TaxTMI 
TaxTMI 
2011 (4) TMI 118
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....tional or multinational company having its headquarters in Korea which works and operates in several parts of the world. It is a registered owner of the brand name and logo 'Samsung' and produces consumer durable and other white goods like television, washing machine, refrigerator, etc., under the brand name of 'Samsung'. SEC has 74 per cent of equity in the assessee-company and remaining 26 per cent of the equity are held and controlled by its Indian partner and associates. As per agreements entered into between SEC, Korea and the assessee, the SEC has granted a non-exclusive and non-transferable license to the assessee to use the technical information to produce the products at the facility of the assessee-company in India for sale in Indian as well as international markets. The aforesaid rights were granted with certain conditions and it is not necessary to set out the same as far as these appeals are concerned. 3. We may, however, mention that apart from controlling stake of 74 per cent in the form of equity of the assessee, the SEC has also obtained overriding and non-rectifiable rights to nominate 5 out of every 7 directors in the assessee-company. In addition, even the Ma....
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....y multinational businesses to set up its subsidiaries in the other countries with the intention of making progress, and, therefore, the prices on which the raw material were supplied to the assessee must be exclusive. He, thus, disallowed 2 per cent of the aforesaid purchase price treating the same to be exclusive and made addition to that extent in the income of the assessee. 7. Feeling aggrieved by the aforesaid addition made by the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) [hereinafter, referred to as 'CIT(A)']. In these appeals, the assessee succeeded. The CIT(A) held that there was no basis or justification for invoking the provision of section 40A(2) of the Act inasmuch as the imports were made at a reasonable price and there was no material before the Assessing Officer on the basis of which he could confirm the opinion that the same were excessive. The orders of the CIT(A) has been upheld by the Income-tax Appellate Tribunal (hereinafter, referred to as 'ITAT') which has, by common order dated 17-4-2009, dismissed the appeals of the revenue. 8. During the course of arguments, Mr. Satyen Sethi, learned counsel fo....
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....er getting the valuation done from its SVB, when this material was produced before the Assessing Officer, the Assessing Officer glossed over the same and only on the ground that SEC, Korea was a parent company of the assessee herein and was controlling the affairs of the assessee-company presumed that the prices at which the assessee imported the aforesaid materials from the said parent company must be excessive and unreasonable. 10. Apart from this presumption, based on the relationship between the parent company and the assessee-company, there was no other material before the Assessing Officer to come to such a conclusion. This would be clear from the following observations of the Assessing Officer in the impugned order : ". . . . in view of the standard practice, uses etc., of multinational business activities and its very motive and purpose of the business whether in one country or in another as the case may be, it is considered that there is a case of making a disallowance under section 40A(2)(b) of the Income-tax Act, 1961. Since, Samsung Electronics Company, Korea is a established and ongoing business enterprise, the normal presumption will be that it must have made a ....
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....x and thus, such an invoicing would have increased the liability of the assessee and would have gone against the interest, not only of the assessee-company but the Korean company as well. 13. The aforesaid discussion would clearly demonstrate that the two authorities below have arrived at a specific finding of fact that the raw materials are imported by the assessee from SEC, Korea at reasonable/competent rates which are neither excessive nor unreasonable. Once such a finding is recorded, which is a pure finding of fact, the question of applicability of provision 40A(2)(b) would not arise at all. It is held by Apex Court in Upper India Publishing House (P.) Ltd. v. CIT [1979] 117 ITR 569/1 Taxman 365 that such a finding is a finding of the fact and in this backdrop the provision of section 40A(2)(b) cannot be invoked which becomes an academic question. The brief order of the Supreme Court in the said case reads as under :- "There are two questions in respect of which a reference has been directed by the High Court on the application of the revenue under section 256(2) of the Income-tax Act 1961. So far as the first question is concerned, it is undoubtedly a question of law an....