TaxTMI 
TaxTMI 
TaxTMI 
2021 (8) TMI 1359
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....ating 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 of brand 'SASKEN' by the AEs. b. Not appreciating that the AEs have not received any financial benefit from....
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....out 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 communication charges of Rs.2,94,07,000/- from export turnover of SEZ units without appreciating the fact that the aforesaid expenditure were not incurred for the purpose of export / delivery of computer software outside India. e. Not appreciating that the insurance exp....
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.... 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 subsidiaries in USA, China, Finland and other countries around the world. It was noted by the Ld.TPO that all these companies use the trademark and name of "Sasken" which was owned by assessee, against which no royalty was paid by the subsidiaries. Ld.TPO, accordingly called upon assessee to establish as to why, royalty is not payable by the subsidiaries to the assessee. The asses....
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....wing 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 Karnataka High Court in CIT vs Tata Elxsi Ltd., reported in (2012) 349 ITR 98 has been appealed before Hon'ble Supreme Court and that the issue had to be kept alive. 2.11 The disallowance made under section 14A was also upheld by the DRP. 2.12 Before DRP assessee had also raised one ground in respect of credit in terms of taxes paid outside India which was not considered while computing MAT Credit, as per provisions of section 115 JAA by the Ld.AO. This issue was also re....
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....at 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.)(SNSI) It is submitted that, this company is a subsidiary of Sasken Network Engineering Ltd., and is engaged in the business of erection and installation of network equipment and provision of testing services. As an expansion plan, Sasken Network Engineering Ltd. acquired a company named, Wireless Logic Inc in US, in a similar line of business, in order to gain an entry into the U.S. market space. 4.3 Pursuant to the acquisition, the name was changed to Sasken Network Solution Inc.(hereinafter referred to as SNSI),....
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....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 owner, and the entity using the name in the form of functions performed, assets used and risks assumed. Careful consideration should be given to the functions performed, assets used, and risks assumed by the user of the name in creating or enhancing the value of the name in its jurisdiction. Factors that would be important in a licence of the name to an independent enterprise under comparable circumstances applying the principles of Chapters I - III should be taken into account. 6.84 Where an existing successful business is acquired by another succes....
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....idiary 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 Sasken Finland, formerly known as Botnia that had established a deep relationship with Nokia (which shifted to china for a better economic reasons). 4.11 He submitted that these companies were already in operation and already had a base revenue. It was submitted that these companies did not derive any commercial success out of using the group's name during the year under consideration. 4.12 Ld.AR submitted that the subsidiary in Finland established deeper relationship with Nokia, subsequent to Sasken Finland acquisition, and in order to maintain existing relationship, assessee established subsidiary ....
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....issions 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 overseas markets. Admittedly, the Ld. AO recorded that subsidiaries of assessee is working as full-fledged entrepreneurs in USA, Finland and other countries and that Sasken brand is registered by the assessee in India as well as Russia, USA and a host of other countries. The Ld. TPO observed that assessee owns 25 websites with the names " Sasken" as the domain name. 4.17 We note that, the Ld.TPO attributed royalty towards the use of brand name, "Sasken", by the subsidiaries in the respective countries based on a decision by Hon'ble Delhi High Court in case of Sasken Communications Technologies Ltd. vs Anupam Agarwal &Ors. Hon'ble High Court therein found that Sasken brand is proprietorily owned by assessee before us, an....
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....ng 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-making potential of particular member of the group. Each case must be determined according to its own facts and circumstances." 4.21. There is nothing on record brought by the authorities below to establish that, use of the name 'SASKEN' provided financial benefit to the members of the group other than the member legally owning such intangible as required under BEPS action plan 8-10. 4.22 Brand licensing is when a brand owner licenses the right to their brand assets to a licensee, letting the licensee use their brand for a set period of time, in a set way, within an agreed market. The brand owner and licensee must agree on the terms and scope of the licensing agreement, which is a legal written contract between the two parties. This w....
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....n 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 and 5 inserted by the Finance Act, 2012 w.e.f. 1.6.1976 were introduced to the definition of royalty u/s.9(1)(vi) of the Act. Explanation 4.-For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a license) irrespective of the medium through which such right is transferred. Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not- (a) the possession or control of such right, property or information is with the payer; (b) such right, property or information is used directly by ....
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....oint 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 while carrying out necessary verification keep in mind the following extract from OECD BEPS Action Plan 8-10: "7.13 Similarly, an associated enterprise should not be considered to receive an intra group service when 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 an intra-group service would usually exist where the higher credit rating were due to a guarantee by another group member, or where the enterprise benefitted from deliberate concerted action involving global marketing and public relations campaigns. In this respect, passive association should be distinguished from active promotion of the MNE group's attributes that positive....
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....he 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 computed at 25% of the invoice amount as against 0.5%. The Ld.TPO thus proposed an adjustment of 9, 92, 815/-. 5.2 The DRP upheld the observations of Ld.TPO following which the Ld.AO passed the final assessment order confirming the proposed adjustment. 5.3 Aggrieved by the addition, assessee is in appeal before us now. 5.4 The Ld.AR submitted that Sasken is 100% subsidiary of assessee incorporated in USA. Sasken Inc., had acquired business contracts from Ingenient Technologies Inc., in 2009. It has been submitted by the Ld.AR submitted that to save the business opportunity the management of assessee decided to have an agreement between the assessee, GE Ultrasound Ltd. and Sasken Inc., wherein GE Ultrasound Ltd. would continue to use the patents to meet their requirement. It was submitted that in this arrangement the assessee company is not required to do anything as GE Ultrasound is using the patents owned by Saske....
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....ibutable 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 relevant provisions of section 10A it is more than clear that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794, dated 9-8-2000. If the specific provisions of the Act provide [first proviso to sections 10A(1); 10A(1A) and 10A(4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No.794 dated 9-8- 2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, "im....