2011 (11) TMI 661 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 33.82 crore, being 40% of the license fee paid by the assessee to its parent company.
2. Examination of the arm's length price of the payment made for the use of the brand name "Nestle."
3. Applicability of the provisions of Section 40A(2)(b), Section 92 of the Income Tax Act, and Article 9 of the Double Taxation Avoidance Agreement (DTAA).
4. Relevance of RBI approvals in determining the reasonableness and genuineness of the expenses/payments.
5. Impact of prior Tribunal and High Court decisions on the current case.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 33.82 Crore:
The revenue's substantive ground was the deletion of Rs. 33.82 crore, being 40% of the license fee paid by the assessee to its parent company. The Tribunal noted that this issue had been previously covered by various orders in the assessee's own case for assessment years 1997-98 to 2005-06. The Tribunal followed the precedent set in these cases, concluding that the deletion was justified.

2. Examination of Arm's Length Price:
The brand name "Nestle" belonged to a foreign associated company, and the assessee paid a license fee computed at 1% of sales. The revenue argued that heavy advertisement expenses incurred by the assessee promoted the brand name, benefiting the foreign company without reimbursement. The Tribunal considered the decision of the Delhi High Court in Maruti Suzuki India Ltd. vs. Additional CIT, which emphasized the need to ascertain fair market value using comparables. However, the Tribunal found that the Transfer Pricing Officer had already determined the price paid by the assessee to be at arm's length.

3. Applicability of Section 40A(2)(b), Section 92, and Article 9 of DTAA:
The Tribunal referred to previous decisions where it was held that the burden to prove that the payment was excessive or unreasonable rested on the revenue. The assessee had discharged its initial onus, and the revenue failed to provide specific material or evidence to substantiate its claims. The Tribunal also noted that the CBDT's circular clarified that Section 92 does not apply to regular business transactions between a resident and a non-resident.

4. Relevance of RBI Approvals:
The Tribunal considered the argument that RBI approvals for the agreements in question should be given due weight. It was observed that the RBI had granted approvals for each agreement, and this fact was not adequately considered by the revenue authorities. The Tribunal reiterated that the initial burden of proof lay with the assessee, which had been successfully discharged.

5. Impact of Prior Tribunal and High Court Decisions:
The Tribunal reviewed prior decisions in the assessee's case, including those for assessment years 1997-98, 1998-99, 1999-00, 2000-01, 2002-03, 2003-04, 2004-05, and 2005-06. These decisions consistently favored the assessee, concluding that the payments were justified and not excessive. The Delhi High Court had also upheld these decisions, and the Supreme Court dismissed the revenue's Special Leave Petition, reinforcing the Tribunal's stance.

Conclusion:
The Tribunal concluded that the deletion of Rs. 33.82 crore was justified based on the precedent set by earlier decisions. The revenue's arguments, including reliance on the Maruti Suzuki case, did not hold, as the Supreme Court had directed an independent valuation uninfluenced by the High Court's directions. Consequently, the appeal was dismissed, and the deletion of the addition was upheld.