TaxTMI 
TaxTMI 
2013 (8) TMI 594
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.... length price of international transactions. 3. That the assessing officer erred on facts and in law in making transfer pricing adjustment amounting to Rs. 154,12,00,000 in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as, 'the AMP expenses') incurred by the appellant. 3.1 That the assessing officer erred on facts and in law in not appreciating that since the appellant is the sole beneficiary of the AMP expenditure incurred by it, its conduct in incurring and bearing the cost of such expenditure was consistent with the arm's length principle. 3.2 That the assessing officer erred on facts and in law in not appreciating that the characterization of the appellant being that of a full fledged manufacturer justifies the conduct of the appellant in incurring and bearing the cost of AMP expenditure. 3.3 That the assessing officer erred on facts and in law in not appreciating that expenditure on advertisement and brand promotion, unilaterally incurred by the appellant, could not be regarded as a 'transaction' in the absence of any understanding/ arrangement between the appellant and the associated enterprise. 3.4 That the asse....
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....on under the Transfer Pricing Regulations in India., adjustment on account of the arm's length price of the advertisement and brand promotion expenses could not be made. 3 .14 That the assessing officer erred on facts and in law in ignoring that "bright line limit" is not a prescribed method under the purview of section 92C of the Act. 3.15 Without prejudice that the assessing officer erred on facts and in law in not appreciating that even applying developer assister rule as contained in US Transfer Pricing regulations, viz., REG. 1.482-4, the appellant would be characterized as developer of the marketing intangibles and hence it would not be required to seek reimbursement / compensation for such expenditure from the associated enterprise. 3.16 That the assessing officer erred on facts and in law in applying paras 6.36, 6.37 and 6.38 of the OECD Guidelines which are applicable only to distributors and not to manufacturers such as the appellant. 3.17 That the assessing officer erred on facts and in law in failing to appreciate that the comparable companies as identified in the Transfer Pricing study are not right comparables for applying the bright line test (BLT) due to....
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....Net sales AMP expenses AMP/Sales General Motors India Pvt. Ltd. 1413.89 81.32 5.75% Ford India Pvt. Ltd. 1345.1 77.09 5.73% Hyndai Motor India Ltd. 6245.09 198.13 3.17% Honda Siel Cars India Ltd. 2142.3 17.21 0.80% MEAN 3.86 Maruti Suzuki India Ltd. 10910.8 204.4 1.87% 3.27 Without prejudice that the assessing officer erred on facts and in law in not appreciating that, for the purpose of undertaking benchmarking analysis of AMP expenditure of the aforesaid company in passenger automobile segment and the same could not be disregarded on the ground of related party transaction. 3.28 That the assessing officer erred on facts and in law m individually examining the international transactions entered into by the appellant, not appreciating that such transactions being closely linked, ought to have been benchmarked on an aggregate basis. 3.29 Without prejudice that the assessing officer erred on facts and in law in ignoring the fact that, since the appellant earns return commensurate with other brand owners, the appellant is adequately compensated for its functions and AMP expenses. 3.....
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....o-branded trademark "Maruti- Suzuki", Maruti brand was totally new brand whereas "Suzuki" brand had internationalpresence and therefore there cannot be any question of impairment of the Maruti Brand and reinforcement of Suzuki Brand. 4.7 That the assessing officer erred on facts and in law in failing to appreciate that the License Agreement was entered into by the appellant with the, approval of the Secretariat of Industrial Assistance, Ministry of Commerce and Industry, along with the approval from the Reserve Bank of India. 4.8 That the assessing officer erred on facts and in law in holding that co-branding of "Maruti-Suzuki" has resulted in the reinforcement of value of "Suzuki" brand and simultaneous impairment of "Maruti" trademark. 4.9 failing to appreciate that such concept of "reinforcement" cannot be considered to be an "international transaction" as defined in section 92B of the Act which consists of purchase, sale or lease of tangible or intangible property; 4.10 That the assessing officer erred on facts and in law in holding, on the basis of conjectures and surmises that, the associated enterprises has charged separate royalty for the use of technology and f....
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....ufacture of passenger cars in India. MSIL is the subsidiary of its overseas group Company, Suzuki Motor Corporation (SMC). As on 31.3.2005, SMC held 54.21% share in MSIL and approx. 18.30% was held by the Government of India and the balance was held by Indian public and others. 4. The following international transactions had been undertaken by the assessee during the F.Y. 2004-05. 4.1 For benchmarking of the international transactions, the assessee has selected TNMM as the most appropriate method. OP/Sales had been identified as the profit level indicator in the case of assessee. Furthermore, it was stated that OP/sales of the assessee was 11.19%. The margin of the comparables had been computed using OP/Sales at 4.04%. The assessee has selected three comparables for the purpose of bench marking viz. Hindustan Motors, Tata Motors and Mahindra & Mahindra. On the basis of above economic analysis it was concluded by the assessee that the international transaction undertaken during the financial year 2004- 05 are at arms length price. 4.2 However, the TPO was not in agreement with the above. The TPO made the transfer pricing adjustment amounting to Rs. 154,12,00,000/- in relati....
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....hich, as per Clause 2-01 of License Agreement is for the use of technical information and, for the use of license trademark of Suzuki. 1.2 This makes it clear that the royalty payment is inseverably towards both for use of technical assistance and information and for the use of the Suzuki Brand name / logo/ trade mark. The License Agreement is a single package, for which the consideration, is inserverable. 1.3 Consequently, no part of royalty payment can be sp[lit and determined for the use of Suzuki's licensed trademarks as such." 6.4 However, the TPO was not satisfied with the above. He observed that the assessee's plea that it was a package deal, does not seem to be convincing as no independent entity would be so eager to make payment and enter into an agreement of this nature without ascertaining the individual split towards technical assistance and brand. 6.5 Hence, the TPO noted that since the assessee has not quantified the payment made by it for use of brand name. The TPO himself embarked upon to find the same. The TPO referred to the financials of the SMC. The TPO observed that it can be logically inferred that SMC has charged royalty for use of technology and ....
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....fter acquisition of 50% share by SMC Japan in the year 1982. It was further submitted that it was not feasible for the assessee to stop using the co-branded name for the sales of its products. The TPO opined that at the time of incorporation of the assessee company in 1982 neither the brand name Maruti nor of Suzuki was established in India. That however, due to continued efforts of the assessee company, the brand Maruti became the household name and the brand Suzuki also developed alongwith. The TPO wondered that in such a situation, whether the assessee should have paid the royalty at all for brand to SMC or receive a reasonable portion of itself? 6.8 The TPO further observed that assessee has alleged that TPO has contended that brand Suzuki has zero brand value. In this regard, TPO observed that it was not so. He opined that the point required to be understood is that in 1982 Suzuki has no brand recognition in India. In 10 long years Suzuki was gradually made aware in the Indian territory by the efforts of the Maruti. The TPO observed that the trade mark Maruti with which the launch of vehicle started in the year 1982 was slowly and gradually replaced by the trade mark 'S'. ....
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....ank of India (RBI) according to which payment of royalty upto 2% for exports and 1% for domestic sales is allowed under the automatic route for use of trademarks and brand name. However, as per Press Note/ Master Circular of RBI for financial year 2005-06 payment of royalty upto 8% on exports and 5% on domestic sales was allowed under automatic route. However, the TPO was not in agreement with the above submissions. He observed that setting of norms of payment of royalty by RBI was not part of transfer pricing regulations and therefore, cannot be entertained. 6.14 The TPO also rejected the assessee's objections the basis of split. However, he noted that the contention of the assessee to not include the sales promotion and sales incentive expenses was correct. Therefore, the TPO observed that split shall not include these expenses. Accordingly, he revised the split of royalty for the technology and for use of brand name in the ratio of 50.58% and 49.42%. On these basis, the location of royalty between the payment of technology and brand name was worked as under:- Total amount of royalty Rs. 198,57,42,097/- Amount attributable to use of Rs. 100,43,88,352/- Technolog....
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....and others. Appellant started its business in 1982 as a 100% Government of India (GOI) owned Company. SMC was selected as the business partner independently by MSIL in 1982.The Co-branded Trade Mark "Maruti-Suzuki" is being used since inception of the company. The appellant entered into its first license agreement with SMC in Oct 1982 for its models -M 800, Omni and Gypsy where in it was decided to use the Co-Co-branded trade mark "Maruti-Maruti-Suzuki" on the vehicles. The appellant used the co-branded logo "Maruti- Suzuki" even on the cars manufactured by it in 1982. At the time of entering this agreement the appellant was an independent 100% GOI owned entity. The same decision is carried forward in the subsequent License Agreements including the 1992 License Agreements (refer page no 548 of the paper book II). The royalty royalty paid by the appellant was agreed in 1982 when it was a third party. Since the agreement entered into between the appellant and SMC was between two third parties, the said license agreement can be considered to be uncontrolled license agreement and can be used as a Comparable Uncontrolled Price (CUP) to benchmark the royalty rate. The decisio....
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.... quality control, sale and after-sales service of PRODUCTS and PARTS in India. However, it was only in 2003 that SMC acquired a controlling (54%) interest in the share capital of the appellant company and could be said in a position to influence the appellant's decision. This fact, which is of crucial importance, has been specifically noted by the TPO in his order. However, the TPO has completely disregarded the very important factual as well as legal implications of that undisputed position. .In 1992, it was not feasible for the appellant to stop using the said co-branded name for the sale of its products, as it would have resulted in a devastating loss of commercial goodwill. The continued use of the said co-branded name/logo cannot, therefore, be attributed to the dictation of Suzuki from 1992 onwards to the appellant company. In any case, the Suzuki name was always being used on the cars since 1982. Such association enabled the appellant to compete with the global brands entering into the Indian market. This is evident from the fact that the appellant has been able to maintain its leadership position in the automobile industry despite the increased competition. In view of....
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.... * CA Computer Associates Pvt. Ltd. vs. DCIT (ITA Nos. 5420 and 5421/Mum/2006), (Affirmed by the Hon'ble Mumbai High Court) * Nimbus Communications Ltd vs ACIT (ITA No 2361/Mum/2007 * Dresser Rand India Pvt Ltd vs Addl. CIT (ITA No 8753/Mum/2010) * Hero Motocorp Ltd vs Addl CIT (ITA No 5130/Del/2010) * Kodak India Pvt Ltd vs ACIT (ITA No 7349/Mum/2012) * AWB India Pvt Ltd vs Addl CIT (ITA No 4454/Del/2012) In view of the aforesaid, it is respectfully submitted that the adjustment on account of payment of royalty, made by the TPO, is unlawful, not sustainable and is liable to be deleted. (c) Single/ Inseverable license for manufacture and sale of products An analysis of License Agreement shows that payment of royalty is a consideration for use of "technical assistance and license". The license agreement confers upon the appellant the right to manufacture specific models of Suzuki cars, and for the use of all of SMC's I.P. rights in respect thereof. The appellant's entire manufacturing activities and business is based and founded on these license agreements. The TPO and DRP have completely overlooked this crucial factor which goes to the root of the entire cas....
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....pursuant to this Agreement as well as before the Effective Date. ARTICLE - 2 LICENSE AND SUZUKI'S OWNERSHIP (a) SUZUKI has agreed to provide technical assistance and license necessary for the engineering, design, development, manufacture, testing quality control, sale and after-sales service of PRODUCTS and PARTS, in accordance with the terms and conditions contained in this Agreement. (b) Suzuki hereby grants to MARUTI during the term of this Agreement, in strict accordance with the terms and subject to the conditions herein set forth, (i) the exclusive right (within the meaning as provided for in Article 5.02 of this Agreement) to use the Licensed Information and Licensed Trademarks for the engineering, design and development, manufacture, testing quality control, sale and after-sales service of PRODUCTS and PARTS within the Territory and (ii) the non-exclusive right to use the same for the sale of PRODUCTS and PARTS in such other countries and in such manners of export and sale as may be approved in writing by Suzuki pursuant to Article 5.05." The main object of the license agreement is to provide the appellant exclusive right and license to manufacture and sell the ....
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....ale" (investment) a sham or a tax avoidant. The High Court has failed to appreciate that the payment of US$ 11.08 bn was for purchase of the entire investment made by HTIL in India. The payment was for the entire package. The parties to the transaction have not agreed upon a separate price for the CGP share and for what the High Court calls as "other rights and entitlements" (including options, right to non-compete, control premium, customer base etc.). Thus, it was not open to the Revenue to split the payment and consider a part of such payments for each of the above items. The essential character of the transaction as an alienation cannot be altered by the form of the consideration, the payment of the consideration in instalments or on the basis that the payment is related to a contingency ('options', in this case), particularly when the transaction does not contemplate such a split up. It is further submitted that for the purpose of computing the ALP, the TPO has re-written the agreements/transaction undertaken by the assessee by artificially segregating the single transaction of payment of royalty into two transactions of payment of royalty for use of brand name and for use ....
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....ntire business model of the appellant is based on the license from SMC, Japan for which the royalty payment has been made. Without such technology supply the appellant's business will cease to exist and its entire operations would come to a halt. In view thereof, it is respectfully submitted that the determination of arm's length of international transaction of payment of royalty in a combined manner is consistent with the arm's length principle. It is further submitted that a brand is a notion through which the customers relate the technology and certain other characteristics with a specific product. Apart from other factors, the technology and quality of a product plays a critical role in development of a brand. Globally, the brand "Suzuki", apart from other characteristics, is known for the technology behind its products. Since, the brand "Suzuki" and the technology which that brand represents are interlinked and interdependent, it would be inappropriate to separately evaluate the royalty paid for use of technology and for use of brand name. It is pertinent to highlight here that it is almost impossible to bifurcate the royalty payment in right to use technology and rig....
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....mpany which is associated with a global automotive giant. As the decision to use Suzuki name/brand was taken by the appellant in order to advance its own commercial interests, no question arises of the appellant company having conferred any benefit on Suzuki Motor Corporation Japan by using its name in conjunction with Maruti nor of any Transfer Pricing adjustment on this basis. Further, it would be absurd to allege that the Government of India chose a JV partner which had zero brand value, which is the allegation made by the TPO. Similarly, the inferences made by Ld. TPO about impairment of 'Maruti' brand and reinforcement of Suzuki brand are totally against commercial facts, realities and are more inferences and presumptuous. The aforesaid averments of the appellant are also supported by the brand ranking and brand value of "Suzuki". The fact that Suzuki Brand is an internationally renowned Global Brand can be substantiated by the report of The TOP 500 Brands available on Internet. The Brand Finance (third party) (http://brandirectory.com/) has issued a report of TOP 500 Global Brand, where it has ranked all top 500 brands across the globe. 'Suzuki' brand is at the rank of ....
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....r the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred "wholly and exclusively" for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines, in the paragraphs which we have quoted above. XXX So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorised." In the case of Dresser Rand India Pvt Ltd vs Addl. CIT (ITA No 8753/Mum/2010), the Hon'ble Mumbai Bench of the Tribunal held as under It is only elementary that how an assessee conducts his business is entirel....
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....her in that case, the payment was being made by the assessee, a contract service provider, for marketing support services to associated enterprise. However, the entire revenue from third party customers was also retained by the associated enterprise. In such circumstances, payment for marketing support services was without any consideration and was not justified. Also, in that case, the assessee failed to demonstrate that any benefit was derived from the payment made to associated enterprise. Re: Burdon on TPO to placed evidence / material on record to justify TP adjustment: See section 92C(3) of the Act and also the judgment of Delhi High Court in the case of Moser Baer (316 ITR 1). The TPO has not placed any empirical evidence or material on record to show either that there has been any impairment of the Maruti brand or that there has been benefit accruing to Suzuki from the use of Suzuki's name conjointly with that of Maruti in India on the appellant's product. This is especially important because Suzuki has no four wheeler sales in India at all and has no right to use the joined name Maruti-Suzuki anywhere in the world. Re: Basic and irreconcilable inconsistency in TPO....
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.... technology buses Tata Autocomp Systems Ltd 5% running royalty Yazaki Corporation, Japan Manufacture and sale of automotive wire harnesses and components It is respectfully submitted that the royalty paid by the MSIL of 1.82% is less than the royalty rate paid by the above identified company. Accordingly, the royalty paid by the appellant is at arm's length. We have been also given to understand the Hindustan Motors Ltd (HML). is also paying Royalty to M/s Mitsubishi ,Japan @ 5% for its Lancer Model. HM being only the independent comparable in passenger car for MSIL. Therefore the royalty rate of MSIL 1.82% which is less than 5% is with in the arm's length range of the royalty payments, therefore no adjustment at all is warranted on royalty. The Ministry of Commerce and Industry has, through its FDI policy and vide Press Note No 18 (1997) permitted an automatic permission for amount not exceeding 5 percent of domestic sales and 8 percent of exports towards payment of royalty outside India.. Similar approval has also been accorded by the RBI under the Current Account Regulations of the Foreign Exchange Management Laws. In view of the permissible rates in the ....
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....e Income-tax Rules provides that for the purpose of establishing arm's length price, comparability of an international transaction with an uncontrolled transaction shall be judged with reference to, inter alia, the laws, government orders in force. In view of the Central Government approval for payment of royalty, no third party comparable is otherwise necessary to establish the arm's length price. Royalty is paid on the basis of the approval by Central Government, which imply that such payments are as per industry norms and are comparable to payment of model fee by other industries in the segment. In view of the Central Government approval for payment of royalty no third party comparable was otherwise considered necessary to establish the arm's length price. In a recent case of Sona Okegawa Precision Forgings Ltd (ITA no.4781(Delhi) of 2010, the hon'ble Delhi ITAT up-held the deletion of Transfer-pricing adjustment made by the CIT(A), observing as under: The assessee has placed on record a copy of the letter dated 30.04.1993 written by the Reserve Bank of India, Exchange Control Department, to Sona Steering Systems Ltd., in which payment of royalty @ 3% on domestic sales ....
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....of SMC (including the appellant). Taking the consolidated figures of SMC distorts the comparison as it includes the AMP expenses of all the subsidiaries (including the appellant) on the one hand and while on the other hand R&D expenditure will be majorly of SMC alone, since the major role in the R&D function is performed by SMC for all the group companies. Without prejudice to all the contentions stated above, it is humbly prayed that if the bifurcation of royalty is to be done based on SMC's financials it should be done taking into account the standalone data of SMC and not the consolidated data of SMC. The appellant submits hereinunder the standalone financial data of SMC with respect to its Advertising Expenses and R&D expenses for the past 3 years,:- Particulars (Unit: Million Yen) Ratio 31/03/2005 313/2004 31/03/2003 Total Advertising Expenses 19,192 30,131 29,529 78,852 26% Research & Development Expenses 84,865 74,573 59,530 218,968 74% 297820 Further, the TPO has sought to attribute the royalty charged by SMC purely on the basis of the ratio in which expens....
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.... Law stipulates that each international transaction has to be separately bench marked for purpose of Arm's Length analysis. Rule 10B(1) (e) reads as follows:- 10B. (1) for the purpose of sub-section (2) of section 92C, the arms 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:- (e) Transactional net margins method, by which, (i) The net profit margin realized by the enterprise from an international transaction entered into with and associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base. (ii) The net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base. (iii) The net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontroll....
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....bunal held that each transaction has to be benchmarked separately. It was therefore, requisite that each international transaction be benchmarked distinctly, using the Most Appropriate Method. Rule 10C, of LT. Rules 1962, specifies Most Appropriate Method as follows:- 10C(1) for the purpose of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction and which provides the most reliable measure of an arm's length price in relation to the international transaction. (2) In selecting the most appropriate method as specified in sub-rule (1) the following factors shall be taken into account namely:- (a) The nature and class of the international transaction. (b) The class or classes of associated enterprise entering into the transaction and the function or to be employed and risks assumed by such enterprises. (c) The availability coverage and reliability of data necessary for application of the method. (d) The degree of comparability existing between the international transaction and the uncontrolled transaction and between the enterprises enterin....
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.... of entering the licensing Agreements (In 1982 and 1992) with M/s SMC (Japan), the entities - MSIL and SMC (Japan) were unrelated and therefore, the transactions are at Arm's length. The assessee's argument is not correct. Even in 1982 and 1992, there existed a relationship of control (or Association) between MSIL and SMC (Japan). Further, the transactions have to be evaluated every year. There is a direct ruling of Hon'ble Mumbai Tribunal:- Old Agreement with third party was entered earlier cannot be considered as external comparable Dy. DCIT v. CMA CGM Global India P. Ltd. [2012] 28 taxmann.com 165/ [2013]55 SOT 20 (Mum. Trib) [Pease See Annexure 3] In this case the assessee which was a subsidiary of CMA CGM, France, was acting as its shipping agent under an Agency agreement dated 17th Sep, 2003. Prior to the new agreement, same services were provided by a 3rd Party i.e. Container Maritime Agency Pvt. Ltd. (CMAPL) under a similar agency agreement dated 20th Oct, 1999 which had expired in Aug, 2003. The Tribunal held that it would not be appropriate, for making any comparison in the relevant year, the earlier agency agreement with the third party CMP AL that had expire....
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....s a whole, which may consist of several international transactions and streams of business, such as manufacture of jewellery and pawning of gold ornaments or a transaction of borrowing money on interest. In fact, in the judgment of M/s. Nestle 337 ITRI03 Del), it has been held by the Hon'ble Delhi High Court that royalty cannot be bench marked to profitability. [Pease See Annexure 5] So, payment of royalty as an international transaction needed to be separately benchmarked. (e) Erroneous conclusion by Ltd. TPO that Suzuki brand was weak! worthless. Counter Submissions. The TPO has not held so. The assessee's assertion is incorrect. Please see para 6.49 (page 30) of TPO's order Dated 21.02.2012 Further, Commercial Expediency is not being challenged. Even the Hon'ble Delhi High Court in the case of Mis. CIT v. Ekla Appliances, have not ruled out the determination of reasonableness of expenditure. This has been elaborated by the Hon'ble Delhi ITAT in the case of Mis Ericsson India P. Ltd. v. ACIT- (ITA No. 514/Del/2011) dated 11.05.2012, of Sh. G.D. Aggarwal and Sh. I. P. Bansal. Paragraph 30, thereof, which being relevant, is being reproduced. [Pease See Annexure 6] In....
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....er redetermine the same in the light of the aforementioned observations. Needless to observe that assessee should be given reasonable and sufficient opportunity of hearing for presenting its case. That Commercial Expediency does not preclude examination by TPO has also been approved in the case of Perot Systems v. DCIT, 5 ITR (Trib) 106-Delhi 30/10/2009. Para 9 & 10, of Delhi ITAT, by Sh. Shamim Yahya and Sh. A.D. Jain [Pease See Annexure 7] Also in the case of M/s Deloitte Consulting India (P) Ltd. v. DCIT, 30/03/2012, 137 ITD 21, Mumbai, Para 35, it has been held that it is the duty of the TPO to determine ALP irrespective of the fact whether payment is made for the purpose of business etc. The paragraph 35, is being reproduced here:- 35. "The first proposition is that, the assessee has a legal obligation to make the payment and that legal obligation arises from the joint venture agreements, which is a pre- incorporation agreement which is binding. This argument is to be rejected as "ALP" has to be determined irrespective of any contractual obligation undertaken by the parties. If is held that the TP provisions do not apply whenever there is a legal obligation to pay, th....
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....on'ble Punjab & Haryana HC. 309 ITR 194 (P&H), [Pease See Annexure 9] This issue is also decided in favour of Revenue, by the Mumbai ITA T in case of M/s Serdia Pharmaceuticals India (P) Ltd. v. ACIT. 31/1012010, 50 DTR/98, 136TTJ129, Mumbai, Para 95 thereof. [Pease See Annexure 10]. Reliance is also placed on the order of Hon'ble Mumbai ITAT in case of ACIT v. Genom Biotech P. Ltd., 16/0512012, Para 7.2 and Para 10.8. ITA No. 5272/M/2007. [Pease See Annexure 11] (i) Without prejudice-Split based on the advertisement and marketing expenditure and R & D expenditure by SMC is fundamentally erroneous. Counter Submissions. The issue has been dealt in detail by the TPO. Further the order of LG (Sp. Bench) has decided this issue. It is also pointed out that in connection with above the detailed discussion on Maruti Sujuki case in the LG Special Bench Case (ITA No. 5140/D/2011) of Jan.2013, Para 29.1 till 29.16 (Para VIII) of the order is relevant." 9. We have carefully considered the submissions and perused the records. We find that assessee in this case is a license manufacturer of cars in India of its Associated Enterprise SMC. In terms of the license assessee h....
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....ted that only license agreement for manufacture of 'Swift' was entered into during the financial year 2004-05, for all the other models of motor cars were entered into the past. It is noted that royalty paid under all these licenses have never been disputed and have been accepted as at arm's length. The license agreement entered into between the Govt. of India and SMC specifically provided for the use of co-brand trade name/ logo of the assessee and Suzuki. It was only in 2003 SMC acquired a controlling (54%) interest in the share capital of the assessee company and could be said in a position to influence the assessee's decision. The continued use of the said co- branded name/logo cannot, therefore, be attributed to the dictation of Suzuki from 1992 onwards to the assessee company. Thus, the decision was taken in way back 1993, 12 years before the year under consideration, could not have been influenced by the need to manipulate and thereby erode the Indian tax base. Hence, the same terms and conditions of agreement are in place during the Financial Year 2004-05, the license agreements can be said to be at arm's length. 9.3 In this regard, we place reliance upon the decision of....
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....exclusive right and license to manufacture and to sell the licensed product for a specified limited duration. All others rights vested in the license agreement including technology, technical know how and trade mark are linked to the core right to manufacture and sell licensed products. 12. Thus we agree with the submissions of the assessee that primary intent of the license is transfer of technology and not trademark usage. Technology is the key driver in the industry in which MSIL operates. The Technology transfer from SMC has allowed the assessee to manufacture certain critical components required for manufacturing these cars. 13. In this regard, we place reliance upon the decision of the Hon'ble Apex Court in the case of Vodafone International Holdings B.V. vs. UOI (Civil Appeal No. 733 of 2012) wherein the Hon'ble Court held that it is not open to revenue authorities to split an agreement when the parties to the agreement themselves have not contemplated a split up in the agreement and have considered the agreement as an entire package. The relevant citations in this regard has been brought out in detail in the assessee's submission above. Thus, we find that for the purp....
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....ration Japan by using its name in conjunction with Maruti nor of any Transfer Pricing adjustment on this basis. We agree with assessee's submission of the assessee that Suzuki brand is an international renowned global brand. This can be substantiated by the Report of top 500 brands available on internet. 15. Another realm of the assessee's submission is that as long as an item of expenditure has been incurred wholly and exclusively for the purpose of business of the assessee whether or not such expenditure actually benefits the assessee is an irrelevant consideration for the purpose of determination of ALP. In this regard, the case laws referred above by the assessee in its submission are germane and supports the case of the assessee. i) Hon'ble Delhi High Court decision in the case of C.I.T. vs. Ekla Applicances Ltd. (I.T.A. No. 1070/2011) ii) Mumbai Tribunal decision in the case of Dresser Rand India Pvt. Ltd. vs. Addl. C.I.T. (I.T.A. No. 8753/Mum/2010) iii) Decision of Vishakhapatnam Bench of the Tribunal in the case of LG Polymers India Pvt. Ltd. vs. Addl. C.I.T. (I.T.A. No. 524/Vizag/2010). iv) Decision of the Tribunal in the case of M/s Ericsson India Pvt. Ltd.....
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.... ALP, in light of the factors enumerated in the order. 22. We have heard both the counsel and perused the records. We find that this Tribunal in I.T.A. No. 4602/Del/2010 & Ors. in the case of Canon India Pvt. Ltd. vs. DCIT vide order dated 03.05.2013 has considered the impact of aforesaid Special Bench decision and held as under:- "7. We have heard rival contentions made on behalf of the parties and gone through the relevant material available on record. 7.1. First of all we will take up the legal issues as raised in the grounds of appeal regarding the retrospective applicability of sec. 92CA(2B) to the years in question in the case of the assessee as also the powers of assessing officer to make such reference and the powers of TPO to furnish report in this behalf and all other related issues. The Special Bench in the case of LG Electronics India (supra) adjudicated such issues as is evident in para 6 of the order: "6. Though both the questions referred to this special bench are inter-linked, still we are taking up question no. 1 first. The ld. Counsel for the assessee ahs assailed the impugned order on various legal and factual issues. In so far as the first question i....
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.... argument was developed to contend that if the TPO is to be permitted to determine ALP in respect of any transaction, then sub- sec. (1) requiring reference to him by the AO, will be rendered useless. In our considered opinion, this contention misses the wood from the tree. The jurisdiction of the TPO is activate only when the AO makes reference to him under sub- section (1) for determining ALP in respect of certain transactions. Sub-sees, (2A) and (2B) come into play only when sub-sec. (1) has already been set into motion. Thus, it is only when the AO makes a reference to the TPO in terms of sub-sec. (1) for determination of ALP in respect of the referred international .transactions, that the TPO gets power under sub-sections (2A) and (2B) to determine ALP in respect of non-referred international transactions as well. In the absence of any such reference under sub-section (1), the TPO cannot suo motu undertake the determination of ALP in respect of other international transactions not referred to him. It is a different matter that the reference by the AO may be for one international transaction and the TPO while determining . ALP in respect of that one international transaction, a....
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....e unambiguous language of the provision by importing certain words in it, which is obviously impermissible; The primary rule is that of strict or literal interpretation, as per which a provision should be read as it is unless manifestly absurd results follow from such interpretation. 7.23. We are equally conscious of the rule of harmonious construction as reiterated in Sultana Begum (supra). Principle 3 in para 15 of the judgment is that "it is to be borne in mind by all the courts all the times that when there are two conflicting provisions in an Act which cannot be reconciled with each other, it should be interpreted as if possible, effect should be given to both". In our considered opinion, the rule of harmonious construction can be applied instantly by excluding the cases in which the assessee has not furnished report in respect of international transactions, whether or not it is an international transaction as per the assessee's view point, from the ambit of sub-sec. (2A) and including them in sub-section (2B) of section 92CA. It is relevant to note that sub-sec. (2A) is a general provision on the issue of the TPO suo motu taking up an international transaction not referred....
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....t the assessee as a consequence thereof, the relevant grounds raised in the memo of appeal, touching these legal aspects stand dismissed. 7.5. Now we proceed to decide the issue about nature and scope of AMP expenses as elucidated by the Special Bench. The quantification thereof and the bench marking of the AMP expenses which is to be subjected to TP adjustments applying the ALP methodology by the TPO and DRP. 7.6. We have heard rival contentions. It has not been disputed that assessee submitted all relevant details about the aggregate expenditure relatable to trade discount, volume rebates, cash discount, commission and the amount of subsidy received from Singapore to meet the AMP expenses. No dispute or adverse comments have been offered by any of the lower authorities i.e. AO/ TPO & DRP. The details thereof are given in para 4.23 hereinabove. The assessee's contention is to the effect that the figures mentioned at placitum 'E' i.e. Rs. 9,70,90,073 for AY 2006-07; Rs. 15,40,05,865/- for AY 2007-08; and Rs. 25,47,70,503/- for AY 2008-09 shall only be reconsidered by assessing officer for the purpose of ALP by applying suitable comparables afresh to decide the TP adjustments ....
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....in M/s L.G. Electronics India (P) Ltd. Vs. ACIT (supra) held that the expenses in connection with the sales do not lead to brand promotion and thus cannot be brought within the ambit of advertisement, marketing and promotion expenses for determining the cost/value of the international transaction. In view thereof, we direct the Assessing officer to exclude the expenses incurred by the assessee in connection with the sales totaling Rs. 5500.86 lacs as the same do not fall within the ambit of AMP expenses and hence not to be considered for computing the cost/ value of international transaction. The assessee vide ground no. 4 had raised the issue against disallowance of consumer market research expenses of Rs. 567.49 lacs. In view of our decisions in allowing the claim of the assessee being relatable to sales promotion expenses, this ground of appeal is thus allowed." 7.7. In these facts, circumstances and arguments, we find merit in the argument of ld. counsel for the assessee. There being no objection or adverse comment in respect thereof coming from any of the lower authorities i.e. AO/ TPO, DRP and also ld. CIT(DR), there is no justification in setting aside these expenses for ....
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....Delhi (TPO) in response to notice issued under section 133(6) of the Income Tax Act, 1961 ("The Act"), enclosing details of selling expenses and service charges, claims, etc., appearing in schedule 19 as other expenses in the audited financials for financial year 2008-09, relevant to assessment year 2009-10 (Annexure-II). c) Copy of order dated 21.1.2013 passed by the TPO under section 92CA(3) of the Act for assessment year 2009-10 (Annexure-III). 25. In this connection, ld. Counsel of the assessee submitted that appropriate directions may be issued to the Assessing Officer /TPO to call for information relating to advertisement expenses of Hindustan Motors by issuing notice under section 133(6) of the Act. It has further been submitted that Assessing Officer /TPO may be directed to undertake the benchmarking analysis considering only the advertisement expenses of the assessee as well as the comparable companies and not to consider the selling / sale promotion expenses. 26. Ld. Departmental Representative in this connection agreed that the Special Bench decision in the case of LG Electronics India Pvt. Ltd. has to be applied. 27. We have carefully considered the submissi....