9911796707
TMI Blog2011 (12) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... . BANSAL, K.D. RANJAN, JJ. ORDER 1. This appeal by the assessee for assessment year 2002-03 arises out of order of the ld. CIT (Appeals)-XX, New Delhi. 2. The grounds of appeal raised by the assessee are reproduced as under:- "1. That on facts and in law the ld. Commissioner of Income Tax (Appeals) [CIT(A)] erred in upholding the adjustment of Rs. 1,55,52,470.00 in determining the alleged arms length price for alleged services support on account of advertising expenses incurred by the appellant on its own behalf; 2. Without prejudice to the above on facts, the adjustment upheld is incorrect in law in as much as :- (a) The statements that the franchises have not incurred the marketing spend (advertisement expenditure) is an incorrect premise; (b) The ld. CIT (A) has erred in ignoring the submission that the Appellant/franchisees had met the obligation of incurring the required 5 per cent of gross sales as advertising expenses; and (c) Reasonably accurate adjustment to eliminate the difference between the uncontrolled transactions and controlled transactions though available has been denied on incorrect position of its not having been quantified before TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into a Master License Agreement [MLA] with McDonalds [MDC] under which it acquired a non-exclusive right, license and privilege to adopt and use the McDonald system in restaurants in India. Under the agreement, in consideration of such license the assessee was required to pay to McDonalds [MDC] a royalty equal to 5 per cent of the gross sales, and an initial franchise fee at the rate of US $ 45,000 for each new restaurant opened during the year. Under the terms of Master License Agreement, McDonalds [MDC] was obliged to provide certain know-how and business processes and to render certain services in order to introduce McDonalds systems in India. 4. During the year under consideration, the assessing officer from 3 CEB report identified three international transactions, detailed as below :- S.No. International transaction Method Total value of transaction [Rs.] 1. Payment of royalty to CUP Rs. 4,20,81,501 McDonalds Corporation, US ["MDC] 2. Franchisee fee payable to MDC. CUP Could not be remitted due to RBI approval. 3. Consulting services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd gone through the material available on record. Under section 92-CA(1) where any person being the assessee has entered into an international transaction in any previous year, and the assessing officer considers it necessary or expedient to do so, he may, with the previous approval of the Commissioner refer the computation of arm's length price in relation to the said international transaction under section 92-C to the Transfer Pricing Officer. Under Section 92CA(2) where a reference is made under sub section (1) of section 92CA, the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of computation made by him of the arm's length price in relation to international transactions referred to in sub-section (1). On plain reading of provisions of sub section (1) and sub section (2) of section 92CA it is clear that the TPO has to compute the arms length price in relation to the international transactions referred to him by the assessing officer. Sub section (2A) to section 92-CA was inserted by Finance Act, 2011 with effect from 1/6/2011, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of sub section (2A) of section 92CA can have prospective effect from 1/6/2011. Hon'ble Delhi High Court while deciding the issue in favour of the assessee has held as under:- " 24. We do not agree with the submission made by the learned counsel for the revenue that when a reference is made by an Assessing Officer to the Transfer Pricing Officer, the reference includes the entire gamut of transactions between the assessee and its associated enterprise. The assessing officer is the person who has been entrusted with the duty to determine as to whether a transaction is an international transaction or not. Then, if it is an international transaction of the nature specified in Section 92-B of the said Act, the Assessing Officer has to determine the income of the assessee having regard to the arm's length price by following the method prescribed in Section 92-C. If, for some reason, the Assessing Officer feels that it is necessary or expedient so to do, he may refer the computation of the arm's length price of specific international transactions, after obtaining the prior approval of the Commissioner of Income Tax, to the Transfer Pricing Officer. It is quite possible that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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