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TMI Blog2020 (1) TMI 912X X X X Extracts X X X X X X X X Extracts X X X X ..... ine ALP of AMP expenses by inferring existence of an international transaction based on bright line test. In Honda Siel Power Products Ltd. [ 2015 (12) TMI 1333 - DELHI HIGH COURT] held that when assessee is carrying on business as independent enterprise and is incurring AMP expenses for its own benefit and not at the behest of AE, hence benefit of creation of marketing intangibles for foreign AE on account of AMP expenses can at best said to be incidental . In view of the principles laid down the in the above decisions, the AMP spend is not an international transaction in the absence of an arrangement between the taxpayer and the AE. In the instant case there cannot be said to be any international transaction between the appellant and the AE for incurring the AMP expenditure. Further, we find that on a TNMM basis, the appellant s margin after including these costs is higher than comparables and hence, no adjustment on AMP expenses can be made when the primary international transactions have been accepted by the TPO to be at arm s length. We delete the transfer pricing adjustment made by the AO - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... unilaterally holding that the advertisement marketing and publicity ('AMP') expenses incurred by the Appellant constitutes a separate international transaction with its associated enterprise u/s 92B(1) of the Act and subjecting the same to transfer pricing provisions. 9. The AO erred in holding that incurring of AMP expenses by the Appellant were for and on behalf of its Associated Enterprises (AEs) and accordingly, the Appellant should have recovered the same from the AEs. 10. Having accepted the principal international transactions of Channel distribution and sale of advertisement airtime to be at arm's length, the TPO has erred in selecting an individual line item of expenses i.e. AMP expenses paid to unrelated parties and making a transfer pricing adjustment in respect of the same. 11. Whilst AMP expenses incurred by the assessee were for its own business and no additional consideration is warranted in respect of the same, the AO erred in using the same set of comparables (used for benchmarking the channel distribution and advertisement airtime sales transaction) to benchmark such AMP expenses by applying TNMM in an erroneous manner. Further, the Assesses was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgins in these two segments. The TPO disallowed the marketing expenses on the reasons that (i) the appellant AE is the owner of the Channel; (ii) AEs should have expended resources towards popularizing the channel ; (iii) the appellant had no responsibility/business compulsion towards incurring the advertisement and publicity expenses ; (iv) AEs have derived the benefit from these expenses incurred by the appellant, and therefore, AEs should have compensated the appellant at arm's length, (v) whole scheme of incurring the expenditure falls within the meaning of arrangement between the appellant and AEs and therefore, the amount receivable by the appellant from these two AEs fall within the meaning of international transactions as per section 92B(1) of the Act. Subsequently, the AO issued a draft assessment order dated 12.12.2011 u/s 143(3) r.w.s. 144C proposing an addition of ₹ 13,59,10,231/- comprising of TP adjustments, to the returned income of ₹ 29,30,99,321/-. The assessee preferred an application against the said draft order before the Dispute Resolution Panel (DRP). It is found that the TP adjustment made by the TPO was upheld by the DRP inter alia on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own risk ; in consideration for the advertisement rights, it pays the AE a fixed fee; the appellant is also the owner of the income earned from advertisements on the Channels; it independently takes decisions for monetizing the distribution and advertisement rights and the appellant also purchased under the same agreements, the right to use the brand of the AE for use in its business. In this regard, reference is made by him to the relevant clauses of the 'Advertisement Sales Agreement'. The Ld. counsel explains that the transaction for purchase of both these rights has been held to be at ALP and in fact, even after including AMP expenditure, the margin of the appellant is way above the comparables. Further, it is explained that as the owner of the distribution and advertisement income, the appellant incurs AMP expenses, which would only benefit itself through increased distribution and advertisement sales. Further, the appellant pays the AE a fixed fee and not a share/percentage of revenues and hence any increase in the distribution and advertisement revenues on account of AMP expenses is fully retained by the appellant itself, and no benefit can be said to accrue to the AE. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay High Court in appellant's own case in ACIT v. NGC Network (India) Pvt. Ltd. (2014) 50 taxmann.com 240 (Bom), it is stated the view that the AMP expenses incurred by the appellant is not an international transaction is supported by the above decision. In this context, reliance is placed by him inter alia on the decision in Maruti Suzuki India Limited v. CIT [2016] 381 ITR 117 (Del.), Bausch & Lomb Eyecare (India) Pvt. Ltd. & Ors. v. Addl. CIT. (2015) [2016] 381 ITR 227 (Del.), CIT v. Whirpool of India Limited (2015) [2016] 381 ITR 154 (Del.), Honda Siel Power Products Limited v. Deputy CIT (2015) (94 CCH 0170) (Del.). Further, it is stated that the AMP expenses form part of the cost base to compute the margin earned by the appellant for benchmarking the international transactions in the distribution and advertisement airtime segments. Explaining that on a TNMM basis, the appellant's margin after including these costs is way higher than comparables, it is stated that no adjustment on AMP expenses can be made when the primary international transactions has been accepted by the TPO to be at arm's length, since the same would be reduced from the total expenses, in which case the seg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions of acquisition of distribution rights and purchase of advertisement airtime from the AE and it adopted TNMM as the most appropriate method and determined the profitability of the transaction using the operating profit over operating income. It computed the margin at 29.85% and 32.80% for Distribution of the channel and Sale of advertisement airtime respectively. It is seen that the appellant, while computing margin earned by it for benchmarking the international transactions in the distribution and advertisement airtime segments had considered the marketing cost also specifically while determining whether purchase of rights was at ALP. It is seen that the margins of the comparables were (-2.23) percent for both the Distribution and Advertisement sales. Keeping in mind the above facts, we find that as the owner of the distribution and advertisement income, the appellant incurs AMP expenses, which would only benefit itself through increased distribution and advertisement sales; the appellant pays the AE a fixed fee and not a share/percentage of revenue and hence, any increase in the distribution and advertisement revenues on account of AMP expenses is fully retained by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he brand takes secondary or backseat, whereas in second case, brand is highlighted and not the product. In the case under consideration the assessee was introducing new products in the fields of body - care, deodorants, creams, shower soaps talc, first aid dressing etc. If it has to penetrate the local market, it will have to promote the products that could compete with the similar products of other players." It is well settled that as per section 92B(1) r.w.s. 92F(v), for the AMP expenditure to qualify as an international transaction, there must be an explicit arrangement between the appellant and its AE for incurring such AMP expenses. In the instant case, we find that there is no arrangement or agreement between the appellant and its AE to undertake marketing activities/incur the said AMP expenses. The appellant decides the marketing the strategy and quantum of AMP expenses to be incurred which is not dictated by its AE, and hence there being no arrangement with its AE for undertaking marketing activities/incurring AMP expenditure, the same does not qualify as an 'international transaction'. The view that the AMP expenses incurred by the appellant is not an international trans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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