2021 (8) TMI 1359 - AT - Income Tax

TP adjustment on brand royalty computed by authorities below - HELD THAT - As per the aforesaid provisions, consideration for transfer of rights (including granting of a licence) in respect of a trade mark or similar property or for use of a trademark or transfer of rights (including granting of a licence) in respect of any copyright, literary, artistic or scientific work, falls under the definition of Royalty under the IT Act. The revenue has not been able to produce any agreement to establish the payment of royalty by the associated enterprises to assessee. It is also not been established that by the use of brand Sasken the subsidiary associated enterprises were able to get premium price which could be ultimately translate into profits to pay royalty. Admittedly, in the present facts of the case, assessee has registered the trademark at all the jurisdiction where the subsidiaries are located. It is also not brought on record that assessee has incurred any expenditure or contributed any money for establishment of its name in the geographical areas that benefited the associated enterprises. Based on the above, we cannot uphold 2% royalty computed on the turnover of the AE s by the Ld.AO/TPO. We remand this issue back to the Ld.TPO for fresh consideration - TPO shall carry out necessary verification based on the which it must first be determined whether there is any Royalty that could be attributed. In the event Royalty is to be attributed, proper benchmarking needs to carried out the accordance with section 92CA of the Act, by selecting an authorised method and comparables. We place reliance on BEPS action plan reproduced herein above. Needless to say that proper opportunity of being heard must be granted to assessee. Benchmarking of the international transaction between the assessee and Sasken Inc. - HELD THAT - There is no document to show the risk assumed or that assessee had anything to do beyond mediating between Sasken Inc., and GE Ultrasound Ltd. We note that the observations of authorities below that the contract is coming because of numerous intangibles and that assessee has contributed to the intangibles along with Sasken Inc., is all assumptions in thin air without any basis. On these facts, the Ld.TPO used PSM without there being any discussion about the comparables chosen and whether they were acceptable or not to the assessee. Such action by Ld.TPO cannot be approved as it is not in accordance with the Rule 10(1)(d) of Income-tax Rules. We therefore remand this issue back to the Ld.AO/TPO for carrying out the benchmarking of the international transaction between the assessee and Sasken Inc., in accordance with law to determine if the price changed by assessee to be a facilitator is at arms length. Disallowance of deduction u/s 10 AA - We direct the Ld. AO to compute deduction under section 10 AA of the act in accordance with the ratio laid down by Hon ble Supreme Court in case of Yokogawa India Ltd. 2016 (12) TMI 881 - SUPREME COURT Disallowances made u/s 14A and MAT credit not granted in respect of taxes paid outside India under section 90/90A - HELD THAT - AO has not considered the submissions of assessee before computing the disallowance in the hands of assessee on these issues alleged. Accordingly we deem it fit and proper to remand this issue back to the AO. AO is directed to verify all the details filed by assessee and to consider the claim in accordance with law.

Summary

Issues Involved:
1. Transfer Pricing Adjustment on Brand Royalty
2. Transfer Pricing Adjustment on Invoicing and Collection Services
3. Computation of Deduction under Section 10AA
4. Disallowance of Expenses under Section 14A
5. Credit for Taxes Paid Outside India under Section 90/90A and MAT Credit

Detailed Analysis:

1. Transfer Pricing Adjustment on Brand Royalty:
The lower authorities made a transfer pricing adjustment of Rs. 1,94,30,176 under section 92CA for the royalty on the alleged usage of the brand 'SASKEN' by the AEs. The authorities concluded that the subsidiaries used the 'SASKEN' brand without paying royalty, which was determined at 2% of the total turnover of the subsidiaries. The assessee argued that the subsidiaries did not derive any financial benefit from using the brand and that the transfer pricing regulations do not mandate royalty payments for mere group membership. The Tribunal found that the TPO did not provide evidence of a licensor-licensee relationship or any transfer of assets or technology that would justify the royalty. The Tribunal remanded the issue back to the TPO for fresh consideration, directing verification of agreements and the impact of the brand usage on the subsidiaries' profits.

2. Transfer Pricing Adjustment on Invoicing and Collection Services:
The lower authorities made a TP adjustment of Rs. 9,92,815 for invoicing and collection services provided by the assessee to its AE, Sasken Inc. The TPO applied the Profit Split Method (PSM), giving weightage of 3:1 to Sasken Inc. and the assessee, and concluded that 25% of the revenue should be retained by the assessee. The Tribunal found that the TPO's assumptions were not based on any substantial evidence and that the PSM was applied without proper benchmarking. The Tribunal remanded the issue back to the AO/TPO for proper benchmarking and determination of the arm's length price.

3. Computation of Deduction under Section 10AA:
The lower authorities calculated the deduction under section 10AA on a combined basis for all eligible units and excluded certain expenses from the export turnover. The Tribunal referred to the Supreme Court's decision in Yokogawa India Ltd., which held that the deduction should be computed independently for each eligible undertaking. The Tribunal directed the AO to compute the deduction in accordance with this decision.

4. Disallowance of Expenses under Section 14A:
The lower authorities made a disallowance under section 14A amounting to Rs. 15,93,573 by invoking rule 8D(2)(iii) without demonstrating how the assessee's claim was incorrect. The Tribunal noted that the AO did not consider the assessee's submissions and remanded the issue back to the AO for verification and proper consideration.

5. Credit for Taxes Paid Outside India under Section 90/90A and MAT Credit:
The lower authorities did not give credit for taxes paid outside India amounting to Rs. 1,69,72,434 while computing the tax payable by the assessee and did not give full credit of TDS claimed in the return of income. The Tribunal remanded the issue back to the AO for verification and proper consideration of the assessee's claims.

Conclusion:
The Tribunal allowed the grounds raised by the assessee for statistical purposes and remanded the issues back to the lower authorities for fresh consideration and proper verification in accordance with the law. The Tribunal emphasized the need for proper benchmarking, verification of agreements, and adherence to judicial precedents in computing deductions and disallowances.