TaxTMI 
TaxTMI 
2011 (2) TMI 68
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....ng the same with the margins earned by comparable uncontrolled companies" 3. Grounds of appeal No. 1, regarding expenses of Rs. 1,20,94,000. The facts of the case are that the assessee is a 51:49 joint venture company between Chiron Corporation, USA and Aventis Pharma Limited, engaged in the pharmaceutical business in manufacturing a vaccine which is used for the cure of Rabies. The assessee had purchased the existing cell culture rabies vaccine manufacturing facility of Aventis Pharma Limited located in Ankeleshwar, Gujarat. The vaccine is sold under the trademark "Rabipur" which is owned by Chiron Behring GMBH & Co. Germany. The assessee claimed the expenses of Rs. 1,20,94,000 towards WHO certification fee. The AO observed that the payment were made to the associate company by the assessee for some services done by them in order to get WHO certification in respect of the products of the company. The assessee submitted before the AO that the objective behind seeking the certification from WHO was to cater to the demand for the vaccines arising from overseas buyers, foreign governments, United Nations Agencies such as UNICEF ETC. WHO certificate gives a comfort to the overseas buy....
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....see for rabies vaccine and standard observed by the assessee in manufacturing process as well as quality of the vaccine. Therefore, the learned AR of the assessee has submitted that the expenditure is not in the nature of the capital and shall be allowed. In the alternative, the learned AR has submitted that if the expenditure is treated as capital in nature then the assessee is entitled for depreciation. 3.3. On the other hand, the learned DR has submitted that obtaining a certificate from WHO has enlarged the market and demand of the product of the assessee like acquisition of brand or trade mark. Without the certificate, the assessee could not sale its product in the overseas market and therefore, the expenditure incurred on obtaining the certificate from WHO ascertaining the assessee's product advantageous position in comparison to the product manufactured by the other non-certified companies. Therefore, the expenditure has given an enduring benefit to the assessee and is in the nature of capital. He has relied upon the orders of the lower authorities. 3.4 We have considered the rival contentions and relevant record. Undisputedly, the assessee has incurred an expenditure for ....
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.... for Arm's Length Price (ALP) and recorded in the books of account by using Transactional Net Margin Method (TNMM) by adopting the net cost + (plus) Margin as the profit level indicator. In the Transfer Pricing report, the assessee has taken external comparable and shown that, the weighted net cost + (Plus) comparable cost at 9.46%. The AO referred the transfer pricing (TP) report matter under section 92CA(1) of the Act to the TP Officer. The Transfer Pricing Officer vide his order dated 22-3-2005 passed under section 92CA(3) computed the ALP of export of vaccine as under : "6. To sum up, the total adjustments to the income of the assessee, by considering the provisions of Chapter 10 of the IT Act, are worked out as below: (i) the arm's length price of royalty of Rs.22,676,376 is computed at NIL (ii) on account of arm's length price of export of vaccine is computed at Rs. 114,352,614 as against transactional value of Rs. 87,762,334." 4.2 The TPO has held that the payment of royalty is unwarranted payment in defiance of the agreement between Chiron Corporation USA and Hoecht Marion Roussel Ltd. (HMR). The TPO was of the view that when the assessee was incurring the expenses for ....
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....s Corporation Limited 465,994 465,994 402,648 63,346 13.59 15.73 Panacea Biotech limited 2,797,832 1,948,321 1,373,180 575,141 29.52 41.88 Haffkine Biopharmaceutical Corporation Ltd. 904,537 845,720 748,756 96,964 11.47 12.95 Arithmetical mean 18.19 23.52 4.7 The learned AR of the assessee submitted that in the TP study the arithmetical mean of all the comparable in net profit margin is at 18.19% and net cost +(Plus) 23.52%, whereas the assessee's net margin from the export transactions is 29% which substantially higher than the comparable, therefore, no adjustment is required under the ALP. He has referred the TPO order and submitted that the TPO has wrongly compared the domestic margin on domestic sale with margin on export sale while passing the order under section 92C(3) which is against the law and statute, therefore no adjustment is required . 4.8 On the other hand, the learned DR has submitted that in this case both the TPO as well as the assessee have erred in not properly appreciating the provisions of law and rules made thereunder while computing the TNMM. He submitted that the TPO has compared the operating margins, a....
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.... section 92C(1) in relation to an international transaction shall be determined by any of the methods prescribed in the said section being the most appropriate method, having regard to the nature of transaction or class of transaction. Section 92F(ii) defines arm's length price means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions; rule 10B(1) of the Income-tax Rules prescribe the manner in which ALP in relation to international transactions has to be determined by applying the most proper method means method prescribed under section 92C. Rule 10B(1)(e) specifically prescribes the manner for determination of the arm's length price by transactional net margin method for ready reference we quote rule 10B(1)(ie): "Determination of arm's length price under section 92C. 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (a) to (d) ** ** ** (e) transactional net margin method, by which,- ....
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.... its domestic transactions which is also against statutory requirement. Thus, it is clear that the provisions of Act and Rules have not been followed either by the assessee or by the AO. In the cases cited by the learned DR (supra), this Tribunal has consistently held that (TNMM) requires the comparison of net margin realized by the enterprises from international transactions or aggregate of international transactions and not comparison of operating the margin of the enterprise with the operating margin of the comparables of enterprise level. Therefore, the comparison of net profits margin realized by the assessee from the international transactions should be compared with the net profit margin of the uncontrolled parties transactions realized by enterprise which is unrelated and from the comparable uncontrolled transactions. 4.11 In view of the above discussions, as well as, the decisions of this Tribunal as relied upon by the learned DR, we hold that the transfer pricing adjustment suggested by the TPO are not as per the provisions of law. At the same time, the assessee has also not adopted the correct method of determination of TNMM. Therefore, the issue is set aside to the fil....
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....f April 2002 and is put to use before the 1st day of April 2002 for the purpose of business or profession" at 50%. 27. Further, the meaning of commercial vehicle for this purpose has been provided in items (3A) of the Notes below the Table. If that item is read along with clause (21) of section 2 of the Motor Vehicle Act, 1988, motor cars owned by the appellant and used for the purposes of business have to be reckoned as commercial vehicles. Therefore, if such motor car is acquired within the prescribed period indicated in the items as in the instant case, then depreciation at the rate of 50% is to be allowed to the cost or written down value of the car. 28. The findings of the AO is therefore not correct and not in accordance with the provisions of rule and the note given therein itself. The disallowance made by the AO on this account is therefore liable to be deleted. The amount disallowed is hence deleted. Appeal in respect of ground No.2, is thus disposed of as allowed" 6.3 There is no doubt if the vehicle on which the depreciation is claimed by the assessee are falling under commercial vehicle, then in view of the provisions applicable for the assessment year under consider....
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....year, 1996, the joint venture company was formed between Chiron Corporation, USA and Chiron Behring GMBH & Co., KG for acquiring the vaccine business of Behring GMBH KG. As a result of this Chiron Behring GMBH & Co became the owner of all trade mark, patent and technical know-how for manufacturing of the vaccine Aventis India had to pay royalty at 5% of the local sale for the use of imported technical know how. For this purpose the RBI granted approval vide letter dated 19-4-1997 for payment of royalty by Aventis Pharma Limited to Chiron Behring GMBH & Co. at the rate of 5% of the local sale. In the year 1998, the assessee joint venture was formed by the Aventis Pharma Limited and Chiron Corporation, USA. The assessee joint venture purchased the vaccine business of the Aventis Pharma Limited. According to the existing contract/agreement between the Aventis Pharma Limited and Chiron Behring GMBH its Cell culture rabies vaccine business stood transfer in the name of the assessee joint venture. Consequently, the payment of royalty by the assessee to Chiron Behring GMBH continued after taking the necessary approval from the RBI. Thus, it is clear that the purchasing of the business of ....