TaxTMI 
TaxTMI 
TaxTMI 
2022 (4) TMI 1126
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.... to the transfer pricing adjustment made in respect of international transaction on provision of non-binding investment advisory services by the assessee. 3. We have heard rival submissions and perused the materials available on record. The facts as stated in the order of the ld. TPO are as under:- The assessee company was incorporated on 12/12/2001 as a private limited company in India. HSBC Securities & Capital Markets (India) Private Limited holds 75 percent of the share capital of the Company and remaining share capital is held by resident Indian individuals. The assessee's principal activity is to act as an investment manager for HSBC Mutual Fund in India. The assessee manages the investment portfolio and provides various administrative services to the Fund. The assessee is also engaged in providing portfolio Management services to High Net Worth Individuals (HNIs). It also acts as an investment advisory manager for its Associated Enterprise (AE). During the year, the following international transactions were entered into by the assessee with its associated enterprises: Sr. No. Name of the Associated Enterprises Nature of International Transaction Amount (in Rs.)....
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....vestment advisory services it rendered to its AE. The ld. TPO rejected the segmental reporting of the assessee and benchmarked the international transaction with AE at entity level. The ld. TPO determined the final list of comparable companies engaged in the business of asset management and selected 15 comparable companies thereon and arrived at the arithmetic mean margin of the comparables at 68.93% as under:- Sr. No. Name of the Company NCP% 1 Canbank Investment Management Services L. 40.44 2 HDFC Asset Management Company Limited 113.76 3 IL & FS Investment Managers Ltd. 97.90 4 Jeevan Bima Sahayog Asset Management Company Ltd. NA 5 Kotak Mahindra Asset Management Co. Ltd. 20.34 6 ICICI Prudential Asset Management Company Ltd. 42.27 7 Principal PNB Asset Management Company P. Ltd 31.78 8 Reliance Capital Asset Management Limited 51.26 9 S R E I Venture Capital Limited 223.35 10 SBI Fund Management Private Limited 51.48 11 Sundaram BNP Asset Management Company Ltd 83.66 12 UTI Asset Management Company private Limited 70.56 13 Unit trust of India Investment Advisory Services Ltd 134.17 14 Taurus Asset Manageme....
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....ies as under:- * HSBC HK requires details regarding potential Indian investee companies in which HSBC HK can invest. The process of selection of potential companies begins with their identification. HSBC AMC collects information regarding potential sectors across the various industries, prospective companies and capable management groups, which may be considered for evaluation purposes, bearing in mind the investment criteria of HSBC HK, * Based on the investment criteria, HSBC AMC shortlists the companies based on information from its own network and various channels like newspapers, articles published in journals/maga/Jnes, bankers etc. ... * HSBC AMC organises the conferences / meetings with the potential investee companies / public sector units to discuss on HSBC HK proposed investment in India. * The companies (compiled as above) are then further evaluated by HSBC AMC by analyzing their past performance, growth potential of both the company and the industry in which it is operating and several other factors. For this purpose, HSBC AMC interacts with the potential investee companies. This process enables HSBC AMC to shortlist companies for further analysis based on vari....
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....able with assessee providing non-binding investment advisory services. It is pertinent to note that services rendered by the assessee are similar with the services rendered by Carlyle India Advisors Pvt. Ltd., This Tribunal order in 53 SOT 267 was subsequently approved by the Hon'ble Jurisdictional High Court reported in 32 taxmann.com 23 dated 22/02/2013. We find that in yet another decision, the Hon'ble Jurisdictional High Court in the case of PCIT vs. Blackstone Advisors India Pvt. Ltd., reported in 114 taxmann.com 220 (Bombay High Court) dated 11/03/2019 had approved the decision of Mumbai Tribunal, wherein, ICRA Management Consultancy Services Ltd., was sought to be included as a good comparable with an assessee engaged in providing investment sub-advisory services which are similar to non-binding investment advisory services provided by the assessee herein. It is pertinent to note that ICRA Management Consultancy Services Ltd., was also included as a comparable by the assessee in its TP study report. 3.9. We are inclined to agree to the arguments advanced by the ld. AR that if all the 15 comparables chosen by the ld. TPO are rejected ; IDC India Ltd and ICRA Management Consu....
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....nt and other IT services. 5.1. We have heard rival submissions and perused the materials available on record. We find that assessee has received services from HSBC (HK) and HSBC Group Investment Business Ltd., (London), (HSBC, London) towards software development and other IT services for Rs. 1,82,58,074/- and central and regional support services for Rs. 1,18,42,942/-. The assessee in its TP study report determined its international transactions with HSBC(HK) and HSBC(London) to be in consonance with arm's length principle. The assessee submitted the TP study report and other requisite information together with detailed explanations and submissions and evidences before the ld. TPO that were called upon from time to time. For providing aforesaid services, both HSBC (HK) and HSBC (London) have charged certain costs to the assessee based on appropriate allocation key. The details of cost allocation keys used for the purpose of allocation of cost to the assessee were duly documented in the TP study report and were submitted before the ld. TPO. In fact, the ld. TPO asked the assessee to furnish the details of cost allocation such as brief description on the nature of service availed, ....
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....pletely on an adhoc basis without carrying out the benchmarking analysis by following any of the prescribed methods provided in the statute. We find that during the year end consideration the assessee had incurred software development and other IT service related expenses of Rs. 1,82,58,074/-. It was submitted that HSBC (HK) has rendered certain technology and support services including accessing, storing or processing of data to HSBC group entities located all over the globe. An agreement dated 01/02/2006 to this effect has been entered into between the parties. The expenses incurred by HSBC (HK) for providing these services were allocated without any mark-up to the HSBC group entities based on actual usage of computer resources in terms of computer unit. It was also submitted that technology and support services were provided by the AE to the assessee from time to time pursuant to submission of work, which may include development services and IT system services. The various other support services rendered by AE to the assessee are as under:- * IT Hardware Support- It ascertains the requirements for routers for efficient load handling; * Helpdesk for email and other communicat....
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....res integra in view of the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Johnson & Johnson Ltd,. reported in 80 taxmann.com 337 (Bombay High Court) dated 07/03/2017 wherein it was held as under:- 4. Regarding question (D) :- (a) The respondent assessee paid to its Associated Enterprises (AE), technical know how royalty of 2%. The Transfer Pricing Officer (TPO) by order dated 24th March, 2005 restricted the technical know how royalty paid by the respondent assessee to its AE at 1% instead of 2%, as claimed. In terms of the determination dated 24th March, 2005 of the TPO on the above issue amongst others, an assessment order dated 28th March, 2005 for the subject Assessment Year was passed by Assessing Officer under Section 143(3) of the Act. (b) Being aggrieved with the order dated 28th March, 2005 of the Assessing Officer, the respondent assessee preferred an appeal to the Commissioner of Income Tax (Appeals) [CIT(A)]. By an order dated 22nd March, 2007, the appeal of the respondent assessee on the issue of royalty payable on technical know how, allowed the appeal. It inter alia held that restricting the royalty paid on account of technical know how....
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....harges to HSBC London corresponding to the appropriate proportion of the internal operations costs (absorbing both direct and indirect cost) plus a mark-up that has been determined by HSBC London in accordance with UK and OECD transfer pricing guidelines. For providing central and regional support services, HSBC London charged 5 percent mark-up on the internal operation costs incurred by HSBC London. Based on the type of expenses, the allocation of each of HSBC London's internal operational costs was computed using appropriate allocation key. However, where HSBC London is merely passing on the charges of the third parties, no mark-up was charged by HSBC London to HSBC group entities. These costs specially include the costs of HSBC Group's internal audit function which is charged to HSBC London. 5.7. We further find that the aforesaid charges were also paid by the assessee for availing services from its AE with regard to general management, marketing, risk management, finance, human resource services, investment services, product services and cash / treasury services. Further, we find that assessee had submitted the following documents before the ld. TPO it demonstrated the....
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....come tax Rules. Reliance again is placed on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Johnson & Johnson Ltd., referred to supra. Accordingly, we direct the ld. TPO to delete the transfer pricing adjustment made in the sum of Rs. 1,18,42,942/- in respect of cost allocation towards central and regional support services. The ground No.2 raised by the Revenue is hereby dismissed. 6. The ground No.3 raised by the Revenue is challenging the deletion of disallowance of prior period expenses of Rs. 10,51,576/-. 6.1. We have heard rival submissions and perused the materials available on record. We find that assessee has incurred expenditure of business promotion activities like marketing expenses for promoting various schemes of HSBC mutual fund amounting to Rs. 2,23,24,218/- during the year under consideration. Out of this, a sum of Rs. 10,51,176/- were disallowed by the ld. AO on the ground that they are prior period expenses. The assessee submitted that out of aforesaid disallowance of Rs. 10,51,176/-, invoices were received by the assessee during the F.Y.2006-07 relevant to A.Y.2007-08 for Rs. 10,00,972/- and payments were also made thereon during th....