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TMI Blog2018 (4) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... n India not only under the Act but also under the DTAA. There can be no embargo on the determination of ALP of the services of brand promotion, rendered by the Indian branch by incurring AMP expenses. This additional ground raised by the assessee also stands dismissed. AMP expenses - International transaction or not - Held that:- it would be in the fitness of things if the impugned order on this issue is set aside and the matter is restored to the file of TPO/AO for a fresh determination of the question as to whether there exists an international transaction of AMP expenses. If the existence of such an international transaction is not proved, the matter will end there and then, calling for no transfer pricing addition. If, on the other hand, the international transaction is found to be existing, then the TPO will determine the ALP of such an international transaction in the light of the relevant judgments after allowing a reasonable opportunity of being heard to the assessee. - matter remanded back. - ITA Nos. 5826/Del/2011 & 195/Del/2013 - - - Dated:- 4-4-2018 - Shri R. S. Syal, Vice President And Ms Suchitra Kamble, Judicial Member Assessee By : Shri Vishal Kalra a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pricing adjustment in this international transaction at ₹ 47,35,843/-, for which the addition was made in the impugned order. The assessee in the present appeal is aggrieved such addition. 4. We have heard the rival submissions and gone through the relevant material on record. It is pertinent to mention that there is no dispute on the TNMM, being the most appropriate method or the PLI. Further, the computation of the assessee s PLI is also not disputed. The assessee has challenged only the inclusion of the following three comparables selected by the TPO, namely, Apitco Ltd., Choksi Lab Ltd. and WAPCOS Ltd. 5. In order to examine the comparability or otherwise of the above referred three companies, it is sine qua non to first comprehend the functional profile of the assessee under this transaction. In this regard, it is relevant to note that the Indian branch rendered marketing and technical support services to Fujifilm for direct sales made by it to various distributors in India. For providing such services, the Indian branch was remunerated with cost plus 7.5% mark up. This position is apparent from the assesee s Transfer pricing study report, whose copy is available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,479,000 Research Studies 12,622,090 Project related Services 20,164,045 Infrastructure Planning and Development 13,614,966 Environment Management 4,207,748 Energy Related Services 1,624,195 Cluster Development 2,408,000 Technology Facilitation Asset Reconstruction Management Services - 20,193,454 Emerging Areas 530,475 105,140,438 9. A careful perusal of the operations carried out by Apitco Limited divulges that it is providing services in the nature of Project management consulting, Feasibility studies, Micro enterprise development, Skill development, Environment management, Energy related services, Social research and Asset reconstruction management services. No segment-wise profitability data of these services is available. The TPO has considered this company as comparable on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrol. As against this, the services provided by the assessee are purely in the nature of marketing support to its AEs. We fail to appreciate as to how marketing support services can be equated with testing services. By no standard, this company can be considered as comparable with the assessee company. We, therefore, direct the exclusion of this company from the list of comparables. (iii) WAPCOS Ltd. (Seg.) 14. The TPO considered this company as comparable. The assessee s objection about the functional dissimilarity, were rejected. 15. After considering the rival submissions and perusing the relevant material on record, we find from the Annual report of this company that it has two items of income, namely, Consultancy and Contract income and Other Misc. income . The TPO has taken Consultancy and Contact segment for the purposes of comparison with the assessee company. This company was awarded project of Emergency Transport and Infrastructure Development by an Indian PSU in Sudan. In addition, it was also given projects of Development and Hygiene Education Development by Dry Pit Latrines, Stung Tasal Water Resources Development Projects, Cambodia, project of Transmis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reements ( DTAA ). 18. We have heard both the sides and perused the relevant material on record. Since both the additional grounds deal with legal issues and do not require any fresh adjudication of facts, we, therefore, admit the same for disposal on merits. 19. We espouse the first additional ground, through which the assessee has challenged that it, being a branch office, is just an extension of its head office, Fujifilm Corporation, Japan, in India and, hence, there can be no transaction including rendition of any service, much less the brand building service to self and consequently, the transfer pricing provisions cannot be applied insofar as transactions between the head office and branch office are concerned. It can be seen that this additional ground has two facets, viz., first, that no transfer pricing provisions can apply to transactions between the head office and branch office and second, there can be no transaction with self. 20. We take up the first facet for consideration. Section 92 of the Act, which is the first section of Chapter-X of the Act with the caption Special provisions relating to avoidance of tax , provides through sub-section (1) that any in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment can be contemplated on account of transactions between the head office and branch as these are transactions with the self and not international transactions. Apart from the fact that the attention of the Bench was not drawn towards section 92F(iii) of the Act, what is further material to note is that in that case the assessee was an Indian resident, whose `world income was chargeable to tax, irrespective of whether the income was shifted to Canada or retained in India. The transactions in that case, were, naturally, tax neutral. The Bench further noted that even if the head office earned profit from its branch office, then such profit earned would constitute additional cost of the Branch office. On aggregation of the accounts of the Head office and branch office, such income of the HO would be set off with the equal amount of expense of the BO, leaving thereby no separately identifiable income on account of the transaction. Discussion made in that case about there being no commercial or international transaction on account of dealings with the Indian head office and the Branch office in Canada should be seen in that hue only. Be that as it may, technically, the applicabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... divulges that the assessee is carrying on its business in India through its branch office. Carrying on business in India through a branch office constitutes a `business connection of the non-resident assessee in India. Such income is chargeable to tax as per the provisions of section 4 and 5 read with section 9 of the Act. Judgment of the Hon ble Supreme Court relied by the ld. AR in CIT VS. Hyundai Heavy Industries Ltd. (2007) 291 ITR 482 (SC) also clearly lays down in para 7 that : `an income which accrues or arises to a foreign enterprise in India can be only such portion of income accruing or arising to such a foreign enterprise as is attributable to its business carried out in India. This business could be carried out through its branch(s) or through some other form of its presence in India such as office, project site, factory, sales outlet etc. (hereinafter called as PE of foreign enterprise ). Therefore, since there is no specific provision under the Act to compute profits accruing in India in the hands of the foreign entities, the profits attributable to the Indian PE of foreign enterprise are required to be computed under normal accounting principles and in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vitiates the rule of mutuality, as has been put forth on behalf of the assessee. In fact, both the things co-exist. Transfer pricing provisions assist in computing correct amount of total income of a non- resident chargeable to tax in India. It is noticed that the Department has made out a case that by incurring AMP expenses, the Indian branch has rendered a brand building service to its Head office without charging any consideration, which ought to have been charged and then offered as income to tax in India. Determination of ALP of the international transaction is an attempt to find out the amount which the Branch office should have charged and offered for taxation in India. In earlier paras, we have dealt with the transfer pricing addition challenged by the assessee in the international transaction of `Provision of marketing and technical support services . Under that transaction, the assessee rendered market and technical support services to its Head office, for which it was remunerated at cost plus 7.5% and amount of receipt was rightly offered for taxation, on which the authorities opined that the charge by the Indian branch was not at ALP. The assessee has not challenged th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the Contracting State in which the permanent establishment is situated or elsewhere . It is this para 3 of Article 7 on which the ld. AR has focused to bolster his submission that full amount of the AMP expenses incurred in India are to be allowed as deduction in terms of Article 7(3) of the DTAA. We are not disputing the proposition that full amount of AMP expenses is required to be deducted as per the mandate of para 3. The Revenue has also not diluted the mandate of Article 7(3) by reducing the amount of deduction claimed by the assessee. What has been done in the instant case is that the transfer pricing adjustment has been made for the income which the assessee ought to have earned from rendering brand promotion services to its head office. It is pertinent to note that Article 7(3) is not the end of the matter and cannot be read in isolation. It needs to be harmoniously seen with other relevant Articles of the DTAA. The action of the autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fice in India is also required to be done at ALP in the same way in which it is done for a transaction between the foreign enterprise and its associated enterprise in India. We, therefore, hold in principle that there can be no embargo on the determination of ALP of the services of brand promotion, rendered by the Indian branch by incurring AMP expenses. This additional ground raised by the assessee also stands dismissed. 29. Now we take up the issue of transfer pricing addition on account of the international transaction of AMP expenses on merits. 30. The ld. AR contended that the incurring of AMP expenses is not an international transaction at all and, hence, there can be no question of determining the arm s length price of this transaction or making any addition thereon. He relied on the judgments of the Hon ble Delhi High Court in Maruti Suzuki India Ltd. Another vs. CIT (2015) 129 DTR 25 (Del) and CIT vs. Whirlpool of India Ltd. (2015) 94 CCH 156 DEL-HC to contend that the AMP expenses could not be considered as an international transaction. In the light of these judgments and some other Tribunal orders, it was submitted that there was no international transaction of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red for fresh determination in the light of the earlier judgment in Sony Ericsson Mobile Communications India Pvt. Ltd. (supra). The ld. DR argued that the Hon ble Delhi High Court in its earlier decision in Sony Ericson Mobile Communications (India) Pvt. Ltd. vs. CIT (2015) 374 ITR 118 (Del) has held AMP expenses to be an international transaction. It was argued the matter should be restored for a fresh determination. 32. We have heard the rival submissions and perused the relevant material on record. We find that when the TPO held AMP expenses to be an international transaction and determined the ALP by applying the bright line test, he did not have any occasion to consider the ratio laid down in several judgments of the Hon ble jurisdictional High Court as discussed above and certain others delivered later on as well, which are now available for consideration. As per these decisions, the bright line test cannot be applied for determining the ALP of the international transaction of AMP expenses, which has, in fact, been applied by the TPO. Respectfully following the predominant view taken in several Tribunal orders of co- ordinate benches, we are of the considered opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of Sony Ericsson Mobile Communication India Ltd. (supra). A copy of such order dated 29.04.2016 relating to assessment year 2009-10, 2010-11 and 2011-12 has been placed on record. 35. To sum up, we set aside the impugned order on the issue of addition towards transfer pricing adjustments and remit the matter to the file of AO/TPO for a fresh determination of the ALP of the international transaction of provision of service in brand building by the Indian branch and also the provision of marketing and technical support service in consonance with our above directions. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings Assessment Year 2007-08 36. This appeal is directed against the final assessment order passed by the AO on 28.10.2011. 37. The first issue raised in this appeal is against the transfer pricing addition in respect of AMP expenses amounting to ₹ 78,20,848/-. The assessee has raised two additional grounds for this year as well which are similar to the assessment year 2008-09 above. 38. Both the sides are in agreement that the facts and circumstances of the instant yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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