2017 (12) TMI 1773 - AT - Income Tax

Rectification of mistake - TP Adjustment - AMP Expenditure - JV Agreement was not produced - joint venture company i.e. the assessee has been entrusted with the responsibility to market the goods in India and which is contrary to the findings of the Hon ble ITAT that obligation to incur the expenditure has been presumed to exist only on the basis of the quantum of expenditure - HELD THAT - Basis for allowing the appeal by the I.T.A.T. and basis for holding that the AMP spend by the assessee was not an international transaction in the first place was on account of the fact that the Revenue had failed to point out the existence of any arrangement or agreement between the assessee and its associated enterprise reflecting the entrustment of the liability/responsibility to carry out brand promotion expenses on behalf of the parent AE by the assessee. The clauses now referred to by the Revenue in support of its contention that they reflect the entrustment of the responsibility of carrying out brand promotion to the assessee by AE we find are of no relevance. Clause No.21 of the JV referred to by the Revenue only states that the assessee company would market the licensed products which are manufactured in India. This is just a normal sales promotion responsibility for the goods manufactured by the assessee entrusted to the assessee. It cannot by any stretch of logic be read to mean that the expenses for promoting the brand of AE was entrusted to the assessee. Similarly the trade mark agreement at clause 22 of the Joint Venture agreement referred to by the Revenue in its Miscellaneous Application merely states that the trade mark name and logo of Widex is the exclusive property of the parent AE and separate agreement would be executed between the parties to ensure that it remains so in future also. We fail to understand how this throws any light on the entrustment of the responsibility to carry out brand promotion on behalf of the AE by the assessee nor has the same been clarified before us - no error in the order of the I.T.A.T. - Decided against Revenue.

Summary

Issues:
Rectification of order based on application of High Court decision to the facts of the case, Treatment of Advertising, Marketing and Promotion (AMP) expenses as international transaction, Existence of an arrangement or agreement between associated enterprises, Interpretation of joint venture agreement clauses regarding brand promotion responsibilities.

Rectification of Order:
The Revenue filed a Miscellaneous Application seeking rectification of the Tribunal's order, claiming that the High Court decision applied in the case was not squarely applicable to the facts. The Tribunal's order related to the assessment year 2011-12 and involved the treatment of AMP expenses as an international transaction under section 92 of the Income Tax Act.

Treatment of AMP Expenses:
The Assessing Officer considered the AMP expenses incurred by the assessee as promoting the brand for the associated enterprise, leading to an addition to the assessee's income. The Dispute Resolution Panel reduced the addition, but the assessee appealed, arguing that the AMP spend was not an international transaction and the ALP determination was incorrect. The Tribunal, citing the decision of the Delhi High Court, emphasized that an international transaction must be based on an agreement obliging one party to spend on AMP for the benefit of the other. As such an arrangement was not found in the present case, the addition was deleted.

Existence of Arrangement or Agreement:
The Tribunal found that the agreement between the parties did not reflect any obligation on the assessee to undertake brand promotion expenses on behalf of the associated enterprise. The Revenue contended otherwise, referring to clauses in the joint venture agreement. However, the Tribunal concluded that these clauses did not demonstrate the entrustment of brand promotion responsibility to the assessee, as they primarily related to marketing the licensed products and the ownership of the trade mark name and logo.

Interpretation of Joint Venture Agreement Clauses:
The Tribunal rejected the Revenue's argument based on specific clauses in the joint venture agreement, stating that these clauses did not establish the obligation for the assessee to carry out brand promotion expenses for the associated enterprise. The Tribunal highlighted that the clauses referred to normal sales promotion responsibilities and the ownership of the trade mark name and logo, which did not indicate the entrustment of brand promotion responsibilities.

In conclusion, the Tribunal dismissed the Revenue's Miscellaneous Application, holding that the clauses in the joint venture agreement did not support the Revenue's contention of entrustment of brand promotion responsibilities to the assessee. The Tribunal maintained that there was no error in its original order, and therefore, the application was dismissed.