2017 (2) TMI 1537 - HC - Income Tax

TP Adjustments - international transactions in respect of payment of trade mark fee - Selection of MAM - Transactional Net Margin Method (TNMM) OR Comparable Uncontrolled Price Method (CUPM) - HELD THAT - The following question of law arises for consideration in these appeals - Did the Income Tax Appellate Tribunal ( ITAT ) fall into error while deleting the Transfer Pricing Adjustments regarding the international transactions in respect of payment of trade mark fee and in applying the Transactional Net Margin Method (TNMM) instead of Comparable Uncontrolled Price Method (CUPM)? TP Adjustments - AMP Expenditure - This Court notices that AMP Expenditure was not subjected to adjustments although it was a part of the Transfer Pricing Exercise for all previous years. The question of law framed i.e. the payment of trade mark fee and whether it needs to be subjected to adjustments would cover the issue for the year in question given that AMP Expenditure did not result in any adjustments in respect of the same transactions for all previous years. The other questions of law therefore do not arise. List for hearing on 18.04.2017.

Summary

Issues:
1. Exemption application
2. Transfer Pricing Adjustments - Trade mark fee and Transactional Net Margin Method (TNMM) vs. Comparable Uncontrolled Price Method (CUPM)
3. Transfer Pricing Adjustments - Advertisement, Marketing, and Promotion (AMP) Expenditure

Exemption Application:
The High Court allowed the exemption application subject to all just exceptions, leading to the disposal of the applications.

Transfer Pricing Adjustments - Trade mark fee and TNMM vs. CUPM:
The Court considered whether the Income Tax Appellate Tribunal (ITAT) erred in deleting the Transfer Pricing Adjustments related to international transactions concerning the payment of trade mark fee and in choosing to apply the Transactional Net Margin Method (TNMM) over the Comparable Uncontrolled Price Method (CUPM). The Court noted that the ITAT had directed the deletion of Transfer Pricing Adjustments for Advertisement, Marketing, and Promotion (AMP) Expenditure. While the AMP Expenditure was not adjusted, the Court found that the issue of trade mark fee payments needed consideration due to the lack of adjustments in previous years. Consequently, the Court framed the question of law around the trade mark fee payments for the year in question, as it encompassed the unresolved issue of AMP Expenditure adjustments.

Transfer Pricing Adjustments - Advertisement, Marketing, and Promotion (AMP) Expenditure:
The Court observed that the ITAT had directed the deletion of Transfer Pricing Adjustments concerning AMP Expenditure, which had not been adjusted in previous years. As a result, the Court decided that the question of law regarding the trade mark fee payments would cover the issue for the current year, as no adjustments were made for AMP Expenditure in previous years. Therefore, the Court concluded that the other questions of law did not arise, and issued notice for further proceedings, with a hearing scheduled for a specific date.