TaxTMI 
TaxTMI 
2019 (1) TMI 352
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....rk all over south-west Asia as well as connections worldwide with agencies at various locations who can procure orders from customers to and from India. The franchisee commission paid by the assessee was for such services rendered. Since the payment in question was a payment made to a holding company which was a payment made to AE, who happens to be a non-resident and therefore under the provisions of section 92 of the Income-Tax Act, 1961 ["the Act"], income arising from such transactions had to be determined having regard to arm's length price. The question before the AO in AYs 2006-07 & 2007-08 was with regard to the determination of ALP in respect of transaction of payment for services rendered intra-group by the assessee to its holding company which is the intra-group payment substantiates the arm's length test. The question of determination of ALP was referred to the TPO who by his order passed u/s. 92CA of the Act dated 30.10.2009 for AY 2006-07 came to the conclusion that the assessee failed to substantiate that services were rendered by the holding company to the assessee for which payment was made. The TPO suggested addition to the total income of the assessee on account ....
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....n. He noticed the findings of the TPO in the order of assessment after the order of Tribunal which were as follows:- "6.3. The TPO finds that none of the documents mentioned at Para 3 above, and admitted by the TPO pursuant to the directions of the ITAT, show (i) that services were actually rendered by the AE (ii) how' such services would be valued by an independent entity dealing in similar circumstances (iii) what is the tangible and substantial commercial benefit the taxpayer derived for which it made the payment of franchisee commission of Rs. 3,45,08;976/. 6.4. It is seen that, the taxpayer has not been able to prove either at the time of the original TP proceedings before the then TPO nor in the instant proceedings taken up consequent to the directions of the ITAT, that services were actually rendered by the AE, for which payment of franchisee commission of Rs. 3,45,08,976/- has been made by the taxpayer to its AE. The taxpayer has also failed to show what tangible and substantial commercial benefit has been derived by it from the AE, for which the huge payment of franchisee commission has been made. 6.5. The TPO is of the view that; unless it is shown that tangible....
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....nus required to be discharged by the assessee. It has not established (i) that services were actually rendered (ii) brought out instances of similar payments by independent parties & (iii) failed the benefit test. Moreover the quantum of payment was fixed on ad-hoc basis without any sound basis, which tarnishes the transaction further. Before me, written submissions were filed which simply provided a description of the services so rendered. No material was placed before me to rebut the findings and assertions made by the TPO. In such circumstances, after considering the reasoning and inferences drawn by the Bangalore bench of the Hon'ble Tribunal, the action of the TPO in rejecting the assessees method and determining ALP utilizing the CUP method is upheld." 8. The CIT(Appeals) in the impugned order noticed that the assessee has not filed any evidence to prove that services were rendered by the AE for which the assessee made the payment. Aggrieved by the aforesaid order of CIT(A), the assessee has filed the present appeals before the Tribunal. 9. The ld. counsel for the assessee explained that the following services were rendered by the AE:- 1. Provide the rights to use of LO....
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....one platform to avoid delays and confusions The agents situated outside India sends their invoices for all the group companies of DRHL International to the Holding company and also requires a consolidated statement of invoices for all the group companies for the services rendered. DRHL International in turn makes the follow up for either collections on behalf of its group or makes the payment on behalf of its group which is called a settlement process. After the settlement it distributes the collection or payment to the respective group companies by way of debit or credit notes followed by payment/collection Few debit/credit notes are enclosed for reference (Annexure V)' 7. Over and above the risks assumed by DRHL International by providing the following services to DRHL India services P Limited a. Performance Risk - Insurance coverage undertaken by DRHL international on behalf of DRHL India, which covers all operational liabilities and third party claim (Document Attached)-Annexure VI b. Performance Guarantee provide by DRHL International to DRHL India - DRHL India enjoys credit facility of 2.65 Cores from HSBC-India on the Financial Guarantee of USD 625,000 prov....
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....n. In the present case however, the arrangement between the AE and the Assessee is not a cost sharing arrangement but a payment for specific services rendered. To this extent the above observations of the Hon'ble High Court may not be relevant to the present case. The following aspects would require consideration in order to identify intra group services requiring arm's length remuneration: * Whether services were received from related party. * Nature of services including quantum of services received by the related party. * Services were provided in order to meet specific need of recipient of the services. * The economic and commercial benefits derived by the recipient of intra group services. * In comparable circumstances an independent enterprise would be willing to pay the price for such services? * An independent third party would be willing and able to provide such services? Whether payment made to AE meets ALP criterion will be determined, keeping in mind all the above factors, as well. 12. Keeping in mind the principles emanating from the aforesaid decisions, we shall now proceed to examine the material on record to see the nature of services received by the A....
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....in appeal before the Tribunal. The relevance of this document and the letter dated 10.4.2008 given in Annexure-II has neither been explained by the Assessee nor is it discernible from the contents of this letter. 17. Annexure-III is a comprehensive services policy dated 27.1.2004 for freight forwards taken out by DRH Logistics International. The Assessee's name is also found in Schedule-E to this agreement. As to what is the relevance of this agreement for the previous years relevant to AY 2005-06, 2007-08 and 2009-10 have neither been explained nor is it discernible from the said agreement. It is at best evidence relevant to other AYs not to the AYs in these appeals. 18. Annexure-IV is an agreement dated 20.11.2003 between DRH International and ITG-GmbH International Spedition (ITG). As per this agreement ITG agreed to act as exclusive agent of DRH International in Germany/Austria to handle Air and ocean business originating from India, Pakistan, Sri Lanka, Bangladesh, Nepal, Kenya and Madagascar. There is another agreement dated 15.10.2002 between K Line Air Service Ltd., Japan, DRH International and the Assessee and other DRH group entitles in Bangladesh, Pakistan, Mauritius a....