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TMI Blog2014 (11) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions is the same as it would have been, under similar circumstances and considering all the relevant factors, for an uncontrolled transaction, the price so paid can be said to be arm s length price. Rule 10BA as also the corresponding enabling rule 10B(1)(f) are inserted by the Income Tax (Sixth Amendment) Rules 2012 and are specifically stated to be effective from 1st April 2012, i.e. assessment year 2012-13 onwards - when a legislation confers a benefit on the taxpayer by relaxing the rigour of pre-amendment law, and when such a benefit appears to have been the objective pursued by the legislature, it would a purposive interpretation giving it a retrospective effect but when a tax legislation imposes a liability or a burden, the effect of such a legislative provision can only be prospective - the operation of rule 10BA, which confers the benefit of an additional method of ascertaining arm s length price and, inter alia, relaxes the rigour of CUP method, can only be retrospective in effect - Rule 10BA is to be held as effective from 1st April 2002, i.e. the time when transfer pricing provisions were introduced in India - the assessee s contention to the effect that the arm s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . While the assessee is pleading for acceptance of former as a valid comparable under the CUP, the authorities below are of the considered view that availability of precise amount having been charged for precisely the same service is a sine qua non for application of CUP method. As this data, about exactly the same amount having been charged for exactly the same service in the uncontrolled transactions, has not been furnished by the assessee, the TPO has held that it is not a fit case for application of CUP and, accordingly, the TNMM, which is usually referred to as method of last resort for computation of arm s length price, has been put in service resulting in impugned ALP adjustment of ₹ 2,09,00,179. 6. Undoubtedly, CUP method is the most direct method, unaffected by all extraneous factors, of ascertaining arm s length price of a transaction, and it finds mention in the transfer pricing literature as such. That s the reason wherever it is practical to ascertain arm s length price under this method, all other methods of ascertaining arm s length price relegate into irrelevance. There cannot be, and there is no, dispute on this proposition in principle. The controversy, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CUP analysis in transfer pricing. 10. This issue is no longer res integra. There are at least two reported decisions by very distinguished coordinate benches of this Tribunal dealing with, albeit somewhat indirectly, with this proposition, and both of these benches have upheld application of CUP method in such a situation. 11. In the case of ACIT Vs Agility Logistics Pvt Ltd (136 ITD 46), which was quite a path breaking decision in its impact, perhaps this issue came up for the first time before the Tribunal. That was a case in which the assessee was engaged in the business of international freight forwarding by air and sea, logistic activities and customs clearance and it was a corporate policy of the AEs all over the world that after payments of the costs, the profits were shared between the AEs that have participated in the transaction . In brief, the case of the assessee was that in this peculiar line of business activity, it was a common practice, with associated enterprises as also independent enterprises, that the profits from a transaction, after meeting the direct costs, were shared equally between the parties involved in a transaction. It was thus contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) by concluding that we do not find any infirmity in the CUP method (50:50 module) adopted by the assessee . By implication, thus, the coordinate bench upheld the application of CUP method by a comparing a pricing formulae, rather than the pricing quantification in amount- as was considered sine qua non by the TPO. 12. In the case of ACIT Vs DHL Danzas Lemuir Pvt Ltd [TS-752-ITAT-Mum (2012) TP], once again a similar issue came up before another coordinate bench. In this case also, the assessee was engaged in the business as a logistic service provider offering, inter alia, a comprehensive portfolio of international freight handling services. The modus operendi adopted by the assessee was to enter into contract with third parties for lifting their cargo from source to destination abroad and the execution of this job involved lifting of cargo from the place of customers in India, sending it to the Indian port/airport, shipping or airlifting as the case may be to the country of its destination, collecting it from such port/airport of the other country and then supplying it to the destination entity ultimate buyer. In so far as the activities in India are concerned, these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the assessee has earned/paid revenue from/to its AEs in the same proportion, in our considered opinion, the transactions have been recorded at arm s length price and there was no justification for making such addition. We do not see any reason to interfere with the impugned order. 7. The learned counsel for the assessee has placed on record copies of the orders passed by the Tribunal in the case of ACIT vs. M/s Agility Logistics Pvt. Ltd. for assessment years 2004-05 to 2006-07. In these two separate orders, the facts are almost similar whereby various agency agreements were entered into between the company of origin country and the company of destination country in the business of logistics service provider. The revenues were shared between the two in the ratio of 50:50. The Tribunal has accepted the sharing of profit in the equal proportion at arm s length price. The ld. DR could not distinguish the facts of that case vis-a-vis the case in hand. Respectfully following the precedent, we uphold the order passed by the learned CIT (A). 13. In both of these cases, thus, it was concluded that even in a situation in which the comparables were the formulas on the basis of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of CUP method by stating that (t)he Comparable Uncontrolled Price (CUP) Method compares the price charged for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances . , use the expression price in the comparability element. While normally, the expression price and amount as comparability element do not lead to different connotations, since price is expressed in terms of an amount and, therefore, whether the comparability element is taken as price or as amount , it means the same thing. In other words, connotations of expression price and amount , as a comparator, are materially the same as long as price is stated in terms of an amount and that is the standard practice almost, well almost, universally. 16. There are, however, occasions, as in the case before us, when agreed price of a service rendered to, or received from, an associated enterprise is not stated in terms of an amount but in terms of a formulae which leads to quantification in amount. 17. On a conceptual note, it is not really essential that price of a commodity or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ependent enterprises, is on the same terms and as per the same business model, which is admittedly unique to that line of business, but, owing to the limitations of the methods prescribed under rule 10B(1)(a) to (e), as the prescribed methods of determining the arm s length price existed at the relevant point of time, there are certain, what can at best be described as, unresolved procedural issues. 20. Let us not forget the fundamental fact that transfer pricing, by itself, is not, and should not be viewed as, a source of revenue; it is an anti-abuse measure in character and all it does is to ensure that the transactions are not so artificially priced, with the benefit of inter se relationship between associated enterprises, so as to deprive a tax jurisdiction of its due share of taxes. Our transfer pricing legislation as also transfer pricing jurisprudence duly recognize this fundamental fact and ensure that such pedantic and unresolved procedural issues, as have arisen in this case due to limitations of the prescribed methods of ascertaining arm s length price, are not allowed to come in the way of substantive justice, particularly when it is beyond reasonable doubt that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following additional method: any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated (i.e. independent) enterprises, under similar circumstances considering all the relevant facts . 24. Very significantly, the above method, which is only method prescribed under any other method under section 92C(1)(f) read with rule 10B(1)(f) , is not a residual method in the sense that it is not a condition precedent for the application of this method that all other methods, i.e. methods set out in section 92C (1)(a)to 92C(1)(e) and as elaborated under rule 10B(1)(a) to (e), must fail and only then this method can be applied. This method is at par with all other methods of determining the arm s length price, as set out in sections 92C(1)(a) to (f), and, in terms of Section 92C(2), the most appropriate method, referred to in Section 92C(1), shall be applied, for determination of arm s length price, in the manner prescribed . Therefore, as long as the method covered by rule 10AB, which is duly covered by Section 92C(1) satisfies the test of being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been, hypothetically speaking, paid if the same transaction was entered into with an independent enterprise. This hypothetical price may not only cover bonafide quotations, but it also takes it beyond any doubt or controversy that where pricing mechanism for associated enterprise and independent enterprise is the same, the price charged to the associated enterprises will be treated as an arm s length price. In this view of the matter, the business model said to have been adopted by the assessee, in principle, meets the test of arm s length price determination under rule 10BA as well. 26. No doubt, rule 10BA as also the corresponding enabling rule 10B(1)(f) are inserted by the Income Tax (Sixth Amendment) Rules 2012 and are specifically stated to be effective from 1st April 2012, i.e. assessment year 2012-13 onwards. However, in Hon ble Supreme Court s five judge constitutional bench s landmark judgment, in the case of CIT Vs Vatika Townships Pvt Ltd (2014 TIOL 78 SC), the legal position in this regard has been very succinctly summed up by observing that (i)f a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k done by the coordinate benches but also because of our analysis elsewhere in the order and the subsequent developments, in jurisprudence as also in legislative field, supporting the conclusions arrived at by the coordinate benches. The business model of 50:50, as was admittedly prevalent in the line of business activity of the assessee and as is followed by the assessee, thus indeed satisfies the test for determination of arm s length price. 29. For the reasons set out above, as also respectfully following the esteemed views of the coordinate benches, we uphold the grievance of the assessee. We hold that the assessee s contention to the effect that the arm s length price of services rendered to, or received from, the associated enterprises, which was computed on the basis of the same 50:50 model as is the industry norm and as has been employed by the assessee for computing similar services to the independent enterprises, was at arm s length. Accordingly, the impugned arm s length price adjustment of ₹ 2,09,00,179 stands deleted. 4. We see reasons to take any other view of the matter than the view so taken by us in assessee s own case for the immediately preceding asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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