TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 156
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....tated, the facts of the case are that the appellant is a wholly owned subsidiary of GBT III BV, Netherlands and is engaged in the business of arranging travel for domestic customers within and outside India by facilitating services entailing booking of air tickets, accommodation, cab, conference rooms, catering services, management of corporate events, public relation services etc. The holding company GBT III BV is a joint venture between American Express Company, USA (Amex, in short) and Certares LP effective from 01.07.2014, with each group holding 50% share in it. Prior to 01.07.2014, Global Business Travel (GBT), was the corporate travel segment of Amex. 5. In March 2014, as per an agreement entered into between Amex and GBT III BV, Amex spun off its travel business segment and transferred GBT assets, operations, employees and shares of certain Amex affiliates to GBT III BV. Pursuant to a business transfer agreement between American Express India Pvt Ltd (AEIPL) and the appellant, corporate travel business division of AEIPL was transferred to the appellant vide a slump sale on a going concern basis effective from 01.06.2014. In lieu of the same, the appellant had paid a consid....
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....availing of these services. Therefore, the whole purpose of receiving these services is defeated. 10. The TPO further observed that the assessee itself was performing these services, hence there was no need for the appellant to avail services from its AEs. The TP adjustment carried out by the TPO can be understood from the following chart: Transaction No. of Comparables Arm's Length Margin Margin of the Appellant Quantum of Addition (in INR) Provision of operational and business support services 7 18.26% 15% 34,55,989 Availing of Forward TSA and RHQ services NA Nil NA 331,068,560 11. The assessee raised strong objections before the DRP but without any success. 12. Before us, the ld. counsel for the assessee vehemently stated that the TPO and the DRP have taken two contradictory views, in as much as, both of them have accepted the ALP of the fee received by the assessee and at the same time, disallowed fee paid under same Master TSA Agreement. It is the say of the ld. counsel for the assessee that once TNMM has been accepted as most appropriate method for transactions aggregated together, both the authorities grossly erred in picking out one internatio....
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....he necessary elements that are to be used as filters to judge the soundness of the international transaction in an ALP fixing exercise. If this were to be disturbed, the end result would be distorted and within one ALP determination for a year, two or even five methods can be adopted. This would spell chaos and be detrimental to the interests of both the assessee and the revenue. The second question is, therefore, answered in favour of the assessee; the TNMM had to be applied by the TPO/AO in respect of the technical fee payment too." 17. In our considered opinion, the lower authorities erred in questioning the need and benefit arrived by the assessee from payment in respect of availing of services from its AE. All that is required to be seen is as to whether there was actual rendition of services or not. We have carefully gone through the emails and invoices placed in the paper book vis a vis TSA Agreement. In our considered opinion, these documentary evidences clearly show the rendition of services by the AE to the appellant company. Moreover, the TPO himself has accepted the fees received by the assessee from rendering these services. We fail to understand why the payments have....
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....uction to the arm‟s length price principle and explains article 9 of the OECD Model Tax Convention. This article provides that when conditions are made or imposed between two associated enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises then any profit which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, if not so accrued, may be included in the profits of that enterprise and taxed accordingly. By seeking to adjust the profits in the above manner, the arm‟s length principle of pricing follows the approach of treating the members of a multi-national enterprise group as operating as separate entities rather than as inseparable parts of a single unified business. After referring to article 9 of the model convention and stating the arm‟s length principle, the guidelines provide for "recognition of the actual transactions undertaken" in paragraphs 1.36 to 1.41. Paragraphs 1.36 to 1.38 are important and are relevant to our purpose. These paragraphs are reproduced below: - "1.36 A tax administration's examination of a control....
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....ay be proper to respect the transaction as a transfer of commercial property, it would nevertheless be appropriate for a tax administration to conform the terms of that transfer in their entirety (and not simply by reference to pricing) to those that might reasonably have been expected had the transfer of property been the subject of a transaction involving independent enterprises. Thus, in the case described above it might be appropriate for the tax administration, for example, to adjust the conditions of the agreement in a commercially rational manner as a continuing research agreement. 1.38 In both sets of circumstances described above, the character of the transaction may derive from the relationship between the parties rather than be determined by normal commercial conditions as may have been structured by the taxpayer to avoid or minimize tax. In such cases, the totality of its terms would be the result of a condition that would not have been made if the parties had been engaged in arm's length dealings. Article 9 would thus allow an adjustment of conditions to reflect those which the parties would have attained had the transaction been structured in accordance with the....
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....hat in fact any profit was earned". In CIT v. Walchand & Co. etc., (1967) 65 ITR 381, it was held by the Supreme Court that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of business, reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue. It was further observed that the rule that expenditure can only be justified if there is corresponding increase in the profits was erroneous. It has been classically observed by Lord Thankerton in Hughes v. Bank of New Zealand, (1938) 6 ITR 636 that "expenditure in the course of the trade which is unremunerative is none the less a proper deduction if wholly and exclusively made for the purposes of trade. It does not require the presence of a receipt on the credit side to justify the deduction of an expense". The question whether an expenditure can be allowed as a deduction only if it has resulted in any income or profits came to be considered by the Supreme Court again in CIT v. Rajendra Prasad Moody, (1978) 115 ITR 519, and it was observed as under: - "We fail to appreciate how expenditure whic....
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....irrelevant considerations for the purpose of Rule 10B. Whether or not to enter into the transaction is for the assessee to decide. The quantum of expenditure can no doubt be examined by the TPO as per law but in judging the allowability thereof as business expenditure, he has no authority to disallow the entire expenditure or a part thereof on the ground that the assessee has suffered continuous losses. The financial health of assessee can never be a criterion to judge allowability of an expense; there is certainly no authority for that. What the TPO has done in the present case is to hold that the assessee ought not to have entered into the agreement to pay royalty/ brand fee, because it has been suffering losses continuously. 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 th....
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....nsideration of Rs. 45,48,85,303/- towards the acquisition of Corporate Travel Division, which comprised of net assets worth Rs. 1,72,93,846/-. The consideration paid over and above the value of net assets acquired was accounted as 'good will' and, accordingly, depreciation was claimed on the same. 22. In support of this transaction, the assessee submitted a valuation report obtained by Amex dated 09.06.2014 wherein the fair valuation of various assets/business divisions to be transferred to various GBT entities worldwide was determined. The said report provided the fair valuation of the corporate division of Amex at USD 7.7 million as on 31.12.2013 for slump sale. Another report from an independent valuer was also obtained who confirmed the value of Corporate Travel Division of Amex at Rs. 45,48,85,404/- and pursuant to this, the assessee paid consideration of Rs. 45,48,85,303/-. 23. Another report was also obtained dated 25.07.2014 from the local valuer for supporting the consideration paid for acquiring corporate travel division. The said valuation report had estimated the fair value of the corporate travel division to be in the range of 47.11 crores to 50.72 crores as on 01.06....
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....or depreciation u/s 32 of the Act. 32. Considering the facts of the case in totality, in the light of decision of the Hon'ble Supreme Court [supra], we direct the Assessing Officer to allow claim of depreciation. This ground is, accordingly, allowed. 33. Next disallowance relates to claim of bad debts amounting to Rs. 2,25,26,524/-. 34. Facts relating to this grievance show that in the acquisition of corporate travel division, the assessee had also acquired receivables of Rs. 37.04 crores besides other assets and liabilities. Out of these receivables, the assessee was unable to recover Rs. 2.25 crores from certain parties. The same was written off as bad debts in the profit and loss account. 35. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the bad debts are related to very brand conscious entities, which by no stretch of imagination can be made as bad debts. The Assessing Officer further observed that the assessee has not furnished convincing explanation for considering these entities as bad debts. The Assessing Officer issued notice u/s 133(6) of the Act to Amex and on receiving no reply, disallowed the claim of bad debts which w....