2003 to 31.3.2006. Therefore, for the impugned assessment year, M/s Vidya Mandir was having approval under Section 80G of

I.T.A. No. 2164/Mds/10 29 the Act. We are, therefore, of the opinion that the donation of ` 5 lakhs made to M/s Vidya Mandir was eligible for deduction under Section 80G of the Act. Orders of lower authorities are set aside. Assessing Officer is directed to grant such deduction.

39. Ground No.7 of the assessee is allowed.

40. Vide its ground No.8, grievance raised by the assessee is that credit for TDS of ` 13,24,891/- was not given to it.

41. Both the counsel agreed that this issue required a fresh look by the Assessing Officer. Learned D.R. submitted that if the assessee is able to produce TDS certificate in support of its claim, he has no objection to the tax credit. We, therefore, deem it fit to remit back the issue to the file of the A.O. for consideration afresh. If the assessee is able to produce tax deduction certificate and also show that the income mentioned therein was included in the income for the impugned assessment year, it has to be given credit. Ordered accordingly.

42. Ground No.8 of the assessee is allowed for statistical purposes.

43. In the result, appeal of the assessee is allowed pro tanto.

I.T.A. No. 2164/Mds/10 30 Order was pronounced in the Court on Thursday, the 2nd of May, 2013, at Chennai. sd/- sd/- (V.Durga Rao) (Abraham P. George) Judicial Member Accountant Member Chennai, Dated the 2nd May, 2013. Kri. Copy to: (1) Appellant (2) Respondent (3) ITO & Secretary, DRP, Chennai (4) JCIT / TPO-II, Chennai (5) Guard file