TaxTMI 
TaxTMI 
TaxTMI 
2024 (6) TMI 811
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....arned TPO / learned AO/learned CIT(A) erred in rejecting the Transfer Pricing (TP') analysis undertaken by the Appellant. Receipt of brokerage commission 3. On the facts and circumstances of the case and in law, the learned TPO / learned AO /learned CIT(A) failed to discharge the burden of proof to establish that Transactional Net Margin Method (TNMM") is not the Most Appropriate Method ('MAM') for the determination of the arm's length price ('ALP') in respect of the transaction pertaining to provision of broking services to associated enterprises (AEs'). 4. On the facts and circumstances of the case and in law, the learned TPO / learned AO /learned CIT(A) erred in rejecting TNMM as the MAM for the determination of the ALP of the international transaction of brokerage commission received by the Appellant from its AEs. 5. On the facts and circumstances of the case and in law, the learned TPO / learned Assessing Officer ('A.O.' for short) learned CIT(A) has erred in applying the Comparable Uncontrolled Price (CUP') method as the MAM for benchmarking the international transaction of brokerage commission received by the Appellant from....
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....thods. 12. On the facts and circumstances of the case and in law, the learned TPO/ learned AO / learned CIT(A) erred by failing to discharge the burden of proof while rejecting the CUP analysis / corroborative TNMM analysis undertaken by the Appellant for the determination of the ALP in respect of the transaction pertaining to payment of royalty/ Branding fess. 13. On the facts and circumstances of the case and in law, the learned TPO / learned AO /learned CIT(A) erred in rejecting the CUP analysis / corroborative TNMM analysis undertaker by the Appellant, for the determination of the ALP of the international transaction of payment of royalty/ Branding fees. 14. On the facts and circumstance of the case and in law, the learned TPO / learned AO / learned CIT(A) failed to appreciate that sufficient data was available to demonstrate external Comparable in the form of royalty rates published by the Secretariat of Industrial Assistance. 15. On the facts and circumstances of the case and in law. the learned TPO/ learned AO/learned CIT(A) erred in applying data pertaining to related entities, being a controlled transaction, as the internal CUP, not appreciating that for benchm....
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....s as a stock-broker for its Client dealings resulting in STT and such STT is a liability of the clients of the Appellant. Disallowance of transaction charges under section 40(a)(ia) of the Act 24. On the facts and circumstances of the case and in law, the learned AO/CIT(A) erred in disallowing transaction charges of Rs 2,06,75,227 paid to Bombay Stock Exchange (BSE') and National Stock Exchange ('NSE') under section 40(a)(ia) of the Act for not withholding taxes under section 194J of the Act. 25. Without prejudice to above, the learned AO / CIT (A) erred in disallowing transaction charges without acknowledging the fact that historicaly both, the Revenue and the Appellant, were under the bona fide belief that the transaction charges paid to the stock exchanges are not subjected to tax withholding. Disallowance of OASYS Global STP charges under section 40(a)(ia) of the Act 26. On the facts and circumstances of the case and in law, the learned AO/CIT(A) erred in disallowing Straight through processing (STP') charges of Rs 4,01,314 paid to NSDL under section 40(a)(ia) of the Act for not withholding taxes under section 194J of the Act. 27. On the facts ....
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....learned Transfer Pricing Officer (ld. TPO for short) u/s. 92CA(1) of the Act for the purpose of determining whether the International transaction entered into with the AE's are at arm's length price (ALP for short). The ld. A.O. passed the final assessment order dated 29.12.2008 u/s. 143(3) of the Act, determining the total income at Rs. 123,59,72,135/- by making various additions/disallowances on corporate grounds and transfer pricing additions, after duly considering the ld. TPO's recommendation vide order dated 29.10.2008. The additions/disallowances made by the ld. A.O. are tabulated hereunder: Additions/disallowances Amount (Rs.) Disallowance on account of non-deduction of tax under section 40(a)(ia) 2,23,61,033 Transfer pricing adjustments - Brokerage 6,80,97,636 - Payment of brand fees 1,45,52,584 - Indirect overhead allocation 6,60,60,930 14,87,11,150 Addition of Securities Transaction Tax received from clients under section 43B 4,42,545 6. The assessee was in appeal before the first appellate authority, challenging the addition/disallowance made by the ld. AO. 7. The ld. CIT(A) vide order dated 24.03.2014 upheld the order of the ld.A.O. ....
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....non AE's for clearing house trade segment and 0.06% on future segment and concluded that the assessee has charged higher rate of commission from overseas non AE's compared to that of its AE's for both the services. The ld. TPO proposed CUP method for bench marking the said transaction. The assessee contended that the nature of service rendered to each clients varied depending upon the corporate access, analyst access, research, regularity of business, sales and trading coverage, client's creditworthiness, etc. for which the rates charged would vary from one client to another. The assessee further contended that the services rendered to independent party cannot be compared with that of the AE's as there will always be a change in volume and the nature of service and, therefore, the charges on unrelated parties cannot be compared with that of the related parties. The assessee reiterated that TNMM is the most appropriate method for bench marking the said transaction. The ld. TPO not convinced with the assessee's reply made an upward adjustment of Rs. 6,80,97,636/- on the brokerage income of the assessee which is tabulated as under: Sr. No. Nature of Trade Volume in Rs. Rate Charg....
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....e different from the non AE's. The ld. DR further stated that CUP method is more appropriate than TNMM as per the OECD guidelines and had further contended that the assessee itself has followed CUP method as MAM for A.Y. 2004-05. The ld. DR relied on the orders of the lower authorities. 16. We have heard the rival submissions and perused the materials available on record. The issue pertaining to this ground is the charging of higher rate of brokerage commission levied on overseas non AE's has to be the arm's length price for the AE's for similar services rendered by the assessee and also the method to be adopted for determination of the ALP for the said brokerage receipt, i.e., whether TNMM or CUP method to be the most appropriate method. The assessee's contention is that the nature of service varies from client to client depending upon various parameters and requirements and that TNMM method is the most appropriate method for bench marking the said transaction. The Revenue's contention is that the assessee has failed to establish why there has been a difference in the rates charged to AE's and overseas non AE's and that the internal CUP method is to be adopted for bench marking t....
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....the Tribunal in assessee's case for various years, we do not find any change in the circumstances or the nature of transaction entered into by the assessee with its AE during the year under consideration. We, therefore, deem it fit to allow these grounds of appeal raised by the assessee by holding the said transaction to be at arm's length and TNMM to be the most appropriate method for determining the arm's length price (ALP for short). Hence, ground nos. 3 to 10 raised by the assessee is allowed. 19. Ground nos. 11 to 16 raised by the assessee pertains to the payment of royalty/branding fee. The facts are that the assessee had paid royalty of Rs. 1,45,52,584/- for the use of brand name to Credit Lyonnais Securities Asia B.V., the Netherlands (CLSA BV) as per the branding agreement entered into by the assessee with its CLSA BV with effect from 19.02.2002 and subsequently renewed in February, 2005. It is observed that as CLSA BV being a reputed company in brokerage and securities market has permitted the assessee company to use its brand name along with company logos, corporate identity, corporate style, etc. subject to the terms and conditions of the agreement for which the assess....
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....s various group entities in Hong Kong, India, Indonesia, Japan, Korea, Philipenes, Shanghai (China), Shenzhen (China), Singapore, Taiwan and Thailand and except for the assessee company no one else has paid royalty to CLSA BV for use of its brand and neither has the group entities in Australia, Malaysia, New Zealand, Pakistan and Sri Lanka has paid any royalty. The ld. TPO held that the comparable uncontrolled transaction method is the most appropriate method to determine the ALP of the said transaction and that the TNMM method of comparing net profit margin of the company at entity level does not hold good in the present case. The ld. A.O./TPO made an upward adjustment of Rs. 1,45,52,584/- to be the ALP of the international transaction pertaining to the payment of the brand fee by using the comparable uncontrolled price method to be the most appropriate method. 21. The ld. CIT(A) in an appeal preferred by the assessee against the said order confirmed the adjustment made by the TPO/AO. 22. Before us, the ld. AR for the assessee contended that this issue was covered by the Tribunal's order in assessee's case for A.Y. 2002-03, 2003-04, 2004-05 where the Tribunal has upheld the TNMM....
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.... the assessee's business. The breakup of reimbursement of expenses is tabulated hereunder for ease of reference: For the period from April 1 2004 to March 31 2005 (Amount in USD'000s) Allocation key London office New York Office Total 1 Sales staff expenses Actual 489 535 1024 2 Travel & Entertainment Allocated per headcounts 40 118 158 3 Office premises cost Actual 21 117 38 4 Telecommunications Actual 7 13 20 5 Professional fee Actual 0 15 15 6 Depreciation Actual 0 1 1 7 Market Data Services Actual 15 17 32 8 IT Services Actual 0 3 3 9 Courier, postage & exchange fee Actual 0 2 2 10 Clearing & postage exchange fee Actual 1 1 2 11 Other expenditure Actual 1 0 1 12 Allocated costs from CL offices Allocated per headcounts 49 159 203 Total 618 881 1499 Allocation received in 1NR 6,060,930 24. The above mentioned cost shall be contributed by the assessee towards portion of the overhead expenses incurred in the performance of functions performed by CLSA groups which is to be paid to CLSA BV or to such entity spe....
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....PO/A.O. has merely made an adhoc addition without prescribing to any of the methods as per the provisions of the Act and had thereby deleted the impugned addition. The facts of this ground is identical to that of earlier years where the Tribunal has decided this issue in favour of the assessee with no change in facts and circumstances during the year under consideration. Hence, we deem it fit to direct the ld. A.O. to delete the impugned addition made on account of reimbursement of indirect overhead expenses. Therefore, ground nos. 17 to 22 raised by the assessee is allowed. 28. Ground No. 23 pertains to the addition made on outstanding securities tax Rs. 4,42,545/-. The facts of this ground is that the assessee during the year under consideration had received Rs. 4,42,545/- from October 2004 to March, 2005 as security transaction tax from its clients, which is payable to the stock exchange and the same has been declared as liability in the books as on 31.03.2005. The ld. A.O. observed that the assessee has not paid the STT to the stock exchange neither has it settled to the clients pursuant to a settlement of disputes of levy of STT. The ld. A.O. held the same to be the part of t....
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....ure coming within the ambit of section 43B(a) of the Act. The decisions relied upon by the leaned Sr. Counsel for the assessee also supports this view. Accordingly, we direct the deletion of disallowance made under section 43B(a) of the Act. These grounds are allowed. 30. By respectfully following the above said decision, we hereby allow ground no. 23 raised by the assessee and, therefore, direct the ld. A.O. to delete the disallowance made u/s. 43B(a) of the Act. 31. Ground nos. 24 to 26 raised by the assessee relates to the disallowance of transaction charges and straight through processing (STP) charges u/s. 40(a)(ia) of the Act amounting to Rs. 2,06,75,227/- and Rs. 4,01,314/- respectively for the reason that the assessee has not deducted TDS for the same as per the provisions of section 40(a)(ia) of the Act. The ld. AR for the assessee had relied on the decision of the Hon'ble Apex Court in the case of CIT vs. Kotak Securities Ltd. [2016] 383 ITR 001 (SC) which has been followed by the Tribunal in assessee's case for A.Y. 2006-07, where the said issue had been decided in favour of the assessee that no TDS shall be deducted u/s. 194J of the Act for the transaction charge....
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....avail of to carry out trading in securities in the Stock Exchange. The view taken by the High Court that a member of the Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in secu....