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2012 (12) TMI 1015
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.... in law, the learned TPO erred and the Hon'ble DRP further erred in upholding/confirming the action of the TPO of arbitrarily equating the marketing support services rendered by the Appellant with the fund management services rendered by Deutsche Asset Management (Asia) Limited. 3. On the facts and in the circumstances of the case and in law, the learned TPO erred and the Hon'ble DRP further erred in upholding/confirming the action of the TPO of using internal controlled transaction to benchmark another controlled transaction entered into by Appellant with its associated enterprise. 4. On the facts and in the circumstances of the case and in law, the learned TPO erred by ignoring, and the Hon'ble DRP further erred in arbitrarily rejecting the Net Cost Plus ('NCP') mark-up computation for 'non-building advisory services' submitted by the Appellant during the course of assessment proceedings based on factually erroneous reasons and without finding any deficiencies in the Profit split methodology (using Revenue as a base) followed by the Appellant. 5. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in rejecti....
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....-, suggested by the TPO and sustained by the DRP. The facts are that the assessee is an Asset Management Company, promoted by Deutsche Assets Management Asia Ltd. (DAMAL), based in Singapore, having 75% share holding of the Indian Company (instant assessee), to provide non binding advisory services for managing the portfolio of securities of such fund floated by Deutsche India Equity Fund (DWS sub-fund) without any attachment of financial risk. On being referred to the TPO, it was explained by the assessee that (extracted), "During the year ended 31 March 2006, the assessee has rendered following services to associated enterprises. The description of services along with the compensation received by the assessee is mentioned below Sr. Name of Associated Nature of Compensation for no. Enterprises Transaction the services of the assessee 1 Deutsche Asset Provision of non One-half of the total Management (Asia) binding advisory fees received by Limited services DAMAL for DWS Premier Investments Funds ('DWS') 2 Deutsche Bank AG Provision of One-third of the total Frankfurt (DB Frankfurt) marketing support fees received by DB services Frankfurt from Reserve Bank of India ('RB....
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....e. We have also attached the copy of the prospectus issued by the Deutsche India Equity Fund Annexure-I. Further it is also pertinent to note that the associated enterprise has about 65 employees in its pay roll. Thus from the above, it is evident that the associated enterprise acts as fund manager and assists the fund in serving clients across the globe and to develop new products to meet client's investment needs. Functions performed by the assessee We reiterate our submission made vide submission letter dated 7 October 2009 that the assessee has been appointed by the associated enterprise to provide non-binding advisory services. The functions performed by the assessee are mentioned below: * Provide research reports and recommendations to DAMAL on various securities in portfolio; * Review securities and their performance comprising the portfolio, provide commentary on stocks/securities in the portfolio * Provide DAMAL with investment advice or recommendation in connection with the investment of the fund and assets comprising to portfolio; * Assists DAMAL in preparation of the minutes of meetings; * Provide update on economy, market outlook, market review....
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....fees received from DWS sub fund to the assessee. It is pertinent to note that the assessee does not undertake any form of financial risk as it merely renders non binding advices and the associated enterprise has the complete discretion to act/ not to act upon the investment advice provided by the assessee. Please find below the few sample advices provided by the assessee which were rejected by associated enterprise for your reference as annexure 1. Further, the assessee has earned the mark-up of 385.30 per cent mark-up from provision of the non binding advisory services. The computation of the same is tabulated below: Particulars Amount Revenue 24,588,000 Total Operating Income 24,588,000 EXPENDITURE Employee costs  ....
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....offshore jurisdiction Based on above we submit that the services performed by the associated enterprises in case of DWS sub fund and the services rendered by the assessee in case of marketing support activities cannot be compared Based on the above function, asset and risk analysis and having regard to the commercial and economic factors the assessee consider the compensation received in respect of non-binding advisory services and marketing support services based on the revenue split ratio of5O:50 ratio and 1/3rd: 2 /3 to be at arm 's length from the Indian transfer pricing perspective. 5. The TPO, after considering the detailed reply, observed, "With reference to the above transaction, controlled internal comparable has been used to benchmark the investment advisory service provided by the assessee, because the assessee has not provided its cost base for rendering the above service. Had the assessee given the cost base, then cost plus mark up of 39.85% would have been applied on the basis for the following comparables to benchmark the ALP for advisory services. ANALYSIS OF ASSESSEE'S SUBMISSION: The office has perused the submission made by the assessee. However ....
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....on-related parties, the assessee's objections at point 'D' is infructuous. Accordingly, the Assessing Officer is directed to complete the assessment as proposed in the draft order". 8. The assessee is now before ITAT against the order of the DPR. 9. Before us, Senior Counsel reiterated the submissions made before the TPO and the DRP on the services provided by the assessee company. It was pointed out that as per the submissions made before the revenue authorities, that, services rendered by the assessee were entirely at variance, with that of the services performed by DAMAL, whose fee comparison was being sought by the TPO/DRP. The AR referred to the, Functions performed by associated enterprise : The associated enterprise acts as an investment manager for the foreign exchange funds held by the Reserve Bank of India (RBI). The associated enterprise undertakes necessary research and analysis and performs all the required activities for management of the foreign exchange funds of the RBI. Functions performed by the assessee : The Company merely assists the associated enterprise in coordinating meetings with RBI when the personnel of the associated enterprise visi....
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....shall be non binding and may be given by telephone, in writing or at periodic meetings attended representatives of the investment Manager and the Investment Adviser, or in such other manner as the Investment Manager and the Investment Adviser may agree. The Investment Manager shall have the complete discretion to act I not to act upon the investment ad given by the Investment Adviser. 3.2 Amendments to the investment Guidelines of DIEF may be notified at any time by the Investment Manager on written notice to the Investment Adviser. 3.3 The Investment Adviser will not effect any Portfolio transactions on behalf of the Investment Manager and it shall be the sole responsibility of the Investment Manager to execute, record, settled and do all such incidental acts as may be required for effecting the Transactions. 3.4 Notwithstanding anything contained in this Agreement, the Investment Adviser reserves the right to offer advisory services or any other portfolio related services to any other person, entity irrespective of its location. 10. He further pointed out that it was clarified to the TPO vide letter dated 23.10.2009, that the function of the assessee was different from t....