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2023 (5) TMI 155
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....mon order. 3. We take up appeal in ITA No. 1501/Kol/2019 for Assessment Year 2012-13 to understand the facts of the case and the findings of the same would apply mutatis mutandis to the appeal for Assessment Year 2013-14. 4. Grounds of appeal for Assessment Year 2012-13 are reproduced as under:- "1. Whether the CIT(A) is justified in facts and law in the circumstances of the case in deleting the addition made by the AO for international transaction of payment of management fee of Rs. 5,14,96,223/-. 2. Whether the CIT(A) is justified in facts and law in the circumstances of the case in accepting that Assessee Company has received services from its AE during the F.Y. 2012-13 against payment for the management fee. 3. Whether the CIT(A) is justified in facts and law in the circumstances of the case to acknowledge that services are stewardship in nature and under an independent arrangement Assessee would never pay for such services to third party. 4. Whether the CIT(A) is justified in facts and law in the circumstances of the case to appreciate that assessee has not provided adequate evidence to demonstrate receipt of services 5. Wheth....
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....ement with AHEL & GDPL for the managerial expertise to be rendered by them to the hospital and Diagnostic Centre. It is agreed between the parties that 5% of the gross revenue generated from the hospital and Diagnostic Centre shall be paid to AHEL and GDPL in equal proportion by the Company as management fee under the above contract. The other terms of the proposed management contract will be decided between the parties in discussions and negotiations that are to be held at a later date. 18.2. The pharmacy at the hospital management and at the Diagnostic Centre shall be set up and run by AHEL on its own. It is agreed that AHEL shall pay 5% of the gross revenue of the pharmacy to the Company. 5.2. Pursuant to clause 18.1 referred above, a tripartite agreement was entered into, effective from 01.07.2011 between the assessee, AHEL and Gleneagles Management Services Pvt Ltd (for short "GMSPL"). The broad terms and conditions relevant to the present appeal are extracted below from the tripartite agreement:- a) assessee is granted a non-exclusive right to use and display licensed trademarks "Apollo" and "Gleneagles" respectively, together right to u....
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....ersonnel. iv. the operation of accident and emergency services; disaster planning; environmental requirement; intensive care units; medical records; information system; policies and procedures development; professional relations; quality assurance; and any other aspect of the operation of the Hospital which is linked to the quality of service being offered. v. operating policies affecting the appearance, maintenance, standards of operation, quality of service an / or appropriateness of the administrative policies and procedures and any other matter affecting the Hospital. vi. the capabilities and credentials of all the administrators of the Hospital from time to time, make recommendations to the Board with respect to its organization and personnel (including medical and other professional staff); vii. Make recommendations on the Hospital's requirements for medical and surgical supplies, consumables and medical equipment. viii. Review and recommend to the Hospital with respect to nature, type, amount, Insurance Company etc. for insurance policy required against malpractice suits, loss or damage by fire, impact, explosion, storm, tempe....
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....#39;s length, as claimed by the assessee. 5.5. Ld. Transfer Pricing Officer (TPO) without pointing out any defect in the transfer pricing documents furnished by assessee, the comparables used and the benchmarking exercise carried out by assessee, went on to apply Comparable Uncontrollable Price (CUP) method. Assessee contested that since Ld. TPO could not find out even a single comparable hospital in India with foreign tie ups and therefore, CUP could not be applied due to lack of comparable. Assessee has noted in its TP document that CUP cannot be applied as Most Appropriate Method in the given case because of lack of data of comparable uncontrolled transactions and lack of data of Hospitals having foreign tie ups. 5.6. According to the assessee, ld. TPO did not apply any of the six methods prescribed in Rule 10D of the Income Tax Rules, 1962 (the Rules) to arrive at CUP method as the 'most appropriate method' and could not show any uncontrolled transaction for comparison and instead in the guise of CUP method, he questioned the commercial expediency of management fee expense and benefit derived by the assessee therefrom. Ld. TPO instead of benchmarking the international tra....
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....f Clinical Parameters which helps the healthcare institutions in providing guidance on clinical excellence and quality of care to the patients worldwide. GMSPL extends its support to assessee by assisting it in implementing these parameters in its system. It also reviews these parameters, quarterly, in order to ascertain the quality, reliability, security and robustness of the operations and treatments carried in the Hospital. The AE also conducts Clinical Audit, helps in framing organization policies and devising strategies from time to time. Further, they train the hospital staff and managers for improved operational excellence. Also, at strategic level, GMSPL helps in developing Annual Operational Plan, budget, strategies on revenue generation and bringing in Clinical Excellence. It also conducts regular IT and Business Analytics audits to improve organizational performance. 5.9. Assessee paid management fee @ 2.5% of the Gross Operating Revenue to AHEL which has been accepted for similar nature of services received by the assessee from AHEL. 5.10. Assessment order was passed u/s 143(3) wherein entire management fee expense paid to GMSPL was determined by the ld. TPO at 'N....
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....issioner of Income-tax Circle 10, Kolkata [2016] 71 taxmann.com57 (Kolkata - Trib.) / [2016] 177 TTJ 156 (Kolkata - Trib.) 2. Further the Ld. A.0 in the assessment order under section 143(3) has not made any adverse comment under section 37 in respect of the benefit / services received by the Assessee. During the course of scrutiny assessment proceedings, the assessee submítted before the Ld. A.0 on the same set of evidences of receipt of services as those submitted to the Ld. TPO, as per the direction of the Ld. A.O. It is pertinent to note that the Ld. AO has not made any adverse Comment under section 37 of the Income Tax Act, 1961. I have also examined the agreement and the nature of services availed for which the assessee has paid Rs.5,14,96,223/- towards use of the "brand Gleneagles" and for various other management services which were necessary to maintain the quality, standards, operating procedures, equipments and services associated with the brand. Therefore, in my considered view the assessee has availed the services and derived benefit out of it and hence the conclusion drawn by the Ld. AO for making the additions is not sustainable. 3. The above....
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....incurred for the business purposes. Further, it is not the domain of ld. TPO to question the commercial expediency of the expense and his role is limited to determining the ALP for international transactions/specified domestic transactions. From the language used in section 92CA(1), we understand that a reference is made by the Assessing Officer to the Transfer Pricing Officer is limited to 'computation of the arm's length price' in relation to the International Transaction / SDT. Also, in section 92CA(3), the TPO is required to 'determine the arm's length price' in relation to the International Transaction / SDT and send a copy of his order to the Assessing Officer / assessee. 9.1. We have perused the material before us and in our considered view, assessee has reasonably established rendition of services by its AE. Further, we find that there is a clear contradiction in the finding of the authorities below. On one hand, it is held that arm's length price of these services is 'Nil' since no evidence of services received and benefits derived therefrom has been furnished by the assessee and on the other hand, a ground has been raised vide ground no. 3 that the services received by....
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....ice charged or paid' for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, has to be identified. However, Ld. TPO has not identified any such similar transactions while resorting to CUP method. We do not ascribe to such an adhoc approach adopted by the ld. TPO in the present case which is not in accordance with the prescribed regulations. 9.5. No justification by the ld. TPO has been provided based on comparable data analysis to discard the TNMM arrived at by the assessee as MAM for benchmarking its international transaction with AE and adopt CUP method based on comparable data. One of the very basic pre-conditions for use of CUP method is availability of the price of the same product and service in uncontrolled conditions. It is on this basis that ALP of the product or service can be ascertained. It cannot be a hypothetical or imaginary value but a real value on which similar transactions have taken place. Coming to the facts of this case, application of CUP is dependent on the market value of the arrangements under which the present payments have been made. We are of considered view that in the absence of prer....
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....vices'. If services are in the nature of 'share holder services', then such services should not bear a charge, as the benefits from shareholding activities ought to be received by the provider of the services rather than the recipient. What constitutes a shareholder activity. The current OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, 2010 (amended since 1995), lists the following as shareholder activities: costs of activities relating to the juridical structure of the parent company itself, such as parent company shareholder meetings, issuing shares in the parent company and supervisory board costs; costs relating to reporting requirements of the parent company, including the consolidation of reports; and costs of raising funds for acquisition by its participants 11. Furthermore, in relation to activities which concern more than one enterprise of an MNE, the OECD Guidelines state that shareholder activities should be distinguished from the broader concept of stewardship activities which include the following: Stewardship activities cover a range of activities by a shareholder that may include t....
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....l transaction under consideration at nil value) is without jurisdiction and it goes against the basic tenet of the Indian Transfer Pricing Regulation." 10.2. While dealing with the issue of jurisdiction of TPO and he determining the ALP of services at 'Nil' as well as the commercial expediency of the same, Hon'ble High Court of Delhi in the case of CIT vs. Cushman and Wakefield (India) (P.) Ltd. [2014] 46 taxmann.com 317 (Delhi), held as follows:- "34. The Court first notes that the authority of the TPO is to conduct a transfer pricing analysis to determine the ALP and not to determine whether there is a service or not from which the assessee benefits. That aspect of the exercise is left to the AO. This distinction was made clear by the ITAT in Dresser-Rand India (P.) Ltd. v. Addl. CIT [2011] 47 SOT 423/13 taxmann.com 82 (Mum.): "8. We find that the basic reason of the Transfer Pricing Officer's determination of ALP of the services received under cost contribution arrangement as 'NIL' is his perception that the assessee did not need these services at all, as the assessee had sufficient experts of his own who were competent enough to do this work. Fo....
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....rvices is 'nil'. The authorities below have been swayed by the considerations which are not at all relevant in the context of determining the arm's length price of the costs incurred by the assessee in cost contribution arrangement. We have also noted that the stand of the revenue authorities in this case is that no services were rendered by the AE at all, and that since there is No. evidence of services having been rendered at all, the arm's length price of these services is 'nil'." 35. The TPO's Report is, subsequent to the Finance Act, 2007, binding on the AO. Thus, it becomes all the more important to clarify the extent of the TPO's authority in this case, which is to determining the ALP for international transactions referred to him or her by the AO, rather than determining whether such services exist or benefits have accrued. That exercise - of factual verification is retained by the AO under Section 37 in this case. Indeed, this is not to say that the TPO cannot - after a consideration of the facts - state that the ALP is 'nil' given that an independent entity in a comparable transaction would not pay any amount. However, this....
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.... vs. DCIT, Circle-2(1), New Delhi [2014] 50 taxmann.com 323 (Delhi - Trib.), dealt with same and held as under:- "15. One of the very basic pre condition for use of CUP method is availability of the price of the same product and service in uncontrolled conditions. It is on this basis that ALP of the product or service can be ascertained. It cannot be a hypothetical or imaginary value but a real value on which similar transactions have taken place. Coming to the facts of this case, the application of CUP is dependent on the market value of the arrangements under which the present payments have been made. Unless the TPO can identify a comparable uncontrolled case in which such services, howsoever token or irrelevant services as he may consider these services to be, are rendered and find out consideration for the same, the CUP method cannot have any application. His perception that these services are worthless is of no relevance. It is not his job to decide whether a business enterprise should have incurred a particular expense or not. A business enterprise incurs the expenditure on the basis of what is commercially expedient and what is not commercially expedient. As held by....
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....old the grievance of the assessee and direct the AO to delete the impugned ALP adjustment of Rs.31,23,325. The assessee gets the relief accordingly." 10.4. Issue on adhoc determination of ALP by the TPO and his jurisdiction dehors section 92C of the Act was dealt by the Hon'ble High Court of Bombay in the case of CIT vs. Lever India Exports Ltd. [2017] 78 taxmann.com 88 (Bom), wherein it was held as follows:- "7. We note that the Tribunal has recorded the fact that the respondent assessee has launched new products which involved huge advertisement expenditure. The sharing of such expenditure by the respondent assessee is a strategy to develop its business. This results in improving the brand image of the products, resulting in higher profit to the respondent assessee due to higher sales. Further, it must be emphasized that the TPO's jurisdiction was to only determine the ALP of an International Transaction. In the above view, the TPO has to examine whether or not the method adopted to determine the ALP is the most appropriate and also whether the comparables selected are appropriate or not. It is not part of the TPO's jurisdiction to consider whether or not the ....
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...., wherein it has been held that remuneration paid for services rendered could not be disallowed merely because no remuneration for such services was paid in the past. Similarly, in the case of Addl CIT v. Nestle India Ltd.[2005] 147 Taxman 20 (Mag.) (Delhi) the Hon'ble Tribunal held that it is not relevant that no royalty was paid in the past. Similarly in the case of Dresser-Rand India (P.) Ltd. (supra) the Hon'ble Mumbai Bench of the Tribunal held that, whether the AE gave the same services to the assessee in the preceding years without any consideration or not is irrelevant. The AE may have given the same service on gratuitous basis in the earlier period, but that does not mean that arm's length price of these services is 'nil'." It was further submitted that such services can, by no stretch of imagination, be regarded as shareholder services. 43.6 In particular attention was drawn to the OECD Transfer Pricing Guidelines which defines the shareholder activity as under: "Shareholder activity An activity which is performed by a member of an MNE group (usually the parent company or a regional holding company) solely because of its owne....
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....assessee to its AE, GMSPL at Rs.5,14,96,223/- under the provisions of section 92CA of the Act and delete the addition/disallowance so made by the ld. AO in this respect. Accordingly, grounds 01 to 06 taken by the Department in this respect are dismissed. 12. Ground no. 07 is in respect of deletion of disallowance made by the ld. AO under section 14A of the Act, amounting to Rs.11,91,258/-. 12.1. In this respect, ld. CIT(A) has deleted the disallowance by taking note of fact that investments made by the assessee are such which do not yield exempt income as assessee had invested in debt mutual funds. More so, the income so earned on these investments had already been offered to tax by the assessee which was accepted in the assessment. There is no exempt income earned by the assessee during the year. The findings given by the ld. CIT(A) are reproduced as under:- "1. I have carefully considered the entire facts and circumstances of the case and the submissions filed by the Ld. ARs for the appellant-company against the action of the Ld. AO in making the impugned additions. I have also carefully perused the reasons recorded by the Ld. AO while making the impugned additions....