TaxTMI 
TaxTMI 
2015 (4) TMI 797
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....370/Mum/2012 against the same impugned order dated 22.08.2012. 4. The assessee in ITA no. 6370/Mum/2012 has raised following grounds:- Ground No.1: Transfer pricing (TP) adjustment of Rs. 1,03,89,353/- on account of reimbursement of expenses made by the Appellant to its Associate Enterprise('AE') The Appellant respectfully objects to TP adjustment of Rs. 1,03,89,353 made by the learned Assessing Officer ('AO') in his order u/s. 143(3) r.w.s. 144C(5) r.w.s. 92CA of the Income Tax Act by relying on the directions issued by Dispute Resolution Panel. In this regard, the Appellant wish to submit its grounds of objection which are as follows: Adjustment of reimbursement of expenses made by the Appellant to its AE a) The learned AO erred in the facts of the case and in law in holding the amount of Rs. 1,03,89,3531- of reimbursement paid by the Appellant to its AE as not being at arm's length. b) The learned AO erred in the facts of the case and in law in not appreciating the nature of expenses in question and the purpose of these expenses, which inter-alia includes salary payments made to employees of the Appellant. c) The learned AO has also erred....
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....011. The assessee filed objections before the DRP against the draft order and proposed transfer pricing adjustment of Rs. 1,03,89,353/- 7. The DRP held that the TPO was correct in holding the tax payer has derived no benefit from the above expenses and upheld the decision of the TPO in determining the arm's length price at nil. 8. Before us, the Ld. Authorized Representative of the assessee has submitted that the TPO has disallowed the expenditure being brand promotion of the AE whereas the said expenditure has been incurred by the assessee in the regular course of his business activitiy and wholly and exclusiverly for the purpose of assessee's business. He has further submitted that the assessee acts on a principle to principle relationship with AE for distribution of contents of the channel in India. Functions of the assessee includes marketing and promotion of the channel to increase viewership of the channel as laid down in the distribution agreement. When the expenditure has been incurred wholly and exclusiverly for the business of the assessee it cannot be categorized and disallowed on the ground that it might also have benefited the assessee's AE. The assessee is deriv....
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....s.) Cost of urgent transit VISA for Taj Indian employee 3,267 Final settlement amount paid to Taj India employee paid by Taj Mauritius on their behalf 40,07,466 Cost of VISAS for travel to UAE by Taj India Ad sales team along with clients 66,727 Business Promotion expense for travel to UAE byTaj India Ad sales team along with clients 4,07,973 Cost of Hotel Stay of Taj India Ad sales team 13,975 Cost of Hotel Stay, Air tickets and meals of Taj India Ad sales team along with clients to UAE for business promotion purposes 16,78,294 Cost of Hotel Stay, conveyance and other expenses of Taj India team to Istanbul, Turkey for attending annual conference 5,35,584 Cost of Hotel Stau and other expenses of Taj India team on travel to UAE 15,245 Expenses for cricket match organized for Taj India distributors in UAE 6,70,780 Expenses for cricket match organized for Taj India distributors in UAE 12,08,893 Expenses for cricket match organized for Taj India distributors in UAE 1,79,214 Expenses for cricket match organized for Taj India distributors in UAE 653 Expenses for entertainment for business promotion purposes 35,....
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....e and would not fall in the category of the expenditure for the promotion of brand of AE. However, in this case the expenditure has been incurred for organizing cricket match at UAE which has been sponsored by the AE and its Ten Sports channel. Therefore, prima facie it appears that the expenditure has been incurred for brand promotion of the AE of the assessee. An identical issue has been considered and decided by the Special Bench of this Tribunal in the case of of L.G. Electronics India (P) Ltd. Vs. Asst. CIT (supra). The Tribunal has elaborately dealt with eatch and every aspects of the issue fell for their considertion. In the case of of L.G. Electronics India (P) Ltd. Vs. Asst. CIT (supra) the expenditure had been incurred as contribution towards globlal cricket and sponsorhsip. In the said case the TPO was of the opinion that the assessee was promoting the L.G. brand owned by its foreign AE, hence, should have been adquately compensated by foreign AE. The assessee raised various issues before the Special Bench inclulding the question whether the contribution towards the sponsorhip expenses falls in the ambit of international transaction. The Special Bench after considering t....
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....the foreign brand simultaneously, which has remained uncontroverted on behalf of the assessee. This factor together with the fact that the assessee's AMP expenses are proportionately much higher than those incurred by other comparable cases, lends due credence to the inference of the transaction between the assessee and the foreign AE for creating marketing intangible on behalf of the latter. 9.12 The ld. AR has vehemently argued that when the assessee incurred AMP expenses for its business purpose and recorded them as such, the Revenue went wrong in recharacterizing this transaction by splitting it into two parts, viz., one towards advertisement expenses for the assessee's business and second towards the brand building for the foreign AE. He fortified this contention by relying on the judgment of EKL Appliances Ltd. (supra). There is absolutely no doubt that para 17 of the judgment unambiguously lays down that the tax administration should not disregard the actual transaction and substitute other transactions for it. However, it is imperative to note that the proposition laid down in para 17 is not infallible or is not an unexceptionable rule. Caveat has been included i....
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.... independent enterprises behaving in a commercially rational manner, incur. Once by making such a comparison, the result follows that the Indian AE, prominently displaying brand of its Foreign AE in its advertisements, has incurred expenses proportionately more than that incurred by independent enterprises behaving in a commercial rational manner, then it becomes eminent to recharacterize the transaction of total AMP expenses with a view to separate the transaction of brand building for the foreign AE. Even the United Nations Transfer Pricing Manual, which has only a persuasive value, provides for the allocation of such cost between the MNE and its subsidiaries. We, therefore, hold that in the facts and circumstances of the present case, there is a transaction between the assessee and the foreign AE under which the assessee incurred AMP expenses towards promotion of brand which is legally owned by the foreign entity." 14. Thus the advertisement and marketing promotion expenses incurred for the brand building of foreign AE has been held by the Special Bench as a transaction between the assessee and foreign AE. The contention of the assessee before us is that its AE has no control....
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....; in the ambit of intangible property, which is again not exhaustive because of the use of the expression 'such as' before 'trademarks, trade names, brand names, logos'. From the above examination of section 92B in entirety, it can be easily noticed that the legislature has given very extensive and inclusive meaning to the expressions 'international transaction' and 'intangible property'." "14.21 Thus it is palpable that all the three necessary ingredients as culled out from a bare reading of section 92B are fully satisfied in the present case. There is a transaction of creating and improving marketing intangibles by the assessee for and on behalf of its foreign AE ; the foreign AE is non-resident ; such transaction is in the nature of provision of service. Resultantly, we hold that the Revenue authorities were fully justified in treating the transaction of brand building as an international transaction in the facts and circumstances of the present case." 16. Thus there is no dispute as far as the nature of the transaction is concerned that the same falls in the ambit of the Interantional Transaction as per the provisions of section 92B of the ....
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....res to Curb Tax Avoidance'. This set of sections has been described as a : 'New Legislation to curb tax avoidance by abuse of transfer pricing'. It is significant to note the following excerpt from the Memorandum explaining the provisions of the Finance Bill : "The increasing participation of multinational groups in economic activities in the country has given rise to new and complex issues emerging from transactions entered into between two or more enterprises belonging to the same multinational group. The profits derived by such enterprises carrying on business in India can be controlled by the multinational group, by manipulating the prices charged and paid in such intra-group transactions, thereby, leading to erosion of tax revenues." The Memorandum explaining the provisions of the Finance Bill 2001 further provides as under : - "With a view to provide a statutory framework which can lead to computation of reasonable, fair and equitable profits and tax in India, in the case of such multinational enterprises, new provisions are proposed to be introduced in the Income-tax Act. ** ** ** It is proposed to substitute section 92 with a new section to provide that....
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.... amounts spent on an international transaction is required to be taken out for processing under TP provisions to find out its taxability in the hands of the Indian assessee. The amount incurred towards its own business expenses shall be considered for taxability as per regular provisions of the Act including section 37 of the Income Tax Act. In view of the fact that when a transaction falls in the ambit of International Transaction even if part of the expenditure is relevant to the expenses for the purpose of the assessee's own business activity the remaining of the expenses has to be tested under the provisions of section 92 for its taxability in the hands of the assessee. The Special Bench has concluded in para 18.3 on the point of division of such expenses between promotion of sales on one hand and expenses in connection with sales in other hand as under:- "18.3 Having heard the rival submissions on this issue, we find that the AMP expenses refer only to advertisement, marketing and publicity expenses. A divider needs to be placed between the expenses for the promotion of sales on one hand and expenses in connection with the sales on the other. Both these expenses are require....