9911796707
TMI Blog2023 (10) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... ment made to the very same AE for similar services under the very same agreement, has been accepted to be at Arm s Length in AY 2017-18 2018-19. We are, therefore, of the view that it would be just and appropriate to set aside the issue with regard to determination of ALP to the AO/TPO for fresh consideration in the light of law as explained above and the other observations in this order. The AO/TPO will afford opportunity of being heard to the assessee in the set aside proceedings, before deciding the issue Additional depreciation on pellets - AO disallowing the claim of additional depreciation made on Pellets by categorizing these assets as Furniture Fixtures - whether the Plastic crates and Wooden pellets used as storage devices are to be classified as Plant Machinery or as Furniture Fixtures for the purpose of claiming depreciation? - HELD THAT:- As decided in the case of Parle Bisleri Pvt. Ltd. [ 2022 (7) TMI 289 - BOMBAY HIGH COURT ] wherein they considered the issue relating to whether bottles and crates could be treated as plant within the meaning of section 32(1)(i) Thus in the interest of justice, we remit the issue in dispute to the file of AO/TPO for fresh consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for all practical purposes has to be treated as employer of the seconded employees. There is no obligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by a non resident enterprise and therefore, the amount paid by the assessee was not to suffer tax deducted at source under Section 195 Disallowance u/s 14A in relation to exempt dividend income - HELD THAT:- As we direct the AO/TPO to restrict the disallowance to the extent of exempted income earned by the assessee in this assessment year under consideration. Disallowance of product promotion expenses and Brand promotion expenses - AO surmised that the Digital media expenses incurred are in violation of Excise laws - HELD THAT:- The assessee has filed additional evidence as above. These additional evidences are produced first time before us and explained that assessee has been prevented by sufficient cause in not filing these additional evidences before the lower authorities. In our opinion, these additional evidences are very important to adjudicate this issue in dispute. Accordingly, we admit these additional evidences for adjudication after admitting for adjudication. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional depreciation on pellets and cartons 49,25,796 Commission paid to Mr Vijay Mallya 2,04,44,000 Foreign remittance for labels 41,34,952 Foreign remittance for business promotion 5,15,843 Reimbursement of expat salary 43,52,220 Disallowance under section 14A of the Act 59,87,469 Disallowance of digital media expenses 10,12,47,072 Disallowance of TV advertisement expenses 26,16,12,490 Depreciation on goodwill 1,57,73,310 2.2 The AO accordingly proposed to assess the income of the assessee at Rs. 429,75,39,850/- against the income of Rs. 349,75,85,670/- declared by the assessee in its returned income. The assessee being aggrieved by the additions proposed by the AO in the draft assessment order, filed its objections before the Dispute Resolution Panel ("DRP"). 2.3 The DRP rejected the objections of the assessee and confirmed the additions proposed in the draft assessment order. The DRP vide directions dated 24.09.2019 directed the AO to complete the assessment. 2.4 The AO completed the assessment on 21.10.2019 by passing the order under section 143(3) read with section 144C(13) of the Act. The AO confirmed the additions proposed in the draft assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edents prevailing on the matter and relied upon by the Appellant before the learned TPO 16 The learned AO/TPO erred in law and on facts in making the TP adjustment on account of Management Service Fee adjustment inasmuch as the learned TPO has not undertaken any independent analysis to determine the ALP and thus arbitrarily concluded that the ALP is NIL; 17 The learned AO/TPO erred in law and on facts in making the above adjustment ignoring the fact that the ALP of Management Fee in the previous years has been accepted by the department which was paid under similar facts and circumstances. 18. Without prejudice to the above, the learned AO/TPO erred in not allowing the benefit of the +/-3% range prescribed in the proviso to section 92C(2), after proposing the adjustment." 4.1 Facts of the issue are that as per TP study the Assessee has entered into an agreement with its AE, Heineken International B.V. ("HIBV") with effect from 09.04.2014 for assisting the Assessee in managing, developing and conducting its business of sale of beer and alcoholic beverage in India and overseas. 4.2 During the FY 2014-15 (AY 2015-16), the Assessee paid an amount of Rs. 6,00,00,000/- to HIB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018-19 has specifically mentioned that the rendition of service is proved and the payment made is at ALP, on the same set of facts and same agreement. viii. The ld. A.R. submitted that it is settled principle upheld in several decisions of the Tribunal that the TPO cannot hold the ALP as 'Nil' and that the TPO is required to do a benchmarking analysis as per the Income-tax Rules, 1962 ("Rules"). ix. On the same set of facts, the ALP cannot be held to be 'Nil' when in the earlier AY and subsequent AY, the transaction is accepted by the TPO to be at ALP. 5.1 The Assessee submitted that the issue is covered by the decision of this Tribunal in Assessee's case for AY 2013-14 [IT(TP)A No.2569/Bang/2017] and AY 2014-15 [IT(TP)A No.3144/Bang/2018] wherein, the Tribunal has remanded the issue to the TPO for fresh analysis. 6. The ld. D.R. relied on the order of the lower authorities. 7. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee's case for assessment year 2013-14 in IT(TP)A No.2569/Bang/2017 the Tribunal vide order dated 1.6.2022 held as under: "15. We have given a careful consideration to the riv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expertise of Dresser and US, but also beyond the powers of the Assessing Officer. We do not approve this approach of the revenue authorities. We have further noticed that the Transfer Pricing Officer has made several observations to the effect that, as evident from the analysis of financial performance, the assessee did not benefit, in terms of financial results, from these services. This analysis is also completely irrelevant, because whether a particular expense on services received actually benefits an assessee in monetary terms or not even a consideration for its being allowed as a deduction in computation of income, and, by no stretch of logic, it can have any role in determining arm's length price of that service. When evaluating the arm's length price of a service, it is wholly irrelevant as to whether the assessee benefits from it or not; the real question which is to be determined in such cases is whether the price of this service is what an independent enterprise would have paid for the same. 9 ............ 10. In case the Assessing Officer comes to the conclusion that the assessee has indeed received the services from the AE the next question which we have to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific need of recipient of the services. * The economic and commercial benefits derived by the recipient of intra group services. * In comparable circumstances an independent enterprise would be willing to pay the price for such services? * An independent third party would be willing and able to provide such services? * Whether payment made to AE meets ALP criterion will be determined, keeping in mind all the above factors, as well. 18. Keeping in mind the principles emanating from the aforesaid decisions, we shall now proceed to examine the material on record to see the nature of services received by the Assessee and as to whether the same were at Arm's Length. 19. In the present case, the plea of the assessee has been that documentary evidence furnished by it has not been examined by the TPO, who has merely come to the conclusion that the assessee failed to prove the nature of services rendered by the AE for which the assessee made payment. There is force in the arguments of the ld. counsel for the assessee, in as much as the TPO as well as the DRP ignored the documentary evidence filed by the assessee and have proceeded on the assumption that these details were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Associated Enterprise and thus erred in invoking the provisions of section 92C of the Act in respect of Brand Promotion expenses paid to Force India Formula One Team Limited; 22 The learned AO/TPO has made the TP adjustment in respect of Brand Promotion expenses paid to Force India Formula One Team Ltd by erroneously stating that Force India and UBL are controlled by UB Group Chairman, based on mere surmises and conjectures without appreciating the fact that there was no control inter se and thus Force India and UBL have never come in the sweep of definition of Associated Enterprise as contemplated under section 92A of the Act; 23 The learned AO/TPO erred in law and on facts in making the TP adjustment in respect of payment towards Brand Promotion expenses ignoring the commercial and economic rationale of the business of the Appellant; 24 The learned AO/TPO has no jurisdiction to question the commercial expediency for the incurrence of the expenditure and thus Rule 10B(1)(a) does not authorize disallowance of any expenditure on the ground that it was not necessary or prudent for the Appellant to have incurred such expenditure; 25 The learned AO/TPO has made the TP adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4 The DRP relied on its order passed in Assessee's case for AY 2013-14 and 2014-15, and upheld the order passed by the TPO. i. The primary objection of the Assessee is that Force India is not an AE and hence, the TP adjustment is wrong and void ab- initio; ii. The Assessee submitted that the submissions made have been disregarded and brushed aside without examining the facts; iii. The TPO and DRP have erred in characterizing the transaction as 'international transaction'; iv. The TPO for the AY 2016-17 has accepted the submissions of the Assessee and has excluded this transaction after giving show-cause notice; v. In case of Group company, United Spirits, the same transaction has been accepted as being in ALP and the Tribunal has deleted the addition made under section 37 of the Act; vi. It is settled principle upheld in several decisions of the Tribunal that the TPO cannot hold the ALP as 'Nil' and that the TPO is required to do a benchmarking analysis as per the Rules; vii. On the same set of facts, the ALP cannot be held to be 'Nil' when in the earlier AY and subsequent AY, the transaction is accepted by the TPO to be at ALP. 8.5 The Assessee submitted that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds application are set out in section 92A(2). Section 92A(1) lays down the basic rule that in order to be treated as an "associated enterprise in one enterprise, in relation to another enterprise, means an enterprise which participate, directly or indirectly, or through one or more intermediaries, 'in the management or control or capital of the other enterprise' or when 'one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise". Accordingly, we would like to submit that, UBL is a listed entity and is managed by its board of directors. It is the board's decision (comprising of 3 Directors from UBL, 3 Directors from Heineken and 6. Independent Directors) that over sees on all aspects of the management/operations of the company. Hence, no single person can take a decision with respect to put the capital at risk (or) take any other strategic decisions. Accordingly, no single promoter group has "control/infl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son 32 The learned AO/TPO erred in law and on facts in determining the ALP at NIL ignoring the external comparable submitted by the Appellant; 33 The learned AO/TPO erred in law and on facts in concluding that the Appellant has not derived any benefit from incurring the expenses on account of sales promotion/sponsorship ignoring the evidences submitted by the Appellant; 34 The learned AO/TPO has no jurisdiction to question the commercial expediency in incurring the expenditure and thus Rule 10B(1)(a) does not authorize disallowance of any expenditure on the ground that it was not necessary or prudent for the Appellant to have incurred such expenditure; 35 The learned AO/TPO has made TP adjustment in respect of Sales Promotion expenses paid to East Bengal Football Team ignoring the submissions and various judicial precedents relied upon by the Appellant during the course of Transfer Pricing Proceedings 36 Without prejudice to the above, the learned TPO erred in not allowing the benefit of the +/-3% range prescribed in the proviso to section 92C(2)." 11.1 Facts of the case are that the Assessee entered into sponsorship agreement dated 23.06.2015 with United East Beng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding but not limited to cheerleaders, fan engagements, after match parties, etc. xii. The AE will provide match tickets for purchase at a discounted rate by all the Assessee's Group Companies for the purpose of their own promotions; and xiii. The AE will participate in exhibition matches anywhere in India or abroad as organized by the Assessee. 11.2 The Assessee had reported the transaction in the Form 3CEB as a specified domestic transaction. Since the benefits accruing to the Assessee was more than the price paid for the service, the international was held to be at arm's length adopting 'Other method' as MAM. 11.3 The TPO relied on its order for earlier AY 2013-14 and treated the ALP of the sales promotion expenses as 'Nil' adopting CUP as the MAM. The TPO made downward adjustment of Rs.9,25,00,000/- towards sales promotion expenses. 11.4 The ld. DRP relied on its order passed in Assessee's case for AY 2013-14 and 2014-15, and upheld the order passed by the TPO. 12. The ld. A.R. for the assessee submitted as follows: i. The Assessee submitted that the submissions made before the TPO / DRP have been disregarded without examining the same; ii. From the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 6 of General Clauses Act has also been examined and it came to be held: "37. The position is well known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute-book as completely as if it had never been passed, and the statute must be considered as a law that never existed. To this rule, an exception is engrafted by the provisions of Section 6(1), If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the ITA No. 2936/Bang/20180 M/s. Sobha City, Bangalore omission finds them, and if final relief has not been granted before the omission goes into effect, it cannot be granted afterwards. Savings of the. nature contained in Section 6 or in special Acts may modify the position. Thus the operation of repeal or deletion as to the future and the past largely depends on the savings applicable. In a case where a particular provision in a statute is omitted and in its place another provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings then it can be reasonably inferred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (supra) has restored the matter to the file of the A.O. with the direction to examine the claim of expenditure in accordance with the provisions of section 40A(2) of the Act. Following the same, we restore this issue to the file of the AO with the direction to examine the claim of expenditure mentioned above in terms of the provisions of section 40A(2) of the Act. Accordingly, following the binding decision rendered by Hon'ble High Court of Karnataka in the case of Texport Overseas P Ltd (supra), we hold that the reference to the TPO in respect of specified domestic transactions mentioned in clause (i) of sec.92BA is not valid, as the said provision has been omitted. Accordingly, we direct the AO to delete the addition relating to specified domestic transactions made u/s 92CA of the Act. However, as pointed out by Ld D.R, the co-ordinate bench in the case of Texport overseas P Ltd. (supra), has restored the matter to the file of the A.O. with a direction to examine the claim of expenditure in accordance with the provisions of section 40A(2) of the Act. Following the same, we restore this issue to the file of the AO with the direction to examine the claim of expenditure mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d similar payments made to United Mohan Bagan Football as allowable expenses. ii) Since the TP adjustment has been deleted by the Tribunal and the issue has been remanded to the AO, the protective addition also needs to be remanded back to the AO, to examine the claim of expenditure in accordance with the provisions of Section 40A(2) of the Act. 16. The ld. D.R. relied on the order of lower authorities. 17. After hearing both the parties, we are of the opinion that this is a protective addition which require to be remanded back since the ALP adjustment of sale promotion has gone back to the AO. The AO has to examine the issue as decided by this Tribunal in assessment year 2013-14 in IT(TP)A No.2569/Bang/2022 for the AY 2013-14 vide order dated 1.6.2022 in para 33 of that order as reproduced earlier. Accordingly, these grounds of assessee's appeal are partly allowed for statistical purposes. 18. Ground Nos.43 to 48 of the assessee's appeal are reproduced below: "V. Grounds relating to Brand Promotion expenses: 43. The learned AU erred in law and on facts in making a protective addition in respect of the payment made towards Brand Promotion expenses amounting to INR 22,84,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r authorities. 21. After hearing both the parties, we are of the opinion that this issue has to go back to the AO as the TP adjustment on the same issue in ground Nos.19 to 27 (supra) have been remanded to the file of AO for fresh consideration. In view of this, we remit this issue to the file of AO as remitted by the Tribunal in assessment year 2013-14 in IT(TP)A No.2569/Bang/2022 vide order dated 1.6.2022 in paras 24 & 25 of that order. These grounds are partly allowed for statistical purposes. 22. Ground Nos.49 to 53 of the assessee's appeal are reproduced as under: VI. Grounds relating to Claim of Additional depreciation on pellets: 49. The learned AO erred in dis-allowing the claim of additional depreciation made on Pellets by categorizing these assets as Furniture & Fixtures 50. The learned AO erred in holding that the Pellets are mere storage devices and hence does not come under Plant and Machinery. 51. The learned AO erred in holding that the Pellets were classified by the assessee under "Furniture & Fixtures" in the earlier years, which is contrary to facts 52. The learned AO erred in relying on so called report of the team to make an usage test, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one should look at the character of the items from the person who is carrying on the business or profession as the case may be. For instance, books are plant for an advocate's office and he can claim depreciation. v) In this regard, the ld. A.R. placed reliance on the decision of the Hyderabad Bench of the Hon'ble Tribunal in the case of The AP State Warehousing Vs The Dy.CIT, Hyderabad, wherein the assessee had claimed 100% depreciation on wooden crates, but the AO had classified this under plant and machinery and allowed only 25%. The Tribunal held that the wooden crates in the warehouses have a temporary life and they are replaced very frequently and the corporation is rightly entitled to depreciation @100%. vi) He placed reliance on the decision of the Hon'ble Bombay High Court dated 15.06.2022 in the case of Parle Bisleri Private Ltd.[ITA No. 252 of 2002]. In this case, the Hon'ble High Court, after analyzing all the decisions in the matter, has held that the bottles and crates used for bottling the soft drinks manufactured by the assessee fall within the definition of "Plant" contained in section 43(3) of the Act. vii) The facts of the above case and the principles inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ottles and crates as claimed. Mr. Kamdar submitted that even subsequent to the concerned assessment year, i.e. the assessment year 1991-92, the Tribunal has held in favour of the Appellant and only for the assessment year in question, i.e., 1989-90, a different view is taken. Mr. Kamdar relied upon the following decisions in support of his submissions: (i) Commissioner of Income - Tax, Andhra Pradesh vs. Taj Mahal Hotel4 ; (ii) Scientific Engineering House P. Ltd. vs. Commissioner of Income-Tax, Andhra Pradesh5; and (iii) Commissioner of Income Tax vs. Srikrishna Bottlers (P.). Ltd.6; 10. Mr. Pinto, the learned Counsel for the Respondent - Revenue, on the other hand, contended that the bottles and crates could not, by any stretch of the imagination, be construed as "Plant" as it is not relatable to ships, vehicles, books, scientific apparatus and surgical equipment used for the business or profession. Mr. Pinto submitted that bottles and crates must have some relevance or connection to the categories mentioned in Section 43(3) of the Act to fall under the definition of "Plant". Mr. Pinto submitted that the bottles and crates could not be considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, there is no escape from the conclusion that the bottles and crates used for bottling the soft drinks manufactured by the assessee fall within the definition of "Plant" contained in section 43(3). 12. An identical issue arose for consideration before the Division Bench of Andhra Pradesh High Court in Sri Krishna Bottlers Pvt. Ltd.. The Division Bench took a review of the case law on the subject and culled out the legal propositions from the overview taken and observed thus: "From the aforesaid rulings, the following principles can be gathered; (1) "Plant" in section 43(3) of the Act is to be construed in the popular sense, namely, in the sense in which people conversant with the subject matter with which the section is dealing would attribute to it. The word "plant" is to be given a "very wide" meaning. In its ordinary sense, it includes whatever "apparatus" is used by a businessman for carrying on his business, but it does not include his stock-in-trade, which he buys or makes for sale. It, however, includes all goods and chattels, fixed or movable, live or dead, which the tradesman keeps for permanent employme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to empty the same, performing a trade function. As pointed out in Dixon v. Fitch's Garage Ltd. [1975] 50 TC 509 (Ch D), the bottles and the contents are "totally interdependent."So are the shells. The bottles and shells also satisfy the durability test for it is nobody's case that their life is too transitory or negligible to warrant an inference that they have no function to play in the assessee's trade. They are, therefore "plant" for the purposes of the Act." These two decisions have construed the very definition, which has fallen for consideration in this appeal, and have observed that the bottles and crates would fall within the ambit of the definition of "Plant" under Section 43(3) of the Act. 13. As regards the factual position, that is, use of glass bottles, return of bottles in the manner in which crates are used, the Revenue has accepted the facts of the present case and the factual position in the case of Jai Drinks (P.) Ltd. and Sri Krishna Bottlers Pvt. Ltd. are identical. 14. The Tribunal did not hold against the Appellant making a distinction in the facts on the factual situation but has not followed the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, submitted that the High Court was right in interpreting the word plant in the Deferment Rules as including bottles and crates also as they are used by the Company for carrying on its business. We cannot agree with this contention as we are of the view that the High Court was wrong in interpreting the word plant in Rule 2(v) so widely. It failed to consider whether the object and scheme of the Deferment Rules permit such a wide interpretation. The High Court also failed to appreciate that the decisions of this Court in Taj Mahal Hotel [1971] 82 ITR 44 and Scientific Engineering House [1986] 157 ITR 86 were under the Income Tax Act and the observations made and the test indicated therein were in the context of the wide definition of the word plant given in that Act and, therefore, not of universal application. Obviously, if plant is defined differently under a different provision or if the context so requires, it may have to be given a different and a narrower meaning. The Deferment Rules do not define plant and, therefore, what should have been considered by the High Court was what meaning should be given to it in the context of the Deferment Rules." (emphasis supplied) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in, and therefore, the question is whether the Tribunal was right in holding against the Appellant for that particular assessment year. As noted in the decision of Sri Krishna Bottlers Pvt. Ltd., as to what would happen if plastic bottles were used or the manner of use is changed in future, those would be the facts of that case. 18. Considering this position, the question of law which is framed as above, will have to be answered in favour of the Appellant/Assessee. Accordingly, the question is answered in favour of the Appellant." 26.1 In our opinion, this judgement was delivered subsequent to the order of lower authorities and they have no occasion to consider this judgement. Being so, in the interest of justice, we remit the issue in dispute to the file of AO/TPO for fresh consideration. If the assets involved before us are similar to the one considered by the Hon'ble Bombay High Court, then the additional depreciation on this is to be allowed. These grounds of assessee's appeal are partly allowed for statistical purposes. 27. Ground Nos. 54 to 62 of the assessee's appeal are reproduced as under: VII. Grounds relating to Commission paid to Shri Vijay Mallya: 54. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is as per the Special Resolution passed by the AGM of the Company. ii) The total quantum of Commission is restricted to 1% of net profits of the Company, which is as per Companies Act. Hence the contention of the AO that this was a reason to avoid Dividend Distribution Tax ("DDT") is totally misplaced. iii) The distribution of the Commission amongst the Directors has been decided by the Directors themselves. The AO has no role in deciding how much commission shall be paid to individual directors. iv) The AO has wrongly drawn an analogy with the Guarantee Commission paid to Mr Mallya for the guarantees issued by him. This payment is Commission paid to him, in his capacity as a Director and has no relation to the guarantee commission paid in the earlier years. v) Even if the AO had wanted to invoke the provisions of section 40A(2), he should have examined the role and responsibilities of the Director and then decided if the payment is excessive. vi) The AO has compared the payments made to the Chairman with that made to independent directors, which is wrong. It is well known that the role of Chairman is very different than that of independent directors. vii) It is wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in India" 30.1 The Assessee got its label designed by a UK based company, M/s Claessens International Ltd., and made payment amounting to Rs.41,34,952/- towards the same. The AO held that the label designed by the foreign party is the intangible property of that party and what the Assessee has been given is the right to use the design and hence this payment qualifies as "Royalty" and was liable for TDS. Since TDS has not been done, the payment has been disallowed under section 40(a)(i) of the Act. 30.2 The DRP confirmed the disallowance made by the AO. 31. The Assessee submitted that the decision of the AO is wrong, on facts, principles and procedure on the following lines: i) This payment was towards getting design of the label done by the foreign firm and is a normal business expense ii) There is no basis for the AO to surmise that the design is an intangible property of the foreign entity. The AO has made this surmise without calling for the details related to the transaction iii) The foreign entity has no PE in India or any business connection in India and hence the foreign entity is not chargeable to tax in India. As such, the question of deducting TDS on the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... draft assessment order, the Assessee made a payment of Rs. 5,15,843 for managing an event. It is the contention of the Assessee that this business promotion expense of the event is business expense. However, the AO has held that this expense is Brand promotion expense and is Capital in nature and disallowed the same. 34.2 The ld. DRP confirmed the disallowance made by the AO 35. The Assessee submitted that the decision of the AO is wrong, on facts, principles and procedure on the following lines:. i) It is an admitted fact that these expenses were incurred for promoting an event. ii) The AO has held that this expense is towards brand promotion and hence capital in nature. iii) It is settled principle, upheld in several decisions that Brand promotion expenses is not Capital in nature but is Revenue in nature and is an allowable business expense. iv) Reliance is placed on the decisions in the cases of * M/s. Fine Jewellery (India) Ltd., ITA No.: 3124/Mum/2011 (Mumbai Tribunal) * Kaya Ltd., I.T.A. No3175/Mum/2013 (Mumbai Tribunal) 36. We have heard the rival submissions and perused the materials available on record. Similar issue came for consideration before this Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsorship fees for different years had been apportioned and allocated to 3 entities of the assessee group which were using the brand logo in the ratio of their respective turnovers during the year, that out of the expenditure of Rs. 2.50 crores and amount of Rs. 21.61 lakhs was allocated to the assessee, that the expenditure incurred on IPL sponsorship did not provide it any benefit of enduring nature, that the expenditure had been incurred year after year by the assessee group with a view to get visibility, that it was in nature of some kind of advertisement expenditure, that same should be allowed as revenue expenditure. Referring to the case of Delhi Cloth and General Mills Co. Ltd.(115 ITR 659) of the honorable Delhi High Court, the FAA allowed the appeal filed by the assessee. 3.1.a. With regard to management fee, the FAA observed that there was no doubt about the genuineness of expenditure, that the expenditure was incurred for availing infrastructure facilities administrative support, like manpower recruitment, HR services, uses of computer, telephone, photo copiers, infrastructure set up etc. in order to carryout business operations smoothly, that the parent company had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 3,85,15,497/- for sponsoring cricketing events held during 2008 to ICC. The said amount was proposed to be disallowed by the AO in the Draft Assessment Order, for the following reasons: - (i) Similar expense has been disallowed in the earlier years as part of the Transfer Pricing Adjustment on account of AMP expenses. (ii) Assessee has been bearing substantial portion of the fees paid to ICC for acquiring sponsorship rights even though benefit of the same is derived by the other entities of the world. 88. Aggrieved by the addition proposed by the AO, the assessee had filed objections before the DRP. The DRP vide directions dated 20.12.2013 upheld the action of the AO, on the ground, that the expenditure was benefitting all the entities across the globe and hence, it could not be said to have been incurred wholly and exclusively for the business of the assessee. 89. The learned counsel for the assessee submitted that the said disallowance was unwarranted since the said expense was incurred in view of the fact that major viewership of cricket is in the Indian subcontinent. He also referred to various newspapers reports which demonstrated the popularity of the sport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after obtaining the approval of Ministry of Health Affairs and Sports and after deducting TDS u/s.195. Once the expenditure has been incurred wholly and exclusively for the purpose of business which fact has not been disputed by the Department, then even if some incidental benefit which may arise to any other entity cannot be a bar for allowance of expenditure u/s. 37. Under the principle of commercial expediency such an expenditure has to be seen from the angle, whether the decision taken by the assessee for paying sponsorship fees was for the purpose of business or not. Here in this case, the commercial expediency has not been doubted but rather it has been held by the AO that in all the years transfer pricing adjustments has been made on this score and benefit is arising to the other AEs also. What is relevant for an expense to be allowable as revenue expense is that, whether it has been incurred during the course of business and is for the purpose of business. Benefit factor to other related parties is relevant under transfer pricing provision and not while allowability of business expense u/s 37(1). It is well known fact that companies use sports event as a platform to advert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether: "was the sum of money expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business" Again, in Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261/ 1 Taxman 485 (SC) the Supreme Court outlined the correct test of commercial expediency as the guiding principle to decide whether the expenditure was to facilitate profits, as follows: (iii) that the sum of money was expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business of the assessee" In Smith Kline & French (India) Ltd. v. CIT [1992] 193 ITR 582/[1991] 59 Taxman 357 (Kar.), it was held that in normal commercial sense and in common parlance sales promotion and publicity are activities aimed at gaining goodwill in the market. They need not be confined to media propaganda but can involve indirect approaches. The judgment of a Division Bench of this Court in CIT v. Adidas India Marketing (P.) Ltd. [2010] 195 Taxman 256 (Delhi) has recognized that brand promotion exercises undertaken through media campaigns, schemes, programmes etc are essential for propagation of the brand. The n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f enduring benefit of a trade. In other words, the expenditure incurred by the assessee for the use of court yard is in the capital field and it cannot be said to have been incurred to facilitate trading operation of the assessee. 7. Learned Counsel appearing for both the sides placed reliance upon the judgment of the Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69, in support of their contentions. Mr. Aravind, learned counsel for the Revenue tried to distinguish the ratio laid down by the Supreme Court in this case on the basis of factual matrix involved therein. As against this, learned counsel appearing for the respondent/assessee placed reliance upon the principle laid down by the Supreme Court in the said judgment. 8. We have perused the judgment. We find ourselves in agreement with the learned counsel appearing for the respondent/assessee. It would be relevant to reproduce the relevant observation made by the Supreme Court, in the said judgment, which, in our opinion, support the case of the respondent/assessee to contend that the expenditure of Rs. 10 lakhs would be on revenue account. The relevant observation in the case of Empire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case'. 9. It is clear that if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. In the present case, except the right to use the court yard, no other rights were created in favour of assessee. In other words, the amount paid to the Trust was for the use of the court yard under the MOU for an indefinite future, and therefore, it would be on revenue account. In other words merely because the advantage may endure for an indefinite future would not mean that the expenditure would be on capital account and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made by the AO 38. The Assessee submitted that the decision of the AO is wrong, on facts, principles and procedure on the following lines: i) As can be seen from the details furnished to the Ld AO, which has been reproduced in the body of the assessment order, these payments represent the details of salary and salary related payments made to the employees who were seconded to the Assessee. ii) It is pertinent to note that the above amounts form part of Form 16 issued to the employees and TDS under section 192 has been deducted on the above amount. These persons, though seconded by the foreign company, were employees of the Assessee and had been issued appointment letters, copies of which were furnished to the AO. Further, these employees had filed their Return of Income in India and paid taxes on these amounts, by showing these amounts as their individual income. iii) The AO treated these amounts as "Fee for Technical Services" by relying on the decision of the Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. iv) In this regard, the assessee submitted that the issue of reimbursement of expenses related to the salary and other expenses of the seconded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction16, assembly, mining or like project undertaken by the recipient16 or consideration which would be income of the recipient chargeable under the head "Salaries". 195(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : 10. After having noticed the relevant statutory provisions, we may take note of relevant clauses of DTAA. Article 5 of DTAA deals with 'pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e activities of Msource India Pvt. Ltd. Therefore, the assessee for all practical purposes has to be treated as employer of the seconded employees. There is no obligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by a non resident enterprise and therefore, the amount paid by the assessee was not to suffer tax deducted at source under Section 195 of the Act. Similar view has been taken by High Court of Delhi in HCL INFO SYSTEM LTD. supra in respect of salaries paid to foreign technicians on behalf of the assessee. 12. So far as reliance placed by learned counsel for the revenue on the decision of M/S CENTRICA INDIA OFFSHORE PVT. LTD. supra is concerned, from perusal of paragraph 29 of the aforesaid decision, it is evident that the High Court of Delhi considered the issue whether the secondment of employees by BSTL and DEML, the overseas entities fall within Article 12 of India, Canada and Article 13 of India, UK DTAAs, which embody the concept of service permanent establishment. In the instant case, the issue of permanent establishment is not involved. Therefore, the aforesaid decision is not applicable to the fact situation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms credited and debited in the Books of accounts should be considered;" 41.1 The facts of the issue are that the AO has made a disallowance of Rs.59,87,469/- under section 14A of the Act in relation to exempt dividend income of Rs.9,25,000/-. 41.2 The ld. DRP confirmed the disallowance made by the AO. 42. The assessee submitted as follows: i) The Assessee submitted that it is settled principle that while computing the disallowance, the investments made for strategic business purposes should be excluded. It is also settled principle that only those investments that are generating taxable income should be considered. ii) Notwithstanding the above, it is settled principle that disallowance under section 14A cannot be more than the exempt income earned. Reliance is placed on the decision of the Hon'ble Bangalore Tribunal in the Assessee's own case for AY 2013-14, where the Tribunal had directed that the disallowance shall be restricted to the exempt income. iii) As regards the amendments brought about in the Finance Act 2022, the Assessee submits that the amendments are prospective, w.e.f from o1.04.2022 and therefore prospective in application. For this proposition, reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luntarily while filing the return of income. In this context, it is important to refer to the judgment of the Hon'ble Madras High Court in the case of M/s. Marg Limited v. CIT in Tax Case Appeal Nos.41 to 43 & 220 of 2017 (judgment dated 30.09.2020). The Hon'ble Madras High Court followed the judgment of the Hon'ble Karnataka High Court in the case of Pargathi Krishna Gramin Bank v. JCIT[ (2018) 95 taxman.com 41 (Kar.)]. In the case considered by the Hon'ble Madras High Court, the assessee therein had made voluntarily disallowance u/s 14A of the I.T. Act more than the dividend income earned and the Tribunal confirmed the disallowance made u/s 14A of the I.T. Act. However, the Hon'ble Madras High Court held that the disallowance u/s 14A of the I.T. Act cannot exceed the exempt income earned during the relevant assessment year. The relevant finding of the Hon'ble Madras High Court reads as follow:- "20. Before parting, we may also note with reference to the Table of disallowance voluntarily made by the Assessee, which is part of the Paper Book before us for the four assessment years in question. In the Table quoted in the beginning of the order, shows that the Assessee himself com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assigned the Assessing Authority, he cannot resort to the computation method under Rule 8D of the Income Tax Rules, 1962." (underlining supplied) 3.7 In view of the above judgment of the Hon'ble Madras High Court in the case of M/s.Marg Limited v. CIT (supra), it is clear that the disallowance u/s 14A of the I.T.Act cannot exceed the exempt income earned during the relevant assessment year irrespective whether larger amount was disallowed by the assessee u/s 14A of the I.T. Act while filing the return of income. Therefore, the AO is directed to restrict the disallowance u/s 14A of the I.T. Act to Rs.27,37,47,187. 3.8 In the result, ground No. II raised by the assessee is allowed." 43. The assessee in this case has earned a dividend income of Rs.8,57,655 and respectfully following the decision of the coordinate Bench of the Tribunal,(supra), we hold that the disallowance should be restricted to the amount of exempt income earned by the assessee. We direct accordingly." 44.1 In view of the above order of the Tribunal, we direct the AO/TPO to restrict the disallowance to the extent of exempted income earned by the assessee in this assessment year under consideration. Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment has not held these payments as being violation of the Excise laws. 46.2 The AO held that the advertisement expenses are not allowable, whether it is product promotion or brand promotion, without appreciating the fact that the Appellant does not do any specific product promotion and brand promotion expenses are in the revenue field and are allowable business expenditure. 47. With regard to ground Nos.84 to 87, facts of the issue are that the AO disallowed the payments made towards TV advertisements aggregating to Rs.26,16,12,490/- by holding that these expenses are in violation of law and public policy, by wrongly surmising that it promotes alcoholic products and represents surrogate advertising and without showing how these payments are in violation of the Income Tax Act. 47.1 The AO held that the assessee cannot claim deduction on these expenses, as they are not relatable to business sales, which is contrary to facts. 47.2 The ld. DRP confirmed the order of the lower authorities. 48. The ld. A.R. also drew our attention to the additional evidence filed by the assessee in paper book volume No.2 from pages 165 to 425 which covers the following documents and prayed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vertisement must not make any direct or indirect reference to prohibited products; (c) the advertisement must not contain any nuances or phrases promoting prohibited products; (d) the advertisement must not use particular colours and layout or presentations associated with prohibited products; (e) the advertisement must not use situations typical for promotion of prohibited products when advertising the other products: "Provided further that all such advertisement shall be previewed and certified by the Central Board of Film Certification ("CBFC") suitable for unrestricted public exhibition prior to telecast or transmission or retransmission." - Emphasis supplied ASCI Code i) Rule 7 sub-rule (9) was amended on 02.08.2006, which made the ASCI Code compulsory for the regulation of television advertisements. The ASCI is however a self-regulating body for advertising and primarily has the power to pull up an advertiser for any violations against the advertising code. The Code does not though explicitly mention the requirement of a CBFC certificate to advertise something "surrogate". ii) The ASCI has provided guidelines for the qualification of brand extensions, which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as neither disallowed such advertisements nor held them to be illegal. iv) Since the concerned departments/ Government agencies have not held these advertisements to be illegal, the AO has wrongly surmised that these expenses are against excise laws and public policy. v) The AO has wrongly held that both product promotion expenses and Brand promotion expenses are not allowable. While the Assessee does not do any product promotion activities, Brand promotion expenses have been held to be allowable Revenue expenditure by Tribunals. 48.2 The assessee submitted that on this very issue, the Mumbai Tribunal in the case of M/s. Anheuser Busch InBev India Ltd., ITA NOs 941 & 942/MUM/2021 (Mumbai Tribunal) has held as follows: "no authority who approves the advertising in the television has initiated any proceedings under the Cable Television Networks (Regulation) Act, 1995 as per which assessee has contravened any of the Act of the Cable Television Networks (Regulation) Act or levied any fines/penalties. In absence of any proceedings against the assessee, it clearly indicates that the advertisement made by the assessee in the televisions are within the provisions of the above said Cab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w and on facts in disallowing Depreciation by blindly relying on the earlier year order, without appreciating the complete facts of the case. 90. The learned AO has erred in law and on facts in disallowing Depreciation ignoring the ruling of Hon'ble Supreme Court and other judicial precedents; 91. The learned AO has erred in law and on facts by not appreciating the fact that Goodwill is an intangible asset thus entitled for depreciation under the provisions of the Act; 92. The learned AO has erred in law and on facts in holding that Goodwill on amalgamation has no value attributable to it 93. The learned AO has erred in law and on facts in not appreciating that it is settled principle upheld by the Hon'ble Supreme court that Goodwill arising on amalgamation is eligible for depreciation under section32(1)" 51. Facts of the issue are that the Assessee in its return of income had claimed an amount of Rs.1,57,73,310/- as depreciation on 'goodwill' at the rate of 25% on the opening WDV of goodwill of Rs.14,95,54,349/-. The Assessee had acquired the brewery 'Karnataka Breweries and Distilleries Limited' through a process of demerger and acquisition at cost of Rs.180 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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