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TMI Blog2023 (3) TMI 1219X X X X Extracts X X X X X X X X Extracts X X X X ..... find no merits in upholding the transfer pricing adjustment on this issue. Hence, the TPO/AO is directed to delete the transfer pricing adjustment in respect of international transaction of fees receipt for marketing of fixed income products. As a result, grounds No. 1 3 raised by the assessee are allowed. Income from securities as capital gain - exemption under Article 13(6) of the India Switzerland Tax Treaty - PE in India - attraction principle enshrinest in Article 7(1) of the DTAA with Switzerland, the income of assessee form trading in security as FII being similar to the investment activities carried by the branch of assessee in India, was also liable to be taxed as income - HELD THAT:- As in assessee s own case in the immediately preceding assessment year [ 2018 (8) TMI 2111 - ITAT MUMBAI] by following the judicial precedents in assessee s own case decided a similar issue in favour of the assessee as held that income of a FIl from sale and purchase of securities is liable to be taxed as 'Capital Gains'. The second facet of the dispute is the taxability of such income, which has been held to be non- taxable in India under Article 13(6) of the India-Switz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including interest rate derivative products (collectively known as FID business) by the Appellant from its Associated Enterprises (AEs) as Rs. 5,08,18,810 as against Rs 1,73,80,300 and hence making an adjustment of Rs. 3,34,38,510, without appreciating the Functions Asset and Risk ('FAR') Analysis documented by the Appellant in the Transfer Pricing Study Report and various supporting documents, information, explanation submitted by the Assessee. 1.2 The Ld. DRP/AO/ TPO erred in holding that the entire market spread belongs to the Appellant and allocation of market spread is without any basis. It is prayed that the adjustment be deleted. 2. On the facts and circumstances of the case, the Ld. DRP/AO/TPO erred in questioning the commercial expediency of the manner in which the Appellant and its AEs carry on their business. 3. On the facts and circumstances of the case, the LD DRP/AO/TP erred in not accepting the Appellant's transfer pricing policy for FID business which is consistently applied across jurisdictions and has been accepted by Indian tax authorities in prior years. It is prayed that the adjustment be deleted. 4. On the facts and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises, the TPO considered the entire market spread in the hands of the assessee and proposed a transfer pricing adjustment of Rs. 3,34,38,510. 5. In its objections filed before the learned DRP, the assessee submitted that the TPO has completely ignored the FAR (functions performed, assets employed and risks assumed) analysis of the assessee documented in the TP study report and attributed 100% of the transaction fees for fixed income products and interest rate derivative products to the assessee for the sales and marketing functions. It was further submitted that based on the fixed income products transfer pricing policy it was considered appropriate that the marketing locations would receive 33% of the market spread and 100% of the markup having regard to the functions performed and risks assumed by the marketing locations. Further, in respect of interest rate derivative, it was concluded that the marketing locations would receive 50% of the market spread and 100% of the markup. The assessee also emphasised on the role performed by the assessee as well as the associated enterprises in the entire transaction and the risk analysis of the assessee vis- -vis the associated ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or floating) and a set maturity. In this transaction, the distribution/marketing locations such as the Indian branch are primarily responsible for generating/originating transactions from third-party clients. This may involve either the purchase or sale of these fixed income products. As part of its function, the Indian branch performs general marketing, client relationship management, and liaison internally for trading and research. On the other hand, UBS AG, the trading location, is engaged in carrying out the function of actually executing and booking trades marketed by the distribution/marketing location like the Indian branch. As per the assessee, the expertise and knowledge base required to trade in these fixed income products resides with the trading location. It is further the submission of the assessee that the salesperson at the marketing location cannot commit to a transaction without traders at UBS AG providing a dealing price (i.e. the price at which the trader is willing to either buy or sell the specified product). Such a commitment is the responsibility of the trader and the salesperson at the marketing location does not have the flexibility to adjust the pricing pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee on the basis that the assessee company has executed a transaction in India and therefore the entire market spread belongs to the India Branch. We are of the considered view that the lower authorities failed to appreciate that in the entire transaction, the sales/marketing function and its activities (such as trading) cannot be separated from the other functions, all of which together are necessary elements for the assessee to realise income on these transactions. Therefore, it is necessary to take into consideration the functions performed, assets employed and risks assumed by the trader-associated enterprises, while allocating the commission. It is further pertinent to note that the entire local spread , i.e. the markup earned by the marketer either over the price offered by the trader to sell or lower than the price quoted by the trader to buy the product, is entirely allocated to the marketer. Accordingly, in view of the above, we find no merits in upholding the transfer pricing adjustment on this issue. Hence, the TPO/AO is directed to delete the transfer pricing adjustment in respect of international transaction of fees receipt for marketing of fixed inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d DRP vide its directions issued under section 144C(5) of the Act by following the decision of the coordinate bench of the Tribunal rendered in assessee s own case accepted the objections filed by the assessee. In conformity, the AO vide impugned final assessment order assessed the capital receipts of Rs. 134,76,87,031 as a capital gain. Being aggrieved, the Revenue is in appeal before us. 17. During the hearing, the learned DR vehemently relied upon the draft assessment order. On the contrary, the learned AR placed reliance upon the decisions of the coordinate bench of the Tribunal in assessee s own case in the preceding assessment years, wherein similar issue has been decided in favour of the assessee. The learned AR further submitted that in subsequent assessment years also the receipt has been treated as capital gain. It was also submitted that the decisions of the coordinate bench of the Tribunal in assessee s own case for the assessment years 2008 09 and 2009 10 has been accepted by the Department and no further appeal has been filed. 18. We have considered the rival submissions and perused the material available on record. We find that the coordinate bench of the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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