9911796707
TMI Blog2016 (5) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... The CIT(A) has erred in observing that payments made as sanction fee to ATP are directly related to use of ATP logo and therefore, partakes the character of royalty under domestic law as well under the provisions of India-US treaty and accordingly, chargeable to tax and subject to withholding tax u/s 195 of the Act. * The CIT (A) has erred in not relying on the findings of the CIT (A) in the Assessment Years 2005-06 and 2006-07, where the issue has been decided in favour of the Appellant. 2. Addition on account of mark-up to be recovered by the appellant on reimbursement of expenses received from Associated Enterprises (AE) and re-computation of arms length price (ALP) on account of provision for services of Rs. 9,42,641/- and Rs. 49,812/- respectively. Adjustment to net profit margin based on cost (NCP margin): On the facts and circumstances of the case and in law: (a) The CIT(A) has erred in observing that the Appellant has provided logistic services to its AE's and held that services provided by the Appellant to its AEs do require arm's length mark-up on its cost base. (b) The CIT (A) has also erred in holding that the payments made by AE's to the Appellant do not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement entered into between India and USA (India-US Treaty). In India, IMC is operating through a Branch Office set up after obtaining approval of Reserve Bank of India and hence, assessed as a foreign company. The assessee company represents athletes, performing artists, writers, fashion models, broadcasters, leading corporation world-class events cultural institutions and recreational resorts. The production centers are located in New York, London, Hong Kong, Sydney and New Delhi. It is the largest independent producer package and distributor of sports programming in the world. International Merchandising Corporation, Inc. USA (IMC Inc., USA) is a part of the IMG Group. IMG commenced operations in India by establishing a branch office of IMC Inc. The Indian Branch is engaged in the following activities: i. Activities relating to sports and arts and to represent local sport bodies associations and individuals for exploitation of commercial rights; and ii. Sale of television right and production of television programmes provided that the branch office does not undertake any broadcasting from Indian soil. 4. During the year under consideration, the Assessee was primarily eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on account of "arm's length price", the CIT(A) held that the provision of section 92C(2) state that if difference between arm's length price and transfer price does not exceed 5% of arm's length price, then no TP adjustment should be made. The CIT(A) further held that where such difference exceeds 5%, then entire difference has been added to the Income without giving any sort of standard deduction out of it and has to be treated as TP adjustment. Thus the CIT(A) decided this issue against the assessee. Now the assessee is in appeal. 9. The Ld. AR submitted the payment of Rs. 1,922,663/- was made to Association of Tennis Professionals, USA (ATP)during the year under consideration, the Assessee had organized a Men's Professional Tennis Championship in India ('Chennai Open'/'tournament'). For organizing the tournament, the Assessee had obtained the sanctions/approvals from ATP (which is the governing body of worldwide Men's Professional Tennis) to recognize the event as an ATP's event, and thus, this event was recognized as an official ATP Men's International Series Tennis Championship. Such payments have been grouped under the head 'sanction and rights' in the profit and lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Pte Ltd. 52,267 9 IMG Overseas, Hong Kong 283,233 10 IMG of America Pty Ltd. 7,466,794 11 International Merchandising Corp. Amount received by 509,119 12 Trans World International UK Ltd. Branch on behalf of AE 738,586 Total 11,818,633 Details of amount received from the group companies S. No. Name of AE Description Amount (in Rs) 1 Trans World International Inc Reimbursement of expenses incurred by branch 318,666 2 IMG UK Ltd. 3,894,301 3 Trans World International UK Ltd. 1,099,280 4 IMG Hong Kong 2,267,000 5 IMG Singapore Pte Ltd. 108,871 6 IMG Overseas, Hong Kong 90,381 7 IMGO Malaysia 164,674 8 IMG Sports Development (Shanghai) Ltd. 183,041 (A) Total Amount of Reimbursement of Expenses 8,126,215 9 International Merchandising Corp. Income received by AEs on behalf of branch 1,197,536 10 IMG Hong Kong 1,129,814 11 Trans World International UK Ltd. 67,996 (B) Total amount of Income received by AEs and then paid back to Appellant. 2,395,347 Total (A+B) 10,521,562 11. The Ld. AR submitted that the A.O in the assessment order treated the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... administratively facilitating payments to Indian third party petite vendors, there is no intent of the Assessee to render any services to AEs, therefore, the cost reimbursements do not require arm's length mark-up on the cost base. It was also submitted that similar costs paid by group companies on reciprocal basis are reimbursed by the Assessee without any mark-up, such types of reimbursements on reciprocal basis are only due to administrative convenience and cannot be equated to rendering of services requiring bench marking for mark-up. It was contended that the perusal of expenses demonstrates that the expenses reimbursed included travel/accommodation and other miscellaneous third party expenses incurred by the Assessee on behalf of AEs, these expenses represents third party expenditure paid by the Assessee on behalf of AEs merely for administrative convenience and do not involve any services rendered by the Assessee. Thus, from an arm's length perspective, these expenses should be permitted to be 'pass through expenses' which should be reimbursed only on cost to cost basis. 13. As regards to re-determination of arm's length price margin for Income from production and Event Man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual NCP mark-up earned i.e. 9.55%, by the Assessee falls within the range of 6.02% to 17.18. Thus, in light of proviso to section 92C(2) of the Act, the erroneous upward adjustment as made by the CIT(A), was not called for. In support of the above contention the Ld. A.R furnished the following calculations:- Computation of +/-5% Range as per proviso to Section 92C(2) of the Income Tax Particulars IMC India At Arm's length price as per CIT(A) Minus 5% Plus 5% A E Revenue 2,661,894 2,711,706 2,576,121 2,847,291 Non-A E Revenue 188,552,451 Operating Revenue 191,214,345 2,711,706 2,576,121 2,847,291 Operating Expense 174,545,272 2,429,844 2,429,844 2,429,844 Operating Profit 16,669,073 281,862 146,277 417,447 NCP(%) 0.55 11.60 6.02 17.18 16. The Ld. AR submitted that the assessee is a foreign based company's branch and the main company is situated in USA. The AR submitted that Ground No. 1 is covered against the assessee in assessee's own case for the subsequent assessment years. The AR submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 2, the reimbursement costs has to be excluded as the same do not involve any functions to be performed so as to consider it for profitability purposes. Thus we direct AO/TPO to exclude reimbursement costs while working out the operating costs. Besides the said issue is decided in case of M/s. HSBC Electronic Data Processing India Ltd. Vs. Addl. CIT [ITA No. 1624/HYD/2010 decision dated 28.06.2013 Hyd. (Tri.)] in favour of the assessee and the facts of the assessee's case are similar to that of HSBC Electronic Data Processing India Ltd. (Supra). Hence, Ground No. 2 of the assessee's appeal is allowed. 21. As relates to Ground No. 3, the directions given in case of ACIT vs. M/s. Citi Financial Consumer Finance India Ltd. [ITA No. 2848/DEL/2012 decision dated 17.08.2015 Del. (Tri.)] has to be followed wherein it has been held that if the Arms Length Price comes within the range of +/ - 5% of the range then no addition has to be made. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it appears that the grievance of the department only relates to the exclusion of Mega Soft Ltd. as comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has already taken into account all the aspects in consideration and has rightly rejected the contentions of the assessee at the relevant time related to the expenses and allowance of sanctions. As regards to Ground No.3, the Ld. DR submitted that the personal expenses were rightly rejected by the Assessing Officer. 25. As regards to Ground No. 1, the Ld. AR submitted that the A.O in the assessment order has excluded Concept Marketing & Advertising Ltd from the list of comparables while determining arm's length mark-up in relation to production/event management services provided by the Respondent assessee to its AEs, on the ground that it is a loss making company. However, the CIT(A) accepted the submission of the Respondent assessee that this comprabale company is not a consistent loss making company and has positive net worth and hence cannot be excluded. The Department is in appeal against the aforesaid decision of the CIT(A). The Ld. AR submitted that the A.O erred in alleging that the comparable company is continuously loss making. It is submitted that Concept Marketing & Advertising Ltd has incurred lossess only in the subject ASSESSMENT YEAR (PB page No. 436 for com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the total expenditure of INR 1,32,38,483, under section 40 (a) (i) of the Act, wrongly assuming it to be payable to Non- Residents (which included INR 1,07,57,455 paid/payable to Indian Residents), without giving any further opportunity to the assessee to explain. It was further submitted that during the proceedings before the CIT (A), the assessee submitted the details of 'sanctions and rights' expenses incurred in Indian Rupees and a copy of agreement entered into with Shaw Wallace Distilleries Ltd (SWDL) as additional evidence under Rule 46A. The A.O filed his remand report dated 25th June 2009 against the details/additional evidence sent by the Ld. CIT (A) for his comments. The assessee filed the rejoinder dated 14th September 2010 against the aforesaid remand report of the A.O. The CIT(A) after duly considering the remand report of the A.O admitted the additional evidence vide para 7 of his order, which is reproduced as under: "During appellate hearing, the appellant furnished details of Sanction and Rights expenses incurred in INR and also copy of agreement with Shah Wallace Distilleries Ltd. Since these were additional evidences which were not produced before Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Costs reimbursed to TWI UK for legal costs in UK in connection with Indian team clothing issue [para 7.3 (d) of the Ld. CIT(A) Order]. 2,46,097 28. It was submitted that from the above details it is clear that the assessee submitted the additional evidence only in respect of expenditure in Indian Rupees payable to Indian Residents, which has been allowed by CIT (A) since the provisions of Section 40(a)(i) of the Act do not apply to payments made to Indian Residents. 29. The Ld. AR further submitted that the A.O has made the disallowance in the assessment order u/s 40(a)(i) of the Act under the heading "Sanctions and rights expenses incurred in foreign currency" (page 2 of the assessment order,). From the assessment order, it is submitted that the A.O has disallowed the expenditure incurred in Indian Rupees payable to Indian Residents also while disallowing the expenditure incurred in foreign currency u/s 40(a)(i) of the Act which deals with disallowances of amount paid to Non-residents without deducting applicable tax at source. Therefore, provisions of Section 40(a)(i) of the Act do not apply in respect of expenditure/amount payable to Indian Residents an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the DR and relied in following case laws:- Union of India Vs. Azadi Bachao Andolan (263 ITR 706) CIT(A) Vs. Visakhapatnam Port Trust Ltd (144 ITR 146). Sony Ericsson Mobile Communications India Pvt. Ltd Vs. CIT(A)-III (ITA No. 16/2014 and connected matters) DCIT Vs. Cheil Communications India Private Limited: ITA 712/Del/2010, (2010-TII-60-ITAT-Del-TP) HSBC Electronic Datat Processing India Ltd. Vs. Addl. CIT(A) 2(2) (ITA 1624 of 2010), (TS-174-ITAT-2013 (Hyd)-TP), Hyderabad Tribunal; Cognizant Technology Solutions India Pvt. Ltd Vs. Asst. CIT(A) LTU (ITA 114 & 2100 (Mds) of 2011, and 90 (Mds) of 2011, ITAT Chennai Tribunal 33. We have perused all the records and considered submissions of both the parties. The issue relating to proper ALP by taking into negative NCP margin the same is already discussed in assessee's own case in ITA No. 222/2013(Supra), our findings given there in shall apply with the same force. As regards to Ground No. 2 relating to the additional evidence furnished by the assessee, we are of the view that it was rightly allowed by the CIT (A) under Rule 46A of the Income-tax Rules 1962. In our opinion the Ld.CIT(A) appreciated the facts i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
