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2021 (8) TMI 1359
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....sidering all the submissions and/or without appreciating properly the facts and circumstances of the case and the law applicable; and b. At the fag end of the limitation period. Grounds relating to Transfer Pricing - General:- 2 The lower authorities have erred in: a. Making transfer pricing adjustment of Rs. 2,04,22,991!-; b. Making a reference to Transfer Pricing Officer for determining arm's length price without demonstrating as to why it was necessary and expedient to do so; c. Not appreciating that there is no amendment to the definition of "income" and charging or computation provision relating to income under the head "Profits & Gains of Business or Profession" do not refer to or include the amounts computed under Chapter X' and therefore addition under Chapter X is bad in law; and 3. Passing the order without demonstrating that the Appellant had motive of tax evasion. Grounds relating to Transfer Pricing - Brand Royalty:- 4. The lower authorities have erred in: a. Determining adjustment of Rs.1,94,30,176!- under section 92CA in respect of the royalty on alleged usage o....
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....es. Even otherwise such rate is excessive; and c. Applying arm's length price of 25% on revenue without appreciating that under PSM, profits not revenue have to be split in relative contribution. 9. Assuming without admitting that the adjustment is to be made, not allowing the benefit of the +1-3% range prescribed in the proviso to section 92C(2). Grounds Relating To Computation Of Deduction Under Section 10AA:- 10. The lower authorities have erred in: a. Calculating deduction under section 1 OAA on combined basis for all the eligible units rather than computing deduction each undertaking wise. b. Excluding Rs.1,10,88,43,931 being communication expenses, travel, insurance, professional charged, software expenses, expenses at branch office and other expenses from export turnover without appreciating that the Appellant had already reduced Rs.1,59,19,069/- from export turnover in the computation of 1OAA deduction which were attributable to eligible units. c. Not reducing Rs.1,59,19,069/- from total turnover while computing deduction under section 10AA. d. Excluding insurance charges of Rs.1,24,44,000/- and com....
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....r scrutiny. Accordingly, notice under section 143(2) was issued to assessee in response to which representative of assessee appeared before the Ld.AO and called for requisite details. 2.1 The Ld.AO observed that assessee had international transaction with its associated enterprises exceeding Rs.15 crores and therefore reference was made to the Transfer Pricing officer. 2.2 On receipt of reference under 92CA, the Ld.TPO called upon the assessee to file economic details of international transaction entered into by assessee with its AE is in form 3 CEB. 2.3 The Ld.TPO observed that, following were the international transaction entered into by assessee: Particulars Amount Received Rendering of sales and marketing services 7,791,592 Rendering of Software development services 97,869,088 Receipt of Software development services 24,995,724 Receipt of Sales and marketing services 21,146,671 Receipt of hardware support services 2,160,495 Receipt of Software testing services 40,228,261 Invoicing and collection service 21,568 Total 194,213,399 2.4 During the course of hearing the Ld.TPO observed that assessee has multiple ....
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.... the balance 24.05% of Rs.40,52,308/- was held to be the adjustment proposed. The Ld.TPO thus proposed addition as under: Particulars Amount (Rs.) Royalty from AEs for using trademark 1,94,30,176 Incremental Collection fee to be received from AE's for acting as collection Agent 9,92,815 Total 2,04,22,991 2.8 On receipt of the transfer pricing order, the Ld.AO passed the draft assessment order on 21/12/2016, wherein following disallowances were also made on following corporate tax: * Disallowance under section 14A amounting to Rs.15,93,573/- * Disallowance under section 10AA amounting to Rs.11,05,19,452/- 2.9 Against the draft assessment order, assessee filed objections before DRP. The DRP upheld the addition of royalty at 2% of the total turnover of AEs. The DRP also upheld the addition on account of the payment charged by AE to Sasken Inc., towards invoicing and collection from the company in Korea being GE Ultrasound under profit split method and determined 25% of the payment to words royalty. 2.10 The DRP upheld the disallowance made by the Ld.AO under section 10AA of the Act, by observing that the view taken by Hon'ble Karn....
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....To establish opportunities being a development centre in Finland and to exploit the European markets. 3.4 It is submitted that Sasken Finland (formerly "Botnia") is an existing company operating in the market and that it had its own customer market share, relationships etc. Sasken Inc USA 4. It is submitted that, it is a wholly owned subsidiary of assessee and has been incorporated as an investment arm of the company to make strategic investment in USA and other overseas market. It has been submitted that in 2009, Sasken Inc, purchased the product portfolio, customer contracts and certain assets from Ingenient Inc, USA. By this acquisition, assessee acquired the niche competency (including IPR') in the field of customer/automotive electronics and also provided an access to the nascent technology, being rare seat entertainment in the automotive sector. As Ingenient Inc., already had customer base and required sales force in countries like South Korea and Japan, consequent to the acquisition, assessee gained access to the customers in the said region. 4.1 The external revenue comprises of royalty earned from licensing of IPR's. 4.2 Sasken Network Solutions Inc (U.S.)(S....
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....oses for simple recognition of group membership or the use of the group name merely to reflect the fact of group membership. See paragraph 7.12 6.82 Where one member of the group is the owner of a trademark or other intangible for the group name, and where use of the name provides a financial benefit to members of the group other than the member legally owning such intangible, it is reasonable to conclude that a payment for use would have been made in arm's length transactions. Similarly, such payments may be appropriate where a group member owns goodwill in respect of the business represented by an unregistered trademark, use of that trademark by another party would constitute misrepresentation, and the use of the trademark provides a clear financial benefit to a group member other than that owning the goodwill and unregistered trademark. 6.83 In determining the amount of payment with respect to a group name, it is important to consider the amount of the financial benefit to the user of the name attributable to use of that name, the costs and benefits associated with other alternatives, and the relative contributions to the value of the name made by the legal....
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.... its jurisdiction. 4.10 It was thus submitted that when one successful business is acquired by another successful business, awnd the acquired business begins to use a name, trademark or other branding indicator of the acquiring business, there cannot be an automatic assumption that payment should be made in respect of such use. The Ld.AR thus submitted that: * Sasken Inc., was wholly owned subsidiary of assessee incorporated as an investment arm of assessee to make strategic investment in USA and other overseas market. * Sasken Network Solution Inc., was a subsidiary of Sasken Network Engineering Ltd. of assessee, engaged in the business of erection and installation of network equipment and provision of testing services. * Sasken Japan was a subsidiary of assessee which was established to execute project on-site purchased by a fellow subsidiary being Sasken Inc. * Sasken Finland(which was earlier known as Botnia higtec Oy), was acquired by Sasken Communication Technology to cater to handset and enterprise technology. * Sasken Shanghai was established in China for the purpose of setting up centre in China percent to acquisition of Sask....
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....he - 19,55,846 25,58,140 6,88,897 10,07,502 62,10,385 4.14 On the contrary the Ld.CIT.DR submitted that authorities below were right in determined royalty at 2% of the turnover earned by the subsidiary companies. He submitted that the said royalty has been determined by the Ld. TPO for use of brand value and the benefit that has derived by the subsidiary companies by using the name "Sasken". He submitted that the revenue has increased upon the use of brand name by the subsidiary companies in the respective jurisdictions. He also submitted that in certain jurisdiction the loss earned by the subsidiary companies reduced. He placed reliance on the observations of Ld.CIT(A). 4.15 We have perused submissions advanced by both sides in the light of records placed before us. 4.16 The AE's considered in the present facts are admittedly 100% subsidiaries of assessee. These subsidiaries have further acquired other companies to expand the client base and to acquire niche technologies owned by such companies in the respective geographical locations. With specific reference to Sasken Finland OY. Sasken Inc, USA, was set up to make strategic investments in USA and other....
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.... there has been increase in profits or reduction of loss during the year under consideration vis-a-vis preceding assessment year. But that alone cannot ipso facto lead to the conclusion that the subsidiaries were able to get premium price due to the use of brand name 'SASKEN' thereby to pay royalty. We refer to the following extract from OECD BEPS Action Plan 8-10: "7.13 similarly an associated enterprise should not be considered to receive on intragroup services and it obtains incidental benefits attributable solely to its being part of a larger concern, and not to any specific activity being performed. For example, no service would be received where an associated enterprise by reason of its affiliation alone has a credit rating higher than it would if it were unaffiliated, but and intragroup services would usually exist is where the higher credit rating were due to a guaranteed by another group member or where the enterprise benefited from deliberate concerted action involving global marketing and public relations campaigns. In this respect passive Association should be distinguished from active promotion of the many groups attributes that positively enhance the profit-m....
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....process or trade mark or similar property ; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a license) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and(v). .................... 4.23 Explanation 4 ....
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....e above, we cannot uhold 2% royalty computed on the turnover of the AE's by the Ld.AO/TPO. 4.27 However, we remand this issue back to the Ld.TPO for fresh consideration. The Ld.TPO shall verify all the agreements entered into by assessee with its subsidiaries, to check: * Whether there exist a licensor-licensee relationship between the assessee and each of the associated enterprises. Assessee is directed to file all details before the Ld.TPO to analyse impact of the use of brand "SASKEN" by the subsidiaries on their profits on year to year basis. * The Ld.TPO is directed to verify not just the terms and conditions for use of brand "SASKEN " by the AE's, but also the facts and circumstances surrounding the agreement. * The Ld.TPO is to verify if the AE's acquired any right in the brand "SASKEN" , for the purpose of selling their products, and that whether at any point of time the AE's were entitled to become the exclusive owner of the technical know how and the trade mark. * Whether there is an active promotion of group's attributes that positively enhances the profit making potential of a particular member of the group. 4.28 The Ld.TPO whil....
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....l vendor guidelines followed by GE Ultrasound, since Sasken Inc. was a company having negative results at the renewal period. In order to save the business opportunity, the management of assessee decided to have a triparte agreement between GE Ultrasound, Sasken Inc., and assessee. This agreement is placed at page 306-311 of paper book. 5.1 The invoices raised by assessee on behalf of Sasken Inc., on GE Ultrasound is placed at page 303-305 of paper book wherein, royalties have been received from GE Ultrasound during the year under consideration towards the use of patents acquired by Sasken Inc. Since assessee was facilitating Sasken Inc., in Invoicing and collection from GE Ultrasound, Sasken Inc. Compensated assessee at 0.5% towards such services rendered. The Ld.TPO applied profit split method as most appropriate method. The Ld. TP after analyzing FAR of both the transactions concluded that Sasken Inc., owns the main asset the patents. It is also observed by the Ld.TPO that assessee also owns asset owing to which the contract came. The Ld.TPO thus deemed it fit to give weightage of 3:1 to Sasken Inc., and assessee. The adjustment proposed to be retained by the assessee was com....
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....ether they were acceptable or not to the assessee. Such action by Ld.TPO cannot be approved as it is not in accordance with the Rule 10(1)(d) of Income-tax Rules. We therefore remand this issue back to the Ld.AO/TPO for carrying out the benchmarking of the international transaction between the assessee and Sasken Inc., in accordance with law to determine if the price changed by assessee to be a facilitator is at arms length. Accordingly this ground raised by assessee stands allowed for statistical purposes. 6. Ground No.10 relates to disallowance of deduction under section 10 AA of the Act. 6.1 The Ld.AR submitted that the Ld.AO excluded communication expenses, travel insurance, professional charged, software expenses, expenses at the branch office and other expenses from export turnover without appreciating that assessee had already reduced Rs.1,59,19,069/- from the export turnover while computing the deduction which is attributable to the eligible units. 6.2 Admittedly this issue is now settled by the decision of Hon'ble Supreme Court in case of Yokogawa India Ltd., reported in 391 ITR 274 wherein it has been held as under: "That from a reading of the relevan....