TaxTMI 
TaxTMI 
2016 (5) TMI 255
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....t giving the Appellant an opportunity of being heard in this regard. * The CIT(A) has erred in observing that payments made as sanction fee to ATP are directly related to use of ATP logo and therefore, partakes the character of royalty under domestic law as well under the provisions of India-US treaty and accordingly, chargeable to tax and subject to withholding tax u/s 195 of the Act. * The CIT (A) has erred in not relying on the findings of the CIT (A) in the Assessment Years 2005-06 and 2006-07, where the issue has been decided in favour of the Appellant. 2. Addition on account of mark-up to be recovered by the appellant on reimbursement of expenses received from Associated Enterprises (AE) and re-computation of arms length price (ALP) on account of provision for services of Rs. 9,42,641/- and Rs. 49,812/- respectively. Adjustment to net profit margin based on cost (NCP margin): On the facts and circumstances of the case and in law: (a) The CIT(A) has erred in observing that the Appellant has provided logistic services to its AE's and held that services provided by the Appellant to its AEs do require arm's length mark-up on its cost base. ....
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....ed under the laws of United States of America (USA). It is a tax resident of USA within the meaning of Article 4 of the Double Taxation Avoidance Agreement entered into between India and USA (India-US Treaty). In India, IMC is operating through a Branch Office set up after obtaining approval of Reserve Bank of India and hence, assessed as a foreign company. The assessee company represents athletes, performing artists, writers, fashion models, broadcasters, leading corporation world-class events cultural institutions and recreational resorts. The production centers are located in New York, London, Hong Kong, Sydney and New Delhi. It is the largest independent producer package and distributor of sports programming in the world. International Merchandising Corporation, Inc. USA (IMC Inc., USA) is a part of the IMG Group. IMG commenced operations in India by establishing a branch office of IMC Inc. The Indian Branch is engaged in the following activities: i. Activities relating to sports and arts and to represent local sport bodies associations and individuals for exploitation of commercial rights; and ii. Sale of television right and production of television programm....
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....gh costs per se. The services provided by the assessee to its AE's do require arm's length mark-up on its cost base. The CIT(A) decided the said issue against the assessee. As relates to benefit of 5% range to the assessee on account of "arm's length price", the CIT(A) held that the provision of section 92C(2) state that if difference between arm's length price and transfer price does not exceed 5% of arm's length price, then no TP adjustment should be made. The CIT(A) further held that where such difference exceeds 5%, then entire difference has been added to the Income without giving any sort of standard deduction out of it and has to be treated as TP adjustment. Thus the CIT(A) decided this issue against the assessee. Now the assessee is in appeal. 9. The Ld. AR submitted the payment of Rs. 1,922,663/- was made to Association of Tennis Professionals, USA (ATP)during the year under consideration, the Assessee had organized a Men's Professional Tennis Championship in India ('Chennai Open'/'tournament'). For organizing the tournament, the Assessee had obtained the sanctions/approvals from ATP (which is the governing body of worldwide Men's Professional Tennis) to recognize the e....
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.... 2 International Merchandising Corp. Reimbursement of expenses incurred 86,472 3 IMG UK Inc 306,901 4 IMG South Africa 17,623 5 Trans World International UK Ltd. 958,509 6 IMGO Spain 272,402 7 TWI Interactive Ltd. 51,397 8 IMG Singapor Pte Ltd. 52,267 9 IMG Overseas, Hong Kong 283,233 10 IMG of America Pty Ltd. 7,466,794 11 International Merchandising Corp. Amount received by 509,119 12 Trans World International UK Ltd. Branch on behalf of AE 738,586 Total 11,818,633 Details of amount received from the group companies S. No. Name of AE Description Amount (in Rs) 1 Trans World International Inc Reimbursement of expenses incurred by branch 318,666 2 IMG UK Ltd. 3,894,301 3 Trans World International UK Ltd. 1,099,280 4 IMG Hong Kong 2,267,000 5 IMG Singapore Pte Ltd. 108,871 6 IMG Overseas, Hong Kong 90,381 7 IMGO Malaysia 164,674 8 IMG Sports Development (Shanghai) Ltd. 183,041 (A) Total Amount of Reimbursement of Expenses 8,126....
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....ubmitted (paper book page numbers 420 to 474), has stated that the expenses represent payment made for hotels, airlines, mobile service providers, photographers, printing press, car hire charges, security agencies, courier charges, sports goods, etc. and has concluded that the Assessee is providing logistics services to its AEs. It was further submitted that the reimbursements received from AEs by the Assessee are purely of cost to cost reimbursement nature and that by administratively facilitating payments to Indian third party petite vendors, there is no intent of the Assessee to render any services to AEs, therefore, the cost reimbursements do not require arm's length mark-up on the cost base. It was also submitted that similar costs paid by group companies on reciprocal basis are reimbursed by the Assessee without any mark-up, such types of reimbursements on reciprocal basis are only due to administrative convenience and cannot be equated to rendering of services requiring bench marking for mark-up. It was contended that the perusal of expenses demonstrates that the expenses reimbursed included travel/accommodation and other miscellaneous third party expenses incurred by the As....
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....f suitable Indian companies, the Assessee had selected foreign comparables (as mentioned at S. No. 4 to 6 in the above table) in order to broad base the set of comparable companies. It was stated that the CIT(A) erroneously concluded that such comparables should not be considered and out rightly rejected these comparables on account of having operations in different geographical markets. The Ld. AR further submitted that, even considering the NCP margin as determined by the CIT(A) the NCP margin of the Assessee falls within the +/- 5% arm's length range and no adjustment needs to be made. It was also submitted that actual NCP mark-up earned i.e. 9.55%, by the Assessee falls within the range of 6.02% to 17.18. Thus, in light of proviso to section 92C(2) of the Act, the erroneous upward adjustment as made by the CIT(A), was not called for. In support of the above contention the Ld. A.R furnished the following calculations:- Computation of +/-5% Range as per proviso to Section 92C(2) of the Income Tax Particulars IMC India At Arm's length price as per CIT(A) Minus 5% Plus 5% A E Revenue 2,661,894 2,711,706 2,576,121 2,847,291 Non-A E Revenue....
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....evident that Section 194E read with Section 115 BBA apply to payments made to a non-resident sports association or an institution. In the instant case, ATP is undisputedly a governing body of the world wide men's professional Tennis Circuit, responsible for ranking of its players and coordinating the Tennis Tournament in the world. In such circumstances we are of the opinion that ATP is a non-resident sports institution and therefore Section 194E applies to the payments made by the assessee to the ATP. In the light of the above, the order of the CIT (A) is reversed and the order of the Assessing Officer is restored." So, respectfully following the above said order, Ground No. 1 is decided against the assessee. 20. As related to Ground No. 2, the reimbursement costs has to be excluded as the same do not involve any functions to be performed so as to consider it for profitability purposes. Thus we direct AO/TPO to exclude reimbursement costs while working out the operating costs. Besides the said issue is decided in case of M/s. HSBC Electronic Data Processing India Ltd. Vs. Addl. CIT [ITA No. 1624/HYD/2010 decision dated 28.06.2013 Hyd. (Tri.)] in favour of the assessee and th....
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....he case, the Ld. CIT(A) has erred in admitting the additional evidence under Rule 46A on the issue of allowance of sanctions and rights expenses and further allowing the same in favour of the assessee. 3. On the facts and in the circumstances of the year, the Ld. CIT(A) has erred in allowing the deduction of personal expenses without mentioning any reason behind the relief allowed to the assessee." 24. The Ld. DR submits that the Assessing Officer has properly taking into account all the relevant material. Thus the Comparables having negative NCP margin for the year 2004 and the relief given to the assessee on the issue of determination of ALP by the CIT(A) is without any application of mind. As regards to Ground No. 2, the Ld. DR submitted that the Assessing Officer has already taken into account all the aspects in consideration and has rightly rejected the contentions of the assessee at the relevant time related to the expenses and allowance of sanctions. As regards to Ground No.3, the Ld. DR submitted that the personal expenses were rightly rejected by the Assessing Officer. 25. As regards to Ground No. 1, the Ld. AR submitted that the A.O in the assessment order ....
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....itted the details of INR 54,40,230 which represented the payments in foreign currency to various foreign parties in A.Y 2004-05. While furnishing the above details, inadvertently the details were furnished in respect of amount remitted/paid instead of the amount incurred and debited to the Profit and Loss account during A.Y 2004-05. Secondly, the aforesaid details of INR 54, 40,230 included an amount of INR 10, 92,105 which was incurred in Indian Rupees and payable to Indian Residents. Therefore, the 'sanctions and rights' expenses payable to non-residents in foreign currency was only INR 35,73,088 (Reconciliation provided in para 6.5 at Page no.7 of the order of the CIT(A). It was submitted that the AO disallowed INR 1,28,63,376, which is almost the entire expenditure out of the total expenditure of INR 1,32,38,483, under section 40 (a) (i) of the Act, wrongly assuming it to be payable to Non- Residents (which included INR 1,07,57,455 paid/payable to Indian Residents), without giving any further opportunity to the assessee to explain. It was further submitted that during the proceedings before the CIT (A), the assessee submitted the details of 'sanctions and rights' expenses incur....
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....nt paid/payable to Non-Residents 24,80,983 2. Disallowances confirmed by the Ld. CIT(A): 20,23,413 (i) Amount paid to ATP as tour fees in relation to 'Chennai Open Tournament' [para 7.3 (f) of the Ld. CIT(A) order] 19,22,663 (ii) Amount paid to AFT Enterprises Pty Ltd for Lakme India Fasion Week [Para 7.3 (c) of the Ld. CIT(A) order] 1,00,750 3. Amounts allowed by the Ld. CIT(A): 4,57,570 (i) Amount paid to Business Golf Corporation in F.Y 2003-04 for World Corporate Golf Challenge Tournament, Spain [Para 7.3 (a) of the Ld. CIT(A) order] 1,93,850 1 (ii) Amount paid to Allan Donald for interview with J Stewart [para 7.3 (b) of the Ld. CIT(A) order] 17,623 (iii) Costs reimbursed to TWI UK for legal costs in UK in connection with Indian team clothing issue [para 7.3 (d) of the Ld. CIT(A) Order]. 2,46,097 28. It was submitted that from the above details it is clear that the assessee submitted the additional evidence only in respect of expenditure in India....
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....orm 3CD for the year ended 31st March 2004, wherein it was clearly disclosed that no expense of personal nature had been debited to P &L A/c. It was stated that in the case of a company, such adhoc disallowance cannot be made and that the assessee had a policy for managing the expenses pertaining to credit cards issued to the employees, whereby any expenses incurred by the employees for official purposes, through the credit cards were to settle by them personally. They were entitled to the reimbursement for expenses incurred by them for official purpose by getting suitable approvals and verifications from the respective supervisors/departments. Thus the Ld. AR submitted that the CIT (A) has rightly deleted the adhoc estimated disallowance of miscellaneous expenses, and this ground of the Department appeal is liable to be dismissed. 32. The Ld. AR refuted all the contentions of the DR and relied in following case laws:- Union of India Vs. Azadi Bachao Andolan (263 ITR 706) CIT(A) Vs. Visakhapatnam Port Trust Ltd (144 ITR 146). Sony Ericsson Mobile Communications India Pvt. Ltd Vs. CIT(A)-III (ITA No. 16/2014 and connected matters) DCIT Vs. Chei....