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TMI Blog2012 (12) TMI 1015X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in upholding/confirming the action of the TPO of arbitrarily equating the marketing support services rendered by the Appellant with the fund management services rendered by Deutsche Asset Management (Asia) Limited. 3. On the facts and in the circumstances of the case and in law, the learned TPO erred and the Hon'ble DRP further erred in upholding/confirming the action of the TPO of using internal controlled transaction to benchmark another controlled transaction entered into by Appellant with its associated enterprise. 4. On the facts and in the circumstances of the case and in law, the learned TPO erred by ignoring, and the Hon'ble DRP further erred in arbitrarily rejecting the Net Cost Plus ('NCP') mark-up computation for 'non-building advisory services' submitted by the Appellant during the course of assessment proceedings based on factually erroneous reasons and without finding any deficiencies in the Profit split methodology (using Revenue as a base) followed by the Appellant. 5. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in rejecting the objection of the Appellant that the TPO has arbitrarily s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP. The facts are that the assessee is an Asset Management Company, promoted by Deutsche Assets Management Asia Ltd. (DAMAL), based in Singapore, having 75% share holding of the Indian Company (instant assessee), to provide non binding advisory services for managing the portfolio of securities of such fund floated by Deutsche India Equity Fund (DWS sub-fund) without any attachment of financial risk. On being referred to the TPO, it was explained by the assessee that (extracted), During the year ended 31 March 2006, the assessee has rendered following services to associated enterprises. The description of services along with the compensation received by the assessee is mentioned below Sr. Name of Associated Nature of Compensation for no. Enterprises Transaction the services of the assessee 1 Deutsche Asset Provision of non One-half of the total Management (Asia) binding advisory fees received by Limited services DAMAL for DWS Premier Investments Funds ('DWS') 2 Deutsche Bank AG Provision of One-third of the total Frankfurt (DB Frankfurt) marketing support fees received by DB services Frankfurt from Reserve Bank of India ('RBI') The associated enterprise acts as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spectus issued by the Deutsche India Equity Fund Annexure-I. Further it is also pertinent to note that the associated enterprise has about 65 employees in its pay roll. Thus from the above, it is evident that the associated enterprise acts as fund manager and assists the fund in serving clients across the globe and to develop new products to meet client's investment needs. Functions performed by the assessee We reiterate our submission made vide submission letter dated 7 October 2009 that the assessee has been appointed by the associated enterprise to provide non-binding advisory services. The functions performed by the assessee are mentioned below: Provide research reports and recommendations to DAMAL on various securities in portfolio; Review securities and their performance comprising the portfolio, provide commentary on stocks/securities in the portfolio Provide DAMAL with investment advice or recommendation in connection with the investment of the fund and assets comprising to portfolio; Assists DAMAL in preparation of the minutes of meetings; Provide update on economy, market outlook, market review, investment strategies and opportunities to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. It is pertinent to note that the assessee does not undertake any form of financial risk as it merely renders non binding advices and the associated enterprise has the complete discretion to act/ not to act upon the investment advice provided by the assessee. Please find below the few sample advices provided by the assessee which were rejected by associated enterprise for your reference as annexure 1. Further, the assessee has earned the mark-up of 385.30 per cent mark-up from provision of the non binding advisory services. The computation of the same is tabulated below: Particulars Amount Revenue 24,588,000 Total Operating Income 24,588,000 EXPENDITURE Employee costs 1,103,201 Operating Costs 2,874,434 Overhead 1,070,955 Depreciation 18,000 Total Operating Expenditure 5,066,590 Net Operating Profit 19,521,410 NCP % 385.30 However in case of non-binding advisory services, the associ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and AE perform similar functions in the marketing support service and advisory related transactions respectively. It is noted that in both the cases the services are advisory in nature. Advisory services are always non-binding. It is upto the other party whether to accept and act on it or not. The assessee by simply labeling the advisory services as 'nonbinding' tried to differentiate between both the services, which is not acceptable. The functions discharged in both the cases are related to investment, and advice is given with reference to investment. Hence, the contention of the assessee is rejected and the rep retained by Deutsche Asset Management (Asia) Limited is reduced from 50% to 1/3rd of fees in line with the arrangement entered by assessee with Deutsche Bank AG Frankfurt for marketing support service related transaction. Thus an adjustment is made to the total income of the assessee. The computation of adjustment is as follows: Particulars Amount Advisory Fees received by the assessee being 50 per cent of the total fees A 24,587,944 Advisory Fees received by the AE of the assessee being 50 per cent of the total fees B 24,587,944 Total Fees C=A+B 49,175 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also pertinent to note that the Company has not employed employee specifically to perform such coordination services. Moreover, the assessee employs only routine tangible assets required to perform marketing support services . He further referred to the agreement THIS AGREEMENT is made on 19 November 2004 BETWEEN (1) Deutsche Asset Management (Asia) Limited of 20 Raffles Place, #27- 01 Ocean Towers. Singapore 048620 (the Investment Manager); and (2) Deutsche Asset Management (India) Pvt. Ltd. of FIoor Ground, Hazarimal Somani Marg Fort, Mumbai. India (the 'investment Adviser ) WHEREAS (A) The Investment Manager has been appointed as discretionary investment manager of the portfolios of Deutsche India Equity Fund ( DIEF ), an Singapore authorised unit trust established under the umbrella, Deutsche Premier Investments Funds; and (B) The Investment Manager requires the services of a specialist investment adviser to help it in the management of part or all of DIEF's portfolio and accordingly, the Investment Manager wishes to delegate to the Investment Adviser the performance of certain of its powers arid duties in relation to DIEF Investment Advice an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther hand referred to the Form 3CEB Report under Rule 10E and pointed out that the assessee had actually not adopted any method for benchmarking the ALP, whereas, the TPO had justifiably adopted controlled internal comparable to benchmark the ALP to arrive at the TP adjustment. He also pointed out that the assessee has also not shown any basis for mark up. The DR, therefore, submitted that both the authorities had fairly treated the assessee. 12. At the moment, we are concerned with only two international transactions entered into by the assessee company out of other transactions, i.e. the marketing fee and advisory fee received by the assessee, on which the addition has been made. On hearing the arguments of either side, and on perusal of the submissions and the agreements entered into by the assessee and taking into account distinction drawn by the assessee/AR, between the services rendered by DAMAL and the assessee to its principal, made by the assessee before the revenue authorities and now, before us, we are convinced that fee received by the assessee for providing marketing and advisory services cannot be equated with the services of an investment manager. Hence, the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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