2024 (7) TMI 1567 - HC - Income Tax

TP Adjustment - international transaction obtaining with respect to AMP expenses - Application of BLT - HELD THAT - Tribunal adverted to the decisions rendered in Sony Ericsson Mobile Communications India (P) Ltd. 2015 (3) TMI 580 - DELHI HIGH COURT and Maruti Suzuki India Ltd. 2015 (12) TMI 634 - DELHI HIGH COURT Concededly coordinate benches have ruled that BLT has no statutory mandate . We are told that the appellant/revenue has preferred appeals with the Supreme Court these two cases above. This view has also been followed in Bausch Lomb Eyecare (India) (P.) Ltd. 2015 (12) TMI 1332 - DELHI HIGH COURT and Sharp Business Systems (India) (P.) Ltd. 2022 (8) TMI 1539 - DELHI HIGH COURT We may also note that argument is that the TPO has failed to establish that there was an international transaction obtaining with respect to AMP expenses with a view to build the brand of the AE with the object that AE could achieve sales in other territories. Needless to state this submission has been made by Assessee on the merits of the appeal. Insofar as the position in law is concerned i.e. concerning the application of BLT concededly insofar as this court is concerned it stands concluded via the decisions referred to hereinabove albeit against the appellant/revenue and in favour of the respondent/assessee. No substantial question of law arises for our consideration. If the appellant/revenue were to succeed in the appeals pending in the matters concerning Sony Ericsson Mobile Communications India (P) Ltd. and Maruti Suzuki India Ltd. it would have leave to approach the court for reopening the appeal as per law.

Summary

Issues:
1. Whether Advertising, Marketing, and Promotion (AMP) Expenses can be considered an international transaction?
2. Application of Bright Line Test (BLT) in Transfer Pricing Assessment.
3. Precedents regarding BLT and AMP expenses.
4. Existence of international transaction for AMP expenses in trademark licensing and royalty agreements.
5. Conclusion on substantial question of law and potential for appeal reopening.

Analysis:
The central issue in this appeal is whether AMP Expenses can be deemed as an international transaction. The Tribunal disagreed with the Transfer Pricing Officer's (TPO) application of the Bright Line Test (BLT) and relied on its decision from a previous assessment year. The appellant sought clarification on any appeal filed for the previous year's decision. The appellant referenced the Tribunal's decision for the previous year, highlighting the Tribunal's reliance on precedents such as Pepsico India Holdings (P) Ltd. v. ACIT, Sony Ericsson Mobile Communications India (P) Ltd. v. Commissioner of Income-tax-III, and Maruti Suzuki India Ltd. v. Commissioner of Income-tax.

The coordinate benches ruled that BLT does not have a statutory mandate, as observed in Sony Ericsson Mobile Communications India (P) Ltd. The Division Bench and another coordinate bench also followed this view in subsequent cases. The appellant indicated appeals filed with the Supreme Court regarding these decisions. The respondent argued that there was no evidence of an international transaction for AMP expenses in the trademark licensing and royalty agreements, emphasizing the lack of an arrangement to spend on AMP to build the brand of the Associated Enterprise (AE) for sales in other territories.

Regarding the application of BLT, the court noted that the issue has been settled in previous decisions against the appellant and in favor of the respondent. Consequently, no substantial question of law arose for consideration. However, the court allowed the appellant to seek reopening of the appeal if successful in the pending appeals related to Sony Ericsson Mobile Communications India (P) Ltd. and Maruti Suzuki India Ltd. The respondent expressed no objection to this course of action. The appeal was closed with instructions for parties to act based on the digitally signed copy of the order.